What is a CP27 Notice and Why Did I Receive One?
The CP27 notice from the IRS can be a little confusing and honestly, a little scary to receive. It’s basically the IRS’s way of saying, “Hey, we’re looking a little closer at your Earned Income Credit (EIC) claim.” It’s not an accusation of wrongdoing, but rather an indication that they need more information to determine if you’re truly eligible for the credit. Let’s break down what it all means.
Background: The Earned Income Credit (EIC)
Before we dive into the CP27 specifics, let’s talk about the Earned Income Credit itself. The EIC is a fantastic tax benefit designed to help low-to-moderate-income workers and families. If you qualify, the EIC can significantly reduce the amount of tax you owe, or even get you a tax refund, it’s a great way for those eligible to keep more of their hard earned money. Think of it as a way the government helps people who are working hard, but who may not be earning high incomes.
The government knows people are busy, and sometimes, when filling out a complicated tax return it’s easy to make a mistake. It’s important that the EIC is going to those who are eligible. This is where the CP27 notice comes in.
Why Does the IRS Send a CP27 Notice?
The IRS sends a CP27 notice primarily to those who have claimed the Earned Income Credit when their tax return triggers a potential eligibility issue. There are a few reasons why they might send you this notice. Here are the most common:
- Income Discrepancies: The IRS might be comparing your reported income to information they have from your employer and if there are differences, this will raise a red flag.
- Dependent Eligibility Issues: A common reason is related to your claimed qualifying child. Did you correctly identify the child as meeting the residency, age, and relationship requirements? The IRS checks this closely. Sometimes there are shared custody agreements or other situations where the dependent status can be unclear.
- Filing Status: Your filing status (single, married filing jointly, head of household) affects EIC eligibility. If the IRS suspects you may not be using the correct filing status this could cause them to send a CP27 notice.
- Previous EIC Issues: If you’ve had previous issues with claiming the EIC, the IRS might scrutinize your current claim more closely.
It’s important to remember that receiving this notice isn’t automatic proof you’re ineligible. It just means the IRS needs some clarification. It is, however, extremely important to respond to the CP27 notice as soon as you receive it.
What’s Included in a CP27 Notice?
The CP27 notice is an official IRS letter, and like any letter from the IRS, it’s important to read it carefully. It will usually include:
- IRS Contact Information: Who sent the notice, contact number, location address, etc
- Tax Year: The specific tax year under review.
- Explanation of the Issue: The letter will clearly state that they’re reviewing your EIC claim.
- Instructions: What documents or information they need from you.
- Deadline: The date by which you need to respond. This is absolutely crucial to note.
- Contact Information: How to contact the IRS for clarification or to provide the requested information.
How to Respond to a CP27 Notice: Step-by-Step
Receiving a CP27 notice is like getting a homework assignment from the IRS. You can’t just ignore it. Here’s what you should do:
- Read Carefully: Don’t skim the notice. Understand exactly what the IRS is asking for.
- Gather Documents: Collect the documents the IRS requested. This could be:
- Proof of Income: Pay stubs, W-2 forms, 1099 forms.
- Proof of Qualifying Child: Birth certificates, school records, medical records, or other supporting documentation to verify your child lives with you. You may also need proof of relationship.
- Proof of Address: Lease, mortgage, or utility bills
- Other supporting documents: The specific documents requested by the notice.
- Respond by the Deadline: Send everything to the address provided in the notice, or use the online portal if that option is available.
- Keep Copies: Make copies of everything you send to the IRS for your own records.
- Consider Professional Help: If the notice is confusing, or if you’re unsure how to respond, consider seeking help from a qualified tax professional.
- Track Your Response: Send your response with delivery confirmation, and track it to ensure it is received.
Common Mistakes to Avoid
- Ignoring the Notice: This is the biggest mistake. Ignoring a CP27 notice will not make it go away. The IRS may disallow the credit entirely, or send you a more formal notice requiring that you pay back an amount.
- Missing the Deadline: Failing to respond by the deadline can cause the IRS to deny your claim, even if you are eligible.
- Providing Incorrect Information: Always double check the information you send to the IRS.
- Sending Original Documents: Always send copies, and retain the originals yourself.
Related Concepts & Terms
- Earned Income Credit (EIC): The tax credit that the CP27 notice is related to.
- Qualifying Child: The child that is claimed for the Earned Income Credit. There are specific rules about who qualifies.
- Filing Status: The category that you fall under, such as single, head of household, etc.
- IRS Correspondence: It’s always important to read anything sent to you by the IRS carefully.
Tips for Future EIC Claims
- Keep Good Records: Maintain detailed records of your income and expenses.
- Verify Qualifying Child Rules: Double check that your child meets all requirements for the Earned Income Credit. There are residency, age, and relationship requirements.
- Double Check Your Return: Before you submit, double-check everything. Errors can often trigger IRS scrutiny.
- Seek Help: Consider working with a tax professional if you feel unsure about your eligibility or the paperwork. It can be a great investment that saves you time and stress in the future.
What Happens After You Respond?
After you respond to the CP27 notice, the IRS will review the information you provided. They’ll then determine if you’re eligible for the Earned Income Credit as you claimed it. You’ll receive another notice confirming the outcome:
- If Approved: The IRS will process your return with the EIC.
- If Denied or Reduced: The IRS will explain why and let you know if there are any further actions needed. You will have the right to appeal.
Dealing with the IRS can be stressful, but understanding your CP27 notice will help you navigate it with confidence. Remember, being proactive is key. Respond promptly, provide accurate information, and don’t be afraid to ask for help if you need it. The IRS is trying to ensure fairness and accuracy, and working with them is the best way to resolve the issue.