IRS Reference Code 1242 is a processing code the IRS uses to review tax returns it thinks might be fraudulent. The IRS will hold your return until they can validate certain information on it.
The IRS has standard operating procedures for every tax account that is processed. The IRS system collects tax returns, and also screens tax returns. They do this to check for inaccuracies that might indicate fraud or cases of identity theft.
That means that your return could get flagged for review. If this happens, don’t panic. Being flagged by the IRS system doesn’t always necessarily mean that you’ve filed your taxes wrong.
This article is a guide on what IRS Reference Code 1242 is and what you should do if your tax return gets flagged for review.
What Is IRS Reference Code1242?
IRS Reference Code 1242 – Electronic return received more than 3 weeks ago; –E Freeze; in review, notice for additional information will be received IRM 21.5.6.4.8, -E Freeze
IRS Reference Code 1242 is a code the IRS uses to notify the taxpayer that the tax return has been frozen and selected for further review. Your return will remain frozen in the IRS’s system until the review process is complete.
The selection process for Reference Code 1242 reviews is intended to be random. If your return happens to be selected for a review, it doesn’t necessarily indicate or suggest you made a mistake or deliberately misreported your information. It’s simply the IRS’s process for determining if identity, income, expenses, and credits are accurately reported.
That being said, one of the reasons the IRS conducts these types of reviews is to prevent fraud, especially identity theft. If the IRS suspects a tax return is fraudulent it will use Reference Code 1242 to trigger a review.
How do I know if I have IRS Reference Code 1242?
When checking your tax refund status on IRS Where’s My Refund? you may see a message like the one in the image below.
How Do I Know My Tax Return Is Under Review?
The IRS uses Reference Code 1242 to indicate in its system that your return was received and is under review. From there you’ll be issued a CP05 Notice from the IRS requesting that you verify some of the information you provided in your tax return.
Will I get a letter explaining why my return is under review?
The IRS will issue a CP05 Notice a letter from the IRS explaining your return is under review and may ask you to verify information on your return such as income or the tax credits you claimed. The IRS will hold your refund until you confirm the information requested in the CP05 Notice.
Why Was My Tax Return Selected to be Under Review?
There is no quick and easy way to determine why your tax return was selected for review. IRS Reference Code 1242 is part of the IRS’s identity theft refund fraud program. Some tax returns could be selected for examination using various methods which include random sampling, computerized screening, and comparison of information received by the IRS such as Forms W-2 and 1099. The systems in place at the IRS are set up to thoroughly check for cases of identity theft, and inaccuracies on the return and identify potentially fraudulent tax returns with refund claims.
How Do I Respond to an IRS Reference Number 1242?
Upon receiving the CP05 notice, the IRS recommends you take the following steps
- You should provide the specific piece of information requested in the notice back to the IRS in a timely manner.
Make sure you keep copies of the notice as well as any documentation you provide. You can mail or fax the information back to the IRS following the guidance provided in your CP05 letter.
Try to answer the IRS’s request within 30 days. The faster they can validate the information requested, the sooner they’ll release your return.
If you have additional questions or concerns:
- Consult with your tax preparer to gain a better understanding of the notice.
- Call the toll-free number listed at the top of the notice to receive additional information.
- Call the Taxpayer Advocate Service (TAS) hotline at 1-877-777-4778 if you believe your return has been selected in error due to the inadequate screening of IRS systems.
- Authorize a professional tax preparer or accountant to communicate with the IRS on your behalf by submitting Form 2848 (Power of Attorney and Declaration of Representative).
How Do I Avoid Receiving an IRS Reference Code 1242?
There is no simple solution to avoiding IRS Reference Code 1242. The best way to avoid your tax return from being flagged for review is to be sure to report all information accurately and honestly when you file your tax return.
How long does it take to resolve IRS Reference Code 1242?
The IRS encourages taxpayers to wait at least 45 days from the day they receive the CP05 notice to follow up about the status if they haven’t yet received their refund. Use the number found on the notice to ensure you are routed to the correct department.
Once the review is complete, the IRS will make the necessary adjustments and issue your refund accordingly.
