If you claim a tax credit or deduction that the IRS believes you don’t qualify for, they will disallow your claim and adjust your return and refund accordingly. Before the IRS can send you a lesser refund than what’s on your tax return, however, they must inform you of the change in writing.
You’ll receive IRS letter 105C to notify you that you have a disallowed claim and whether that changes your refund amount or you have a new balance due.
What Is IRS Letter 105C?
IRS letter 105C is a Notice of Claim Disallowance. If you claim a credit or deduction on your tax return that, after review, the IRS believes you do not actually earn, the IRS will adjust the amount of your tax refund, resulting in a reduced refund, no refund or even a tax balance due.
Before the IRS can legally adjust your return and send you a different refund amount from the one you claimed, however, they must inform you of their intent to do so and the reason for their decision. An IRS 105C letter notifies you that the IRS has disallowed your claim for certain credits or deductions and tells you the reason for the disallowance as well as the amount of your refund (or balance due) after the adjustment and the steps you must take if you disagree with the IRS’s decision.
Why Did the IRS Send Me a 105C Letter?
The IRS sent you a letter 105C because they are disputing a credit, deduction or refund you claimed on your return. Generally, they do this for two reasons.
One, they believe you failed to claim it within the proper timeframe. Most tax credits and deductions must be claimed within two years from your tax payment date or three years from your tax return filing date, whichever is later. Or, two, they believe you claimed a larger credit or refund than you were allowed, or that you claimed a credit or refund to which you weren’t entitled at all.
What Does Disallowed Claim Mean?
A disallowed claim is one that the IRS has ruled you are not entitled to after reviewing your tax return. You might have a partially disallowed claim, in which the IRS accepts some but not all of it, or a fully disallowed claim, in which the IRS rejects all of it.
Will I Still Get a Refund If I Receive an IRS Claim Disallowance Letter 105C?
As long as the amount of the disallowed claim or deduction is less than the full amount of your tax refund, you will still receive a refund; it will just be less than what you were expecting, perhaps significantly. If the total value of your disallowed claims and deductions equals or exceeds the amount of your refund, then you won’t receive a refund and you might even owe the IRS.
How Do I Dispute My Disallowed Claim If I Disagree With the IRS?
If you disagree with the IRS’s ruling that some or all of the credits or deductions you claimed were not allowed, you may respond to your IRS Claim Disallowance Letter with an explanation of why you believe your claim was legitimate, along with supporting documentation. Your IRS 105C letter will have contact information for where to send your claim disallowance dispute letter. Once the IRS receives it, they will forward it to the Office of Appeals, where your claim disallowance dispute will be reviewed, concluding in either a confirmation of the disallowed claim or a reversal of the IRS’s original decision.
If the Office of Appeals does not rule in your favor, you can escalate your claim disallowance dispute to the next level by filing suit with the United States District Court or the United States Court of Federal Claims. Be aware that you must initiate this process within two years of receiving your IRS letter 105C, even if the Office of Appeals has not yet ruled on your initial dispute.
What Are My Payment Options If I Owe Taxes and Can’t Pay Because Credits or Deductions I Claimed Were Disallowed by the IRS?
If your disallowed claim results in back taxes, you can consider tax resolution services. One option is to apply for IRS Fresh Start Program tax relief if you can’t afford to pay. If you’re experiencing constant financial difficulty, you may be eligible to submit an Offer in Compromise (OIC), in which the IRS settles the full amount of your back taxes for a lower amount than what you owe. Otherwise, you can set up a short-term IRS payment plan or long-term IRS installment agreement, in which you make affordable monthly payments based on your household income and other expenses.
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