IRS CP79 Notice: What to Do If the IRS Disallows Credits on Your Tax Return

No one looks forward to getting an unexpected notice from the IRS. When you receive a CP79 notice in the mail, it’s normal to panic and automatically assume the worst. But before you overreact or start preparing for a full-blown audit, keep reading to learn more about what the CP79 notice is, what it means, and how it affects current and future tax returns.

If you’ve received communication from the IRS that you don’t understand, that may be your cue to talk to a tax professional. At TaxCure, we make it easy to find experienced, licensed tax experts in your area. Browse our listings now to start your search.

What Is a CP79 Notice? What Does It Mean?

A CP79 notice is a letter the IRS sends when it disallows credits on your tax return. The letter states, in bold, that “We denied one or more of the credits claimed on your tax return.” The credits that may be denied include the Earned Income Tax Credit (EITC), the American Opportunity Tax Credit (AOTC), the Child Tax Credit (CTC), the Refundable Child Tax Credit, and the Additional Child Tax Credit. 

If you claimed one or more of these on your tax return, the notice will specify which ones you were not entitled to claim. As a result, the amount of money you would have received from the disqualified credit will not be included in your tax refund. If the loss of the credit means that you no longer receive a refund and now owe money, the IRS will send you a bill for what you owe.

Does This Mean I Am Being Audited?

Receiving a CP79 notice does not mean you’re being fully audited in the traditional sense. That is, the IRS isn’t going to go through your tax return line-by-line to look for deductions you didn’t earn or income you may have missed. However, it does mean the IRS took a closer look at your return and decided to disallow some or all of the credits you claimed. 

Claiming these tax credits does increase your chance of an audit, and in your case, the IRS ran your numbers while processing your return and realized you didn’t qualify for the credits in question. While you are not being audited, the IRS may be watching your future tax returns more closely, especially if you claim these same credits again. We’ll go into that more below.

Generally, if the IRS wants more information to back up the credits you claimed, the agency won't send Notice CP79. Instead, the IRS will send you Notice CP75, which will outline which supporting documents the agency wants to see.

Why Did I Receive a CP79 Notice From the IRS?

The IRS has specific requirements when claiming certain tax credits. Particularly, when it comes to the Earned Income Tax Credit(EITC), the American Opportunity Tax Credit, the Child Tax Credit, and the Additional Child Tax Credit, the IRS has scrutinizes the details when these are cliamed. 

For example, for tax year 2023, the EITC requirements include reporting earned income but not more than $63,398 if you're married and filing jointly. You must also have less than $11,000 in investment income. This credit is generally taxpayers with low to moderate income and have children. Recent changes in the tax code have made it available for some people without children to claim the credit as well. 

Since the EITC can be worth more than $7,400 for families with three or more qualifying children, the credit has been abused and many taxpayers have cliamed it without actually qualifying.

If you use tax software, it will generally catch and stop you when you attempt to claim a credit you do not qualify for. However, if you do your taxes on paper or with tax software that doesn’t stop you from claiming tax credits, it’s easy to claim a credit you don’t qualify for. When the IRS processed your return, their system flagged your return. The IRS then adjusted your return to remove the credit and either change the amount of your tax refund or the amount you owe in taxes.

What to Expect After Receiving This Notice and Your Next Steps

As CP79 states, you do not have to take any further action at the time of receiving the notice. The IRS has already removed the credit from your tax return and adjusted your tax refund or bill accordingly. However, in the future, you will need to attach Form 8862, Information to Claim Certain Credits After Disallowance to your tax return if you claim the tax credits that you were previously not permitted to use.

If you are still uncertain about what happened, you may want to look deeper into the requirements for the credit removed from your tax return and figure out if you made an error or the IRS did. Remember, the IRS isn't flawless. Sometimes, the agency removes credits and sends out this notice in error.

If you worked with a tax filing professional, take your CP79 notice to them and ask for an explanation. If they claimed a credit you were not entitled to, that is a fairly serious error that could lead to further problems with the IRS. You deserve to know that your tax filing company knows what they are doing and is protecting your best interests. If they cannot help you, use TaxCure to find a tax pro to represent you in front of the IRS. 

Options to Explore If You Disagree With the CP79 Notice

In most cases, the CP79 notice is legitimate and accurate. There are situations, though, where a taxpayer receives this notice in error and is actually entitled to the credit removed from their return. If you disagree with the IRS’s decision to remove a tax credit from your return, you can request a reconsideration and send in supporting documentation showing that you are entitled to the credit in question. 

This is a good time to consult a tax expert in your area—the IRS won’t reconsider its decision without sufficient and compelling evidence. A tax pro can help you make a case that supports your side of the story.

Do I Owe Money After a CP79 Notice?

The answer to this depends on how much you owed or received prior to receiving the CP79 notice. If you received the notice before receiving a tax refund, your tax refund will likely be automatically adjusted without any further action required. 

But if you already owed taxes, the removal of one or more tax credits will likely increase your tax bill. Additionally, if you already received a tax refund before receiving the CP79 notice, you may have to pay the adjusted amount back to avoid further collection action.

While no one wants to see their tax refund shrink or their tax bill grow, handling issues like these promptly is key to staying out of trouble with the IRS. Instead of panicking, focus your energy on possible solutions—like consulting with a tax professional in your area. Use our provider directory to find the right tax professional for your current situation.