What is Tax Topic 151 Reference 1242?
Tax Topic 151 Reference 1242 is an IRS code indicating that your tax return has been flagged and placed under review. This could happen for various reasons, such as a potential identity theft attempt or suspected inaccurate information.
Why Might I Receive Reference 1242?
The IRS selects tax returns for review under Reference 1242 for a few common reasons:
Random Audits
The IRS audits a small percentage of tax returns each year as part of its standard verification process. If your return gets chosen randomly, you may receive Code 1242 while they review your information. This does not necessarily mean you did anything wrong.
Suspected Identity Theft
Tax identity theft happens when someone files a fake return using your personal information to claim a fraudulent refund. If the IRS detects signs your identity may have been compromised on a return, they will investigate further before processing the refund.
Red flags for identity theft include:
- Multiple returns filed with your SSN
- Suspicious changes of address or bank details
- Odd deductions or income reported on your return
Inaccurate Information
The IRS often flags returns with unusual or questionable amounts claimed, as this could indicate inaccurate reporting. For example, if your return shows business losses disproportionate to your field and income level, the numbers may not seem reasonable.
Pro tip: Always be honest, and double check your math when filing!
What to Expect During a Reference 1242 Review
When Code 1242 appears, you can expect processing and issuance of any refund to be stalled until the IRS finishes their review. This entails:
Requesting documentation – The IRS may ask you to provide additional documents (like receipts for expenses claimed) to support items on your return.
Verifying totals – They will check all deductions, income, credits etc. on your return against supporting docs to confirm the accuracy.
Cross-checking data – The IRS can match up your return against relevant third-party documentation like W-2s from employers.
The typical Reference 1242 review takes less than 9 weeks from start to finish. Sometimes, they uncover other issues that require further action, lengthening the investigation. But in straightforward cases with cooperative taxpayers, it is usually resolved much faster.
Steps if You Receive Code 1242
If those three ominous letters pop up on your tax transcript, stay calm and take these proactive steps:
1. Review any IRS notice carefully. Make sure you understand what additional info they need and provide it fully by the deadline given. This helps expedite the process.
2. Double check for errors on your return. Verify all calculations and amounts reported are correct. If you find mistakes, submit an amendment. Fixing them upfront shows good faith.
3. Enlist help from your tax pro. If you used a preparer, touch base with them immediately. They can communicate directly with the IRS to address any questions.
4. Remain attentive & responsive. Reply to all IRS letters rapidly, answer calls from IRS agents, and cooperate fully with document requests. Doing so keeps things moving.
Stay on top of things, and you‘ll get through a Reference 1242 smoothly! Let me know if you have any other tax questions.
