CP02 Notice: The IRS Asks You to Check Your Earned Income Tax Credit

What the CP02 notice says

The IRS page opens by telling you that you may not qualify for some or all of the Earned Income Tax Credit (EITC) you claimed on your return, and that you may need to amend it.

The CP02 does not change your return, and the IRS page lists no amount due. It asks you to check your claim and, if it was wrong, to fix it with an amended return.

What to do now

Review the EITC rules. The IRS page points you to its online EITC Assistant, which checks whether you qualify and whether your children meet the rules for the credit.

If you claimed the credit correctly, the IRS page says, “you don’t need to do anything.”

If you claimed the credit in error, or claimed more than you qualify for, the IRS page says to file Form 1040-X to remove or recalculate the credit.

If you need help with the amended return, the IRS page points to its Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs, which offer free basic return preparation to people who qualify. Our guide to reaching the IRS lists other ways to get answers.

What can happen if you ignore a wrong claim

The IRS page is direct: “We may audit your claim and deny all or part of the credit. We may also impose a 2- or 10-year ban for claiming the credit or assess a penalty against you.”

The ban comes from IRC 32(k)(1). After a final determination that you claimed the credit through fraud, you lose it for 10 taxable years. After a final determination of “reckless or intentional disregard of rules and regulations,” you lose it for 2 taxable years.

The statute ties the ban to a final determination of fraud or of reckless or intentional disregard, not to the CP02 itself. The CP02 gives you a chance to correct the return yourself first.

Claiming the credit again after a denial

IRC 32(k)(2) adds a second rule. If the IRS denies your credit through its deficiency procedures, you cannot claim it in a later year unless you give the IRS the information it requires to show you qualify.

Treasury Regulation 1.32-3 names the form for that information: Form 8862. The IRS page gives its current title, Information to Claim Certain Credits After Disallowance. The regulation says a denial happens when the IRS assesses tax on account of the EITC as a deficiency, other than as a math or clerical error. It also says the IRS can deny a later claim as a math error if you skip Form 8862 when you need it.

The IRS page puts it simply: if the IRS denied or reduced your EITC in the past and you now qualify, “You may need to file Form 8862” with your next tax return.

What people mistake the CP02 for

Many people read a CP02 as a bill or as a final decision to take the credit away. It is neither. The IRS page uses the word “may” throughout, and it tells people with a correct claim to do nothing.

Others read it as an audit. The IRS page warns that an audit may come if you do not fix a wrong claim; the CP02 itself asks you to check your claim first.

If your letter is not a CP02, our guide to IRS letters helps you find out what you have.

Common Questions