Taxpayers should note that the IRS has sent out a Letter 6042C to many corporate taxpayers upon receipt of the 2017 Form 1120 after the return was flagged by the IRS's fraud detection systems. The Letter 6042C requests additional information regarding the company, including information about the company's responsible party (generally defined for a corporation as the individual with authority to control manage, or direct the entity and the disposition of its funds and assets) so that the IRS can address the potential identity-theft concerns and process the return. Promptly responding to Letter 6042C and other IRS requests for additional information, as well taking steps to protect systems from identity theft and ensuring accurate reporting of identifying information, may alleviate prolonged refund-processing delays.

The Taxpayer Advocate Service has identified high false positive rates in IRS fraud detection systems as one of the most serious problems encountered by taxpayers. It reports that the false positive rate for some IRS fraud filters is as high as 81%. Legitimate taxpayers swept up in the fraud detection systems can face significant delays in getting returns and refunds processed.

Taxpayers should be on the alert for receipt of an IRS Letter 6042C. Failure to respond timely, or adequately, to the letter may further delay the processing of returns and refunds. One common complicating factor occurs when taxpayers file employment tax returns using an address that differs from the address on the corporate return. The IRS system is only able to maintain one address for a company and will send this letter to the address it has for the company at that time. Consequently, filing an employment tax return with an address that differs from the corporate return may result in a Letter 6042C being sent to a taxpayer address that is not expecting IRS correspondence.

Although processing times of tax returns varies, it is recommended that a company check its account with the IRS after six to eight weeks to ensure that the return has been processed. This is recommended even if a refund is not expected. We have seen many instances in which the current year tax return was not processed properly when the taxpayer elected to have the overpayment applied to the next tax year. Often this error is not detected until the next year's return was filed.

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