When the IRS Questions Your Credits: Proving Eligibility for Tax Credits

How do you prove eligibility for tax credits when the IRS questions them?

When the IRS questions a credit you claimed, the clock starts on a process that’s usually straightforward if you are organized. The agency will send a notice explaining which credit is in question and what documentation it expects. Your job is to respond promptly with clear, verifiable proof that you met the credit’s eligibility rules. Below I explain step-by-step actions, examples of acceptable documentation, common IRS notices, how long to keep records, and practical strategies I use in my CPA practice to help clients resolve credit disputes.

First steps: read the notice and calendar the deadline

• Read the IRS notice carefully. It will identify the credit under review and often list the documents the IRS wants. Typical correspondence requires a response within 30 days, though the deadline will be printed on the notice. (See IRS guidance on correspondence audits: https://finhelp.io/glossary/what-triggers-an-irs-correspondence-audit-and-how-to-prepare/ for similar scenarios.)
• Don’t ignore the letter. Failure to respond can lead the IRS to disallow the credit and assess tax, penalties, and interest.
• Make a copy of the notice and save all communications.

Gather the right documents (by credit type)

Below are commonly requested credits and example documentation that typically satisfies the IRS. This is not an exhaustive list — check the specific eligibility rules at the IRS pages linked below.

• Earned Income Tax Credit (EITC)

• Proof of earned income: W-2s, 1099s, pay stubs.

• Documentation for qualifying children: birth certificates, school or medical records showing the child’s name and your address, custody agreements.

• If the IRS previously disallowed EITC and you’re reapplying, you may need Form 8862 (see IRS Form 8862). (IRS EITC info: https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit-eitc)

• For more on who qualifies, see our EITC guide: Who Qualifies for the Earned Income Tax Credit (EITC)? (https://finhelp.io/glossary/who-qualifies-for-the-earned-income-tax-credit-eitc/).

• Child Tax Credit (CTC)

• Child’s birth certificate or passport.

• Documents proving relationship and residency: school records, daycare statements, medical records showing shared address.

• Social Security numbers for child and taxpayer.

• Education credits (American Opportunity Tax Credit and Lifetime Learning Credit)

• Form 1098-T from the school.

• Receipts for tuition and required course materials.

• Enrollment records and course schedules showing the student’s status during the tax year. (IRS Publication 970: Tax Benefits for Education: https://www.irs.gov/pub/irs-pdf/p970.pdf)

• Residential energy credits or other property-based credits

• Manufacturer certifications, invoices, proof of payment, and receipts showing installation dates and product specifications.

• For renewable energy credits, keep the contractor’s signed statement and any manufacturer’s certification that the property qualifies.

• Dependent care credit

• Receipts from care providers with taxpayer’s name, provider’s tax ID, dates of service, and amount paid.

• Agreement or contract with the care provider when applicable.

• Other documentation

• Bank statements, cancelled checks, itemized receipts, signed statements from third parties (schools, employers, care providers), and any contract or certification that supports the expense or relationship.

How to format and submit your response

• Create a clear cover letter summarizing the documents you’re sending, listing each document, and referencing the IRS notice number.
• Number or label documents so they match the list in your cover letter.
• Send legible copies (scan at 300 dpi). If you mail, send certified mail with tracking and keep the receipt.
• If the IRS provides a secure online upload option on your notice, use it and keep screenshots of completions.

Common IRS notices and special situations

• Correspondence audits typically ask for specific documents by mail and are the most common way the IRS questions credits. See our guide on correspondence audits for preparation tips: What Triggers an IRS Correspondence Audit and How to Prepare (https://finhelp.io/glossary/what-triggers-an-irs-correspondence-audit-and-how-to-prepare/).
• If the IRS proposes changes to income or credits (often via CP2000-like notices), respond with documentation that corrects income mismatches (corrected W-2, 1099). In my practice, a frequent win is getting a corrected W-2 from an employer and resubmitting with a brief explanation.
• If a credit was disallowed in a prior year and you are now required to file Form 8862 to claim certain credits again (commonly EITC), include that form and supporting backup.

Time limits and record retention

• The IRS generally has three years from the date you file to audit your return, but it can extend to six years if you omit more than 25% of your gross income, and there is no statute of limitations for fraud or if you fail to file. (IRS: audit statute of limitations and record retention: https://www.irs.gov/taxtopics/tc201)
• Keep supporting records for at least three years; for EITC and credits tied to dependents or education, many professionals recommend keeping seven years to be safe if you claim refundable credits or if the situation could be questioned.
• Keep digital backups and an index so you can find documents quickly.

Practical tips I use with clients

• Scan and index documents yearly into folders named by tax year and credit type. In my CPA practice I’ve seen quick resolution when clients can produce a single folder with labeled evidence.
• Keep a contemporaneous calendar for events that affect credits (dates a child lived with you, school semesters, start/end dates for caregiving).
• If a third party (employer or school) reported incorrect information, obtain written confirmation of the correction and attach it to your response.
• Use plain language in the cover letter — explain why each document proves eligibility.
• If you used a paid preparer, ask for a preparer’s letter explaining how determinations were made; preparers have due diligence obligations and this documentation can help. (See IRS due diligence rules for paid preparers: https://www.irs.gov/tax-professionals/paid-preparer-due-diligence)

When to hire a professional or appeal

• Hire a CPA, enrolled agent, or tax attorney if the amount at stake is large, the facts are complicated (custody disputes, mixed residency, or business income issues), or you receive a notice that assesses tax and penalties.
• If you disagree with the IRS decision, you can request an appeal within the IRS or pursue a Tax Court petition if necessary. Our site also explains how to request an audit reconsideration: How to Request an Audit Reconsideration (https://finhelp.io/glossary/how-to-request-an-audit-reconsideration/).

Common mistakes to avoid

• Waiting until the deadline to look for documents; evidence is easier to assemble if you maintain records annually.
• Sending original documents by mail unnecessarily. Send copies and keep originals unless the IRS specifically requests them.
• Providing disorganized or unlabeled documents — that slows review and increases likelihood of disallowance.
• Assuming a credit is refundable; verify whether the credit can create a refund or only reduce tax to zero.

Example resolution scenarios (realistic summaries)

• Employer reporting error: A client’s W-2 understated wages. We requested a corrected W-2, sent it to the IRS with a cover letter, and the IRS corrected the income and reissued the refund.
• Education credit questioned: A student claimed the AOTC but lacked a 1098-T. We obtained an enrollment letter, course schedule, receipts for qualified expenses, and the IRS accepted the documentation.

These examples illustrate the same pattern: timely, organized, relevant documentation plus a clear covering explanation resolves most credit questions.

Authoritative resources

• IRS — Credits and Deductions for Individuals: https://www.irs.gov/credits-deductions/individuals
• IRS — Earned Income Tax Credit (EITC): https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit-eitc
• IRS Publication 970 — Tax Benefits for Education: https://www.irs.gov/pub/irs-pdf/p970.pdf
• IRS — Form 8862, Information to Claim Certain Credits After Disallowance: https://www.irs.gov/forms-pubs/about-form-8862
• IRS — How long should I keep records? (audit/statute info): https://www.irs.gov/taxtopics/tc201

Final checklist before you respond

• Copy of the IRS notice and a one-page cover letter that references the notice number and summarizes the enclosed evidence.
• Primary proof of eligibility (W-2, 1099, 1098-T, receipt, manufacturer’s certification).
• Secondary supporting documents (school records, custody papers, bank statements, cancelled checks).
• If applicable, Form 8862 or amended returns and any corrected third-party forms.
• Proof of delivery (certified mail receipt or upload confirmation).

Professional disclaimer: This article is educational and not personalized tax advice. For guidance specific to your situation, consult a qualified tax professional.

If you want, I can review a sample IRS notice and suggest a draft cover letter and a prioritized document list tailored to the credit the IRS flagged.