AOTC Being Held?

[jokkun]

I filed my and my husband's joint return on 1/27, it was accepted same day and I received the withholding alone on 1/31. The $2,000 credit is the AOTC for both of us (both full-time students in 2024, my 3rd year and my partner's 4th). We've claimed the AOTC each year that we've been in school without issue until now. I'm not entirely sure what the issue even is as there was no notice issued. I've read that the 420 TC is an audit flag, but that the return actually may or may not be audited. I'm assuming the credit is being held pending whether or not they decide to audit it and the results of said audit. Am I correct in assuming that since I wasn't issued any sort of notice of adjustment? My account balance is also still showing as -$2000, and my record of account shows the "verified credits" amount as $0 at the moment.

If this is the case, how long does something like this usually take? And what's the likelihood an audit would actually be pursued? I wasn't aware that the IRS would issue withholding without the credits pending review, which worried me that perhaps they disqualified us for the credits for some reason. But again, I have no notices on my account regarding anything. Just these TCs on my transcript.

[KrisD15]

Yes, you understand things quite well. The codes indicate that the IRS "does not disagree" with your return and issued a refund for a portion of the refund, but is also holding the 2,000 education credit. 

Code 420 means the return MIGHT be audited. 

We do not know what the IRS will do with your return or any return once the return has been transmitted. 

We do know that the IRS will review returns that claim certain credits, including the American Opportunity Tax Credit.

Some returns are randomly selected for the review.

The review may or may not result in a full audit. 

Since the credit was not disallowed, it can be assumed that the return is simply part of the IRS compliance to review certain credits, but again, we have no way to tell. 

If you reported everything correctly, all you can do is wait until the refund is released, or the IRS sends a letter. 

Remember that the IRS will not call and always sets up contact by mail first.