Tax & Business Insights

IRS Transcripts -- Essential In Representing Clients

Volume 21 Issue 5 --  September/October 2009

How Does the IRS keep track of a taxpayer’s account? How can taxpayers find out what has happened to their tax liabilities for a given year? The answer is: Transcripts.

Although they are not called “annual” transcripts, they are in fact annual, one for each year of annual taxes, at least for individual and corporate income taxes for which returns are filed annually. For taxes that are filed and paid quarterly, such as employment taxes, the transcripts are quarterly.

A transcript for a given period reflects all of the activity of the taxpayer and the IRS affecting the tax liability for that period. In effect, a transcript is an official statement of account for a tax period and gives a professional (or a taxpayer) a summary of what has happened to the person’s or entity’s return, related tax liability and the payments, penalties, and interest associated with the account.

Transcripts show the type of tax, identification of the taxpayer and type of return filed.  Also shown on the first page of the transcript is the account balance, any interest and/or penalties that have been assessed, the number of exemptions, AGI, taxable income, and the tax per the return.  The return filing date and the return processing date are also shown.

After the basic data there are lines called “transactions” which may go on for pages.  Why? 

Let’s say that Mr. T. DeLay filed late and didn’t pay all of the taxes due with the return.  Late filing and late payment penalties would be incurred and shown on the transcripts.  If later DeLay entered into an IRS installment payment agreement, the installments would be reflected on the transcript. There are codes explaining each transaction using three digits; for example, 150 means return filed, and 460 means extension requested, etc. 

Taxpayers sometimes receive transcripts from IRS Revenue Officers that do not have  explanations of the codes. These types of transcripts are virtually impossible to decipher by anyone other than the IRS.

Why are transcripts needed?  Surprisingly, Mr. DeLay may not remember if, in fact, he has filed a tax return or that at one time he had an installment payment agreement and defaulted on it.  An IRS transcript will show data such as periodic payments and the failure to continue making periodic payments. Other important information divulged by transcripts could be the record of IRS liens, wage garnishments, the appointment of representatives, and a host of other information.

Transcripts also identify the various dates that are critical for taxpayers. For example, as discussed in other newsletters, the IRS has 10 years to collect tax liabilities, in general.  The beginning of the 10-year period starts with the “assessment date” which is shown on the transcript.  Many returns are not processed as soon as they are received. In fact, it may be months between the date a return is filed and the date it is processed.  The 10-year period does not begin to run until the processing is complete and an assessment date is shown on the transcript.

While IRS transcripts are generally accurate, mistakes do happen. IRS staff people are not perfect. Sometimes it is necessary to submit affidavits and records on behalf of taxpayers to refute information shown on IRS transcripts.  While this does not happen often, it is occasionally necessary.

Transcripts also show the filing of Powers of Attorney ("POA").  Sometimes clients neglect to tell that they may have previously hired another professional.  While the transcript will not tell you the name of the professional who previously filed a POA, there will be a record of the filing of the POA and any removal of the POA.  Bankruptcy filings and Notices of Deficiency are also shown on transcripts. 

In the not-too-distant past in order for DeLay to get his tax transcript he would have to request it from an IRS Service Center, or perhaps the Revenue Officer assigned to collect the tax liability.  Now, however, for professionals dealing with substantial amounts of tax collection work, it is possible to get transcripts online.  In order for a professional to do so, they must first file an IRS power of attorney (POA), Form 2848, and have it processed.  The professionals must also be in the E­file Service Provider system, even if  they do not e-file returns. After the POA is processed, which may take a week or more, transcripts can be obtained electronically and periodically as the taxpayer’s situation changes.

In short, the transcript is an essential and valuable tool for understanding a taxpayer’s situation.  If you have further questions about the uses of transcripts, call Tax and Business Professionals.

Copyright 2009
By Tax and Business Professionals, Inc.
9837 Business Way
Manassas, VA 20110
(800) 553-6613

While designed to be accurate, this publication is not intended to constitute the rendering of legal, accounting, or other professional services or to serve as a substitute for such services.

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