SECRETS OF THE IRS ACCOUNT TRANSCRIPT
assessment. If the bankruptcy is filed
before the audit is over, or before any
resulting tax assessment occurs, any
resulting additional taxes will not be
dischargeable until the assessment is
final, plus 240 days. I refer to this as a
sleeping assessment. 14
Indicates the taxpayer requested
a Collection Due Process Appeal
(“CDP”). A CDP appeal is one of the
tolling events that stop the clock on the
running of the 3-year rule and the 240-
day rule if made during the respective
time period. The period is tolled until
the CDP is final, plus 90 days, because
the filing of a CDP appeal halts ta x
collection. 11 Don’t be ambushed by a sleeping IRS
audit assessment.
Code 290 and code 300 5. Code 421
These are posted when an additional
assessment has been done. These
codes often appear on the transcript
with a zero $$ dollar amount. These
may be ignored. But a 290 or 300 with a
dollar $$ amount is a new assessment
of tax that triggers a new 240-day
period as to those taxes before they
are dischargeable. 12 As explained above, Code 421 indicates
the end of the audit and may suggest
that an additional IRS assessment has
been assessed or is pending. This is
the “sleeping IRS assessment.”
7. Code 320
A code 320 suggests a penalty in
connection with criminal investigation
which, if found would render the
tax
non-dischargeable 13 .
If
the
investigation means a true criminal
offense has occurred, it may suggest
that the tax failed either the fraudulent
return or tax evasion rule, rendering
the tax nondischargeable. But note,
the elements that must be proved in
connection with federal law (i.e., the
IRS) may not be the same in connection
with bankruptcy law. Hence, a code 320
is not dispositive and calls for further
investigation by the debtor’s attorney.
4. Code 420 but no 421
A code 420 on the transcript, with no
follow-up code 421. The start of an
IRS audit is indicated by code 420,
and code 421indicates the conclusion
of the audit. If there is a code 420 and
not also a code 421, it suggests that
the audit is still in progress. The point
is that the audit, when concluded,
may result in an additional tax
However, states that have personal
income taxes typically require that
the taxpayer report any additional
IRS liabilities from an IRS audit to
the respective state tax agency, so
that the state can add its “piggyback”
assessment. If you see code 421,
better check the state tax agency for
the inevitable piggyback assessment
(then wait out the time until that
assessment is final, plus 90 days).
Don’t be ambushed by a sleeping state
tax assessment.
If the state requires the additional IRS
tax to be reported on an amended state
return, or “equivalent report or notice”),
that may trigger a new 3-year, 240-day,
and 2-year waiting period before the
additional state tax arising from an IRS
audit will be dischargeable. 15
Caveat, a code 421 on a transcript
is a warning sign that the IRS, and
perhaps the state as well, has or will
be assessing additional taxes. This
may come sometime in the future. You
may have to wait until the assessment
has been entered, plus an additional 30
days. 16
3. Code “460”
National Association of Consumer Bankruptcy Attorneys
Winter 2018
Code 460 is an extension of the filing
due date to October. The three-year
period starts with the most recent due
date (not the most recent actual filing
date).
Caveat, where the due date lands on
a weekend or holiday, the 3-year date
begins on the following work day.
6. Code 520
The 520 code marks the filing of one of
three things: 1) a prior bankruptcy, 2)
an IRS Collection Due Process appeal,
or 3) tax litigation. If any of these occur
during the pendency of the 3-year,
2-year, or 240-day rules, the respective
time period is probably tolled, or
suspended, for the period such event
halted tax collection, plus an additional
90 days. 17
If the tax is an IRS assessment, a
prior bankruptcy stops collection (such
as paycheck levy or vehicle grab) for
the time during which the bankruptcy
automatic stay prevents collection, plus
90 days.
8. Code 599
Code 599 is risky. It signifies either the
taxpayer’s 1040 return has been filed,
or the date the IRS filed an SFR. It is
not dispositive of either. In some cases,
a code 599 means something filed
other than the taxpayer’s tax return
(e.g. a substitute for return, which, as
we have seen, does not count as the
taxpayer’s 1040 return). This is how the
IRS explained Code 599 in a published
case –
McGrew v. IRS 18
“Substitute tax return prepared
by IRS: “On all of the transcripts
... there is an entry coded 150
and explained on the transcript
as “Substitute tax return
prepared by IRS.” On each of
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