What do IRS Transcript Codes Mean?

February 02, 2015 : H&R Block

If you want your head to start spinning a little bit, dig into IRS Document 6209 and read all about the thousands of IRS codes in use.

If you prefer a non-spinning head, here’s what you might want to know.

The IRS uses an electronic system to check and process tax returns. Even paper returns are uploaded into this system, called the Master File. The Master File is access through something called the Integrated Data Retrieval System (IDRS).

There are several kinds of Master Files.

The Individual Master File (IMF) has information about taxpayers and their individual income tax returns. The Business Master File (BMF) has information about taxpayers filing business returns and documents related to that business.

The Employee Plans Master File (EPMF) has information on returns filed for trusts and pension/profit sharing plans established for employees by firms or organizations.

The Information Returns Master File (IRM) has details of information returns, such as Form W-2s, and Schedule K-1s issued to a taxpayer.

Finally, the Individual Retirement Account File (IRAF) has tax and entity information for taxpayers who have established an IRA.

As a tax return is processed, there are transaction codes added to it to indicate changes. These transaction codes are three digits long. They are used to identify a transaction being processed and to maintain a history of actions posted to a taxpayer’s account on the Master File. For example Transaction Code (TC) 014 notes an address change for the taxpayer from previous years.

There are codes to note one action and more codes to undo that action. For example, TC 420 indicates that the return has been referred to the examination or appeals division. It does not necessarily indicate an audit. TC 421 means that TC 420 was reversed. See how this can get confusing very quickly?

The bottom line is that many codes don’t mean anything of real consequence to the taxpayer. They are simply used to keep an accurate record of changes in the tax return from year to year and to track it through the IRS system. Other codes can be of some significance if the IRS has adjusted your return, or has commenced an examination. If you have concerns about your tax return and the information on your transcript, the best thing to do is to speak with a tax professional that might be able to shed some light on the jargon for you.

If there are any codes that generate significant discussion or questions this tax season, we will update the post here with more specific details.

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