IRS Transcript Monitoring is Very Important, Especially When Waiting for ERC Refunds

All taxpayers, both individuals and businesses, have separate and distinct transcripts with the Internal Revenue Service (IRS) covering a wide variety of tax situations. Employers have many different IRS transcripts; however, the most important in the Employee Retention Credit (ERC) context is the employment tax, otherwise known as Form 941, transcript.¹ Transcripts offer taxpayers an insight into the actions that the IRS takes on the taxpayer’s account.

Taxpayer transcripts contain codes which allow taxpayers to know what actions are being taken on their accounts. The first three digits of the code are visible on a transcript; however, the IRS can see a longer and more detailed code on its computer system. When it comes to taxpayers who are waiting for ERC refunds, knowing what these codes mean will allow taxpayers to better anticipate what actions they will need to take next to secure their refunds. Below I will detail some of the key transcript codes that denote problems that will sometimes require taxpayers to act in obtaining their refund.

• Code 290 - "Disallowed Claim"or "Additional Tax Assessed" - This one is tricky because Additional Tax Assessed of $0 can mean several things. We have heard Code 290 is just a marker for activity. (i.e., someone is about to work on the account, there is are fund issued, etc.) If this code appears be prepared to receive a notice from the IRS.
• Code 420 - "Examination of TaxReturn" and Code 424 "Examination Request" - These typically both populate on each account at the same time. Typically, it means an examination of the return is likely to occur soon or is ongoing.
• Code 971 - "Notice issued" - This can mean a variety of things, but we are seeing these populate when a 6577-C is issued for a client. This is issued after the funds are released and is typically a discrepancy with wages & W-2 forms filed. These notices may have strict deadlines that must be adhered to otherwise the taxpayer risks losing their ERC claim.
• Code 767 - "Decrease of retention credit due to COVID-19" - We have seen this with the 6577-C issue and theIRS is taking back the credit after they have already issued a refund. Results in a balance on the account. 
• Code 740 - "Undelivered refund returned to IRS" - Mailing/address issue.  
• Code 841 - "Refund Cancelled" -We usually must call Practitioner Priority Service (PPS) to figure out why this code appeared. Sometimes the IRS will catch an issue with how they processed something so this will populate after the refund is coded but prior to it being issued. We have also seen instances where there was prior ERC filing and IRS processes the new filing and then quickly cancels the new refund.
• Code 971 - "Request for replacement refund" - This is triggered sometime after a Form 3911 (Taxpayer StatementRegarding Refund) is filed. This Form is filed when the taxpayer asserts that the check the IRS sent them went missing.

Taxpayers may not have the experience or the time to monitor their IRS transcripts. The IRS permits third parties authorized by the taxpayer to monitor the taxpayer’s transcripts for them. Allowing a third party that has the experience to recognize certain transcript codes, and the time to follow up on them, can be well worth the reduction in mental anguish that can come from being forced to wait for the IRS to inform the taxpayer about changes in their account status.

Frost Law has a lot of experience monitoring tax transcripts for our clients and for taxpayers looking to have a reputable law firm closely monitor their transcripts. If you need assistance with monitoring your tax transcripts, don't hesitate to reach out to us at (410) 497-5947 or schedule a confidential consultation with our team of tax attorneys.