Consumer Bankruptcy Journal Winter 2018 - Page 26

Secrets of the IRS Account Transcript By Morgan D. King, of Morgan King Company & Morgan King Law Offices Dublin, California A fundamental step in looking at a possible IRS income-tax discharge case is obtaining and understanding the IRS Account Transcript 1 for each year for which taxes are owed. I venture to say getting the transcripts is the sine qua non of tax discharge. 2 Among other things, to be dischargeable an income tax must satisfy 3 time rules. In most cases the transcript will typically identify these 3 critical dates; 3 1) The most recent date the tax return was due to be filed or “given” 4 by the taxpayer. 5 2) The date the client actually filed or “gave” his/her tax return. 6 3) The date assessed. 7 the tax was Here are some issues that bear on these 3 questions. 1. “Tax Per Return” on the account transcript shows zero dollars. The “Tax Per Return” appears on every transcript, showing either ‘0’ or a dollar amount. A zero with Tax Per Return 26 CONSUMER BANKRUPTCY JOURNAL is a clue that the taxpayer did not file a tax return; had there been a $$ dollar amount shown with the “Tax Per Return,” the figures almost certainly came from the taxpayer’s filed 1040 tax return; hence, the taxpayer did in fact file a return. But if there is no dollar amount shown with “Tax Per Return,” it is more likely that the return, if any, was a substitute for return (“SFR”) filed by the IRS, which is always blank (hence, sometimes called a “dummy return).” 8 Caveat, the date shown on the transcript at “Return Due Date or Return Received Date - and sometimes just “SFR”). This language is misleading. The date shown with code 150 is not the date the return or SFR was filed, and represents an assessment only if a $$ dollar amount appears with the code 150. Code 150 begins the transcript and if the client’s filed tax return shows an amount owed, the code 150 shows the date the tax was assessed and the amount. 8. Code 240 2. Code 150 This indicates other penalties codes such as penalties for negligence or late-filing, and similar non-criminal offenses. 9 This indication may be important because the penalties, including penalties for fraud or evasion, are dischargeable if the event triggering the penalty happened more than 3 years before bankruptcy filing. 10 In the left column of the transcript will be found the 3-digit IRS transaction code no. “150.” Typically, code 150 contains the phrase “Return filed and tax assessed.” Or, it may say Hence, filing within 3 years renders the penalty non-discharged in the bankruptcy. Penalties are also indicated by other transaction codes such as 170, 180, 280, and 310. “Substitute tax return prepared by IRS” 10. Code 275 Whichever is Later,” is the date a return was filed for either the client’s 1040, or an IRS SFR. That date is the actual date the client’s return or the SFR was filed, not the date shown with code 150, discussed below. Winter 2018 National Association of Consumer Bankruptcy Attorneys