Consumer Bankruptcy Journal Winter 2018 - Page 27

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 CONSUMER BANKRUPTCY JOURNAL 27