Tax Transcripts – Why They Matter
I am going to share a little inside baseball to those of you reading this post. I can, 95% of the time, know how to resolve a client’s case from reading tax transcripts. Tax transcripts are the information stored on the IRS computer system. Here is a short list of what information you can find:
- When tax returns were filed
- Amounts due, including interest and penalties
- What the taxpayer’s reported income is (W-2s, 1099s, retirement income, social security, etc.)
- If the taxpayer filed all of his or her tax returns
- What the taxpayer has made for estimated tax payments
- Any potential IRS audits
- If the IRS has filed a tax lien or seized a taxpayer’s assets
- How long the IRS has left to collect any unpaid taxes
I haven’t even scratched the surface of what you can find in the IRS system. I find things the taxpayer has forgotten or did not even know about!
Tax Transcripts Come in Many Different Flavors
Tax transcripts are not one type of form. Instead, you can obtain four major transcripts that can be used to help clients.
- Tax Return Transcript – a line-by-line description of a filed tax return. Tax return transcripts show items like adjusted gross income, taxable income and tax due. It will also show income and expenses for a sole proprietorship or rental property.
- Tax Account Transcript – this has some information regarding the tax return; its major purpose is to show the activity in the taxpayer’s account for a particular tax year. Tax account transcripts show the balance due for that year, if estimated tax payments were made and if any penalties were assessed. It will also show things such as filing bankruptcy or a pending audit.
- Record of Account Transcript – this is a combination transcript. It contains the information from the tax return transcript and tax account transcript but only for the last three tax years.
- Wage and Income Transcript – a listing of all information forms filed under the taxpayer’s SSN, such as W-2, 1099-R (for retirement income), and 1099-MISC for income earned as an independent contractor. Often, I use these transcripts to help clients complete any unfiled tax returns.
Knowing is Half the Battle
Obtaining tax transcripts are important to resolving a client’s case. I hope this brief explanation gives you an idea why. Many people who come to my office have no idea what is going on in their case. I can help them by reaching out to the IRS and looking at the four types of transcripts. Sometimes I find additional bad news for a client but more often than not I find opportunities to help a client reduce their tax debt. For those of you of a certain age, you will remember at the end of the G.I. Joe cartoons that there would be a helpful tip to avoid trouble. The G.I. Joe character would also end the tip by saying, “And knowing is half the battle.” So true.
I am Maine’s IRS Problem Solver. My firm helps Maine taxpayers in trouble. If you or someone you know in Southern Maine wants more information on how to resolve your unpaid taxes, please feel free to contact me directly at 207-502-7181 or by filing out my contact form. A Maine tax attorney can help you consider your options.
James D. Wade, Esq.
Law Office of James D. Wade
57 Portland Road, Unit 3
Kennebunk, ME 04043