Preliminary Work and Taxpayer Data · Preliminary work to prepare tax returns

Previous IRS correspondence with taxpayer

A new client rarely volunteers that the IRS has written to them, and almost never volunteers the envelope. Yet what the Service has already said about a prior year decides three things about the engagement in front of you: whether a deadline is running, whether the return you are about to prepare has to be consistent with a position the taxpayer has already taken or lost, and whether you have an affirmative duty to tell the client something they will not want to hear.

The rule

The practitioner’s own obligations come first. A practitioner who has been retained on a matter administered by the Service and who knows the client has not complied with the revenue laws, or has made an error in or omission from any return, document, affidavit or other paper submitted under those laws, must advise the client promptly of the fact of that noncompliance, error or omission, and must advise the client of the consequences under the Code and regulations (Circular 230 § 10.21). The duty is triggered by knowledge, and prior correspondence is one of the commonest ways knowledge arrives. Separately, a practitioner must exercise due diligence in preparing returns and in determining the correctness of representations made to Treasury and to clients (Circular 230 § 10.22(a)). Reliance on another person’s work product is presumed diligent only where the practitioner used reasonable care in engaging, supervising, training and evaluating that person (Circular 230 § 10.22(b)).

Not every letter starts a deficiency clock, and the difference is statutory. Where a taxpayer is notified that additional tax is due on account of a mathematical or clerical error on the return, that notice is not a notice of deficiency: the taxpayer has no right to petition the Tax Court on it, and the ordinary bar on assessment and collection does not apply. The notice must set forth the error alleged and an explanation of it (IRC § 6213(b)(1)). The taxpayer may request abatement of the assessment within a fixed window, and on receipt the Secretary shall abate; any reassessment then goes through the ordinary deficiency procedures, which restores the Tax Court route (IRC § 6213(b)(2)(A)). Levy and court collection are stayed during that window (IRC § 6213(b)(2)(B)).

“Mathematical or clerical error” is a closed list, not a general description of arithmetic. It covers an error in addition, subtraction, multiplication or division; incorrect use of an IRS table where the error is apparent from other information on the return; an entry inconsistent with another entry on the same return; omission of information required to substantiate an entry; a deduction or credit exceeding a statutory limit expressed as a monetary amount, percentage, ratio or fraction where the items applying that limit appear on the return; and specified missing taxpayer identification numbers (IRC § 6213(g)(2)(A)–(H)).

To read the account you need authority. The Service may disclose a return or return information to a person the taxpayer designates in a request for or consent to disclosure, subject to conditions by regulation, and the designee may not use the information for any purpose other than the express purpose consented to nor pass it on without the taxpayer’s express permission (IRC § 6103(c)). In practice that consent is a Form 8821 tax information authorization or a Form 2848 power of attorney.

The record itself comes in six flavours. The Transcript Delivery System produces the tax return, tax account, record of account, wage and income, and verification of non-filing transcripts for individuals, plus business entity transcripts (IRM 21.2.3.2). Since September 2018 individual transcripts are masked: some personally identifiable information is removed entirely, such as city, state and postal code, and some is shortened to the last four digits, while financial amounts display in full (IRM 21.2.3.3). An authorized representative may have individual transcripts, including the unmasked wage and income transcript where it is needed for return preparation and filing, delivered to their own e-Services Secure Object Repository mailbox; the representative must hold their own or a business CAF number in good standing, and a valid Form 8821 or Form 2848 supplied at the time of the request need not have been processed by the CAF unit first (IRM 21.2.3.5.3.2.2). A transcript is not a photocopy of the return; that is Form 4506, for a fee.

Current figures

How it works in practice

Ask the question in a form the client can answer. “Has the IRS written to you?” gets a no. “Bring everything that came from the IRS in the last three years, including anything you thought was junk” gets the envelope. Then read the notice number in the corner, the tax period, and the date — the date is the one that matters, because most windows run from the date on the notice rather than from when it was opened or forwarded.

Then pull the record independently. Clients lose notices, and the account transcript shows what the Service actually did: the assessment, the adjustment, the penalty and interest, and any freeze. Match the wage and income transcript against what the client hands you; a missing Form 1099 in the client’s folder that appears on the transcript is the single most productive check in the whole intake, both because it prevents a notice next year and because it may explain the notice this year.

Two limits on the transcript as evidence are worth knowing before you rely on one. The wage and income transcript only shows information returns already filed with the Service, so it is not a complete list of what was issued to the taxpayer, and it will not generate at all above a document ceiling. And a transcript displays only the first few Schedule C entries, with the rest consolidated into the totals — for a client with several small businesses, the transcript will not tell you which business produced which number.

Where the correspondence reveals a problem, the § 10.21 duty is not satisfied by fixing the current year quietly. The rule requires advising the client of the fact and of the consequences. That is a conversation, best documented, and it belongs before the engagement proceeds — not least because the answer may be that the prior year needs amending, that a penalty needs a reasonable-cause request, or that you are not the right person for the matter.

How this has changed

The mechanics of getting the record have moved a great deal in the last decade while the underlying law has barely moved at all. Masking arrived in September 2018 for individual transcripts and December 2020 for business ones, and it changed the appearance of the document without changing the financial data on it (IRM 21.2.3.3). Delivery to a representative’s Secure Object Repository mailbox, including the unmasked wage and income transcript where return preparation requires it, is the current route, and since April 2024 a distinct policy governs professionals who ask for that mailbox as the delivery method (IRM 21.2.3.5.3.2.2).

Individual Online Account has also widened the window materially: the account and wage-and-income transcripts now reach a decade there, against three years by mail or telephone, which is why the older advice to fall back on Form 4506-T is now needed less often than it was.

IRC § 6213 itself is essentially unchanged, and that stability is the point. Study material that is wrong on this topic is usually wrong about which notices carry Tax Court rights, not about the statute’s wording.

Exam focus

The examinable core is the distinction between correspondence that starts a deficiency clock and correspondence that does not. Be able to say that a math error notice carries no Tax Court right, that it does carry a short abatement window, that abatement is mandatory on a timely request, and that reassessment afterwards runs through the ordinary deficiency procedures.

Expect the § 6213(g)(2) list to be tested negatively — “which of the following is not a mathematical or clerical error”. Learn the list rather than a paraphrase.

On the authority side, the reliable question is Form 2848 against Form 8821: representation against disclosure. And know that IRC § 6103(c) limits the designee to the purpose consented to, which is the statutory basis for not reusing a client’s transcript on another matter.

Check yourself

1. A taxpayer receives a notice stating that additional tax is due because an entry on the return is inconsistent with another entry on the same return. May the taxpayer petition the Tax Court?

Answer: no. That is a mathematical or clerical error under IRC § 6213(g)(2)(C), so the notice is not a notice of deficiency and IRC § 6213(b)(1) expressly denies any right to petition the Tax Court on it. The taxpayer’s route is a timely abatement request under IRC § 6213(b)(2)(A), after which any reassessment must follow the deficiency procedures and the Tax Court becomes available.

2. During intake you learn from an account transcript that your new client omitted income from a return filed two years ago. What must you do?

Answer: advise the client promptly of the fact of the omission and of the consequences under the Code and regulations (Circular 230 § 10.21). The rule does not require you to correct the prior year or to withdraw; it requires the disclosure to the client, of both the fact and the consequences.

3. A client needs the return exactly as filed, including every attached schedule and statement. Which transcript should you order?

Answer: none of them. A transcript is not a photocopy of the return. A copy of the return as filed is requested on Form 4506 for a fee. The tax return transcript shows most line items from the original Form 1040-series return but does not reflect later changes, and the record of account combines the return and account transcripts rather than reproducing the filing.

4. You hold a signed Form 8821 for a client’s 2024 year. A different client asks you about a transaction with that first client, and the transcript would answer the question. May you use it?

Answer: no. IRC § 6103(c) permits disclosure to a designee but provides that the designee shall not use the information for any purpose other than the express purpose for which consent was granted, and shall not disclose it to another person without the taxpayer’s express permission or request.