TC 291 and TC 301: When the IRS Takes Tax Back Off Your Account

Most of the codes people worry about put money on the account. These two take it off. A TC 291 or TC 301 is a tax abatement, and it is usually the line you were hoping to see after an amended return, an audit reconsideration or a successful appeal.

But an abatement is not the same as a refund. Here is how to read them.

The definitions

Document 6209 titles TC 291 "Abatement Prior Tax Assessment" and says it "abates a previously posted 150 and/or 290 or 300 in whole or in part." It "generates abatements (TC 197) of computer-generated interest where applicable" and "releases same freezes and holds as TC 290."

Document 6209 titles TC 301 "Abatement of Tax by Examination or Appeals" and says it "abates a previously posted TC 150, 290 and/or 300 in whole or in part." It generates abatements of computer-generated interest where applicable, shown as TC 197 or TC 337, and releases the same freezes and holds as TC 300.

The difference is the source. A TC 291 comes through the adjustment stream, document code 54. A TC 301 comes from Examination or Appeals, document code 47. Both can reduce tax that came from the original return, a later adjustment or an exam.

Interest follows the tax

When tax comes off, interest that was computed on that tax should come off too. That is what the TC 197 and TC 337 lines are. Document 6209 describes TC 197 as abating previously posted TC 190 or TC 196 interest and says it "is generated when postings cause the interest assessed to exceed interest due (example: Abatement of tax liability)." TC 337 abates interest previously assessed on additional tax or a deficiency, and 6209 says it is computer generated when an examination TC 301 posts.

Penalties computed on the tax often adjust too, but through their own codes. The failure-to-pay penalty, for example, has its own abatement code, TC 277, for the computer-generated version. Look for those lines in the same cycle. If the tax came off and the penalty did not, ask why. I cover the penalty codes in Penalty Codes on Your Transcript.

Abatement vs. refund

Picture three situations after a TC 291 posts.

One: the year had a balance due bigger than the abatement. The abatement reduces the balance. No refund, but you owe less, and interest going forward is computed on a smaller number.

Two: the year was fully paid. The abatement creates a credit balance. Now the IRS has to decide what to do with the credit. Under IRC 6402(a), the IRS may credit an overpayment against any internal revenue tax liability you owe and refund the balance, subject to offsets for certain other debts. If you owe on another year, expect a TC 826 moving the credit out and a matching TC 706 landing on the other year. See Refund Offset Codes.

Three: the year was fully paid, but long ago. Document 6209 describes a refund statute expiration freeze that is set when a TC 29X or TC 30X posts and creates a credit balance made up of prepaid credits, and the refund statute expiration date has already passed. The freeze "prevents refund, offset out and credit elect processing." The statutory rule behind that is IRC 6511, which limits claims to 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever is later, and limits the amount that can be refunded under IRC 6511(b)(2).

So an abatement on an old year can be real and still produce no money. It cleans up the account. It does not override the refund statute.

Abatements that are not 291 or 301

Not every reduction in a balance is a tax abatement, and reading the wrong code can lead you to the wrong conclusion.

A bankruptcy discharge or an accepted offer does not change the tax liability through a TC 291. Document 6209 says a TC 971 with action code 31 or 32, posting to a module with a debit balance, generates TC 604 "Assessed Debit Cleared" for the amount of the assessed balance. The tax that was assessed stays assessed. The balance is cleared.

Priority code 7 and the hold that comes with it

One wrinkle. Document 6209 lists, among the ways a TC 570 additional liability hold can be generated, "a Document Code 54 with TC 291 and Priority Code 7 in blocking series 740-769." In other words, some abatements are posted with an intentional hold so the resulting credit does not refund or offset right away while something else is pending. If you see a TC 291 followed by a TC 570, the abatement happened but the money is parked. Read TC 570 and TC 571.

The erroneous abatement problem

Abatements can be wrong, and the IRS has tools for that too. Document 6209 lists TC 860, "Reverses Erroneous Abatement," used after the statute of limitations has expired, and notes it does not post to the Master File. It also lists TC 971 action code 090 to establish a tolerance level for erroneous abatement. If your account shows a large abatement that you did not ask for and do not understand, do not spend the refund until you know where it came from.

Where abatements usually come from

A TC 291 or TC 301 does not appear out of nowhere. It almost always follows something you or the IRS started.

• An amended return. The TC 977 posts first. If the IRS accepts a reduction, a TC 291 follows.
• A claim for refund or abatement. A TC 470 claim pending may post first, then the adjustment.
• A late original return after a substitute for return. The return posts as a duplicate, TC 976, and the reduction follows. See Substitute for Return on Your Transcript.
• An exam or Appeals result that reduced tax. That is a TC 301.
• A reconsideration. Document 6209 lists TC 971 action codes 560 through 575 for reconsideration activity, including reconsideration initiated and closures with full allowance, partial disallowance or full disallowance.

If you see a reconsideration action code with a full or partial allowance and no matching abatement line, give the account a few cycles. If it still does not post, follow up. The action code records the decision. The abatement code is what changes the money.

Partial abatements

Both definitions say "in whole or in part." A partial abatement is common, and it is easy to misread as a full one if you only look at whether the line exists. Compare the abatement amount to the assessment it reduces. If an exam assessed 6,000 dollars and a TC 301 abates 4,000, there is still 2,000 assessed plus the interest and penalties tied to it.

How to read an abatement in practice

• Identify the code. TC 291 means the adjustment stream. TC 301 means Examination or Appeals.
• Find the assessment it reduced. Was it the original TC 150, a later TC 290 or an exam TC 300?
• Look for the interest and penalty abatements that should follow.
• Check the account balance after the abatement. Debit, zero or credit?
• If credit, look for a TC 846 refund, a TC 826 offset, or a hold.
• If no refund and no offset, consider the refund statute.

An abatement is a win on the liability. Make sure you understand what it did to the balance before you count it as a win on the money.

And keep the paperwork that produced it. If the abatement came from an amended return, keep the amended return and proof of filing. If it came from an exam or Appeals, keep the closing documents. Abatements are sometimes reversed when the IRS decides one was posted in error, and the best defense against that is being able to show exactly why it was allowed.