People usually find a TC 420 the same way: their refund never arrives, they pull the account transcript, and there it is, a zero-dollar line with a scary-sounding explanation. Then they spend a week assuming the worst.
Here is what the code actually says, what it does to the account, and how to tell when it is over.
What TC 420 means
Document 6209 titles TC 420 "Examination Indicator." It says the code is "computer generated at SC when opening record is posted," can also be input on Form 3177, and "indicates that return has been referred to the Examination or Appeals Division." The same entry adds: "The return has been assigned in the Examination or Appeals Division."
That is the plain meaning. Your return for that tax period is in the hands of Examination or Appeals. It does not, by itself, say what is being examined, how deep the exam will go, or whether anything will change. Some exams end with no change. Some end with an assessment. The TC 420 only says the door is open.
There is a sibling code. Document 6209 defines TC 424 as "Examination Request Indicator," meaning the return was referred to Examination or Appeals, which "generates Examination opening inventory information." It adds that a TC 424 can be generated on individual accounts "when an IRP Underreported Case is referred to Exam." So a matching case that grows into an audit can show up as a TC 424. TC 425 is a reversed TC 424.
What the exam indicator does to the account
Three effects matter in practice.
It freezes the module. Document 6209's freeze code table describes the AIMS indicator freeze: "Account selected for audit freeze is set by posting TC 420/424. Module freeze." A frozen module generally does not refund while the freeze is on. That is why the TC 420 and the missing refund tend to show up together.
It blocks most adjustments. The 6209 entry says that if a TC 420 is unreversed, a TC 290, TC 291, TC 298 or TC 299 will generally not post unless certain priority codes are present. In other words, while Examination owns the return, the ordinary adjustment stream mostly stands down. A zero-dollar TC 290 and the tentative carryback codes TC 294 and TC 295 are exceptions that can still post.
It can trigger a hold on later payments. Document 6209 lists, among the ways a TC 570 additional liability hold is generated, a TC 670 payment that creates a credit balance when an unreversed TC 420 or TC 424 is present. If you overpay a year that is under exam, expect the overpayment to sit.
What TC 421 means
Document 6209 titles TC 421 "Reverse Examination Indicator" and says it "reverses TC 420 or 424." It is generated when an exam assessment, TC 300, posts with certain disposal codes to a module with an unreversed TC 420 or TC 424, and it can also be input directly by Examination.
In practical terms, TC 421 is the close. The examination indicator comes off. Whatever freeze it set should release, subject to anything else on the account. The freeze code table says the AIMS freeze is released by "certain TC 30X or 42X transactions."
Read the lines around the TC 421 to see how the exam ended.
| What you see | What it usually means |
|---|---|
TC 421 with no TC 300 | Indicator released without an exam assessment |
TC 300 then TC 421 | Additional tax assessed by Examination or Appeals, exam closed |
TC 301 then TC 421 | Tax reduced by Examination or Appeals, exam closed |
TC 494, no TC 300 yet | Notice of deficiency issued; assessment restricted during the petition period |
TC 420, nothing else for a long time | Exam still open |
The TC 300 side of this is covered in TC 300: How an Audit Assessment Looks on Your Transcript.
Codes that travel with an exam
An exam leaves other marks on the account, mostly through TC 971 action codes in Document 6209.
- Action code 610: third party contact notification made by Exam.
- Action code 072: inspected return, used for Exam.
- Action code 013: amended return or claim forwarded to Examination.
- Action code 251: Appeals has the tax period under consideration as a penalty appeals case.
A TC 560 extending the assessment statute is also common during exams. Document 6209 says it "extends the Assessment Statute Expiration Date to the date input." If you see one, someone signed a consent to extend the time to assess.
Document 6209 also lists TC 428, an examination or Appeals case transfer that updates the AIMS control information. It notes that TC 428 does not post to the individual or business master file as a transaction, so you may never see it, but if an IRS employee mentions that your case was transferred, that is the mechanism.
When TC 420 shows up and you never got a letter
The indicator posts when the opening record posts, and that does not necessarily line up with the day a letter reaches you. If you see a TC 420 and have heard nothing, do not wait indefinitely. A frozen refund is your money sitting still, and a phone call or a letter from your representative asking who has the case is a reasonable next step.
Also check the other years. An exam on one year often coincides with holds on others, especially if a later year's refund would be the natural place for the IRS to collect a proposed deficiency. The codes for that are in TC 570 and TC 571 and Refund Offset Codes.
Underreporter vs. examination
Not every proposed change is an audit. The Automated Underreporter program, which issues CP2000 notices, works through TC 922 and its process codes, not through TC 420. Document 6209's underreporter process codes include closures to field audit, office audit and campus exam, which is the point where an underreporter case can become an examination. If your transcript shows TC 922 activity and then a TC 424, the matching case was referred. See TC 922 and the Underreporter Program.
Amended returns and payments while the exam is open
Two things people do during an open exam create confusion on the transcript.
The first is filing an amended return for the year under exam. Remember the 6209 rule: with an unreversed TC 420, adjustment codes such as TC 290 and TC 291 generally will not post. An amended return cannot be processed through the normal adjustment stream while Examination owns the year. Document 6209 lists TC 971 action code 013, "Amended return/claim forwarded to Examination," which is what you will usually see instead. The amendment becomes part of the exam. That can be a good thing, but do not expect it to move on its own timetable.
The second is paying. A payment that creates a credit on a year with an open exam indicator can generate a TC 570 hold, per Document 6209. If you want a payment applied against a proposed deficiency, it should be designated for that purpose. Document 6209 defines TC 640 as an advance payment of a determined deficiency or underreporter proposal and describes how its freeze releases when the exam assessment posts.
Examination and Appeals are different offices
The 6209 definition covers both. A TC 420 can mean the return is with Examination or with Appeals. If you have already been through an exam and filed a protest, the indicator may stay on while Appeals has the case. The transcript will not always distinguish the two, but your correspondence will. Appeals letters and Examination letters come from different offices and offer different things.
What to do
- Confirm the code.
TC 420orTC 424, and the tax period it is on. - Find or request the exam letter. It tells you what is being examined and who to contact.
- Watch the deadlines in the letter. Exams run on response dates, and missing them changes the outcome.
- Do not sign a statute extension without understanding it.
- Track the close. Look for
TC 421, and for theTC 300orTC 301that tells you the result.
If the exam letter has arrived, the firm's main site has an overview of how IRS audits are handled. The transcript will tell you when the IRS opened it and when it closed it. What happens in between depends on what you do with the letter.