IRS transcript data doesn’t have to be confusing – a guide

When you’re helping clients with delinquent or amended returns, it’s critical to understand what the IRS transcripts are really telling you. Being able to locate the right years, interpret the data, and use it to fill in missing details can make or break the accuracy of your work. 

Below, you’ll find a few of the top questions from a recent webinar on the topic and their corresponding answers. If you choose to watch the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.     

Q: What is an SFR? 

A: A substitute for return (SFR) is a tax return the IRS creates for a taxpayer when the taxpayer doesn’t file a required return. The IRS uses third-party information (like Forms W-2, 1099, etc.) to prepare the SFR. 

Q: Tax document information is not posted on the IRS.gov website until May for the previous year. Is this the same for the child tax credits (CTC) and economic impact payments (EIP)? 

A: The CTC is claimed directly on the taxpayer’s tax return, on Schedule 8812 (Form 1040), Credits for Qualifying Children and Other Dependents. In 2021, when advance CTC payments were made, the IRS reported those amounts on Letter 6419 issued early in the following year. In years without advance payments, the CTC is reported on the return.  

Economic impact payments were issued automatically and reported on Letter 6475, with those amounts generally showing up in IRS online accounts and on letters in January or February of the following year, which is earlier than typical income document posting. 

Q: Do IRS transcripts come masked or unmasked, and do we have any choice? 

A: Most IRS transcripts are issued in a masked format, and you generally do not get to choose. For individual taxpayers, account transcripts, tax return transcripts and records of account are always masked. Only wage and income transcripts may be provided unmasked, and even then, only in limited situations when they are needed to prepare and file a federal tax return.  

By default, both taxpayers and tax professionals who pull transcripts through the Transcript Delivery System will see masked versions. Suppose a taxpayer or an authorized representative needs an unmasked wage and income transcript to prepare a return, and the client does not have the underlying documents. In that case, the IRS can provide an unmasked wage and income transcript either by mail to the taxpayer’s address of record or by placing it in the representative’s SOR mailbox, provided a valid authorization (typically Form 2848) is on file. With only Form 8821, you should expect to receive masked transcripts. 

Q: What is Form 4852, Substitute for Form W-2 Wage and Tax Statement, or Form 1099-R, Distributions from Pension, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., and how do you determine the federal and state withholding to put on the form? 

A: Form 4852 serves as a substitute for Form W-2, Form W-2c and Form 1099-R (original or corrected), and is completed by taxpayers or their representatives when the employer or payer does not give them a Form W-2 or Form 1099-R, or when the employer or payer has issued an incorrect Form W-2 or Form 1099-R. Federal withholding can be found by pulling the wage and income transcript. Some states have similar transcripts available, which would be an option. Otherwise, you could pull the total withholdings from the final paystub for that year. 

To learn more about preparing returns from transcripts, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.