No, Code 290 on an IRS transcript is not inherently "bad." It signifies an additional tax adjustment to your account. While it can sometimes indicate you owe more money, it doesn't always lead to a tax liability and can even reflect a correction in your favor or a refund.
Understanding IRS Transcript Code 290
IRS transcript codes, like Code 290, are internal markers the IRS uses to process and track changes to taxpayer accounts. When you see Code 290, it means the IRS has made a modification or assessment to your tax record.
What Does Code 290 Signify?
Code 290 specifically denotes an "Additional Tax Assessed" or a similar adjustment. This can arise from various scenarios, including:
- Increased Tax Liability: The IRS determined you owe more tax due to an audit or discrepancy.
- Decreased Tax Liability/Refund: The IRS made a correction that reduces your tax or generates a refund. This might happen if you filed an amended return or if the IRS corrected an error on their end.
- Credit Application: It could also be associated with the application of certain credits to your account.
Common Reasons You Might See Code 290
Code 290 can appear on your transcript for several reasons, often indicating that the IRS has processed information or found inconsistencies related to your tax return.
| Reason | Description | Potential Outcome |
|---|---|---|
| Audits | Your tax return was selected for examination by the IRS, leading to adjustments based on their findings. | Can result in additional tax due, penalties, interest, or sometimes a refund if errors are found. |
| Filing Corrections | Either you filed an amended return (Form 1040-X), or the IRS made a correction to your original return based on their internal review. | Could be in your favor (refund) or against it (additional tax due). |
| Document Matching Issues | Discrepancies between the income or deductions you reported on your tax return and information reported to the IRS by third parties (e.g., employers, banks, brokers via W-2s, 1099s). | Often leads to an adjustment to reconcile the data, which may increase or decrease your tax. |
| Previous Assessment Changes | A prior assessment or adjustment on your account is being updated or reversed. | Reflects a new or revised balance, which could be higher or lower than previously indicated. |
What to Do If You See Code 290
Encountering Code 290 on your IRS transcript requires attention, but not immediate panic. Here are the steps you should take:
- Don't Panic: Remember, it's an adjustment, not necessarily a bill or a problem.
- Review Your Entire Transcript: Look at the other transaction codes and amounts listed alongside Code 290. Sometimes, other codes (e.g., for interest or penalties) will provide more context. Pay close attention to the dollar amounts associated with the code.
- Await Official Notices: The IRS will typically send you a formal letter or notice (such as a CP2000, CP21, or a bill) explaining the reason for the adjustment and any action required. This official notice is crucial for understanding the specifics of the adjustment. Do not act solely on the transcript; wait for the mailed notice.
- Understand the Adjustment: Once you receive the IRS notice, carefully compare it against your tax return and your financial records. This will help you determine if you agree with the adjustment.
- Seek Professional Help (If Needed): If the notice is unclear, you disagree with the adjustment, or you're unsure how to proceed, consider consulting a qualified tax professional (like an Enrolled Agent, CPA, or tax attorney). They can help you understand the notice, verify the IRS's findings, and guide you through the next steps, including appealing the decision if necessary.
Key Insights for Taxpayers
- Code 290 often appears with other transaction codes that provide a complete picture of the adjustment.
- The mere presence of Code 290 does not automatically mean you owe money; it indicates a change to your tax account that could be positive or negative.
- The most important step is to wait for and carefully review the official IRS notice to understand the exact nature and reason for the adjustment.
