The First Step in Any Tax Problem: Pull the Transcripts

When a new client comes to me with a tax problem, they usually start with a story.

“I got a scary letter.”
“I think the IRS made a mistake.”
“My old preparer messed everything up.”
“I haven’t filed in years, but I’m not sure which ones.”

All of those stories might be true. Some of them usually are. But before I give advice, before I talk strategy, before I promise anything, I do the same thing every single time.

I pull the transcripts.

Because IRS transcripts tell the story. And they tell it better than memory, emails, or a stack of unopened notices ever will.

Why Transcripts Matter More Than What the Client Thinks Happened

Clients rarely have the full picture. That is not a criticism. The tax system is complicated, IRS notices are confusing, and problems often build quietly over the years.

Transcripts show what actually happened.

They tell you:

• What returns were filed and when

• What the IRS processed versus what the client submitted

• What payments were posted and how they were applied

• When penalties and interest were assessed

• Whether the IRS believes a return is missing

• Whether enforcement has already started

Without transcripts, you are guessing. With transcripts, you are diagnosing.

And tax problems should always be diagnosed before they are treated.

The Core Transcripts That Tell the Story

Not all transcripts serve the same purpose. When evaluating a tax problem, these are the ones that matter most.

Account Transcript
This is the backbone. It shows assessments, balances, penalties, interest, payments, and enforcement activity. If there is a lien filing, levy action, or adjustment, it will appear here.

Record of Account Transcript
This combines the account transcript with return data. It is especially helpful when something does not add up, and you need context.

Return Transcript
This shows what the IRS processed, which is not always what the taxpayer intended to file. That distinction matters more than most people realize.

Wage and Income Transcript
This reflects third-party reporting. W-2s, 1099s, K-1s, brokerage statements, and payment processor reporting. For non-filers and audit cases, this transcript is critical.

Each transcript answers a different question. Together, they tell the full story.

Non-Filers: Where Transcripts Become Essential

For non-filers, transcripts are not just helpful. They are essential.

When someone says, “I haven’t filed in years,” the next question is not how many years they believe are missing. It is how many years the IRS expects returns for.

Those numbers are often very different.

Transcripts tell you:

• Which years the IRS believes are unfiled

• Whether the IRS has already taken action

• Whether the taxpayer still has an opportunity to file voluntarily

Did the IRS Prepare a Substitute for Return?

A Substitute for Return, or SFR, is when the IRS prepares a return using third-party information such as W-2s and 1099s.

SFRs are almost always unfavorable to the taxpayer.

They typically:

• Omit deductions

• Omit credits

• Use the least favorable filing status

• Create inflated balances

The account transcript will show whether an SFR has been prepared. That single fact often determines the strategy.

If an SFR exists, the goal is usually to replace it with a properly filed return.
If no SFR exists, timing and filing order become far more important.

Without transcripts, you do not know which situation you are in.

Wage and Income Transcripts as the Non-Filer Blueprint

For non-filers, the wage and income transcript is the roadmap.

It shows exactly what the IRS already knows. Employers. Banks. Brokerages. Payment platforms.

When preparing delinquent returns, you are not guessing at income. You are reconciling to what the IRS already has on file.

Filing without this information is risky. If the IRS has more data than the taxpayer does, the return is likely to be challenged.

The IRS Six-Year Filing Requirement and Why It Matters

Another critical reason transcripts come first is the IRS policy on how many years must be brought into compliance.

The IRS generally requires the last six years of tax returns to be filed before it will consider a taxpayer compliant and eligible for most resolution options.

This policy is outlined in IRS Policy Statement 5–133, which governs delinquent return investigations.

This does not mean the IRS can only assess six years. It means that, as a matter of administrative policy, six years is usually the minimum required to move forward.

But here is the key point:

You cannot determine which six years are required without reviewing the transcripts.

Transcripts show:

• Which years the IRS expects returns for

• Whether earlier years were assessed through SFRs

• Whether certain years fall outside of practical enforcement

• Whether filing an older year could create new problems

Blindly filing 'everything' without transcript review can be a serious mistake, one that's difficult to undo. Strategic compliance starts with knowing exactly what the IRS is asking for.

“I Don’t Know What I Elected” and the ENMOD Transcript

Another common issue involves uncertainty around entity elections.

Clients will often say:
“I think we elected S corporation status, but I’m not sure.”
“I had an LLC years ago and don’t know how it was taxed.”
“My old tax pro handled all of that.”

The ENMOD transcript answers this.

The ENMOD transcript provides entity-level information, including:

• Entity classification

• Filing requirements

• Certain elections

• Account status with the IRS

If you do not know how the IRS currently classifies an entity, you cannot confidently file returns, amend prior years, or correct past mistakes.

Assumptions here can create years of compounding errors. Transcripts replace assumptions with facts. ENMOD transcripts require calling the IRS and having them faxed to you. You can read more about them in this article from Tom Talks Taxes.

Collection Statute Expiration Dates and Tolling

The collection statute expiration date, the CSED, is another reason transcripts must come first.

In most cases, the IRS has ten years from the date of assessment to collect a tax debt. Once that statute expires, the balance is no longer legally collectible.

But that ten-year clock does not always run cleanly.

Certain actions toll the statute. You cannot reliably identify those without reviewing the transcript.

Common tolling events include:

• Bankruptcy filings

• Offers in compromise

• Collection due process hearings

• Certain installment agreement activity

• Time spent outside the United States

• Military deferments

Clients rarely remember these events accurately. Some do not realize they affect the statute at all.

Why CSED Analysis Changes Strategy

Two taxpayers can owe the same amount and require completely different strategies based solely on statute timing.

If a CSED is approaching, aggressive collection alternatives may not make sense. Sometimes compliance and patience are the best strategy.

If the statute has been significantly tolled, waiting may be the worst option.

CSED timing affects decisions about:

• Offers in compromise

• Installment agreements

• Appeals

• Delay strategies

You cannot responsibly advise on any of this without knowing exactly where the statute stands.

Why This Should Always Be Step One

I still see practitioners draft letters, make phone calls, and promise outcomes before pulling transcripts.

That approach leads to bad advice and broken expectations.

Transcripts cost nothing but time. They save enormous amounts of it later. You should be charging for this. Present the client with a report, lay out their options, and offer an engagement for representation if you want to take the case. The diagnostic work has value; price it that way.

If you do tax representation work, transcripts are not optional. They are foundational.

The Bottom Line

Every tax problem has a timeline, a paper trail, and a legal endpoint.

The IRS tracks all of it.

Transcripts are how you see it.

Before advice.
Before strategy.
Before solutions.

Pull the transcripts.

They tell you what happened, and what can still happen.

If you want to learn more about transcripts, this class, taught by Clarice Landreth for Compass Tax Educators, is very good.