IRS Tax Code 240 indicates accuracy penalties on your tax account transcript.
Understanding various IRS tax codes is crucial when reviewing your tax account transcript, which provides a detailed history of your tax account. Among these, Code 240 is specifically used to denote accuracy-related penalties that may have been assessed against your tax liability.
Understanding Accuracy Penalties (Code 240)
Accuracy penalties are imposed by the IRS when there are errors, negligence, or substantial understatements of income on a tax return. The presence of Tax Code 240 on your account transcript means the IRS has identified issues with the accuracy of your filed return, leading to additional penalties. These penalties are distinct from the original tax assessment and are intended to encourage accurate tax reporting.
Common reasons for accuracy penalties include:
- Negligence or Disregard of Rules: This applies if you failed to make a reasonable attempt to comply with tax laws or exercised carelessness.
- Substantial Understatement of Income Tax: If the tax you reported is significantly less than the tax that should have been reported, specifically if the understatement exceeds a certain threshold (typically the greater of 10% of the correct tax or $5,000 for individuals).
- Substantial Valuation Misstatement: When the value of property or services reported on a tax return is significantly overstated or understated.
- Substantial Overstatement of Pension Liabilities: Overstating pension liabilities to reduce taxable income.
- Substantial Estate or Gift Tax Valuation Understatement: Undervaluing assets for estate or gift tax purposes.
These penalties often arise after the IRS identifies discrepancies, frequently through processes like a CP2000 notice, which flags unreported or underreported income. For more details on common IRS tax issues and notices, you can refer to resources about IRS notices and tax help.
Related IRS Tax Codes
While Code 240 specifically points to accuracy penalties, other codes on your transcript provide additional context to your tax assessment. Understanding these related codes can help paint a complete picture of your tax situation.
| IRS Tax Code | Meaning | Common Appearance & Context |
|---|---|---|
| 240 | Accuracy Penalties | Appears on your account transcript when penalties for errors or underreporting are assessed. |
| 196 | Interest on Tax Assessment | Shows interest charged on the additional tax due. Interest accrues from the original due date of the tax. |
| 971 | Notice Sent (e.g., CP22 Notice) | Indicates that the IRS has sent a specific notice, such as a CP22, which details changes to your tax assessment, including any added interest or penalties. |
If you see Code 240 on your transcript, it's advisable to review the corresponding notices (which might be indicated by Code 971) and understand the specific reasons for the penalty. This will also help determine if there are applicable solutions or avenues for relief, such as penalty abatement requests.
