IRS Transcripts

Code 420 on Your IRS Transcript: The Audit Indicator, Explained (2025)

By Angeline Balsitis, EA · Reviewed by Melissa Ly, Chief Tax Officer · Updated November 22, 2025 · Editorial Standards

What code 420 means on an IRS transcript

When you pull your account transcript, you'll see a column of three-digit Transaction Codes (TCs) with dates and dollar amounts. Code 420 is labeled "Examination of tax return." In plain English, code 420 on your IRS transcript means the return for that year was pulled out of normal processing and sent to the examination function — the IRS's word for an audit.

The 420 usually posts with a date and a $0.00 amount, because nothing has been changed to your tax yet. It's a flag, not a charge. If you're not sure how to find these codes, our guide on how to read an IRS account transcript walks through every column line by line.

Seeing this code is unsettling, but here's the calm truth: code 420 is the start of a process you can manage, not a verdict. Many examinations close with no change at all.

Code 420 vs. code 424 vs. code 421

Three transcript codes travel together in the audit world. Knowing the difference tells you how far along things really are:

• Code 424 — Examination Request: your return was referred for possible review. Think of it as a flag in line. A 424 can drop off if the IRS decides not to pursue the return.
• Code 420 — Examination Indicator: the return has been formally assigned for examination. A real audit or review is now open.
• Code 421 — Reversal/Closed: the examination is complete. When you see 421, the 420 is removed and the case is closed. Any change to your tax posts as a separate adjustment.

So a return often moves 424 → 420 → 421 over its life. If you only ever see a 424 and then a 421 with no change, the IRS looked and walked away.

Why your return was flagged

The IRS doesn't tell you on the transcript why it picked your return, but the common triggers are well known:

• Document mismatches — the income on your return doesn't match the W-2s and 1099s third parties reported. (This often shows up as a CP2000 first; see our CP2000 notice guide.)
• High or unusual deductions relative to your income — large charitable gifts, business losses, or home-office claims.
• Refundable credits like the Earned Income Tax Credit, which the IRS reviews closely.
• Self-employment and cash-heavy businesses, where reported income is harder to verify.
• Random selection — a small share of returns are pulled by the IRS's scoring system with no specific red flag.

Wondering whether an older year is still fair game? Our explainer on how far back the IRS can audit covers the three-year rule, the six-year rule for big under-reporting, and the open-ended window for unfiled or fraudulent returns.

What happens after code 420 appears

The transcript code is usually the earliest signal. Here's the sequence that typically follows:

1. Code 420 posts — examination opened. Any refund for that year is generally frozen until the review ends.
2. Audit letter arrives — a CP05, Letter 566, Letter 2205, or an in-person exam appointment letter. This is the document that sets your real deadline, usually 30 days to respond.
3. You send records — receipts, bank statements, mileage logs, and anything that backs up the items being questioned.
4. The IRS proposes a result — no change, a refund, or additional tax. If additional tax, you'll often get an examination report (Form 4549) you can agree with or dispute.
5. If you disagree and can't resolve it, the IRS can issue a Notice of Deficiency — the "90-day letter." See our guide to the 90-day letter and Tax Court petition for your appeal rights.
6. Code 421 posts — examination closed. Any tax change appears as a separate code, and the balance (if any) enters collection.

What you should not do is ignore the mailed letter when it comes. The transcript code is informational, but the letter is on a clock. Missing the response window can lead to the IRS deciding against you by default — and a much harder cleanup later.

How to respond, step by step

1. Pull your transcripts. Confirm the 420, the tax year, and any related 424 or 421 codes. If you don't have them yet, see how to get your IRS transcript online.
2. Find the matching return. Re-read what you filed for that year so you understand which items might be questioned.
3. Wait for the official letter — but prep now. Start gathering receipts, bank records, and proof for your biggest deductions and credits. Organized records are your best defense.
4. Note the deadline on the letter. Respond by that date, in writing, and keep copies of everything you send.
5. Answer only what's asked. Provide the documents for the items under review — not your entire financial life. Be accurate and complete.
6. Get a professional review if the year is complex, if you owe or expect to owe, or if the IRS proposes changes you disagree with. The order you handle things in can change the outcome.

You can read the IRS's own overview of the process on the IRS audits page, and your protections in the Taxpayer Bill of Rights.

Code 420 questions, answered

This guide is general information, not tax or legal advice for your specific situation. Eligibility for IRS programs depends on individual facts and circumstances; no outcome is guaranteed.

Related: how to read an IRS account transcript, how far back the IRS can audit, and audit reconsideration if an exam closed against you — or browse all guides.