What IRS Code 420 Means, How It Stops Your Refund, and What Happens Next

Most taxpayers expect their refund to move smoothly from “Return Received” to “Refund Approved.” But when the IRS suspects that something on the return needs closer examination, the process can stop suddenly. One of the clearest indicators that your return has entered a full audit is the appearance of Transaction Code 420 (TC 420) on your IRS transcript.

TC 420 is not a routine review. It is a formal notice that the IRS has begun an examination, and your refund is paused until the audit is resolved. Understanding what TC 420 means—and what to expect next—can help you prepare for what is often a lengthy process.

What Is TC 420?

TC 420 – Examination Initiated

This code appears when the IRS has officially started an audit of your tax return. Unlike identity verification holds or income-matching delays, an audit is a structured investigation into one or more items on your return.

Once TC 420 is posted:

• Your return is under examination
• Your refund is put on hold
• Additional IRS correspondence is likely
• Resolution requires human review, not automation

TC 420 is one of the most serious codes you can see during tax season.

Why the IRS Initiates an Audit (Common Triggers)

The IRS selects some returns randomly, but TC 420 usually appears for specific reasons, including:

1. Large refundable credits

• Earned Income Tax Credit (EITC)
• Additional Child Tax Credit (ACTC)
• American Opportunity Tax Credit (AOTC)

2. Suspicious income or withholding patterns

• Unusual W-2 withholding
• Large discrepancies between income and lifestyle indicators
• Missing or mismatched income documents

3. High deductions relative to income

• Business losses
• Schedule A deductions
• Rental losses without qualifying criteria

4. Dependent claims

• Multiple taxpayers claiming the same child
• Residency eligibility questions
• Relationship discrepancies

5. Random screening

Even fully accurate returns sometimes get pulled for audit.

TC 420 means the IRS believes your return needs deeper examination, regardless of the trigger.

Where TC 420 Appears on the Transcript

You will find TC 420 in the Account Transcript under the Transactions section. It often appears alongside:

• TC 150 – Return Filed
• TC 570 – Refund Hold
• TC 971 – Notice Issued

TC 420 is the confirmation that an examination has started and your return is now in the IRS audit pipeline.

What Happens After TC 420 Posts?

Once the IRS posts TC 420:

1. Your refund is paused indefinitely

The IRS will not issue a refund until the audit is complete.

2. You will receive an audit letter

Usually within 3–6 weeks, but sometimes longer.

Letters you may receive include:

• CP75 (EITC/ACTC/AOTC audits)
• CP2000 (income discrepancy)
• Letter 566
• Letter 525
• Income or document verification letters

These letters explain what the IRS needs and what part of the return is being examined.

3. You must provide documentation

This may include:

• W-2s or 1099s
• Proof of dependents
• School or medical records
• Business logs or receipts
• Tuition or educational records
• Mortgage or rental statements
• Bank statements

The IRS will not clear the audit without documentation.

4. Your transcript will not show progress for a while

Audit cases often do not move for several weeks or months while the IRS reviews your documents.

How Long Does a TC 420 Audit Last?

Audit timelines vary depending on complexity and IRS workload.

Typical timeframes:

Correspondence audits

3–6 months

Dependent/credit audits

4–8 months

Income discrepancy audits

4–7 months

Complex multi-issue audits

6–12 months

Identity theft + audit combinations

Up to 12–18 months

Refunds will not be issued until the audit fully closes.

How Refunds Move After an Audit Is Completed

After the IRS completes the audit, one of the following will occur:

If you pass the audit

• TC 421 (Audit Closed) posts
• Refund hold is lifted
• TC 846 (Refund Issued) appears
• Any adjustments will be shown under TC 290 or TC 291

If you owe more tax

• TC 290 (Additional Tax Assessed) posts
• No refund is issued
• You may receive a bill
• Penalties may be added

If documentation is incomplete

• Your refund may be denied
• The IRS may issue a Notice of Deficiency
• You may appeal or provide more records

TC 421 is the code you want to see—it means the audit is finished.

How To Respond If You See TC 420

If TC 420 is on your transcript:

1. Start gathering documentation immediately

Assume the IRS will ask for proof of income, dependents, credits, and deductions.

2. Wait for the audit letter

Do not send documents until the IRS requests them.

3. Do not expect any refund movement

TC 420 freezes your account.

4. Consider professional help

Tax pros, CPAs, and Enrolled Agents can represent you in the audit.

5. Watch for follow-up codes

TC 421 is the sign your audit is complete.

When to Contact the IRS or TAS

You should contact the IRS Examination Unit if:

• You have not received an audit letter within 6–8 weeks
• You need clarification on what is being examined

You should contact the Taxpayer Advocate Service if:

• The audit delays are causing financial hardship
• The case exceeds typical timeframes
• You cannot get updates from the IRS

TAS cannot end an audit early but can ensure your case is not stalled.

TC 420 is one of the most serious IRS transcript codes.
It means your return has entered a full audit, your refund is paused, and the IRS will require documentation before releasing any money.

Once TC 420 appears:

• A refund is not coming soon
• An audit letter will follow
• The process will take months
• TC 421 is the only code that closes the examination

Understanding TC 420 allows you to prepare ahead, gather documents early, and navigate the audit with confidence.