IRS Code 898: What Does It Mean on IRS Transcript?

Every year millions of taxpayers look forward to seeing Code 846 on their tax account transcripts that indicate the IRS has issued their refunds.

However, the amount you’ll receive may be lower than expected if the IRS adds Code 898 to the transcript after approving your refund. The code suggests that the Bureau of the Fiscal Service (BFS) has offset a portion or the entire refund to settle a delinquent debt.

Seeing this transaction code shouldn’t be a surprise because the BFS must send you an offset notice with information regarding the amount they intend to collect through the Treasury Offset Program.

Let’s see what IRS Code 898 means on a tax account transcript and how to prevent the BFS from garnishing your refund.

The Basics of Treasury Offset Program

All tax refunds are approved and issued by the IRS and BFS, but these agencies can offset a refund to collect a debt.

The Treasury Offset Program was established with the Debt Collection Improvement Act of 1996 with the aim of creating a centralized apparatus for delinquent debt collection.

Taxpayers with outstanding debts usually receive an offset notice from the BFS two months before the IRS sends their refund to the TOP.

The notice contains the following information:

• The full refund amount and the amount owed.
• The name and contact details of the agency that will receive the funds.
• A list of payment options available to a taxpayer.

Entering a payment agreement or choosing another payment option will ensure the BFS won’t garnish your refund. Your debt will be sent to the Treasury Offset Program (TOP) if it’s 120 days overdue and you don’t respond to the offset notice within sixty days.

The BFS informs the IRS about the offset amount it intends to withhold from a taxpayer’s refund after the refund deadline.

The IRS will then notify you prior to offsetting your refund, so you should be fully aware that your refund will be used to pay a debt before Code 898 appears in your tax transcript.

Understanding Non-Tax Debt Collection

The IRS and BFS can’t use TOP to collect all types of debts. Hence, you’ll only see Code 898 on your tax transcript under these circumstances:

• You didn’t fulfill all your state tax obligations.
• You fell behind on your student loan.
• You missed child support payments.
• You have a non-tax debt towards a federal agency.
• You owe unemployment compensation to the state.
• You didn’t meet your spousal support obligations.

Federal non-tax debts include direct loans, penalties, fines, and administrative obligations. These agencies cannot take a portion of your return through TOP if:

• You didn’t pay a monthly credit card bill.
• You have unpaid medical bills.
• You skipped payments on an auto loan.

Moreover, the IRS and BFS won’t use TOP to collect debts under exceptional circumstances such as taxpayer’s death, natural disaster, or injured spouse cases. Moreover, you can appeal an offset if you didn’t receive an offset notice from the BFS.

IRS Code 898 Analysis

The Get Transcript tool on the IRS website gives you instant access to the digital version of your tax account transcript for the current tax year.

Remember that tax return transcripts and other transcript types don’t contain transaction codes, so you must request access to a tax account transcript to check if the IRS has offset your refund.

Code 898 is added to the tax account transcript at the same time or shortly after the IRS approves a refund, and Code 846 appears on the transcript. You’ll find this description in the code’s Explanation of Transaction section: ‘Refund applied to non-IRS debt.’

The section might also contain the offset amount. The date next to Code 898 will be the same as the date next to Code 846, suggesting that the IRS sent the offset amount to a receiving agency the same day it approved a refund.

The Master File Codes document offers additional information about Code 898. The document reveals that the code suggests an action taken by the BFS through the TOP and provides the following description of the code:

‘Treasury Offset Program was initiated by the Financial Management Service (FMS). Posts with the trans date and DLN of the refund from which it originated. It has a memo account, an Offset Trace Number (OTN), and XFREF SSN. TC 898 reduces the amount of the refund with which it is associated. Reversed by a TC 766 or TC 899 with the same OTN.‘

It’s worth pointing out that TC 971 and TC 598 can also indicate an offset. The OTN or offset trace number is occasionally included in the transcript, and you can find it next to Code 898.

The Meaning of Code 898 on an IRS Transcript

This transaction code will appear on your tax account transcript if the BFS offsets your refund and uses it to pay outstanding debt. However, you should receive an offset notice months before the BFS garnishes your refund.

The agency will only collect the amount you owe and issue the remaining amount via direct deposit or a check. If the refund amount isn’t sufficient to cover the entire debt, the BFS will offset your refunds in the following years until the debt is paid in full.

You can reduce the duration of an offset by entering into a payment agreement or exploring other options to repay a non-IRS debt.

IRS Code 898 is reversible, so if the BFS has erroneously offset your refund, you can still reclaim the funds, although the procedure is often complicated and lengthy.

Reversing Code 898

Tax Topic 203 explains why and under which circumstances your tax refund may be reduced. It also indicates that BFS must send you an offset notice if it determines you have a debt they can collect.

Contacting a federal or state agency will enable you to determine if your delinquent debt has entered the debt offset procedure.

The document also instructs taxpayers to call the IRS if they think the debt was assessed to their account by mistake or if the refund amounts on the notice and their tax return aren’t the same.

Moreover, you should contact the BFS call center by calling 800-304-317 or 800-877-8339 if your refund was offset but you didn’t receive the notice.

Taxpayers who file joint returns can reverse Code 898 by filing Form 8379 Injured Spouse Allocation or Form 8857 Innocent Spouse Relief after receiving an offset notice.

Optionally, you can file these forms with your next tax return or when you file an amended return. The IRS needs approximately eleven weeks to process your request, calculate your share of the refund and release the funds.

Bypassing a refund offset is impossible if the IRS and BFS determine your outstanding debt is legitimate. However, filing Form 911 and requesting assistance from the Taxpayer Advocate Service can sometimes help you bypass an offset due to economic hardship.

The IRS will add Code 899 to your tax account transcript if it determines the offset amount was used to pay a debt you don’t owe.

Frequently Asked Questions

Non-IRS Debts and IRS Code 898

Tax account transcripts list all actions the IRS takes from the moment your tax return enters their system until the tax refund is issued.

IRS Code 898 will appear near the bottom of this document if the BFS offsets your refund and uses the funds to pay an outstanding court-ordered, federal, or state debt.

You’ll see Code 899 on your tax account transcript if the BFS determines you should receive the refund and that TOP was initiated by mistake. However, you must contact the BFS if you don’t owe the amount the agency seized or if your spouse is responsible for the debt.

We hope this article helped you understand what Code 898 means on an IRS transcript and what you can do to avoid a refund offset.