Whenever people run into problems with IRS form 1099OID, those problems are usually caused by refund freezes under transaction code 810 and the assessment of frivolous filer penalties. However, these problems can be completely predicted and avoided by simply understanding the behavior of the computer algorithm which the IRS uses in order to approve or deny someone’s 1099OID refund as soon as the 1099OID form is accepted by their system.
The IRS uses an automated matching software to approve or flag 1099OID refunds as soon as forms 1099OID are accepted and electronically uploaded into their computerized database. This software is called the Information Return Master File or ‘IRMF.’ The IRMF matching software was built to ensure that there are sufficient EFTPS deposit payment credits sitting on a particular 1099OID payer’s 945 account under Transaction Code 650 to fund a particular 1099OID recipient’s tax refund when the recipient claims a refund credit is due on their tax return resulting from box 4 entries on form 1099OID showing federal income tax withheld:
Whenever a form 1099OID gets filed and accepted by the IRS, the IRMF software’s matching algorithm will compare the payer and recipient TIN data and box 4 entry from the 1099OID showing federal income tax withheld with the 1099OID payer’s 945 account transcript to confirm that the payer’s name, address, and TIN shown on the 1099OID match their corresponding entries on the payer’s 945 account transcript, and that the 945 account transcript shows a sufficient total credit balance for the tax year of the 1099OID to actually pay out the refund claimed on the 1099OID in box 4 as federal income tax withheld along with all other 1099 withholdings reported for the particular 945 payer at the time the 1099OID gets accepted into the Information Return Master File computer database.
The IRS’s use of this Information Return Master File software allows us to detect whether any particular 1099OID refund will be automatically approved or automatically denied at the time the form 1099OID gets accepted and uploaded by the IRS into the IRMF system and becomes visible on the 1099OID recipient’s Wage & Income transcript visible on irs.gov. IRS employees are able to view a 1099OID recipient’s IRMF transcript on their computer screens whenever the recipient calls in to ask about their transcripts or the status of their tax refund.
When the IRMF software’s algorithm has approved a particular 1099OID recipient’s refund, the IRMF transcript for that particular 1099OID will look like this:
Where the fields from the form 1099OID will be plainly visible on the IRMF transcript, and there will be no fraud flag or warning text next to the form’s document locator number or DLN. The IRMF software algorithm will automatically issue a refund whenever a 1099OID appears on a recipient’s Information Return Master File transcript in this manner with no fraud flag indicator text appearing next to the DLN.
When the IRMF software’s algorithm has denied or flagged a particular 1099OID recipient’s refund, the IRMF transcript for that particular 1099OID will look like this:
Where the text “WARNING! POTENTIAL FRAUDULENT SUBMISSION – CONSIDER SUBMISSION FALSIFIED AND DON’T USE TO VERIFY WAGES OR WITHHOLDING” will appear next to the 1099OID’s Document Locator Number. It’s important to not that this flag can appear in the IRMF database for forms 1099OID even when the form 1099OID is visible on the recipient’s Wage & Income transcript. Whenever this fraud flag indicator text appears next to the form’s document locator number on the 1099OID recipient’s IRMF transcript, the IRMF software algorithm will automatically issue a refund freeze at the time the recipient files their tax return, and this refund freeze will appear on the recipient’s record of account transcript under transaction code 810, which will remain on the transcript indefinitely until the account is referred to the frivolous filer unit automatically after 1 year:
If you file a tax return based on the 1099OID which triggered this 810 code freeze, the IRS will send you this 3176-c letter after about 1 year of silence and ambiguity:
Fortunately, it’s possible for you to check whether your posted 1099OIDs are showing this flag in the IRMF system transcript after the recipient’s wage & income transcript updates on irs.gov, but before filing any tax returns which claim the 1099OID as a basis for a refund. This can be done by verbally asking IRS employees over the telephone to provide you with the DLN Document Locator Number for all forms W2 and 1099 appearing on your recipient’s Wage & Income transcript for the tax year of the 1099OID. Once the IRS employee looks up these document locator numbers, they will have the IRMF system transcript pulled up on their computer screen, and can tell you whether any of the 1099 forms are showing this fraud flag indicator text next to their document locator numbers in the IRMF transcript which the representative has pulled.
It is also possible to file a Freedom of Information Act Request for a copy of the IRMF transcript showing your posted forms 1099OID and their document locator numbers along with any internal flags or fraudulent submission text which may be present next to the forms in the IRMF. This is a written request which can be electronically submitted for free using the IRS’s online FOIA portal, and can be appealed if the IRS does not disclose your complete IRMF transcript to you on the first try.
Link to download our template FOIA request letter and appeal packet (Open with Google Docs):
Download IRMF FOIA Request Packet
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