A protective Form 843 packet that does not identify the affected transcript entries is procedurally weak. The Treas. Reg. § 301.6402-2(b)(2) sufficiency requirements call for the grounds of the claim to be identified with enough specificity that the IRS examiner can locate what the claim targets. For a Kwong v. United States protective claim, that means identifying, by transaction code, posting date, and amount, each penalty and interest entry assessed against the taxpayer for the year at issue.
In practice, this is the gatekeeping step. A year that looks like a Kwong candidate on the surface may turn out to have already been administratively cleaned up via a TC 167 reversal or other adjustment. A year that looks marginal may turn out to be the strongest year in the file once the transcript reveals the assessment-date sequence. This piece walks through the transcript-reading discipline: which codes matter, which reversals remove an item from the claim, and how to determine which years in a multi-year file are strongest.
Pulling the transcript
Two paths.
IRS e-Services Transcript Delivery System (TDS). The TDS is the standard practitioner channel, governed by IRM 21.2.3 (transcript services). It requires a Centralized Authorization File (CAF) number and a valid Form 2848 (Power of Attorney) or Form 8821 (Tax Information Authorization) on file for the taxpayer-year combination. TDS returns the full account transcript electronically, typically within a few business days of CAF processing. For a multi-year Kwong engagement, request the account transcript for each year separately, the TDS does not return a multi-year combined report; each year is its own pull.
Form 4506-T. The taxpayer-direct request channel. The taxpayer submits Form 4506-T (Request for Transcript of Tax Return) by mail or fax, checking the box for “Record of Account” or “Account Transcript” for each year requested. Processing time is 5-10 business days under normal IRS workload; longer during peak season. Form 4506-T is the right channel when the practitioner does not yet have a CAF authorization in place or when the taxpayer prefers to obtain the transcript directly.
For Kwong protective claim scoping, request the Account Transcript specifically, not the Return Transcript and not the Wage and Income Transcript. The Account Transcript shows the full assessment, payment, and adjustment history including all transaction codes; the Return Transcript shows only what was reported on the filed return; the Wage and Income Transcript shows IRS-side income data. The Account Transcript is the one that carries the Kwong-relevant signal.
The five transaction codes that matter
The Account Transcript shows transactions as TC entries with three-digit codes. For Kwong protective-claim scoping, five codes carry the controlling signal:
TC 166, Failure-to-file penalty assessed. This is the IRC § 6651(a)(1) penalty for filing a return after the original (or properly extended) due date. The penalty is generally 5% of the unpaid tax per month of delinquency, up to 25%. For Kwong purposes, the key question is whether the assessment was computed against an original due date that fell inside the COVID disaster postponement window through July 10, 2023. If yes, the assessment is in scope.
TC 170, Estimated tax penalty (computer-assessed). This is the IRC § 6654 penalty for underpayment of estimated tax. TC 170 is the IRS-computed version, posted automatically based on return-line calculations. The Kwong scope question is whether the underlying estimated-tax due dates (April 15, June 15, September 15 of the tax year, and January 15 of the following year) fell inside the postponement window.
TC 176, Estimated tax penalty (manual). Same statutory basis as TC 170 (IRC § 6654), but manually assessed by an IRS examiner rather than computer-computed. The Kwong analysis is identical.
TC 196, Interest charged for late payment. This is the IRC § 6601 interest charge on underpaid tax liabilities. TC 196 entries accrue from the original payment due date, generally April 15 of the following year for individual income tax. If that due date fell inside the postponement window, the TC 196 interest is in scope for the Kwong recomputation.
TC 276, Failure-to-pay penalty (manual). This is the IRC § 6651(a)(2) penalty for failure to pay tax shown on a return. Like TC 196, the assessment accrues from the original payment due date. Same Kwong scope analysis.
A sixth code matters as a disqualifier:
TC 167, Failure-to-file penalty REVERSED. When the IRS administratively reverses a previously-assessed TC 166, the reversal posts as TC 167 with a negative amount. The reversed penalty is out of scope for the Kwong protective claim, there is no assessment left to abate. Years with a TC 167 reversal of the TC 166 may still have TC 196 / TC 276 / TC 170 / TC 176 entries that remain in scope; do not write off the entire year just because the TC 166 was reversed.
Two related codes that occasionally appear and require care:
TC 277, Failure-to-pay penalty REVERSED. Same logic as TC 167. The reversed TC 276 amount is out of scope.
TC 197, Interest REVERSED. The reversed TC 196 amount is out of scope.
Reading the transcript for claim relevance
The reading discipline is a two-pass scan.
Pass 1, identify candidate entries. Scan the transcript for any TC 166, 170, 176, 196, or 276 entry. Note the posting date (the IRS-side date the transaction was recorded) and the amount.
Pass 2, check for reversals. For each candidate, scan forward in the transcript for a corresponding TC 167, 197, or 277 reversal with a matching negative amount. If found, the candidate is no longer part of the claim. If not found, the assessment remains claim-relevant.
The cleanest mental model: the transcript is a ledger. Each penalty or interest assessment is a debit. Each reversal is a credit. The Kwong protective claim targets only the net-debit assessments, amounts that remain as live IRS-side claims against the taxpayer.
Determining “strongest year” eligibility
Not all Kwong-eligible years are equally strong. Practitioner-side, the framework for ranking years runs through three questions.
First question, does the filed-return date predate the Kwong-recognized postponed deadline of July 10, 2023?
If yes, the late-filing-penalty argument is materially stronger. The taxpayer was filing during what Kwong now reads as the still-open filing window. The TC 166 assessment computed off the original (pre-postponement) due date is computed against a date that Kwong says was no longer the operative deadline.
If no, the return was filed after July 10, 2023, the late-filing-penalty argument is weaker. The filing was late under either the original or the postponed deadline; Kwong doesn’t help.
Second question, does the year carry estimated-tax penalties (TC 170 or TC 176) that originated from quarterly deadlines inside the postponement window?
For tax year 2018, the four estimated-tax deadlines under IRC § 6654(c)(2) were April 17, 2018; June 15, 2018; September 17, 2018; and January 15, 2019. All four fall outside the COVID postponement window (which begins with the federal disaster declaration in March 2020). So 2018 TC 170 / TC 176 amounts are typically not in Kwong scope.
For tax year 2020, the four estimated-tax deadlines were April 15, 2020; June 15, 2020; September 15, 2020; and January 15, 2021. All four sit inside the postponement window. TC 170 / TC 176 amounts for 2020 are typically in scope.
The same analysis applies year-by-year. Map each quarterly estimated-tax due date against the postponement window for the year at issue.
Third question, does the year carry late-payment penalties (TC 276) that accrue from a payment due date inside the postponement window?
For most individual income tax filers, the operative payment due date is April 15 of the following year (April 17, 2019 for tax year 2018; April 15, 2020 for tax year 2019; etc.). The postponement window covers April 15, 2020 through July 10, 2023. So tax years 2019, 2020, and 2021 have their original payment deadlines inside the window. Tax year 2018’s payment deadline (April 17, 2019) falls outside; the TC 276 argument for 2018 is weaker on this prong.
But, 2018 has an offsetting strong feature: if the return itself was filed during the postponement window (after April 15, 2019 but before July 10, 2023), the TC 196 interest that runs from the original due date through the filing date is in scope under the broader interpretation of § 7508A(d) that Kwong applied.
The cleanest single-year examples
Tax year 2018 as filed in late 2020. Return due originally April 15, 2019; filed (say) October 14, 2020. The taxpayer was within the postponement window when filing. TC 166 late-filing penalty was assessed against the original April 2019 due date. TC 276 late-payment penalty likewise. TC 196 interest accrued from the original due date. Under the Kwong reading, all three categories are in scope: the late-filing argument is strong because the filing date predates the recognized postponed deadline of July 10, 2023.
Tax year 2022 with extension to October 15, 2023. Return due originally April 18, 2023, with extension to October 17, 2023. The original April 2023 payment deadline sits inside the postponement window through July 10, 2023. Underlying estimated-tax deadlines for 2022 (April 18, June 15, September 15, 2022 and January 17, 2023) all sit inside the postponement window. Even though the extension ran the filing date beyond July 10, 2023, the underlying payment and estimated-tax exposure is in scope for Kwong recomputation. This is the strongest currently active Kwong year in the typical file because the postponement window covers the full back-end accrual.
Tax year 2020 with reversed TC 166. Return due originally July 15, 2020 (the COVID-era automatic postponement of the 2019 tax year filing deadline shifted 2020 too, in practice). Late filing (say) October 11, 2021. Originally assessed TC 166 of $295.50 was later reversed by TC 167 (typically when the IRS accepted a reasonable-cause defense administratively). The TC 166 is out of scope, already reversed, but the TC 276 late-payment penalty, TC 196 interest, and TC 170 estimated-tax penalty all remain. The year is Kwong-eligible on those three categories.
What to put in the attached protective statement
The attached Protective Statement for each year should include a clean list of the Kwong-in-scope transcript entries. The Form 843 instructions and Treas. Reg. § 301.6402-2(b)(2) do not require this in any specific format, but a tabular presentation is the cleanest for IRS examiner consumption:
Transcript entries identified as affected or potentially affected:
12/14/2020 | TC 166 | $2,640.30 | Late-filing penalty assessed
12/14/2020 | TC 276 | $1,176.40 | Late-payment penalty assessed
12/14/2020 | TC 196 | $1,028.95 | Interest charged for late payment
08/30/2021 | TC 196 | $412.15 | Additional interest charged
08/30/2021 | TC 276 | $1,118.20 | Additional late-payment penalty assessed(Illustrative values; not drawn from any specific taxpayer file.)
The list should include every in-scope entry for the year. Out-of-scope entries (reversed penalties, paid-in-full-and-closed items where the closed assessment is not being challenged) should be omitted. If an entry has been partially paid and partially remains, note that, the refund-vs-abatement scoping (see Kwong II) depends on the paid-vs-unpaid status of each entry.
The statement should also note any reversal context that explains gaps in the list. For example: “The 2020 TC 166 late-filing penalty originally assessed at $295.50 was reversed by TC 167 on 10/05/2022 and is not part of this claim.” That signals to the examiner that the omission is intentional, not an oversight.
Multi-year cross-checking
For a five-year Kwong engagement (2018-2022), the transcript pull should be done for all five years before the protective statements are drafted. Two reasons.
Cross-year payment allocation. Some IRS payment posts apply across multiple years (e.g., a TC 670 payment that the IRS allocates to the oldest assessment first under standard hierarchies). If a payment was applied to a 2018 penalty that’s now in Kwong scope, that affects whether the recovery is refund (paid) or abatement (unpaid). Cross-year scoping prevents the protective filing from misstating the paid/unpaid status of any single year.
Consistency check. The summary paragraph in each year’s Protective Statement should be consistent, same legal-basis citation, same reasoning, same paid/unpaid framing where applicable. Drafting all five statements as a coordinated batch (rather than year-by-year as the transcripts come in) prevents drift in the statement language.
Carryforward identification. Some tax-year-2018 issues carry forward into later years (e.g., an unpaid balance that continues to accrue TC 196 interest in subsequent years; an estimated-tax shortfall that ties to a multi-year filing pattern). The cross-year scan reveals these dependencies before the protective statements are drafted.
When the transcript reading raises a red flag
A few patterns warrant escalation rather than routine drafting.
Years where the transcript shows no assessment activity in the Kwong-relevant window. If the IRS posted no TC 166 / 170 / 176 / 196 / 276 entries for a year, there is no assessment to challenge under Kwong. The year is not Kwong-eligible. Do not file a protective claim for a year with no in-scope assessments, that’s a frivolous filing posture that wastes IRS examiner time and the taxpayer’s credibility.
Years where every penalty has been reversed (TC 167 / 277 / 197). Same conclusion. There is no live assessment to claim against.
Years with TC 300 / TC 290 examination-adjustment entries. A TC 300 (additional tax assessed by examination) or TC 290 (additional tax assessed) signals that the year was examined and the IRS adjusted the underlying tax liability. If the penalties at issue are tied to those examination adjustments, the Kwong protective theory may interact in complicated ways with the examination history. Consider whether the year is better positioned for a different relief mechanism (audit reconsideration, separate § 6404 interest abatement, or examination-stage settlement) rather than a Kwong protective filing.
Years with TC 530 (currently-not-collectible) or TC 480 (offer pending) status. The protective filing remains procedurally available, but the substantive recovery posture is different. CNC status freezes collection; a Kwong protective filing within CNC may sit dormant until CNC status changes. An offer-in-compromise pending status (TC 480) may interact with the protective claim depending on whether the offer covers the penalty period.
Years with TC 599 (return not filed). If the IRS shows the year as a non-filed year, the Kwong protective claim does not bypass the underlying filing requirement. The taxpayer must file the return before pursuing a refund or abatement claim, the IRC § 6402 / § 6511 limitations framework presupposes a filed return as the trigger for the claim period. A “protect-while-you-haven’t-filed-yet” posture is procedurally weak and may be rejected on filing-requirement grounds.
The triage decision
The year-by-year decision is straightforward. If the IRS posted no TC 166, 170, 176, 196, or 276 entries, the year is not Kwong-eligible. If every posted entry has a matching TC 167, 197, or 277 reversal, the year is no longer claim-relevant. For the unreversed entries, the question becomes whether the underlying due date falls inside the COVID postponement window through July 10, 2023. A further overlay check is still required for examination adjustments, CNC status, non-filed years, or fully resolved prior settlements. If at least one active entry survives those screens, the year proceeds to Form 843 drafting under Kwong II.
A clean transcript triage typically identifies two to five Kwong-eligible years per taxpayer for the 2018-2022 window. A typical individual file shows the strongest concentrations in 2020-2022 because all three of those years’ original payment deadlines sit inside the postponement window; 2018-2019 are more variable depending on filing-date timing.
The triage is not a substantive recomputation. The substantive recomputation, applying Kwong‘s postponement reading to recompute what each penalty and interest entry should have been, happens later, after the IRS administratively responds to the protective claim or the contingency otherwise resolves. The triage’s job is to identify which years have something worth preserving and which do not. That binary distinction is the gatekeeper for the protective filing.
Article authority anchors: Kwong v. United States, 179 Fed. Cl. 382 (Fed. Cl. 2025); IRC §§ 6402, 6511, 6601, 6651(a)(1), 6651(a)(2), 6654, 7508A(d); Treas. Reg. § 301.6402-2; IRM 21.5.3 (claim processing); IRM 4.10.6 / IRM 25.6.1 (examination and limitations references); IRS account transcript transaction code definitions; Form 4506-T instructions; e-Services Transcript Delivery System procedures; National Taxpayer Advocate blog Parts I and III.