Decoding the IRS' Individual Master File

In the last few years, it has become commonplace for consumers to annually order a copy of their credit report. For taxpayers in the know, ordering a copy of their Individual Master File from the IRS is just as important and routine. Both the credit report and the IMF contain detailed information about consumers or taxpayers that could adversely affect a person's life.

The IMF is a database created and maintained by the IRS which, according to the IRS "Handbook for Special Agents," is described as "… a magnetic tape record of all individual income tax filers, in Social Security sequence, and … all tax data and related information pertaining to individual income taxpayers are posted to the IMF so that the file reflects a continuously updated and current record of each taxpayer's account." In other words, the IRS has a file on every taxpayer that lists personal information, annual filings, audits, assessments, liens, refunds and a myriad of other data entries.

These master files are often miscoded and often contain derogatory information about the taxpayer. More and more, people are becoming aware that such a file exists, and they are wisely ordering a copy of their IMF for review.

Through the Freedom of Information and Privacy Acts, taxpayers can order a copy of their Individual Master File. The law permits 20 days to receive it from the request date. One of the easiest ways to get a Freedom of Information Act request for obtaining a copy of your IMF is from IMF Help.

So, what does this master-file report look like? It is a compilation of alpha-numeric codes including indicators, abbreviations, blocking series, document codes, document locator numbers and transaction codes which, when understood as a whole, relate the account activity and history with the IRS. Very few taxpayers have ever seen or heard about such records. It takes tedious and constant study and research to learn and keep up to date with the IRS manuals, publications, delegations and memoranda that provide descriptions, proper use and meanings about the various codes. Just as when cooking and using a favorite recipe, the alteration or combination of ingredients creates a different outcome, so can the combination of indicators and codes cause a variety of possibilities for the IRS and the taxpayer.

Stories of the IRS and its many mistakes are voluminous. Most people think it will never happen to them. That's what Patrick Lynch, a retired tool-and-die maker from Pennsylvania thought – until it happened to him. In the early '80s, the IRS first audited Lynch, then ultimately placed a Notice of Levy against his wages. Lynch had researched IRS records and manuals for years, and, utilizing his knowledge about the IMF, successfully achieved the removal of the continuous levy on his wages, actually received an apology letter from the IRS and received repayment of all monies taken by the IRS.

"The IRS claimed I had not filed, but the IMF record showed I had." Lynch stated. Lynch used a copy of the IMF to prove the IRS had entered incorrect data on his record and used the erroneous record to exact his wages. The IRS agent who reviewed his case told the tenacious taxpayer, "Mr. Lynch, you know more about my job than I do."

Since then, Lynch has spent his time training both professionals and laymen how to read and use the IMF so they, too, can assist themselves and others in making certain their tax records are in order.

Lynch has found that the IMF is not something the IRS wants to litigate in the courts. "The IMF is seldom introduced, and when it is, the IRS generally abates the taxes or withdraws from the case," he claims. Lynch knows – and can document – the IMF is maintained using a flawed system.

Lynch, citing cases such as U.S. v. Lloyd Long, shows that the IRS does not want the IMF to come under judicial scrutiny because there are so many flaws in how the record is created, updated and maintained. Long used the IMF in a criminal case to establish he wasn't required to file a return.

"They don't want the IMF to come under judicial review," he said. "They have codes which force invalid information onto the record despite their supposed computer checks and balances."

In the Long case, the jury saw the IMF – and the 6,209 manual page explaining the code. The IRS expert witness in testimony could not overcome the meaning established by the IRS manual. Mr. Long was acquitted.

After nearly 20 years of reading and analyzing IMFs, Lynch can quote many passages from the plethora of IRS manuals, much like other folks recite verses from the Bible. A humble man, he does not boast of his expertise, choosing instead to refer to himself as someone with an ability to teach and enlighten others. Lynch prefers teaching professionals, because it actually helps more people. The lawyers and accountants are taught once and use the information time and again, while the layman is primarily interested in his own problem.

Lynch's advice to the average taxpayer: "Be informed, because knowledge is POWER." If someone is receiving correspondence from the IRS, one of the first things that should be done is obtain a copy of the IMF and have it read and analyzed by a professional. Lynch vehemently recommends a professional because there are so many poorly or erroneously trained people claiming to translate and decode IMFs – much of the so-called translations they provide are based on flawed concepts and use of inappropriate Internal Revenue manual excerpts in support.

Sometime in the early '90s, Lynch was training a variety of people to read and analyze the IMF. One such person, Geri Powers, utilized the instruction to further her research in establishing the relationship between agency systems of records about alleged taxpayers, policy positions, instruction manuals, publications in general, regulations and statute law. Since that time, Powers has continually researched and ferreted out much of the correlation between the intents of Congress, the Treasury, the Internal Revenue Service and the Individual Master File. However, what bothers Powers the most is the ineffectual use of Internal Revenue manuals and records to achieve remedy.

Much of the so-called "patriot" community is prone to ignore the simple truth in a desire to uncover melodramatic conspiracies. Powers refers to the long-term melodramatic claims relating to the IRS in general and IMF, in particular, as "patri-cult myths." Most of these melodramatic claims are the result of the inappropriate use of IRS manuals in an attempt to prove someone's private agenda and theories.

Perhaps the most egregious of all the theories proffered to unwitting taxpayers is the use of IRS manuals or chapters of manuals designed specifically for one system of records on another. The IRS has many different systems of records, containing a plethora of information. Some of these systems are designed with checks and balances while others are not. In particular, the IRS maintains a system known as the Non-Master File. The design of the NMF allows IRS employees to use this system for a variety of tax issues and the flexibility of data entry without the same checks and balances built into the IMF. However, using the manual for the NMF to understand the input/output of the IMF generates a completely false understanding.

As for my own study and understanding, the Individual Master File has become a primary tool to assist taxpayers in obtaining the right tax treatment. I have known records to incorrectly reflect payment proceeds, interest and penalty calculations, refund issuance and notices. A trained professional can easily audit the IMF records for mathematical accuracy. When discrepancies are found, the taxpayer may and should approach the IRS to have the appropriate corrections made to the record. Additionally, a trained professional can audit the records to insure all statutory and regulatory procedures were met. With the proper training, the IMF is an invaluable resource for a professional in validating the actions and accuracy of the IRS.

As consumers and taxpayers garner more information about their credit reports, tax records and rights, the IMF will become an important tool in tracking agency activity and data gathered on each person. Taxpayers should be concerned with groups or professionals claiming to understand what, how, where and when to use an IMF record. Taxpayers should seek the advice of qualified professionals and non-professionals alike before engaging the IRS about issues found on your IMF record.

I might think of using FOIA to get a copy of my IMF, but I'm afraid that the request itself would be a red flag in the file (not that I've got anything to worry about, I think).

Not to worry. All federal agencies that might possibly be involved in a litigation (which certainly includes the Infernal Revenue) keep a record of FOIA requests. Just the mere fact that you know enough to have requested your IMF will probably act in your favor, should the IRS ever have reason to look your way. They definitely don't want to face an informed taxpayer, who not only knows his rights, but has the government records to back him up.

Some years back, a business acquaintance of mine had been audited three years in a row and each year, he had to pay a nominal additional amount ($1000 to $3000). Although he had to pay interest, he did not have to pay any fines, since the cause, in each case, was determined to be improper translation of the rules and not an intent to evade taxes. However, after the third audit, the IRS did issue him a warning that any further such problems would be interpreted as an attempt to evade taxes. The next year, he ordered his IMF. Even though he continues to use the most aggressive methods to calculate his taxes, he has not been audited since. Even though there were only insignificant errors in his IMF, he believes that the IRS does not think that the potential of gaining a thousand dollars or so is worth the risk of facing an informed taxpayer in court, who will most certainly trot out his IMF.

It certainly won't help someone to cheat on their taxes. But if you are on the level, then I would think that having requested your IMF, will probably be a net benefit. At the very least, if the IRS should ever have reason to look at you, the fact that you know enough to have requested your IMF will probably make them, at least, double check their records before sending you an audit letter.

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