Irs Code 971: What the Notice Means & How to Respond

A big part of the work that the IRS does is cross-checking information. As you can imagine, that means they’ll often run into returns and other documentation that’s short on the required information, so what do they do? Well, first of all, they notify the person who’s supposed to provide that info in the first place.

That’s what IRS Code 971 is for, after all; it’s a way for the IRS to tell taxpayers about any missing, erroneous or simply contradicting information in their tax returns. Why do these things happen? Well, we could write an entire article with the reasons why (and we might), but for now let’s just say that all it takes is for error or omissions to appear on your return to warrant a Code 971 on your transcript. In this article, we’ll go over this code and what you can do once it shows up. The first step is to avoid panic, the second is to read this article!

Understanding IRS Tax Code 971

A 971 Notice is an official communication issued by the IRS to notify taxpayers of issues or discrepancies regarding their tax returns. Several reasons may trigger the issuance of a 971 Notice, including potential errors or omissions on the return, the need for additional information to process a refund, or the necessity for further review.

Why Does The IRS Send A Transcript Code 971 Notice?

The most common reasons why the IRS might have sent you a 971 Notice are the following:

• Computational errors in your return: AKA bad math. This just means the IRS had to adjust one or more calculations made on your tax return.

• Missing information: The IRS might require you to produce additional documentation to support your claims and other information present on your return.

• Amended tax return: Sometimes you don’t have to do anything yourself; if you see a description on your notice that reads “amended tax return or claim forwarded for processing,” that means that the return needs manual reviewing by an agent, so it is being queued for review.

• Intent to levy: Worst case scenario, this type of notice means the IRS plans to seize some of your personal assets to satisfy an outstanding balance (unless you manage to pay the amount due in full by the date indicated on the same letter).

• Assessment of additional tax: In the case that additional taxes have been assessed by the IRS, this will be detailed in the notice, along with the balance.

Transaction Codes and Their Significance

Transaction codes, such as code 570 and 971, appear on a taxpayer’s tax transcript and provide important information about the status of their tax return or other activities affecting their account. Understanding these codes can help taxpayers better grasp their tax situation and identify any potential issues.

Timeframe for Responding to the Notice

The IRS generally allows 30 days for a response to a 971 Notice. Responding promptly is crucial to avoid complications such as penalties and interest charges, which can increase your tax liability. If you cannot provide the necessary information within this timeframe, you can request an extension. However, it is still important to act quickly to mitigate any potential penalties or interest charges.

Engaging a tax professional can help navigate the process effectively. Their expertise ensures appropriate and timely responses to the notice.

Understanding Code 971 on Your Tax Transcript

Code 971, also known as the “Notice Issued” code, indicates a change in the processing or status of a tax return. The amount shown on the Code 971 line reflects the total dollar amount of changes made, which could result in additional taxes owed or a refund received.

Several IRS codes can impact the amount shown on the Code 971 line, each with its implications:

• Code 570: Indicates the tax return is under review, potentially delaying refunds.
• Code 846: Reflects a potential refund payment, though the amount may be adjusted due to debts or obligations.

Depending on the specific codes present on your tax transcript, certain actions may be required. For instance, if your return is under review (Code 570), you may need to provide additional documentation. Alternatively, if eligible for a refund adjustment, you might need to submit Form 8915-E.

Comparing Code 971 and Code 570

• Code 570: Signifies your return and refund need further review, typically adding 45 days to the processing time. This extra review can delay any potential refund payment.
• Code 971: Indicates a notice sent about an issue with your tax return. This could involve various issues, such as discrepancies or additional verification needs. If both codes appear, the IRS probably sent an additional notice regarding their review.

If your return is subject to an examination (indicated by Code 971), further documentation may not be required. However, examinations typically take 60 days to complete and may result in additional taxes owed or refunds reduced. Consulting a tax professional for guidance during this process is recommended.

These codes can cause potential delays in receiving any refund payment. Additionally, due to the ongoing IRS backlog, processing times for tax returns and refunds are taking longer than usual. It may take several weeks beyond the standard timeframes for you to receive your refund or any notices related to these codes.

How To Respond to IRS Code 971?

When you get Code 971 on your tax transcript, you should take the following steps in order to respond appropriately:

Step 1: Review The Details The Notice You Received About Your Code 971

Once a few days have passed and you get the notice tied to the IRS Code 971 on your transcript, you will notice it has the following parts:

• IRS notice number and issue date: You will need to write these down and keep them around as it is important information that you’ll use in all subsequent communications with the IRS.
• IRS contact information: The IRS will provide you with official contact information in your notice for you to use.
• Explanation of issue: Lastly and more importantly, an explanation from the IRS will be included about why the notice itself is being sent, all the changes that were made to your tax return (if changes were indeed made), and instructions for you to follow.

Step 2: Do You Agree With The Notice?

Next, you will have to determine if you actually agree with the notice issued to you by the IRS. If you agree, then you have to follow the instructions included by the IRS in your notice.

If you disagree, however, then you have the chance to dispute the assessment by following instructions that will be present in the notice itself. You have to issue a response within the time frame included in the notice, as well as using the method specified there too. Your response will have to be backed by proper documentation.

Step 3: Prepare Your Response

If you disagree with the IRS’ position stated in the notice, you must write a response using clear and concise language. Your response should include all your contact information (email, phone number, and mailing address), and you should fill out and return any forms provided by the IRS along with your response, along with any supporting documentation.

When the time comes to remit your response, the packet you mail should include the following:

• A copy of the tax notice initially sent to you by the IRS.
• Your written response.
• All documentation requested by the IRS.
• Any additional documentation supporting your response (such as copies or prior returns; Forms W-2, 1099, and 1098; copies of payment confirmations; etc.)

Is IRS Publication 971 Related To IRS Code 971?

Many taxpayers often mistakenly believe that IRS Code 971 and IRS Publication 971 are related. However, there are significant differences between the two, and understanding these differences can help taxpayers avoid common mistakes.

IRS Publication 971 refers to relief of a spouse from a joint tax return’s due amounts. The publication outlines relief methods available to innocent spouses, including equitable relief, innocent spouse relief, and separation of liability relief.

• Equitable Relief: Applied when tax liability allocation within a joint return is deemed inequitable.
• Innocent Spouse Relief: Applicable when one spouse improperly reports income or deductions.
• Separation of Liability Relief: Pertains to couples legally separated or divorced, addressing understated taxes on joint returns.

Potential Penalties and Interest Charges Involved With IRS Code 971

Receiving a 971 notice can involve potential penalties and interest charges:

• Late Payment Penalty: 0.5% of unpaid taxes per month, up to 25% of the total tax debt.
• Underpayment Penalty: Typically 3% per year on the outstanding balance of taxes owed.
• Interest Charges: Accrued from the tax due date until the debt is paid in full, based on the federal short-term rate plus 3%.

If unable to pay your tax debt in full, the IRS may agree to a payment plan. However, interest and penalties will continue to accrue until the balance is fully paid.

Steps to Take if You Didn’t Receive Your Notice

If you see Code 971 on your tax transcript but did not receive a notice, especially if you live outside the USA, it’s crucial to check your IRS online account for any messages or additional details. You can log in to your account at IRS.gov to check.

If there’s no information online, contact the IRS directly at 800-829-1040 to confirm your address and request a copy of the notice.

In some cases, the notice may be a CP05, which means the IRS is reviewing your return to verify information. Review the letter carefully for instructions or requests for additional information. If you need to respond or provide documents, make sure to do so promptly.

IRS Code 971: FAQ

1. What is IRS Code 971 and why did I get it?

Finding IRS Code 971 on your tax transcript indicates that a notice or letter has been issued by the IRS regarding your tax account. The code itself is used to indicate that the IRS is trying to contact you with information which may relate to a change, adjustment, or other issue with your return.

2. Why did IRS Code 971 appear on my account?

There’s several reasons why Code 971 can appear, such as:

• Notification of a refund adjustment.
• Requests for additional information or documentation.
• Notifications about penalties or changes to your account.
• Taxpayer refund offsets due to debts (e.g., child support, student loans).

3. What do I have to do after seeing Code 971 in my account?

It depends, really. There’s no actual requirement for you to take action about Code 971 in itself; what you have to pay attention to is any IRS notice or letter you receive after Code 971 appears in your transcript. If any of these references Code 971 as they might contain instructions on what to do. If you haven’t received communication from the IRS after seeing the code, contact them to clarify the situation.

4. What should I do if I haven’t received any further communication after IRS Code 971?

After initially receiving Code 971, you should wait for a few days as mail delivery may be delayed. If the notice hasn’t arrived a few days after, you should contact the IRS at their official number (you can find it listed in their website).

5. Is it normal to have Code 971 appear multiple times on my account?

While it’s not “normal” to have multiple instances of Code 971 on your account, it is entirely possible for it to happen. Each instance will be dated and might refer to a different action or update regarding your account, so it’s necessary that you review each of them carefully.

6. Can IRS Code 971 affect my refund?

Not exactly, since what we refer to as IRS Code 971 is merely informational, meaning that it doesn’t directly indicate that your refund is going to be delayed or reduced; the only thing it tells you is that actions will be taken that could impact your refund.

Sources

“2023 IRS TAX REFUND UPDATE – Tax Refunds Issued, Audits, Adjustments, Transcripts, Codes 971, 570” by UI Vlogs 2021

“IRS codes 570 Additional Account Action Pending & 971 Notice on Transcript – They Stop Tax Refund!” by Random

Additional Information Summary

Code 971: Indicates an IRS notice issued due to discrepancies or additional information required on a tax return.

Transaction Codes: Codes like 570 (return under review) and 971 appear on tax transcripts, impacting the status and processing of returns.

Response Timeframe: Typically 30 days to respond to a 971 Notice to avoid penalties and interest charges.

Professional Assistance: Advisable to consult a tax professional for appropriate and timely responses.

Refund Impacts: Codes 570 and 846 can delay refunds and affect the refund amount due to reviews and adjustments.

IRS Publication 971: Deals with innocent spouse relief, unrelated to Code 971 notices.

Penalties and Interest: Late responses can result in significant financial penalties and accruing interest.

Action Steps: Check IRS online accounts for notices, and contact the IRS if the notice is not received, especially for those living abroad.

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