If you’ve received a notice related to IRS Code 971, it’s natural to feel anxious or confused. The Internal Revenue Service (IRS) often uses various codes to denote different statuses, actions, and changes in a taxpayer’s account. Understanding these codes is crucial to responding appropriately and ensuring your tax situation remains in good standing.
IRS Code 971 can appear on your tax transcript, but it’s not immediately clear what action is being taken or what it means for you as a taxpayer. In this blog, we’ll demystify IRS Code 971, explain why you might receive this notice, and provide a detailed guide on how to respond if you encounter it.
What is IRS Code 971?
IRS Code 971 typically refers to an “Action or Adjustment” on your tax account. This code indicates that the IRS has made or is making a change to your account, but it doesn’t always explain what specific action is being taken.
On its own, Code 971 doesn’t carry negative or positive connotations; it is simply an internal IRS code that signals a certain adjustment. The code may appear alongside a brief description like “Miscellaneous Transaction,” “Notice Issued,” or “Additional Tax Assessed.” However, to fully understand the significance, you will need to look at the accompanying notices or follow-up correspondence from the IRS.
Some common reasons for receiving a Code 971 include:
- The IRS has issued a notice regarding an issue with your return.
- The IRS is adjusting your tax refund.
- There has been a delay or additional processing for an amended return.
- The IRS has initiated a review of your account or a request for additional documentation.
- Certain penalties, such as a failure-to-pay penalty, might be applied or removed.
Code 971 can also appear in different contexts on your IRS transcript, including when a refund is adjusted or withheld, or when a taxpayer has requested a penalty abatement.
Common Notices Associated with IRS Code 971
When you see Code 971, the IRS will typically send an official notice explaining the specific situation. The two most common types of notices related to this code are:
- CP21C Notice
- This notice generally indicates that there has been a change or correction to your tax return, but no refund is available, or an overpayment has been applied elsewhere.
- CP12 Notice
- A CP12 notice suggests that there was a mistake on your return, but the IRS has corrected it. In this case, the code 971 may show up if the IRS has adjusted your refund amount or if they need additional information before releasing the refund.
It is crucial to read the notice accompanying Code 971 thoroughly to understand the specific reasons for the adjustment or action taken on your account.
How to Respond to IRS Code 971
1. Understand the Notice
The first step in responding to IRS Code 971 is to read any accompanying IRS notices carefully. These notices will contain essential information about why the adjustment was made, whether you owe additional taxes, and what steps (if any) you need to take.
If the notice isn’t clear, you can always access your tax transcript online through the IRS website to see the full record of the adjustment. This will provide insight into what the IRS has done on your account.
2. Gather Your Tax Documentation
Once you’ve identified the specific issue or adjustment made by the IRS, gather the relevant tax documentation. For example, if the IRS has made a correction to your tax return, ensure you have copies of the tax forms, W-2s, 1099s, or other related documents that were filed for the year in question. Compare the IRS’s version of the data to what you originally filed to pinpoint any discrepancies.
3. Review the Reason for the Adjustment
Next, review the reason the IRS has made the adjustment. Here are some common scenarios and how to respond:
- Mistake on Your Return: If the IRS corrected a math error, missed deduction, or other mistake, and you agree with the change, there is no further action required on your part. However, if you believe the IRS made a mistake in their adjustment, you’ll need to provide documentation that supports your original return.
- Additional Taxes Owed: If Code 971 indicates that additional taxes have been assessed, carefully check the amount. You have the option to pay the balance due immediately or contest the assessment if you believe it’s incorrect.
- Delayed Refund: If Code 971 appears due to a delay in processing your refund or an adjustment to the refund amount, you might need to provide additional documentation. For example, if the IRS needs more information to verify your income, dependents, or other aspects of your return, send the requested documents promptly to avoid further delays.
4. Contact the IRS if Necessary
If you’re still unsure why the adjustment was made or if you disagree with the IRS’s findings, contacting the IRS directly is a good option. You can call the number listed on the notice or visit a local IRS office to speak with a representative. Before contacting the IRS, have the following information on hand:
- The notice you received.
- Your tax return and any supporting documentation.
- Your Social Security Number or taxpayer identification number.
Be prepared for long wait times on the phone, especially during peak tax season. If the issue is complex, you might consider consulting a tax professional or CPA who can help resolve the issue efficiently.
5. File an Appeal if Needed
If you disagree with the IRS’s adjustment or believe that a penalty was wrongly assessed, you have the right to file an appeal. The IRS provides instructions on how to appeal a decision within the notice you receive.
You can also request penalty abatement if you believe the penalty was applied in error or due to circumstances beyond your control, such as natural disasters or medical emergencies. Be sure to provide thorough documentation to support your appeal.
6. Stay Updated on Your Account
Even after responding to IRS Code 971, it’s a good idea to regularly check your IRS account or tax transcript to ensure no further adjustments or issues arise. The IRS often makes multiple adjustments over time, so staying informed will help you avoid surprises.
You can access your tax transcript online through the IRS’s “Get Transcript” tool. Monitoring your account allows you to track changes, including any additional codes or notices that may appear.
What Happens if You Ignore IRS Code 971?
Ignoring an IRS notice related to Code 971 can lead to more serious consequences. While this code does not always indicate an urgent issue, it could signal an adjustment that requires your attention. Ignoring it could result in penalties, interest on unpaid taxes, or delays in receiving a refund.
If you owe additional taxes, failing to respond may lead to collections efforts by the IRS, such as wage garnishments, liens, or levies. Therefore, it’s crucial to act promptly and address the issue.
Conclusion
IRS Codes 971 on your transcript generally signify some type of action or adjustment that’s been taken on your account. Although it may make you shiver at first, the code itself is neutral and merely signifies the IRS is processing or adjusting something related to your tax return.
Respond by reading all attached notices sent with notice, reviewing documents related to the specific tax that is in question, and correcting errors or making necessary changes. Sometimes you may need to furnish additional documentation; other times you must correct the Social Security number, a mistake perhaps, or even appeal the outcome. However, proactive behavior is the key to keeping yourself in the good books of the IRS. If for any reason you are unclear about any part of the process, then it would be wise to seek professional advice from a tax advisor.
