What Does IRS Code 571 Mean on Your Tax Transcript?

Understanding IRS codes on your tax transcript can be crucial for managing your finances. Among these, Code 571 often raises questions due to its role in the processing of refunds and adjustments to tax returns.

Code 571 in IRS Transcripts

Code 571 on an IRS transcript signifies the reversal of a previous freeze on a taxpayer’s account. It indicates that issues delaying the processing of a tax return or refund have been resolved. When this code appears, it means the IRS has lifted a hold, allowing the return to move forward. For instance, if discrepancies in reported income or deductions prompted a hold, Code 571 shows these concerns have been addressed, often after the taxpayer provides necessary documentation or corrections.

Typically, Code 571 follows Code 570, which signals a pending review or hold. This progression reflects the IRS’s transition from reviewing unresolved issues to moving forward with processing the return. For taxpayers awaiting refunds, Code 571 is generally a positive sign that the IRS has resolved any concerns.

Why Code 571 Appears

Code 571 usually appears when the IRS resolves discrepancies or issues that triggered a review. For example, automated systems might detect inconsistencies in income or deductions, prompting a hold for further verification. Taxpayers often encounter this code after responding to IRS inquiries or submitting additional documentation, such as corrected W-2s or 1099 forms. The IRS cross-references these documents with third-party reports to confirm accuracy, and once verified, Code 571 is added to the transcript.

In some cases, this code may result from taxpayers engaging in dispute resolution processes, such as filing an appeal or requesting an audit reconsideration. These avenues allow taxpayers to challenge discrepancies, and successful resolutions often lead to the lifting of holds and the appearance of Code 571.

Effects on Your Tax Refund

Code 571 impacts your tax refund by signaling that the IRS has resolved prior issues, allowing the refund process to resume. While the code itself does not change the refund amount, any adjustments made during the resolution process could. For instance, corrections to deductions or credits might result in a refund amount different from what was initially expected. Reviewing IRS notices or documentation can clarify any changes.

In some situations, the IRS may owe interest on delayed refunds if the agency takes longer than 45 days after the filing deadline to issue payment. This interest is calculated based on the federal short-term rate plus 3%, adjusted quarterly. Taxpayers should verify any additional payments reflected in their refund.

Verifying the Code on Your Account

To confirm the implications of Code 571, review your IRS account online. The IRS portal provides access to your tax transcript and a detailed view of your account status. Ensure your personal information is accurate to avoid further complications or delays. Comparing the dates associated with Code 571 and other codes can help establish a timeline of events and manage expectations regarding pending refunds or adjustments. Additionally, IRS communications, such as CP notices, may explain the reasons behind the code and outline any required actions.

Possible Next Steps with Tax Authorities

After seeing Code 571 on your transcript, assess whether further action is needed. Often, this code indicates that the IRS has resolved prior issues, but follow-up steps may sometimes be necessary. If you’ve received a notice detailing adjustments to your return, review it carefully to understand any changes to your tax liability or refund amount. If the adjustments are unclear or you believe an error has occurred, contact the IRS using their taxpayer assistance line or schedule an appointment at a local office. Having your transcript, relevant documents, and IRS correspondence ready can streamline these discussions.

If you disagree with the IRS’s resolution, you may pursue an appeal through the IRS Office of Appeals, which provides an independent review of disputes. IRS Publication 5 outlines the steps for filing an appeal and the required documentation. Consulting a tax professional or attorney can help strengthen your case and ensure compliance with procedural requirements. Taking proactive steps can help resolve disputes efficiently and avoid escalation to more formal proceedings like Tax Court.