As a small business owner, you know that understanding the tax code and planning for tax payments is critical to the success of your business.

One aspect of tax planning that many small business owners may not be aware of is Code 570 and Code 971 on tax transcripts. These codes can provide valuable information about your tax account and help you plan for future tax payments. In this blog post, we will explain what Code 570 and Code 971 mean and how they can impact your tax planning.

We are happy to explain about these codes more detailed below

Code 570

Code 570 is a freeze code that can appear on a taxpayer’s tax transcript when there is a delay in the processing of their tax return. This code can appear on the tax transcript of both individuals and small businesses.

There are several reasons why Code 570 may appear on a small business tax transcript. One common reason is when the IRS needs additional time to review the business’s tax return or verify the information on it. This can happen if there are discrepancies or errors in the return, or if the IRS needs additional documentation or information to process the return.

Another reason why Code 570 may appear on a small business tax transcript is if the business owes taxes from a previous tax year. In this case, the IRS may place a freeze code on the business’s account to prevent them from receiving any refunds until the outstanding tax debt is paid in full.

It’s important to note that Code 570 is not necessarily an indication that there is a problem with the small business’s tax return or account. It simply means that the IRS needs more time to review or process the return, or that there is an outstanding tax debt that needs to be paid. However, if the business owner believes that there is an error on their tax return or if they are unsure why Code 570 has appeared on their tax transcript, they should contact the IRS or their tax professional for clarification.

If a small business owner does not handle Code 570 on their tax transcript immediately, it can lead to several negative consequences, including:

• Delayed tax refund: Code 570 typically indicates that there is a delay in the processing of the tax return. If the small business owner does not resolve the issue quickly, it can result in a delay in receiving any refunds owed.
• Additional penalties and interest: If Code 570 is related to an outstanding tax debt, the longer the debt goes unpaid, the more penalties and interest the business owner may accrue.
• Extended audit or review: If the IRS needs to review the small business’s tax return due to discrepancies or errors, the longer the delay, the more likely it is that the review will become an audit. An audit can be time-consuming and expensive, so it’s best to resolve any issues before an audit becomes necessary.
• Legal action: In extreme cases, if a small business owner does not resolve Code 570, the IRS may take legal action, such as garnishing wages or placing a lien on the business’s assets.

To resolve Code 570, there are a few steps that small business owners can take:

• Contact the IRS: The first step in resolving Code 570 is to contact the IRS to determine the reason for the freeze and what steps need to be taken to resolve it. Small business owners can call the IRS toll-free number for businesses at 1-800-829-4933 or visit their local IRS office for assistance.
• Review the tax return: If the IRS has identified a discrepancy in the small business’s tax return, the business owner should review the return to identify any errors or omissions. Once identified, the business owner should make the necessary corrections and submit an amended tax return if necessary.
• Provide additional information: If the IRS has requested additional information or documentation to process the tax return, the business owner should gather and provide the requested information as soon as possible.
• Pay any outstanding tax debt: If the Code 570 freeze is due to an outstanding tax debt from a previous year, the business owner should make arrangements to pay the debt in full or negotiate a payment plan with the IRS.
• Follow up: Once the business owner has taken steps to resolve the issue, they should follow up with the IRS to ensure that the Code 570 freeze has been lifted and that their tax return is being processed.

It’s important to address Code 570 as soon as possible to avoid any further delays in processing the tax return or receiving any refunds owed. Small business owners who are unsure how to resolve Code 570 or who need assistance should consider consulting with a tax professional who can guide them through the process.

Code 971

Code 971 is another code that can appear on a taxpayer’s tax transcript, including those of small businesses. This code indicates that the IRS has issued a notice to the taxpayer regarding a change to their tax return, which may result in additional tax liability or a refund adjustment.

There are several reasons why Code 971 may appear on a small business’s tax transcript. One common reason is if the IRS has reviewed the business’s tax return and found errors or discrepancies in the reported income or expenses. In this case, the IRS will issue a notice to the business owner detailing the changes made to the return and any resulting tax liability or refund adjustment.

Another reason why Code 971 may appear on a small business’s tax transcript is if the business owner has requested an adjustment to their tax return, such as an amended return or a request for abatement of penalties or interest. In this case, the IRS will issue a notice to the business owner detailing the outcome of their request and any resulting changes to the tax liability or refund amount.

It’s important to note that Code 971 does not necessarily indicate that the small business owner has done anything wrong or that there is a problem with their tax return. It simply means that the IRS has made a change to the return, and the business owner needs to review the notice and respond accordingly.

If a small business owner sees Code 971 on their tax transcript, they should review the notice carefully and take any necessary action, such as paying any additional tax owed or responding to the IRS with additional information or documentation to support their claim. If the business owner is unsure how to respond to the notice, they should contact the IRS or their tax professional for assistance.

If a small business owner does not handle Code 971 on their tax transcript immediately, it could result in several negative consequences. Some potential effects of not addressing Code 971 in a timely manner include:

• Additional penalties and interest: If the changes made by the IRS result in additional tax liability, failing to pay the amount owed by the due date can result in additional penalties and interest.
• Delayed refunds: If the changes made by the IRS result in a refund adjustment, failing to respond to the notice and provide any necessary documentation can delay the processing of the refund.
• Increased audit risk: If the IRS identifies errors or discrepancies on a small business’s tax return and the business owner does not respond to the notice and address the issue, it could increase the risk of an audit or further IRS scrutiny.
• Negative impact on credit: If the business owner does not pay any additional tax owed resulting from Code 971, it could result in a tax lien or levy, which could negatively impact their credit score.

To resolve Code 971, small business owners should follow these steps:

• Review the notice carefully: The notice should provide detailed information about the changes made to the tax return, the reason for the change, and any resulting tax liability or refund adjustment. Small business owners should review the notice carefully to ensure they understand the changes and the impact they will have on their tax situation.
• Respond to the notice: The notice will provide instructions on how to respond, including any deadlines for responding. Small business owners should respond promptly and provide any additional information or documentation that the IRS requests. If the notice indicates that the business owes additional tax, the business owner should pay the amount owed by the due date to avoid any additional penalties and interest.
• Seek professional assistance: If the small business owner is unsure how to respond to the notice or needs assistance in resolving Code 971, they should seek the help of a tax professional, such as a CPA or enrolled agent. These professionals can review the notice and provide guidance on how to respond, as well as help the business owner understand their tax obligations and any potential implications of the changes made by the IRS.
• Consider requesting a hearing: If the small business owner disagrees with the changes made by the IRS, they may have the right to request a hearing to dispute the changes. The notice will provide information on how to request a hearing and any deadlines for doing so.

In summary, Code 570 and Code 971 can provide valuable information about your tax account and help you plan for future tax payments. If you see either of these codes on your tax transcript, it is important to take action to resolve any issues as soon as possible. Working with Virtual CFO can help you understand the reason for the code and take the necessary steps to resolve any issues. With proper tax planning and management, you can ensure that your small business stays on track and avoid any penalties or legal issues with the IRS.