Tax season can be a stressful time, especially for couples who file joint tax returns. If one spouse has outstanding debts or obligations, it can impact the entire tax refund. Fortunately, the Internal Revenue Service (IRS) has provisions in place to protect the non-debtor spouse in such situations. One of these provisions is the Injured Spouse Allocation, often referred to as IRS Transcript Code 971. In this blog post, we’ll break down what IRS Transcript Code 971 means, how it works, and what steps you can take if you find yourself in this situation.
What is IRS Transcript Code 971?
IRS Transcript Code 971 is a reference to a specific transaction code that appears on your IRS transcript. It’s associated with the Injured Spouse Allocation, which is a process that allows one spouse to reclaim their share of a joint tax refund when the other spouse has unpaid debts or obligations, such as overdue child support, federal student loans, or unpaid state taxes.
In simple terms, if you and your spouse file a joint tax return and the IRS determines that a portion of your refund should be applied to cover your spouse’s debts, IRS Transcript Code 971 signifies that the remaining portion of the refund is being allocated back to the “injured spouse” – the spouse without the outstanding debts.
Breaking Down IRS Transcript Code 971
To better understand IRS Transcript Code 971, let’s break it down step by step:
- Injured Spouse: This refers to the spouse who is not responsible for the debts or obligations. They are the “innocent” party in this scenario.
- Allocation: Allocation simply means dividing something into portions. In this case, it’s the division of the tax refund.
- Code 971: This is the transaction code that indicates the IRS has identified the need to allocate the refund.
How Does Injured Spouse Allocation Work?
When you file your joint tax return, the IRS may offset the refund to pay off any debts or obligations owed by one spouse. To protect the non-debtor spouse, the IRS will use the Injured Spouse Allocation process. Here’s how it typically works:
- You file your joint tax return, and the IRS processes it.
- The IRS identifies any debts or obligations associated with one spouse.
- If there are debts, the IRS allocates the appropriate portion of the refund to satisfy those debts.
- The remaining portion of the refund, which belongs to the non-debtor spouse, is allocated back to them.
- IRS Transcript Code 971 appears on your transcript to indicate the allocation process.
What to Do If You See IRS Transcript Code 971
If you notice IRS Transcript Code 971 on your tax transcript, it’s essential to understand your rights and take appropriate action:
- Wait for the IRS: The IRS will process the Injured Spouse Allocation and allocate the remaining refund to the non-debtor spouse.
- Patience is Key: It may take some time for the IRS to complete this process, so be patient and check your refund status regularly.
- Communication: If you have concerns or questions, don’t hesitate to contact the IRS or seek advice from a tax professional. They can provide guidance on your specific situation.
IRS Transcript Code 971, the Injured Spouse Allocation, is a crucial provision that protects the non-debtor spouse when filing joint tax returns. Understanding how it works and being patient during the process can help you secure your rightful portion of the tax refund. If you ever find yourself in this situation, remember that you can seek assistance from the IRS or consult with a tax professional to navigate the process smoothly and ensure you receive your share of the refund.