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Part 21. Customer Account Services

Chapter 6. Individual Tax Returns

Section 1. Filing Status and Exemption Adjustments

21.6.1  Filing Status and Exemption Adjustments

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21.6.1.1  (10-01-2004)
Filing Status and Exemptions Adjustments Overview

  1. This section provides information on changes made to filing status and exemptions, usually after a tax return has been filed. It is designed to assist Customer Service Representatives via telephone, correspondence, or taxpayer assistance areas to make those changes to a taxpayer’s return. Evaluate each situation and make a determination to adjust taxpayer’s filing status and/or exemptions. Because of inflation, the amount allotted for each filing status and exemption increases yearly. An overview of procedures, in a "step list" format, are available at the end of this section ( See Exhibit 21.6.1-1).

    Note:

    Prior to release of any tax information to a taxpayer or their representative, appropriate Disclosure authentication must be made. See IRM 21.1.3.2, General Disclosure Guidelines, for additional information. See IRM 11.3.2.6.1, Leaving Information on Answering Machines/Voice Mails, if appropriate.

  2. There are two types of exemption

    • Personal

    • Dependency

  3. Personal exemptions are limited to yourself and your spouse.

  4. Dependency exemption is for anyone else that the taxpayer can properly claim.

  5. The amounts allowed for exemptions are the same for personal or dependency exemptions.

  6. Filing status is determined by marital status on the last day of the year.

  7. Filing status will affect the standard deduction, as well as the tax rate, if a taxpayer chooses not to itemize deductions.

  8. For tax years ending after 12–21–2000, a parent of a kidnapped child may qualify to file Head of Household or Qualifying Widow(er) with Dependent Child (if the parent would otherwise have been entitled to claim the exemption if there had been no kidnapping). See Publication 553, Allowance of Tax Benefits for Kidnapped Children.

  9. If during a taxpayer contact it appears there may be a hardship situation complete Form 911, Application for Taxpayer Assistance Order, and refer the taxpayer to the Taxpayer Advocate Service (TAS). See IRM 13.1.7.2, Taxpayer Advocate Case Criteria or IRM 21.1.3.18, Taxpayer Advocate Service Guidelines, for more information.

  10. If taxpayer is responding to a math error notice for an invalid ITIN (Individual Taxpayer Identification Number) or is inquiring about an application or the status of an application, refer to IRM 3.21.259, Applications for IRS Tax Identification Number or IRM 3.13.5.23, Assignment of Internal Numbers.

21.6.1.2  (10-01-2002)
What Are Filing Status Changes?

  1. Taxpayers may file an amended return to change the filing status claimed on the original return. Changes may involve the following:

    • From Separate to Joint ( See IRM 21.6.1.3.1. and See IRM 21.6.1.3. )

    • From Joint to Separate ( See IRM 21.6.1.4.5.) (but only if filed prior to the due date of the return or if taxpayer provides documentation such as an annulment or court order holding that no valid marriage ever existed).

    • Other changes

21.6.1.3  (10-01-2005)
Filing Status Research

  1. Verify through RTVUE if the change is a line item change and can be corrected by oral statement.

  2. If the filing status was changed during initial processing due to a Taxpayer Identification Number (TIN) related math error (e.g., the filing status may have been changed from head of household to single if taxpayer did not provide a correct TIN for the dependent), consider a filing status correction when a taxpayer responds to the dependent TIN issue. See IRM 21.6.1.6, Command Code DUPED and DDBCK, and IRM 3.13.5, IMF Account Numbers, for further information.

21.6.1.3.1  (12-08-2004)
Married Filing Separate, Single, or Head of Household to Joint Research

  1. Married taxpayers who previously filed as Married Filing Separately (MFS), single, or Head of Household (HOH) may file a joint return within three years from the due date of the original return without regard to extensions, provided the Service did not mail either spouse a notice of deficiency and neither spouse has commenced a law suit or entered into a closing agreement or offer-in-compromise.

    Note:

    See IRM 25.6.5.5.4, Joint Returns after Separate Returns, for specific information regarding separate to joint returns and the ASED.

21.6.1.4  (10-01-2005)
Filing Status Change Procedures

  1. Follow these procedures for filing status changes. Disallow the change to joint status and send the appropriate certified "C" letter if the statute has expired for filing separate to joint. See IRM 25.6.6.9.2, Joint Returns, for statute information.

    Reminder:

    Include appeal rights in the "C" letter.

  2. Update the ENMOD on all filing status changes.

21.6.1.4.1  (10-01-2002)
"No Consideration" Filing Status Change Procedures

  1. "No Consider" the change to joint if the following conditions exist:

    If either taxpayer And Then
    Received an examination 30–day letter Requested an Appeals review for the period (denoted by an open AIMS Transaction Code (TC) 420 with a Status Code 80 or 81 indicates taxpayer's case is in Appeals) Send the appropriate "C" letter. Explain the taxpayer must contact Appeals.
    Received an examination deficiency notice Filed a petition with the tax court for the period (denoted by an open AIMS with a tax docket annotation and a TC 520) Send the appropriate "C" letter.
    Filed a suit in any court to recover any part of the tax for this year   Send the appropriate "C" letter.
    Entered into a closing agreement Internal Revenue Code ( IRC 7121) or reached a civil or criminal compromise ( IRC 7122 )   Send the appropriate "C" letter.

21.6.1.4.2  (10-01-2002)
Returns With Missing Information Procedures

  1. Return the claim to taxpayer with the appropriate "C" letter, requesting the necessary information if:

    1. Both taxpayers did not sign the amended return.

    2. Someone other than an executor, administrator, or surviving spouse files an amended joint return for a deceased taxpayer.

    3. Supporting forms, schedules, or documents are missing.

      Note:

      Numbered returns and Statute Imminent cases (See IRM 25.6, Statute of Limitations) are never returned to the taxpayer.

      Reminder:

      Release the " –A" freeze.

21.6.1.4.3  (10-01-2005)
Processing Separate-to-Joint Adjustments Procedures

  1. Research for the filing of both returns. It is not necessary to request the returns if the joint return information can be verified from research.

  2. If there is an open TC 420 on either spouse's account, follow IRM 21.5.3.4.7, Processing Claims and Amended Returns with Examination Involvement.

  3. Verify math on the joint return and recompute the tax, if necessary. Determine if an ES penalty needs to be assessed or recomputed using the joint liability.

  4. Update the DUPOL database. See IRM 21.6.1.6, Command Code DUPED and DDBCK, for more information.

  5. Update the secondary taxpayer's address if there is a change on the joint return.

    Exception:

    Do not update if one of the following apply:

    • The primary taxpayer filed a later return with a different spouse.

    • The primary taxpayer filed a later return with a filing status of single, head of household, qualifying widower or married filing separate indicating a different spouse.

    • The secondary taxpayer has had an address update within the previous 52 cycles.

21.6.1.4.3.1  (10-01-2005)
Separate to Joint and Both Taxpayers Have Filed Previously

  1. If both taxpayers previously filed a separate return and are now filing jointly, take the following action on the secondary account:

    1. Back out the tax, income, item reference field, and any manual restrictions

    2. Input a TC 170.00 when decreasing withholding and/or transferring timely payments from the module.

    3. Input item reference code 999.00 to prevent an Examination Multiple Filer case.

    4. Use hold code 4 to prevent incorrect refunds or notices.

    5. Input TC 971 with AC 001 to cross reference primary taxpayer's account.

    6. Transfer any available credit or payments to the primary account. Net out (subtract) any refunds or offset previously issued.

      Exception:

      If a refund was previously issued or an offset occurred, and EIC was involved, then EIC must be reversed and the refund/offset must be moved/reversed. See IRM 21.5.2.4.23.9, Moving Refunds.

    7. Delete the mail filing requirement on the secondary spouse, if this is a current year adjustment by inputting 01 for MFR..

  2. Take the following action on the primary account:

    1. Adjust the primary account as necessary

    2. Refer to IRM 21.6.3.4.2.7 (Earned Income Credit) for any necessary EIC changes.

      Note:

      If a refund is being moved from the secondary taxpayer's account (See IRM 21.5.2.4.23.9, Moving Refunds), use HC 4 on the primary account when inputting any adjustment.

    3. Correct the withholding to reflect any refund or offsets previously issued from the secondary account and input TC 971, AC 173 (using the claim received date) to cross reference the secondary taxpayer's account.

    4. Use the appropriate re-file blocking series (05 for electronically filed tax returns).

    5. Correct the entity on the primary account to reflect the joint filing information.

21.6.1.4.3.2  (10-01-2006)
Separate to Joint and One Taxpayer Has Not Filed Previously

  1. If one spouse did not previously file a return, adjust the account of the taxpayer that has filed, to reflect the amended joint return.

  2. If a TC 140 is present on the taxpayer's account that did not file previously, input TC 594, CC 84

  3. If a TC 971, AC 010 (generates a TC 976) is present on the taxpayer's account that did not file previously, input a TC 971, AC 002, to cross reference the account and release the E- freeze.

  4. Take the following actions on the established (now referred to as the primary) account:

    1. Transfer any available credit or payments to the primary account.

    2. Use the appropriate re-file blocking series (05 for electronically filed tax returns).

    3. Correct the entity on the primary account to reflect the joint filing information.

  5. If the deadline for filing a separate to joint return has expired and the non-filing spouse has income, see IRM 25.6.5.5.4 , Joint Return after Separate Return.

21.6.1.4.4  (10-01-2002)
"Statute of Limitations" Procedures

  1. The filing of a joint return subsequent to separate return(s) may affect the Assessment Statute Expiration Date (ASED). The ASED is at least one year from the received date of the joint return.

  2. Determine if the extended ASED is imminent. See IRM 25.6.5.5.4, Joint Returns After Separate Returns, for specific instructions on conditions which extend the ASED.

    If the ASED And Then
    Is not imminent (due to a Separate to Joint filing status case)   Update the ASED (TC 560) using FRM 77.
    Is expired There are no other posted TCs 560 on the account The transaction date on the REQ77 must be one day prior to the original ASED.

    Reminder:

    Use Document Locator Number (DLN) blocking series "70" on REQ77 to avoid an unpostable condition.

  3. Send any Separate to Joint case with a tax increase to the Statute Unit for manual assessment if within 90 days of the extended ASED.

21.6.1.4.5  (10-01-2002)
Joint to Separate, Single, or Head of Household Procedures

  1. Married taxpayers may file separate returns on or before the due date of their originally filed joint return.

  2. Disallow all claims postmarked after the due date.

    Exception:

    1. See IRM 21.6.1.4.7., Claims of Joint to Single or Head of Household Where Joint Election is Invalid.
    2. Taxpayers whose marriage was annulled or the subject of a court order holding that no valid marriage ever existed.

  3. If the taxpayer has not allocated a previously received refund:

    1. Return the claim to the taxpayer.

    2. Request the allocation from the taxpayer. (The IRS cannot make the allocation determination.)

21.6.1.4.5.1  (01-16-2004)
Allowable Claims Procedures

  1. Adjust the joint account income, deductions, tax, and credit amounts to reflect the separate return entries. Be aware of the rules governing MFS restrictions. See Publication 17 , Your Federal Income Tax for information on:

    • Itemized deductions

    • Child care credit

    • Earned Income Credit

    • Credit for the Elderly

    • Taxable Social Security benefits

    • Net operating loss

  2. Do the following:

    1. Request records of both taxpayers’ accounts. Use CC RTVUE, if possible, in lieu of requesting the return.

    2. Math verify and recompute the tax and credits, as necessary, on each return.

  3. Adjust the joint account via IDRS, and:

    1. Use item reference number 887 to change the exemption amount.

    2. Reverse any previous EIC to the amount allowable for the new filing status.

      If Then
      Only one taxpayer is requesting the change Recover the EIC from the taxpayer filing the claim. It becomes a civil matter between spouses in the event they do not agree.
      Both taxpayers are filing the claim Recover the EIC using the procedures in IRM 21.5.2.4.23.9, Moving Refunds.

    3. Input TC 170 on the primary account when timely prepaid credits are reduced or transferred out of the module.

    4. Determine if a recomputation of ES penalty is needed if a TC 176 is present on the primary account.

    5. Allocate payments evenly, unless the taxpayer indicates otherwise. Transfer the secondary taxpayer’s share of the joint credit to the separate account.

    6. Input the back out adjustment with a Hold Code (HC) 4.

  4. Update the ENMOD.

    1. Delete the secondary spouse’s name and Social Security Number (SSN).

      Note:

      DO NOT delete the secondary SSN on MFS accounts.

    2. Correct the filing status.

    3. Use a posting delay code (PDC) 1, if there is secondary SE income on the joint account belonging to the spouse being backed out of the account.

  5. Issue a manual refund in the primary spouse’s name only if the back out adjustment creates a credit balance for the primary taxpayer. Input Offset Bypass Indicator (BPI) 2 on CC RFUND to bypass offset to a debt owed by the secondary spouse.

  6. Forward the secondary taxpayer’s return to the Processing function, for processing as an original unnumbered return, using local routing procedures.

21.6.1.4.6  (10-01-2002)
One Spouse Only Requesting Filing Status Change Procedures

  1. If only one taxpayer is requesting the change, and the other taxpayer has income and/or credit:

    1. Prepare a return for the secondary taxpayer. Complete the entity, separate income, and tax information on Form 1040.

    2. Edit the itemized or standard deduction to correspond with the separate spouse’s deduction. If one spouse itemizes, so must the other spouse.

    3. Edit the withholding to reflect any previously refunded or offset amounts.

      Caution:

      You must back out offsets if these are prior to Return Due Date (RDD).

    4. Write the tax examiner’s name and/or employee number on the signature line of the return being input. State the reason for the return (e.g., "Establish separate entity" ).

    5. Forward the unnumbered Form 1040 to the Processing function for input as an original return.

  2. Notify the taxpayer of the changes being made to the account. Consider disclosure procedures when contacting either taxpayer.

    Example:

    "It has been determined your correct filing status for 20xx is married filing separate. We adjusted our records to reflect the change to your income and tax."

21.6.1.4.7  (06-10-2005)
Claims of Joint to Single or Head of Household Where Joint Election is Invalid

  1. Allow claims based on unlawful filings (even if the claim is received after the due date) if the following is present:

    • Verification, such as court documents, showing the marriage was not valid for the tax period involved.

    • Allocation of all return income, credits, and payments.

    If... Then...
    All information is not present and the only change is to the filing status which includes allocation of income, credits and payments. Disallow the claim.
    All information above is not present and additional changes are requested. Do not allow the filing status change. For the joint account, determine if the other issues are allowable and follow IRM 21.5.3.4, General Claims Procedures, for applicable procedures.
    One signature is claimed to be a forgery 1. Request the original return.
    2. Do not issue a Claim Disallowance or Appeal rights.
    3. Refer to Examination Classification for determination.

    Note:

    If there is an open Innocent Spouse Claim, see IRM 25.15.13.2.1 , Form 8857 Processing Considerations.

21.6.1.4.8  (10-01-2002)
Allocating Jointly Filed Cases Procedures

  1. Allocation means taxpayer must designate which wages, deductions, withholding, tax liability, etc., belong to each taxpayer.

    1. The allocation is necessary to determine the amount of overpayment due a separate taxpayer.

    2. Rev. Rul. 74–611 indicates a husband and wife who file a joint return have a separate interest in the overpayment.

  2. Return the claim to the taxpayer if a determination cannot be made because the taxpayer does not submit an allocation. See IRM 21.5.1.4.3, Incomplete Inquiry.

    If a joint return was filed And Then
    The overpayment offset to a spouse’s liability incurred before marriage to the current spouse. The present spouse files an "Injured Spouse" claim. An allocation is required.
    The overpayment offset to a BMF or IMF account of one spouse. The other spouse files a claim. An allocation is required.
    The taxpayer is subsequently divorced. Only one spouse files a claim. An allocation is required.

    Note:

    For procedures for allocating liability in section 6015(c) cases, refer to IRM 25.15 , Relief from Joint and Several Liability.

  3. Accept the allocations as specified below:

    If Then
    The method used follows the separate tax liability formula. Accept the allocation.
    The taxpayer provides clear and convincing evidence for another allocation. Accept the allocation.
    The allocation is specified by a court order. Accept the allocation.

  4. The separate tax method allocates liabilities by dividing the joint liability into separate liabilities.

    1. Determine each taxpayer’s separate tax liability.

    2. Divide one taxpayer’s separate tax liability by the sum of both separate liabilities to determine the ratio (.xxx) attributable to each taxpayer.

    3. Multiply one taxpayer’s ratio times the joint tax to determine that spouse’s share of joint liability.

  5. Subtract the taxpayer’s share of the new joint liability from the taxpayer’s separate payments to arrive at the overpayment amount.

    • The refund from the claim is limited to this amount

    • The overpayment is also limited to the amount of tax actually paid by the taxpayer

    • Compute the tax at the MFS rate

    • Payments and deductions may be allocated differently in community property states

    Example:

    In some community property states, wages and withholding credits are considered split 50-50 between spouses.

  6. Manually refund the proportionate share of the overpayment to the spouse filing the claim.

    If Then
    An offset has occurred. 1. Input a credit transfer to reverse the portion of the offset applicable to the spouse’s share of the refund.
    2. Use a TC 570 on the credit portion of the credit transfer.
    3. Issue a manual refund.
    All items of income and credit belong to the spouse filing the claim. Refund the entire overpayment to that spouse.

21.6.1.4.9  (10-01-2002)
Bankruptcy Assessments on Joint Accounts Procedures

  1. Route the return to the Collection Operations when one spouse is discharged of a tax liability in a bankruptcy hearing and a joint return was filed.

21.6.1.5  (03-02-2006)
Exemptions Procedures

  1. Personal exemptions are claimed in the entity portion of the return. Taxpayer is allowed one exemption for each qualifying person listed on the return.

  2. See IRM 21.6.1.6, Command Code DUPED and DDBCK, for information on updating the DUPOL database.

  3. See IRM 21.6.1.7, Form 8914, Exemption Amount for Taxpayers Housing Individuals Displaced by Hurricane Katrina, for information on the Katrina Emergency Tax Relief Act of 2005 and the additional exemption amount allowed for housing displaced individuals.

  4. For TY 2005, See IRM 21.6.1.8, Taxpayers unable to obtain a Social Security Number (SSN) for a child born in 2005 because of Hurricane Katrina, for additional information.

21.6.1.5.1  (10-01-2006)
Determining the Exemption Deduction Procedure

  1. Taxpayer is allowed only one exemption regardless of the number of returns on which he/she is listed. A dependent child may not claim his/her exemption when filing a return if eligible to be claimed on the parent’s return.

  2. Taxpayer must furnish a correct/valid Taxpayer Identification Number (TIN) for every exemption claimed. This number may be a SSN, an ITIN, or an ATIN. See IRM 3.21.260, IRS Individual Taxpayer Identification Number and IRM 3.13.5.23, Assignment of Internal Numbers for additional information on ITINs and ATINs.

    Note:

    For taxpayers indicating a religious (e.g., Amish/Mennonite) or conscience-based objection to obtaining a TIN, See IRM 21.6.1.5.1(6), (7) and (8).

  3. Taxpayers will be considered to have omitted a correct TIN if SSA information indicates the social security number being used belongs to an individual that was deceased prior to the beginning of the tax year for which it is being used. Prior to use of math error procedures in this instance, the Service should issue correspondence to ensure taxpayers are given notice of the problem and an opportunity to explain.

    Note:

    To substantiate that the date of death is incorrect, taxpayers must provide documentation from the Social Security Administration for verification. When the documentation is provided allow the exemption and use CC DM1DT to add, change, or delete data to correct the date of death. See IRM 2.3.25, Command Codes DM1DT and DTVUE, for CC input.

  4. Dependents, such as children and other relatives, must meet certain eligibility criteria. For TY 2005 and subsequent, a dependent is either a qualifying child or a qualifying relative. Refer to Publication 17, Your Federal Income Tax (For Individuals), Part One, Chapter Three, Personal Exemptions and Dependents, for dependency qualifications.

    Note:

    For tax years ending after 12–21–2000 parents of kidnapped children may qualify to claim a dependency exemption. See Publication 553 , Allowance of Tax Benefits for Kidnapped Children.

  5. Form 8332, Release Of Claim To Exemption For Child Of Divorced Or Separated Parents, or Court papers must be attached by the non-custodial parent if there is a decree of divorce, separate maintenance or custody decree that releases the child's exemption to the non-custodial parent.

  6. A taxpayer may claim an exemption for their spouse if the taxpayer files a separate return; the spouse has no gross income and the spouse is not the dependent on another taxpayer's return.

  7. The law does not provide for a religious exemption from the requirement to provide a valid TIN. However,

    1. IRS will allow exemptions for primary, secondary or dependents identified as either"Amish" or "Exempt — Form 4029" , even if the individual does not have a valid TIN.

    2. Per executive decision, the 1996 Small Business Job Protection Act does not impact the Form 4029, Application for Exemption from Tax of Self-Employment Income and Waiver of benefits, exempt status.

    3. If the exemption for such an individual was improperly NOT allowed during original processing, adjust the account.

  8. IRS will continue to disallow dependency exemptions or related credits for any return having a notation or attachment indicating a "religious or conscience-based" objection to providing TINs for dependents. Taxpayers will receive a math error notice stating their dependent exemption is disallowed because a TIN was not furnished.

  9. Taxpayers claiming a "religious or conscience-based" objection to obtaining a TIN will be allowed the dependent exemption or related credits (except for EIC)when they provide specific criteria listed in paragraph 3 of the Letter 3050C.

    1. If the taxpayer contacts IRS stating he or she has a religious or conscience-based objection to providing a TIN, follow the procedures listed below:

      If contact is by And Then
      Phone Taxpayer inquires regarding TIN for dependent exemption.
      (1) Inform the taxpayer he or she will receive a letter within 10–15 days instructing them to provide specific information. Taxpayer should provide the required documentation and respond using the enclosed envelope within 30 days of receipt of the letter.
      (2) Initiate a 3050C letter selecting A, C, 3, 4, 8 and 9.
      Walk In
      (1) Taxpayer inquires regarding TIN for dependent exemption.





      (2) The taxpayer is providing the information listed in the 3050C letter, paragraph 3.


      (3) The information provided is incomplete.
      (1) Using the 3050C letter, paragraph 3, inform the taxpayer what is required for us to allow the dependency exemption.
      (2) Review the information for completeness and make the appropriate account adjustment (follow local procedures for account adjustment).
      (3) Reiterate to the taxpayer what is required as listed in the 3050C letter, paragraph 3.
      Paper
      (1) The taxpayer is responding to a math error.



      (2) The taxpayer is providing the information listed in the 3050C letter, paragraph 3.
      (3) The information provided by the taxpayer is incomplete.
      (1) Initiate a 3050C letter selecting A, C, 3, 4, 8 and 9. Suspend the case following normal procedures.
      (2) Review the information for completeness and make the appropriate account adjustment.
      (3) Disallow the dependency exemption following normal claim disallowance procedures.

21.6.1.5.2  (10-01-2006)
Computing the Exemption Deduction Procedure

  1. Taxpayer is allowed one exemption for each qualifying person listed on the return. Allow one exemption for:

    • The primary taxpayer

    • The secondary taxpayer

    • Each qualifying child

    • Each other dependent(s)

    Note:

    For TY 2005 and subsequent, a dependent is either a qualifying child or qualifying relative. See Publication 17, Your Federal Income Tax (For Individuals), for additional information.

  2. The exemption allowance is different for each year. Refer to the year of the tax return for the correct amount.

    Personal Exemption Deduction Tax Year
    $3,300 2006
    $3,200 2005
    $3,100 2004
    $3,050 2003
    $3,000 2002
    $2,900 2001
    $2,800 2000

21.6.1.5.3  (10-01-2005)
Phasing Out the Personal Exemption Procedure

  1. The personal exemption deduction begins to phase out when the AGI exceeds the following amounts: