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Part 21. Customer Account Services

Chapter 6. Individual Tax Returns

Section 6. Specific Claims and Other Issues (Cont. 1)

21.6.6  Specific Claims and Other Issues (Cont. 1)

21.6.6.4 
Specific Claims Procedures

21.6.6.4.19 
Federal Income Tax Forgiveness for Certain United States (U.S.) Military and Civilian Employees and Other Individuals

21.6.6.4.19.1 
Killed in Terrorist Action (KITA)/Killed in Action (KIA) and Astronauts Killed in the Line of Duty

21.6.6.4.19.1.1  (12-01-2003)
KITA/KIA and Astronauts Killed in the Line of Duty

  1. All KITA/KIA returns, except Estate Tax Returns, Forms 706, should be mailed to the Andover Campus.

  2. The KITA/KIA decedent's administrator/surviving spouse are provided with envelopes addressed with the Internal Revenue Service, P. O. Box 4053, Woburn, MA, 01888, or street address of 310 Lowell St., Andover, MA, 01810, if Private Delivery Service is used.

  3. The KITA/KIA Coordinator in the Andover Campus receives all returns (original or amended) and all case files/inquiries from decedent's administrator/surviving spouse, the territory office, other functions within the campus, or other campuses. If the return meets KITA criteria and was received from Error Resolution System (ERS), notify ERS suspense that you are keeping the return. The Andover KITA Unit performs the required KITA/KIA case action. All Accounts Management (AM) KITA coordinators are provided with a list of identified taxpayers.

  4. If returns (original or amended) are received at any other campus, expedite the transfer of the KITA/KIA return/case using Form 3210,Document Transmittal, to the Andover Campus. If the return was received from ERS, the KITA/KIA Coordinator must notify ERS suspense when the return is routed to the Andover Campus. Maintain a record of taxpayer's name, TIN, tax period and date transshipped. Establish an IDRS control base status code "M" , category code "KITA" for all KITA/KIA taxpayers. Send to:

    Internal Revenue Service
    P.O. Box 4053
    Woburn, MA 01888

  5. When KITA/KIA cases are received from other campuses, Andover will open an IDRS control base at their campus. The sending campus is responsible for monitoring the case and closing their IDRS control base once the control base is open in Andover.

  6. If the number of KITA/KIA returns increase Andover will route returns/claims to other campus KITA functions. When you receive KITA cases from the Andover Campus, open an IDRS control base.

21.6.6.4.19.1.2  (10-01-2006)
KITA/KIA Procedures for All Functions

  1. KIA/KITA processing is expedited at all times. Follow guidelines in the table below:

    Signature The rules regarding decedent returns apply.
    Income and Deductions Exclude all income and deductions of the decedent only. If a joint return is filed, an allocation is required on joint income (e.g., interest, dividends, etc.) and deductions. Payments and deductions may be allocated differently in community property states.
    Balance Due Returns Payment is usually received with the return. Normal collection procedures apply for deceased taxpayer's balance due returns received without payment.
    Transaction Codes (TC) 420 or 922 The AM KITA/KIA Coordinator or designated employee will contact the Compliance KIA/KITA Coordinator. See Exhibit 21.6.6-1, for a list of KITA/KIA Coordinators.
    Due Dates Normal filing dates apply for both the original and any amended returns. Decedent's administrator/surviving spouse may request an extension of time to file which is granted if normal conditions are met.

    Exception:

    For KIA - Section 7508(a) may have already provided additional time to file due to the decedent's service in combat zone.
    Clearing and Deposit Follow normal procedures if a remittance return is received.
    Numbering and Batching KIA/KITA returns are hand carried and batched by current year and prior year.
    Interest and Penalties See IRM 21.6.6.4.19.1.3.1, Interest Computation.

    Reminder:

    Statutory exceptions (per IRM 20.1, Penalty Handbook) should be applied liberally when determining if penalties are to be assessed. Before assessing penalties, contact the AM KITA/KIA Coordinator.

  2. Unpostables — The Technical Unit or designated function monitors all actions they have taken on KITA/KIA accounts and will contact Unpostables concerning the resolution of an unpostable condition. A new reason code, "2" was established for Unpostable 164. The criteria for generating is TC150, 290, or 300 input to an account containing the KITA or Hostage indicator. The Unpostable function will contact the Andover Campus to have them check the Victim's list. If the taxpayer is not on the list the Unpostable function will process the return. The Andover Campus will remove the KITA indicator. If the taxpayer is on the list, the return will be forwarded to the Andover Campus. This unpostable check will be bypassed for TC150 with Computer Condition Code "O."

  3. Organization/Function/Program (OFP) - Program 82385 must be used to report time working on KITA/KIA returns.

21.6.6.4.19.1.3  (11-22-2004)
Technical Unit or Designated Function KITA/KIA and Astronauts Killed in the Line of Duty

  1. All returns (original or amended) and all case files/inquiries are expedited to the Technical Unit or designated function. Except as specified in the following instructions, Normal Procedures must be followed.

  2. If any of the years in question have a:

    1. TC 420 — Contact the appropriate Compliance KITA/KIA Coordinator who will determine the proper case disposition in conjunction with the Area/Territory Office Examination function.

    2. TC 922 — Contact the appropriate campus Compliance KITA/KIA Coordinator who will secure the return and case file. The Underreporter case is closed to the function handling the KITA/KIA return(s).

    3. Open Control — Contact the employee and tell them to send you what they have. Consider all information when working the KITA/KIA case.

    4. —Z Freeze —Refer case to the Fraud Detection Center.

  3. Examine returns for completeness. If missing items can be determined from other parts of the return or attachments complete the missing section. "KITA/KIA" must be stamped or written across the top of the return. Returns/claims filed due to the Victims of Terrorism Tax Relief Act of 2001 should be identified as KITA anthrax, KITA 9/11, or KITA Oklahoma City. Returns filed due to the Military Family Tax Relief Act of 2003 should be identified as KITA astronauts.

  4. Check Command Code (CC) ENMOD for the KITA/KIA indicator "1" . If not present, use CC ENMOD/ENREQ to input the indicator "1" by the KITA literal. Use "No source document" (NSD). Enter "KITA" or "KIA" and the event in the remarks. This action will generate a TC 016 on ENMOD. To turn off the setting input indicator "9."

  5. Verify the dependent TINs. If invalid and unable to find a valid TIN contact the claimant.

  6. All contact with the administrator/surviving spouse is made through the appropriate KITA/KIA Coordinator or designated employee. Document history sheets recording all activities. The documentation must include the date and action. Both tax years must be kept in the same file. If only one return is received, such as the 2001 original return, or in the case of Oklahoma City, an amended return for 1994, call or write the victims family and/or representative to remind them of the forgiveness available on the other tax years. Do not hold up the processing of the return you received.

  7. A certification from the Department of Defense, the Department of State, or a death certificate must accompany all returns and claims for refund.

    Note:

    Returns filed for victims due to the Victims of Terrorism Tax Relief Act of 2001 and due to the Military Family Fax Relief Act of 2003 are verified against a listing maintained by the Andover KITA Project Office. If the taxpayer's name is not on the list you must request a certified copy of the death certificate prior to issuing a refund. Andover will indicate the need to secure a certified death certificate on cases sent to your office.

  8. In KIA cases the date of entry into a combat zone is needed to process the return/claim. This date may be found on Form DD1300, Report of Casualty, or noted on the claim/return.

  9. Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer must accompany all returns and claims for refund.

    Note:

    A Form 1310 is not required if the surviving spouse is filing an original or amended joint return with the decedent, or the administrator is filing an original Form 1040, Form 1040A, Form 1040EZ, or Form 1040NR, for the decedent and a court certificate showing their appointment is attached to the return.

  10. Contact must be made, when possible, by telephone. If unable to reach the administrator/surviving spouse after two calls, request the information in a letter.

    Note:

    Before disclosing any tax information, you must be sure you are speaking with the taxpayer or authorized representative (see IRM 21.1.3.2.3, Taxpayer Authentication). Before leaving a message on a taxpayer's answering machine, refer to IRM 11.3.2.6.1, Leaving Information on Answering Machines/Voice Mail.

  11. In all cases, ask the administrator/surviving spouse to provide the information in 30 days. Inform them without the supporting information we will not be able to issue a refund. Also, we may have to increase the tax they owe or reduce the refund.

  12. If no reply in 45 days call or send a follow-up letter. Tell the administrator/surviving spouse to provide the information in 10 days. Wait 15 days for a reply.

  13. If no reply to the second contact, call or send another follow-up letter. Wait an additional 15 days for a reply.

  14. If no reply to the third request follow normal "No Consideration" procedures in IRM 21.5.3.4.6, for amended returns.

  15. For joint returns, if the missing/incomplete information is the allocation of income/deductions, process as a normal joint return. Verify the tax is correct for filing status 2 and edit if necessary. Apply the ≡ ≡ "tax tolerance" only if it benefits the taxpayer.

  16. For all other issues, use the Correspondence Action Chart in IRM 3.11.3.6.3.3, (Figure 3.11.3 - 14a through 14j) to code original returns for processing if the taxpayer does not provide ALL requested information, correspondence is returned by the United States Postal Service (USPS) as "undeliverable," or all correspondence conditions were not included when the first correspondence was sent.

    Note:

    Do not edit an RPD when any of the above apply.

  17. Edit a CCC "U" on all"no reply" returns in addition to the other actions specified in the Correspondence Action Chart, except when any of the following apply:
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    Edit 04-15-02 as the return received date if a timely-filed return is being processed after June 3, 2002, or if the julian date in the DLN is 155 or later.

  18. For late"no reply" returns, honor the original received date.

  19. Send the administrator/surviving spouse a letter informing them to file a Form 1040X with the required information. Remember, if a manual refund is not issued (no "O" code), the original return will unpost. Call the Andover KITA Office on 978–474–5408 and let the management assistant know the return will unpost. When the Unpostable Function calls the KITA office they will be told to post the return. Make sure all of your actions are clearly documented on the history sheet you attach to the return. The return will post when input the second time.

  20. The following applies to ALL KITA/KIA original returns:

    • Edit (in red) the return, beginning with the total tax line. Apply the ≡ ≡ ≡ tax tolerance only if it benefits the taxpayer. Edit, if applicable, all items following the tax including the minimum payment/credit amount and the "refund" amount, or the "amount owed." Enter Computer Condition Code (CCC) "Y." Code the entity portion and address. Enter the appropriate CCC (F, W, L, etc.). See (10) below if a joint return.

    • Prepare a manual refund, if applicable: enter CCC "O" on the return. Follow normal procedures including research for outstanding balances. Attach a copy of the manual refund form to the return. See IRM 21.6.6.4.19.1.3.1, Interest Computation.

      Note:

      If outstanding balances, send the appropriate offset letter prior to satisfying the debts.

      Exception:

      Contact the Andover KITA Office at (978)474–5408 if any of the following conditions are present:
      • Non-filer/SFR for two years or more
      • Underreporter with balance due for two years or more
      • Examination assessment over $2,000 (per tax year) with a balance due

    • Hand carry the return through pipeline; Batching, Numbering, Code and Edit, and the Integrated Submission and Remittance Processing (ISRP). If during processing an error code generates, the ERS Function will suspend the document and contact the KITA coordinator. The KITA coordinator will refer the case to the function designated to work KITA/KIA returns. All math errors must be resolved prior to the processing of the return. Contact the victims family and/or representative if necessary.

    • Contact the victims family and/or representative, via telephone or letter, regarding the adjustment actions taken on KITA amended and or original tax returns. Provide the tax forgiveness amounts, the refund amounts, the anticipated dates the refunds should be received, interest amount allowed with the refund, and the IRS employee name, telephone number, and address to contact if there are any questions.

    • Monitor for posting and to assure the refund, if any, is issued.

    • Destroy copies of returns used for monitoring purposes and all duplicate information.

    • File all other documentation, including the history sheets, by inputting a TC 290 on the latest KITA year filed. In remarks put: "KITA documentation."

  21. The following applies to ALL KITA/KIA amended returns:

    • Math verify for completeness.

    • Adjust the tax. Apply the ≡ ≡ ≡ ≡ "tax tolerance" only if it benefits the taxpayer. Use RC99, SC1, hold code 4 if the adjustment results in an overpayment, and the appropriate blocking series. Enter "KITA" and the event in the remarks. DO NOT ADJUST THE INCOME. Leave the control base open and monitor until all actions have posted.

      Note:

      Adjustments made to electronically filed return account must use blocking series 05 (do not use blocking series 18).

    • Prepare a manual refund if applicable. See IRM 21.6.6.4.19.1.3.1, Interest Computation, KITA only.

    • See IRM 21.6.6.4.19.1.3(20) bullets 5, 6, and 7.

    • All claim disallowances must be reviewed by the KITA Project coordinator.

  22. If the return/claim is filed due to the Victims of Terrorism Tax Relief Act of 2001 or the Military Family Tax Relief Act of 2003, the following applies:

    Note:

    Only: KITA Anthrax, KITA 9/11, KITA Oklahoma City, KITA Pentagon, KITA Astronaut.

    1. See Publication 3920, Tax Relief for Victims of Terrorist Attacks, for taxes not eligible for forgiveness.

    2. Tax on income on behalf of a decedent that would have been received if the individual had not died; such as paycheck, dividends, etc., is forgiven.

    3. Death benefits paid by the employer if they are paid as a result of the decedent being a victim of the terrorist attack are excluded. If these death benefits would have been received in any event of death, then normal rules apply.

    4. A minimum tax relief benefit of $10,000 is provided to victims of Oklahoma City bombing, September 11, 2001, Anthrax, and any astronaut whose death occurs in the line of duty after December 31, 2002. This minimum applies to the original, amended, and Forms 1041 returns. Publication 3920, Tax Relief for Victims of Terrorist Attacks, suggests to the taxpayer to file the amended and original returns together. The Oklahoma City victims may be filing two amended returns. To determine if the individual has been given the minimum relief, consider the total tax forgiven. Penalties and interest previously paid on tax liability forgiven by the Act are not included in the computation of the minimum relief. Also included is the tax forgiven on the Form 1040 (a worksheet is included in Publication 3920). If necessary check IDRS for adjustments to the years involved. If unable to determine if all returns are filed, contact the administrator/surviving spouse. See IRM 21.6.6.4.19.1.3(3) for correspondence procedures. Question whether a Form 1040 or other returns will be filed. Tell the administrator/surviving spouse to send the returns to you. If you receive a return that has not come through the Andover KITA Office, call (978) 474–5408 so the information can be added to the national database. See IRM 21.7.4.4.1, Form 1041, U.S. Income Tax Return for Estates and Trust, for additional information on Form 1041. Per normal procedures, if the taxpayer has questions you are unable to answer, write them up and refer to your work leader or manager. Apologize to the taxpayer for not being able to answer the inquiry immediately. Inform them they will receive a response as soon as possible but no later than 3 business days.

      Note:

      Do not delay refunds waiting to receive additional returns. If the return (amended or original) you have is processable, complete the case processing expeditiously. If additional return(s) are received, the account must be adjusted accordingly.

    5. If the minimum amount has not been forgiven, the taxpayer can claim a payment/credit up to $10,000 on the "Other Payments" line of the last taxable year. For tax year 2001, Form 1040 this is line 65 or line 59 for 1995 Form 1040. The taxpayer has been instructed to write "Sec 692(d)(2)" to the right of line 65, above line 66 for 2001 Form 1040 and to the right of line 59 above line 60, for 1995 Form 1040.

    6. If a Form 1040X is filed to claim the relief, the amount can be entered on Line 15, with the same write-in. To allow the credit input TC 290.00 if no other adjustment is required. Use the credit reference number 766 to allow the credit or credit reference number 767 (with a minus sign) to decrease a previously posted credit. Use RC 99, SC 1, the appropriate hold code, and blocking series.

    7. For amended returns received prior to the signing of Public Law 107-134, Victim of Terrorism Tax Relief Act of 2001, the date of enactment, January 23, 2002, must be used in the AMD-CLMS-DT field.

    8. On claims filed related to the April 19, 1995, terrorist attack, input "S" for the "OVERRIDE-CD" and insert the received date of the claim in the "RFSCDT" field. This will override the Refund Statute Expiration Date (RSED).

  23. Joint returns — Only the decedent's part of the joint income tax liability is eligible for the refund or tax forgiveness. Refer to the worksheet in Publication 3920. To determine the part attributable to the decedent, the person filing the claim must complete the following steps:

    1. Figure the income tax for which the decedent would have been liable as if a separate return had been filed.

    2. Figure the income tax for which the spouse would have been liable as if a separate return had been filed.

    3. Multiply the joint tax liability by a fraction. The top number of the fraction is the amount in a) above. The bottom number of the fraction is the total of a) and b). The result is the decedent's tax liability that is eligible for the refund or tax forgiveness. Apply the ≡ ≡ ≡ "tax tolerance" only if it benefits the taxpayer.

  24. If the decedent's administrator/surviving spouse is unable to complete the process in (23) above, they should attach a statement of all income and deductions indicating which belongs to each spouse. You must then make the proper division.

  25. If the member of the Armed Forces was domiciled in a community property state and the spouse reported half the military pay on a separate return, the spouse can get a refund of taxes paid on his or her share of the pay for the years involved. The forgiveness of unpaid tax on the military pay would also apply to the half owed by the spouse for the years involved.

21.6.6.4.19.1.3.1  (10-01-2006)
Interest Computation

  1. Following is information on the date from which interest should be computed on the $10,000 minimum benefit (make-up payment) and any actual payments a victim made with respect to tax that the Act now forgives.

  2. Normal rules apply unless otherwise specified. The "make-up" payment is considered paid on the date of enactment of the Act, January 23, 2002. Following normal rules regarding the accrual of interest, interest may or may not be computed on that payment from that date.

  3. Interest will not begin to accrue prior to the filing of a return with respect to a victim who had a filing obligation prior to the enactment of the Act. Victims who did not have a filing requirement, (for example, children who had not earned sufficient income to have a filing requirement) will be paid interest on the "make-up" payment from January 23, 2002, even if a return claiming the $10,000 minimum relief is not filed until a later date.

  4. The following scenarios illustrate the application of the rules:

    Example:

    A World Trade Center victim dying in 2001 filed timely for 2000, making tax payments of $2,000 by April 15, 2001. For tax year 2001, the victim had income tax withholding payments of $2,500. The victim is entitled to a $5,500 make-up payment. ($2,000 +$2,500 + $5,500 = $10,000) Solution—Interest with respect to payments regarding tax year 2000 begins to accrue April 15, 2001. If a timely return is filed for 2001, interest for both the $2,500 withholding payments and the $5,500 make-up payment begins to accrue April 15, 2002. If the Service pays a refund within 45 days after April 15, 2002, interest will not be paid on the 2001 tax year.

    Example:

    An Oklahoma City victim dying in 1995 had income tax withholding payments for tax years 1994 and 1995 in excess of $10,000 and is entitled to a refund of all income taxes paid for those years. Timely returns were filed for both tax years. Solution—Interest on payments relating to 1994 and 1995 would begin to accrue on April 15, 1995 and 1996, respectively.

    Example:

    An Oklahoma City victim dying in 1995 had income tax withholding payments for tax years 1994 and 1995 that amounted to $7,500 (i.e., less than $10,000) in total. Timely returns were filed for both tax years. Solution—Interest on withholding payments relating to 1994 and 1995 would begin to accrue on April 15, 1995 and 1996, respectively. Interest on $2,500 (the make-up payment) would begin to accrue on January 23, 2002.

    Exception:

    An Oklahoma City victim dying in 1995 had income tax withholding payments for tax years 1994 and 1995 that amounted to $7,500 (i.e., less than $10,000) in total. Delinquent returns were filed on January 2, 1998, for both tax years reporting a total tax liability for both years of $6,000. In 1998 the IRS refunded the $1,500 overpayment without interest because the refund was made within 45 days of the return date. Subsequent to the enactment of the Act, refund claims are filed seeking a refund of the $6,000 paid, plus a make-up payment of $4,000 (i.e., $10,000 less $6,000 in tax paid). Solution—Interest on the $6,000 in tax previously paid for 1994 and 1995 would begin to accrue on January 2, 1998, the date the delinquent returns were filed. Interest on the make-up payment of $4,000 would begin to accrue on January 23, 2002.

    Example:

    An Oklahoma City victim dying in 1995 was a child who owed no tax and had no filing obligation. Solution—Interest on $10,000 (the make-up payment) would begin to accrue on January 23, 2002, the date of enactment of the Act.

    Example:

    An Oklahoma City victim dying in 1995 had a filing obligation but no one filed a return for the 1995 tax year prior to January 23, 2002. For tax year 1995, the victim had withholding tax of $4,000. For tax year 1994, the victim made payments amounting to $2,500 and filed a timely return. Solution—Interest with respect to the payments for 1994 ($2,500) accrues from April 15, 1995. Interest with respect to tax year 1995 is computed from the date that a claim for refund is filed on both the $4,000 and the make-up payment of $3,500.

21.6.6.4.19.1.4  (10-01-2004)
KITA/KIA and Astronauts Killed in the Line of Duty

  1. Andover will prepare a weekly report. AM KITA Coordinators must use the Excel spreadsheet provided and fax it to the Andover KITA Office, (978) 474-5953, by COB Thursday.

21.6.6.4.20  (10-01-2002)
Virgin Island Form 1040 and 1040A

  1. Route claims received from taxpayers residing in the Virgin Islands to the Philadelphia Campus for processing. Follow procedures below:

    1. Check the TC 150 DLN for blocking series 630–639 (Virgin Island).

    2. Write "Virgin Island" on the transmittal.

    3. Send a Letter 86Cto the taxpayer advising of the transfer.

21.6.6.4.21  (10-01-2006)
Electronic Filing System (e-file)

  1. Refer to IRM 21.7.4.4.4.15, Electronic Filing of Corporate Returns, for information on electronically filed Form 1120,U.S. Corporation Income Tax Return, Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations, Form 1120S, U.S. Income Tax Return for an S Corporation, and Form 990, Return of Organization Exempt From Income Tax. Utilize CC TRDBV, or CC RTVUE if TRDBV is unavailable, to verify return information in lieu of requesting an ELF return (hard copy print). Only obtain a hard copy of the ELF return if it must be reprocessed or reinput.

  2. For tax years prior to 1998, use CCESTAB or CCELFRQ.

    Reminder:

    ELFRQ may only be used in the campus that processed the electronic return (and Form 8453) and campuses linked to that processing campus via IDRS.

  3. For tax year 1998 and subsequent, use CC TRPRT to request graphic prints. The TRPRT graphic will be available nationwide regardless of where the return was filed. The TRPRT print is not considered the original return. The print will be labeled "TRPRT PRINT DO NOT PROCESS" . However, when the return must be reprocessed, the TRPRT print will be used. Refer to IRM 21.2.2.4.4, IDRS Command Code Usage, for additional information on TRDBV and TRPRT.

    Note:

    When reprocessing an E-file return, you must check the TRPRT print for the Personal Identification Number (PIN). If there is no PIN on the TRPRT print, you must request Form 8453, U.S. Individual Income Tax Declaration for an IRS e-file Return, see (4) below, and attach a copy of the Form 8453 to the TRPRT print.

  4. If an adjustment is made as the result of case closure, use the blocking series 05 (non-refile DLN). Do not use blocking series 18.

    Note:

    Refer to IRM 21.5.4.4, Math Error Procedure Processing and IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns.

  5. Request Form 8453,U.S. Individual Income Tax Declaration for Electronic Filing, if needed. When using CC ESTAB, enter the applicable MFT and "8453" for the form. If 8453 is not input for the form, the request will be systemically rejected. When using CC ELFRQ, use action "2" .

    Note:

    For tax year 2003 and subsequent the DLN of the Form 8453, can be obtained through Command Code (CC) R8453. Input R8453, space and the taxpayer's social security number. For tax years prior to 2003, use the DLN of the original return.

  6. Information (e.g., loose forms, schedules, and correspondence) may not be attached to an ELF return. Use the following procedures:

    1. File the information using TC 290 in block 05 (non-refile DLN).

    2. DO NOT use an "attachment" or "association form."

  7. Electronic Filing Unit (EFU) may forward Form 3465, Adjustment Request, to the Adjustments/Correspondence Branch with a problem annotated. Take normal adjustment action.

21.6.6.4.22  (10-01-2004)
Form 5330, Return of Initial Excise Taxes Related to Employee Benefit Plans

  1. Take the following action if the taxpayer submits a payment for excise tax and attaches a Form 5330, Voucher Update Document:

    1. Detach and photocopy the Form 5330. Attach Form 1725, Routing Slip, to the photocopy of Form 5330 and route to Ogden, UT 84201–0027, M/S 6270 Attn.: EP Accounts Unit (this is the EP unit in Ogden responsible for all "Post Processing" EP work).

    2. Write "Photocopy Only — Do Not Process" across the front of the form.

    3. Route the original Form 5330 to Receipt and Control for processing to the BMF. Receipt and Control has instructions to transship the Form 5330 to Ogden for processing.

    4. Process adjustment per Form 1040, or Form 1040X if necessary, using the SC 1, RC 099, and appropriate blocking series.

    5. Use a hold code to prevent release of the excise tax payment.

    6. Annotate the Form 1725 that the original Form 5330 was sent to Ogden for processing and that the credit is posted on the IMF.

    7. Advise the EP function of the credit on IMF available for transfer to BMF MFT 76.

21.6.6.4.23  (10-01-2003)
Form 8697, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts

  1. Form 8697, is filed with Form 1040X. See IRM 21.7, Business Tax Returns and Non-Master File Accounts, for background information.

  2. Determine if discrepancies exist between liabilities reported by the taxpayer on the overpaid or amended Form 8697 and the related income tax accounts.

    If And Then
    Discrepancies exist   Close to Examination using local routing procedures.
    NO discrepancies exist IMF - The claim is ≡ ≡ ≡ ≡ or more BMF - The claim is ≡ ≡ ≡ or more Refer to Examination as Category A.
    NO discrepancies exist IMF - The claim is less than ≡ ≡ ≡ ≡ BMF - The claim is less than ≡ ≡ ≡ ≡ ≡ ≡ Process following normal adjustment procedures.

21.6.6.4.24  (10-01-2003)
Public Safety Officers Killed in the Line of Duty

  1. If all of the following conditions are satisfied, the Taxpayer Relief Act of 1997 generally excludes from income amounts paid:

    • After December 31, 1996,

    • As a survivor annuity,

    • On account of the death of a public safety officer,

    • To someone who is killed in the line of duty after December 31, 1996,

    • To the extent that the annuity is attributable to the officer's service as a law enforcement officer.

  2. The survivor annuity must be provided under a governmental plan to the surviving spouse (or former spouse) of the public safety officer or to a child of the officer. Public safety officers include law enforcement officers, firefighters, rescue squad or ambulance crew. The provision does not apply to the death of a public safety officer if it is determined by the appropriate supervising authority that:

    1. The death was caused by the intentional misconduct of the officer or by the officer's intention to bring about the death,

    2. The officer was voluntarily intoxicated at the time of death,

    3. The officer was performing his or her duties in a grossly negligent manner at the time of death, or

    4. The actions of the individual to whom payment is made were a substantial contributing factor to the death of the officer.

  3. If an amended return is received claiming this exclusion, the taxpayer must provide a copy of the death certificate and a letter from the employing agency to substantiate the claim. Follow normal claims processing procedures.

21.6.6.4.25  (10-01-2003)
Exclusion of Income by Junior Reserve Officers Training Corps (JROTC) Instructors

  1. Taxpayers, retired from the military service, are citing Section 134 of the Internal Revenue Code, claiming their compensation as JROTC instructors is tax exempt. A JROTC instructor's salary is fully includable in gross income as compensation for services under IRC Section 61(a)(1).

  2. Disallow the claim. Send the Letter 105C. Include the following information: We disallowed your claim to exclude compensation received as a JROTC instructor from your income. The amount you received as a JROTC instructor for teaching is characterized as salary, rather than as an allowance. Internal Revenue Code Section 134 does not apply because the salary at issue does not meet the statutory definition of a qualified military benefit. Rev. Rul. 71-307 concluded that the compensation received by JROTC instructors is fully includable in gross income.

21.6.6.4.26  (10-01-2003)
Meal Expense Deduction

  1. Taxpayers may file amended returns to claim a deduction for meal expense. The meal deduction is available for meals consumed while away from home. "Away from home" according to IRC 162(a)(2), means while traveling away from home on business and requiring the taxpayer to remain away from home overnight at the time of the expense.

  2. Generally, business-related meal and entertainment expenses according to IRC 274(n), are subject to the 50% deduction limit. A higher percentage may be deducted if meals take place while a taxpayer is traveling away from home and is required to remain away from home overnight during, or incident to, any period of service subject to the Department of Transportation's (DOT) hours of service limits. The deductible percentage is phased in as follows:

    If the Tax Year is Then the Deductible percentage is
    1998, 1999 55
    2000, 2001 60
    2002, 2003 65
    2004, 2005 70
    2006, 2007 75
    2008 and subsequent 80

    Note:

    See Publication 17, Your Federal Income Tax Return, for complete information and requirements on meal expense deduction and for individuals subject to DOT's "Other Income" and "hours of service" limits.

  3. Review claim for completeness. If all requirements are met, input the necessary adjustment. If all requirements are not met, refer to IRM 21.5.3, General Claims Procedures for claim disallowance. If unable to determine that all requirements are met, refer to IRM 21.5.3.4.7.2.1, Examination Technical Assistance Request.

21.6.6.4.27  (10-01-2003)
Lottery Winnings

  1. Many lottery winners receive their lottery prizes in yearly installments over a 20 to 26 year period. The winners are sometimes allowed to sell their rights to the future payments, to third parties in exchange for a lump sum payment. These lump sum payments can range from several thousand to several million dollars.

  2. The lump sum payments should be reported as "Other Income" on Line 21 of Form 1040. Taxpayers are filing amended returns to change the income to capital gains. This allows them to benefit from the preferential capital gains tax rates versus the ordinary income tax rates. Disallow the claim. Cite the following disallowance reason: "Proceeds from the sale of rights to receive lottery winnings are ordinary income and may not be treated as capital gain."

21.6.6.4.28  (10-01-2006)
Form 8873, Extraterritorial Income Exclusion

  1. Form 8873, is used to calculate the amount attributable to foreign trading gross receipts that a taxpayer may exclude from gross income for the tax year. The exclusion applies to both corporate and noncorporate taxpayers and is applicable to certain qualifying transactions entered into after September 30, 2000. However, the exclusion does not apply to any transaction in the ordinary course of a trade or business involving a Foreign Sales Corporation (FSC) that occurs either (1) before January 1, 2002, or (2) after December 31, 2001, pursuant to a binding contract that is in effect on September 30, 2000, and thereafter, and that is between the FSC (or a person related to the FSC) and a person other than a related person. The Form 8873, should be attached to an income tax return. Under the American Jobs Creation Act (AJCA) of 2004, the provisions of section 114 of the Code, which provide for this exclusion, are phased out in 2005 and 2006. Certain binding contracts, however, are grandfathered under the AJCA. The Tax Increase Prevention & Reconciliation Act of 2005, repeals the grandfathering provision for taxable years beginning after May 17, 2006. Thus, section 114 is repealed in its entirety after 2006.

  2. See Form 8873, and its Instructions for more details on qualifying foreign trading gross receipts and other information. The form and instructions are available at http://www.irs.gov.

21.6.6.4.29  (10-01-2006)
Clean Fuel Vehicle Property

  1. IRC 179(A) provides the rules on deductions for clean-fuel vehicles and certain refueling property.

  2. Rev. Proc. 2002-42applies to motor vehicles (other than buses, trucks, and vans with a gross vehicle weight rating greater than 10,000 pounds) that are propelled by both a gasoline internal combustion engine and an electric motor that is recharged as the motor vehicles operate (hybrid vehicles) and that otherwise meet the requirements of IRC 179(A).

  3. Taxpayers who placed the type of vehicle described above in service on or before December 31, 2003, may qualify for a $2,000 deduction. The amount is a reduction to adjusted gross income and for tax year 2002 should be entered on line 34 Form 1040. The taxpayer should also enter the amount of their deduction and "Clean-Fuel" on the dotted line next to line 34. No additional documentation is required.

  4. For tax years 2004 and 2005 allow full deduction for Clean-Fuel Vehicle Property, under the Working Families Tax Relief Act of 2004.

    Note:

    No deduction is allowed for vehicles placed in service in years after 2005.

  5. See Publication 535, Business Expenses for additional information, such as deduction for business clean-fuel vehicle property by employees, sole proprietors, partnerships, S corporations, and C corporations. Instructions are also included for recapture of the deduction.

21.6.6.4.30  (03-26-2007)
TY 2001 — Rate Reduction Credit (RRC)

  1. This section has procedures for the Rate Reduction Credit (RRC) on tax year 2001 returns.

21.6.6.4.30.1  (03-26-2007)
RRC Overview

  1. As part of the new tax law, tax rates for TY 2001 were reduced. In order to provide taxpayers with the benefits of the 10% rate more quickly, advance payments of the Immediate Tax Relief (ITR) were issued (or used to offset tax/non-tax debts) based on their TY 2000 tax return. Taxpayers are not required to include this as income on their 2001 federal income tax return. However, requirements for their state return may be different. Advise the taxpayer to check with their state authority.

  2. Taxpayers who received no ITR or less than the maximum credit may be able to claim the credit on their 2001 return. The credit is not refundable but can reduce the tax liability to zero.

  3. Taxpayers whose ITR credit is larger than the credit amount figured on the 2001 tax return will not have to pay back the difference.

  4. Taxpayers who did not have a tax liability for 2000 but have one for 2001, can claim the RRC credit on their return, provided they are otherwise eligible.

    Note:

    The RRC is a credit against 2001 tax and not refundable. If the taxpayer does not have a tax liability for TY 2001, the RRC cannot be claimed. This is also true for decedents without a 2001 tax liability. In some instances, the ITR check from the 2000 module was returned as undeliverable, or not cashed by the taxpayer or taxpayer representative and not reissued by the December 31, 2001 cutoff date. These payments cannot be reissued and if no 2001 tax liability exists, there is no recourse for these cases.

21.6.6.4.30.2  (03-26-2007)
Explanation of the RRC

  1. If eligible, the 2001 RRC is claimed on Form 1040, Line 47; Form 1040A, Line 30; or Form 1040EZ, Line 7.

    Note:

    CC RTVUE may not accurately reflect the taxpayer's entry for Form 1040EZ. If Line 7 (RRC per return) is present, it is netted with Line 11 (tax per return). In these cases, Line 11 (tax per return) is not the actual taxpayer entry.
    Use the following information for taxpayer inquiries requesting assistance completing the RRC worksheet:

    • The maximum credit is the same as the maximum payment amount: $600 for FSC 2 or 5, $500 for FSC 4, and $300 for FSC 1 or 3. The amount is based on the FSC for 2001.

      Note:

      A change in 2001 FSC from 2000 FSC may result in a change in the allowable amount of 2001 RRC.

      Example 1. Taxpayer filed as MFJ for 2000 and filed as HOH in 2001. Taxpayer and spouse received ITR check for $600 ($300 each taxpayer). Taxpayer entitled to an additional $200 RRC for 2001 based on HOH, (if the $200 RRC does not reduce the tax below zero).

      Example 2. Taxpayer filed as HOH in 2000 and filed as Single in 2001. Taxpayer received an ITR check for $500 based on HOH status in 2000. Based on Single status for 2001, taxpayer maximum credit is $300. The taxpayer does not have to pay back the $200 difference.

    • The 2001 RRC can reduce the tax liability, but not below zero. Any excess credit is not refundable.

    • If the taxpayer can be claimed as a dependent, they cannot claim the RRC. However, they may get the benefit of the new 10% tax rate by using the Tax Computation Worksheet found in the tax instructions.

    • If the taxpayer is a Non-Resident Alien, they cannot claim the RRC.

    • If the taxpayer does not have the ITR credit amount, the CSR must review the TY 2000 tax account and provide the amount.

    • Refer to the RRC Worksheets for further assistance.

21.6.6.4.30.3  (03-26-2007)
RRC Qualifications

  1. Taxpayers must meet the following qualifications to claim the RRC.

    • A tax year 2001 Federal income tax return must be filed.

    • Maximum credit, based on 2001 FSC, was not realized on 2000 tax account.

    • Tax liability must be present. RRC can reduce the tax to zero, any excess is not refundable.

    • Changes made by IRS during processing of the 2001 tax return must be considered. For example: If Error Resolution System (ERS) increased or decreased the tax, any applicable RRC will also be adjusted.

    • Amended or subsequent returns will affect the amount of any allowable RRC.

    • The taxpayer must not be claimed as a dependent on another return for 2001.

      Note:

      If taxpayer was claimed on another return for 2000 and is claiming their own exemption for 2001, they may be eligible for the RRC. Advise taxpayer to complete the RRC worksheet to determine amount of eligible RRC.

    • Non-Resident Alien taxpayers are not eligible for the RRC.

21.6.6.4.30.4  (03-26-2007)
RRC Research

  1. Except as specified in the following instructions, follow normal procedures to resolve account problems or discrepancies. You may also need to reference other IRM sections, such as:

    • IRM 21.1.3.20, Oral Statement Authority

    • IRM 21.4.1, Refund Research

    • IRM 21.4.2, Refund Trace

    • IRM 21.5.5, Unpostables

    • IRM 5.19, Liability Collection

    • IRM 20.2.7, Abatement and Suspension of Interest, IRC 6404 and 7508

    • IRM 20.1, Penalty Handbook

    • IRM 25.6, Statute of Limitations

    • IRM 21.6.6.4.30, TY-2001 Rate Reduction Credit (RRC)

21.6.6.4.30.5  (03-26-2007)
RRC IDRS Account Information