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Part 21. Customer Account Services

Chapter 6. Individual Tax Returns

Section 7. Adjusting Individual Tax Accounts

21.6.7  Adjusting Individual Tax Accounts

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21.6.7.1  (10-01-2006)
Adjusting Individual Tax Accounts Overview

  1. This section presents information on adjusting individual tax accounts. There are various reasons a tax account may need to be adjusted.

  2. If the taxpayer's issue can't be resolved in the same day AND Taxpayer Advocate Service (TAS) referral criteria is identified, it may be necessary to prepare and forward Form 911, Application for Taxpayer Assistance Order (ATAO), to the Local Taxpayer Advocate per IRM 13, Taxpayer Advocate Service. See IRM 21.1.3.18, Taxpayer Advocate Service (TAS) Guidelines, for complete information. The following require TAS referral:

    • It appears there may be a hardship situation

    • The taxpayer requests a referral to TAS

    • The contact meets TAS criteria per IRM 21.1.3.18, Taxpayer Advocate Service (TAS) Guidelines

      Note:

      Form 911 is on the Desktop Integration (DI) system for on-line completion.

  3. Before disclosing any tax information, you must be sure you are speaking with the taxpayer or authorized representative. See IRM 21.1.3,Operational Guidelines. Also, before leaving any messages on a taxpayer's answering machine, review IRM 11.3.2.6.1, Leaving Information on Answering Machines/Voice Mail. Fax procedures contained in IRM 11.3.1.10, Facsimile Transmission of Tax Information, must be reviewed prior to faxing confidential information to the taxpayer.

21.6.7.2  (10-01-2002)
What Are Adjustments to Individual Tax Accounts?

  1. Adjustments to individual tax accounts are changes required because of the following:

    • An amended or duplicate return filed

    • Taxpayer call

    • Taxpayer written request

    • Face-to-face request

21.6.7.3  (10-01-2006)
Individual Tax Accounts Research

  1. To adjust individual tax accounts you may have to research the following:

    • Source and Reason Codes — CP 21/22

    • Amended Return — No Original – CP 29

    • Post Refund Case — Form 1040X

    • Duplicate or Amended Return — CP 36

    • Superseding Return

    • State Tax Return Posts to Account

    • Presidential Election Campaign Fund

    • Return for Each Form W—2

    • True Duplicate

    • Duplicate or Amended — TC 420–CP 93

    • Duplicate Assessment — Doc Code 51 – CP 35/35A

    • Net Operating Loss (NOL) — Carryforward

    • Original Return — IRS Error Delays Refund – CP 33

  2. See IRM 21.5.2.3, Adjustment Guidelines - Research, for additional research information.

21.6.7.4  (10-01-2002)
Adjusting Individual Tax Accounts Procedures

  1. This section explains the procedures for adjusting individual tax accounts.

21.6.7.4.1  (10-01-2002)
Source and Reason Codes — CP 21/22 Notices

  1. A taxpayer is issued a notice of adjustment when the IRS takes an action on the taxpayer's tax account. The notice, Computer Paragraph (CP) 21 or CP 22, is sent with an explanation of the action. The explanation is specified on the notice by use of one Source Code (SC) and one to three Reason Codes (RC). The SC and RC advise the taxpayer of the tax return account action taken.

    Note:

    A CP 21/22 is not issued if the account balance is zero and an adjustment (CC ADJ54) for TC 290.00 is input with ONLY Item Reference Numbers (IRNs) changing numerical data - NOT TAX (e.g., IRN 886, 887, 888, 889, 892, 895, 896, etc.).


    Caution : For the TC 290 .00 conditions related in the previous NOTE, a CP 21/22 WILL be issued if the account was in balance due status before the adjustment was input. If the input operator chooses NOT to send a notice to the taxpayer, Hold Code 3 must be included in the adjustment.

21.6.7.4.1.1  (10-01-2002)
Action for CC ADJ54

  1. Enter a SC and at least one RC on CC ADJ54 when inputting:

    1. TC 29X for an amount with or without secondary transactions and/or credit/item reference numbers.

    2. TC 290 for zero with secondary transactions and/or credit/item reference numbers.

    3. TC 290 to disallow a claim.
      Reminder: When disallowing a claim or releasing a freeze it is NOT necessary to enter a SC; SC 0 generates.

21.6.7.4.1.2  (10-01-2006)
Source Code (SC)

  1. Source Code selection designates which opening statement will be used on a taxpayer’s notice.

  2. The valid range for the SC is 1 through 9.

  3. When the taxpayer's filing requirement code is "7," a SC marked with two asterisks (**) prints in Spanish.

  4. Use the SC with the highest numeric code if more than one SC applies.

  5. Application of SC(s):

    If Then
    Releasing a freeze on the account, disallowing a claim or inputting RC 054, RC 093 or RC 096 (for tax year 2000), RC 097, or RC 098 SC 0 generates.
    Adjustment is exactly what the taxpayer requests on a claim or duplicate/amended return

    Note:

    SC 2 may indicate an adjustment was made based on an internally generated notice. SC 2 is the default if an incorrect or invalid SC was input.

    		Input SC 1.
    CP09/27 Input SC 1.
    Taxpayer replies to a prior notice (e.g., math error notice) and SC 3 or 4 do not apply. Input SC 2.
    Adjustment is due to new legislation which changes the law too late to update current tax forms or makes an issue effective retroactively Input SC 3.
    Adjustment is the result of an error by an IRS employee Input SC 4.
    Adjustment is a carryback claim Do not use a SC; SC 5 generates.
    Adjustment reflects a math error made by the taxpayer on a claim or duplicate/amended return Input SC 6.
    Reminder : DO NOT use SC 6 for adjustments based on a taxpayer's reply to a previous math error notice.
    Adjustment is an offset reversal, TC 897, or TC 766 with an Offset Trace Number (OTN)

    Note:

    SC 7 may only be used with RCs 086, 087, 089, 090 and 091.

    		 Input SC 7.
    Adjustment results from taxpayer contact with the Taxpayer Advocate Service (TAS) Input SC 8.
    Adjustment is made by the Underreporter function Input SC 9.

  6. For Source Code notice verbiage, see Document 6209, Chapter 14, Section 8, IMF Source Codes.

21.6.7.4.1.3  (10-01-2006)
Reason Code (RC)

  1. Reason Code selection designates the end of the statement that will be printed on the taxpayer's notice.

    1. The RC should describe the area(s) of the return affected by the adjustment action.

    2. Use the RC(s) which best describes the cause of the adjustment.

    3. A RC is not required for a ripple effect change.

    Example:

    The taxpayer provides an additional Form W—2 which changes wages and withholding. A change to EITC results. Use RC 007, wages, and RC 051, withholding; the EITC change will not require RC 053.

    Caution:

    If any section of the return is changed as a result of the additional Form W–2, causing a difference in the taxpayer's figures, the taxpayer must be notified.

  2. The valid range for the RC is 001 through 116.

  3. A maximum of three RCs may be used. If more than three are necessary, use the three which most clearly explain the reason for the adjustment.

  4. See Exhibit 21.6.7–1 for RC language. RCs are marked with:

    1. One asterisk (*) for international accounts (PSC only).

    2. Two asterisks (**) to print in Spanish when the taxpayer's filing requirement code is "7" ; RC 042 only prints in Spanish.

    3. Three asterisks (***) when reversing offsets through the Treasury Offset Program.

      Note:

      RCs 086, 087, 089, 090 and 091 are the only RCs permitted to be used with SC 7; no other SC may be used.

21.6.7.4.1.4  (02-12-2004)
Penalty Reason Code

  1. The penalty RC does not print on the IMF taxpayer's notice.

  2. Only enter a penalty RC if the adjustment includes a penalty change.

  3. The penalty RC is input in the fourth RC position on the CC ADJ54 format. Use the regular RC 062 or RC 065 (071 for Spanish) in the first, second, or third position.

  4. See IRM 20.1, Penalty Handbook for complete penalty relief criteria, valid range of penalty RCs, and an exhibit for penalty RC language. Penalty RCs are explained in Document 6209, Chapter 8, Section 1, Penalty Reason Codes.

21.6.7.4.2  (10-01-2005)
Amended Return — No Original — CP 29 (Amended Return Posts to an Account With No Original Return Present)

  1. When an amended return posts on an account with no original return present, Master File generates:

    • A CP 29

    • An "E—" freeze on the account

  2. A CP 29 notice generates as follows:

    1. Fifteen (15) cycles after the Return Due Date (RDD), when an amended return (TC 977) or a "G" coded return (TC 976) posts to an account with no original return (TC 150).

    2. Four (4) cycles after the return due date when an amended return is blocked in 93.

  3. CP 29 notices are forwarded to the Files function. The returns are pulled, batched, and routed to Accounts Management for assignment.

21.6.7.4.2.1  (10-01-2002)
Analyzing CP 29 Notices

  1. Analyze the return generating the CP 29 notice. Cases may be resolved at this level. Check the Form(s) W–2.

    If the Form(s) W–2 Then
    For the primary spouse is a copy and the filing status is joint The original return may be filed under the other spouse's TIN.
    Have a different year than the return Refer to IRM 21.6.4.4.16, Tax Period Changes.
    Is an original (Copy B of W–2) The amended return may be an original return prepared by taxpayer.

  2. Check for taxpayer notes or explanations.

    If the return causing the CP 29 Then
    Indicates "Injured Spouse" or the CP 29 indicates "DMFC" Work according to the procedures in IRM 21.4.6, Refund Offset.
    Is a tentative return (filed prior to due date and lacking sufficient information to process as an original return)

    1. Process as an application for an extension to file.

    2. Photocopy the return and correspondence indicating an extension request.

    3. Write "photocopy" on the copy.

    4. Route the copy to Taxpayer Relations with instructions to process as an extension request.

    5. Input TC 971, Action Code 002, to release the "—E" freeze.

    6. Enter "extension request" in the FRM 77 remarks area.

    7. Send the return back to files.

  3. If the original return was filed with International file location codes 66 or 98 (first 2 digits of DLN):

    1. Route the case to the Philadelphia Campus (PSC).

    2. Recharge the amended return to PSC.

    3. Send an 86C Letter to the taxpayer.

21.6.7.4.2.2  (10-01-2006)
Locate an Original Return (TC 150)

  1. Request additional information via IDRS to locate the taxpayer's original return. Check the following:

    • CC FFINQ for returns in processing. The return DLN is displayed on IDRS

    • CCs SUMRY, REINF, RTVUE, IMFOL, and ENMOD to research for any current year information under the CP 29 TIN (valid or invalid)

    • CCs NAMES, INOLE and ATINQ for any other TINs (valid and invalid) under all names pertaining to the CP 29 case

    • CC ERINV for unprocessed returns in the reject area. Follow local procedures for completing open reject cases

    • CCs IMFOL for a spouse's TIN (valid and invalid)

    • CCs IMFOL for the posting of TC 150, 977, or 976 with a current list year DLN on any TIN located in the above steps

    • CCs IMFOL for a complete record of the entity and tax periods for the CP 29 TIN when the above steps show no data available

  2. If there are payments (credits) on the module, and a TC 150 cannot be located:

    1. Request the payment posting document(s).

    2. Review for any indication of another name or TIN.

    Note:

    During filing season, a return other than "refund" may be delayed in processing. If TC 610 (remittance with return) posted, the return is in-house awaiting processing.

  3. If you need more information to process the CP 29, contact the taxpayer. Take the following action to correspond.

    1. Photocopy the return.

    2. Write "Copy" on the photocopy.

      Caution:

      Do not send a CP 29 to the taxpayer.

    3. Prepare Form 8009, Request for Missing Information or Papers to Complete Amended Return, or the appropriate C-Letter to send the photocopy to taxpayer.

    4. Request all needed information.

    5. Enclose the appropriate schedules or forms.

    6. Enclose a return envelope.

    7. Suspend the case for 40 days; 70 days for overseas taxpayers.

  4. If taxpayer does not respond or submits an incomplete response:

    1. Perfect the document for input as an original.

    2. Attach a copy of the C-Letter, if available.

    3. Route for processing.

21.6.7.4.2.3  (10-01-2006)
TC 150 — Different Year or Different SSN

  1. If you identify a Different Year or Different SSN case while responding to inquiries on the AM toll-free telephone line, prepare Form 4442, Inquiry Referral, and route it to the Campus AM Account Paper function at the campus where the CP 29 was generated.

    Exception:

    If there is an open control on the account, refer Form 4442 to the employee who has the open control. If no open control and a CP 36 was not generated, then route Form 4442 to the campus that processed the original return.

  2. If the original return is posted on a different year, take the following action:

    If the original return is located on a different year and the duplicate or amended return posted to Then
    The correct period

    1. Request the original return using CC ESTAB.

    2. Back out the original return from the incorrect tax period. Refer to IRM 21.6.4.4.16, Tax Period Changes.

    3. Compare the returns for any adjustments.

    4. Correct the posted account to include any changes on the duplicate or amended return.

    5. Edit the original return for reprocessing to the correct tax period, prepare Form 3893, Re-Entry Document Control, and forward for processing.

    An incorrect period

    1. Transfer any misapplied payments to the correct tax period.

    2. Adjust the correct tax period to include any changes on the duplicate or amended return.

    3. Input TC 971, Action Code 002, on the incorrect tax year to cross-reference the correct tax period.

  3. If the original return is found on another TIN, determine if the accounts can be resequenced. Refer to IRM 21.6.2.4.1, Resequencing Accounts.

    If the accounts Then
    CAN be resequenced

    1. Follow the instructions in IRM 21.6.2.4.1, Resequencing Accounts.

    2. Work as a duplicate filing condition after the account has resequenced.
    CANNOT be resequenced

    1. Compare the duplicate or amended return with the posted TC 150.

    2. Transfer any misapplied payments to the correct SSN. Refer to IRM 21.5.8, Credit Transfers.

    3. Adjust the posted tax module to include any changes on the duplicate or amended return, if necessary.

    4. Input TC 971, Action Code 002, on the incorrect TIN to cross-reference the correct TIN; releases the "E—" freeze.

  4. When working filing status changes involving a joint account, refer to IRM 21.6.1, Filing Status and Exemption Adjustments.

21.6.7.4.2.4  (10-01-2002)
TC 150 — Original Return Not Obtained

  1. If a TC 150 is located and there is no reason to request the original return for verification, make the adjustment using the appropriate blocking series.

    If the original return is requested but not received and Then
    The return is charged out to another area Contact the area for the return or a complete copy.
    The return is not charged out to another area Request the return a second time.
    A second request does not secure the return

    1. Use "Special Search" procedures.

    2. Send a 418C Letter to taxpayer.
      Note : Exhaust all in-house means to secure the return before contacting the taxpayer.

    3. Suspend the case for 40 days; 70 days for overseas taxpayers.

    4. If no reply to the 418C Letter, refer to IRM 21.5.3, General Claims Procedures.

21.6.7.4.2.5  (10-01-2006)
TC 150 Not Located — Duplicate or Amended Return Obtained

  1. If the duplicate or amended return is received and is intended to be an original return:

    1. Determine if the return is complete and processable.

    2. Telephone or correspond for missing forms, schedules, or signatures.

    3. Suspend for 40 days; 70 days for overseas taxpayers.

    4. Process the return without the requested information, if there is no reply to the correspondence.

    If Then
    The return is a Form 1040

    1. Circle out in red, all "G" coded marks and/or notations on the return (e.g., "Duplicate," "Copy," "Amended," etc.).

    2. Retain the original DLN.

    3. Enter CCC "3" on refund returns, when the signature and/or Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer, is missing.

      Note:

      CCC "3" generates a TC 570 and an "—R" freeze on the account when the TC 150 posts. The overpayment will not refund until the freeze is released.

    4. Enter CCC "U" when there are missing forms or schedules needed to support the return entries.

    5. Prepare Form 3893, Re-Entry Document Control, to reprocess the return as the original and forward for processing.

    The return is a Form 1040X

    1. Circle out, in red, the word "Amended" and the "X" in the return title.

    2. Prepare a blank Form 1040 with all relevant tax data.

    3. Reprocess the return as an original. Refer to IRM 21.5.2.4.23, Reprocessing Returns/Documents.

    4. Input TC 971 AC 004 to indicate the amended return is being reprocessed as the original (to post as TC 150).

    5. Enter CCC "U" when forms or schedules, to support the return entries, are missing.

  2. In cases where the TC 971, Action Code 010, created an "E—" freeze because no TC 150 posted, research CC FFINQ:

    If Then
    Original return is in processing Monitor IDRS until the TC 150 posts.
    TC 610 is posted and there is no information on CC FFINQ, the return is a balance due e-filed return that has not posted, or the original return due date has not expired Push code the return with your IDRS number.
    None of the above apply

    1. "G" code the Form 1040X.

    2. Send to Numbering for processing.
      Note: This action allows the "E—" freeze to remain on the module awaiting TC 150 posting.

21.6.7.4.2.6  (10-01-2006)
TC 150 Not Located — Duplicate/Amended Returned Not Obtained

  1. When there is no TC 150 and the duplicate or amended return cannot be obtained, take the following action:

    If Then
    TC 971 created the TC 977

    1. Correspond with the taxpayer using a 418C Letter to request copies of the original and duplicate amended return.

    2. Suspend case for 40 days; 70 days for overseas taxpayers.
    TC 971 did not create the TC 977

    1. Request TC 976/977 DLN.

    2. If unable to obtain the duplicate or amended return, use "Special Search" procedures.

    3. Send a 418C Letter to taxpayer to request copies of the original and duplicate amended return.

      Note:

      Do not send 418C Letter if return is charged out to another area. Contact the area for the return or a complete copy.

    4. Suspend case for 40 days; 70 days for overseas taxpayers.

  2. If there is no reply to the correspondence and you have not received the duplicate or amended return take the following action:

    If unable to obtain the return or a copy Then
    No credits posted on the account

    1. Input a dummy return.

    2. Use the DLN of the TC 976 or 977 to post a TC 150 and release the freeze.
    Credits posted on the account

    1. Input a dummy return, with a tax liability equal to the credits.

    2. Use the DLN of the TC 976 or 977.
    TC 971 created the TC 977

    1. Input a dummy return with a new DLN to post a TC 150 and release the freeze.

    2. Input TC 971, Action Code 004, to release the freeze and prevent the issuance of an erroneous "—A" freeze.

    Caution:

    This procedure is used only if insufficient information is available to process the return as an original. This action satisfies the filing requirement for the module. Ensure the return was not intended for another module.

21.6.7.4.3  (10-01-2002)
Post Refund Case — Form 1040X

  1. Forms 1040X, for which refunds are issued by Document Perfection, are received in the Adjustment function when a TC 150 is not present on the module.

    1. The Form 1040X is processed with Document Code 54.

    2. The adjustment resequences for 10 cycles.

    3. The adjustment then unposts if no TC 150 is present.

    4. A TC 977 and CP 29 notice is generated.

    5. The CP 29 is sent to Accounts Management.

  2. Contact the Unpostable function if Form 1040X and the deleted adjustment document are not received in CAS:AM.

  3. Review the Form 1040X and the CP 29 to determine the correct TIN or tax period. Follow CP 29 research procedures in this section.

  4. Take the following action to resolve the case:

    1. Math verify the Form 1040X.

    2. Obtain the original return, as necessary.

    3. Determine if an incorrect refund was issued due to a math error or erroneous refund.

    4. Input the adjustment to the correct account.

    5. Use the appropriate blocking series, RC and SC.

21.6.7.4.4  (10-01-2006)
Duplicate or Amended Returns — CP 36 (Duplicate Filing Condition)

  1. A duplicate filing condition (TC 976/977) occurs when a duplicate or amended return posts to an account with an original return (TC 150) posted. Consider all of the following when working duplicate filings:

    • Computer Paragraph (CP) 36, Duplicate Filing Condition

    • Superseding returns

    • Return filed for each Form W—2

    • True duplicate returns

    • CP 29, Duplicate/Amended Return Posts to an Account with No Original Return Present

    • Penalty and interest

  2. When a duplicate filing occurs, master file generates:

    • A CP 36, Duplicate Filing Condition (associated with the amended or duplicate return)

      Note:

      When the original return (TC 150) posts after multiple amended/duplicate returns, only one CP 36 Notice will generate based on the last TC 976/977. You must consider all posted TC 976/977's when adjusting the account.

    • An "—A" freeze on the account

    • A CP 36A to pull the original return

    Note:

    Local servicing campus procedures may provide for pulling only the duplicate or amended return.

  3. CP 36S and CP 36B notices generate after a master file comparison of the TC 150 and the TC 976.

    1. The generation criteria is a mismatch of the filing status, address and the secondary SSN.

    2. The CP 36S is associated with the duplicate or amended return.

    3. The CP 36B pulls the original return.

21.6.7.4.4.1  (10-01-2006)
CP 36 — Control

  1. Control the duplicate filing case on IDRS and assign for review. The control base remains open until:

    • The "—A" freeze is released, or

    • The case is referred to the appropriate area

  2. The release of the "—A" freeze allows the computer to generate a refund or offset of any credits.

    Note:

    If CP 36 is on invalid SSN, DO NOT release a refund unless the taxpayer responded to CP 54.

  3. Input CC ESTAB to request the amended or duplicate return if not received with the CP 36 unless the module had history item "REPRXAS150" .

    If Then
    History item "REPRXAS150" is present Release the -A freeze.
    The return is charged out to another area Contact the area to determine the actions to be taken.
    Unable to secure the return

    1. Follow up with a "special search" request.

    2. Send a 418C Letter to the taxpayer.