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Part 21. Customer Account Services

Chapter 7. Business Tax Returns and Non-Master File Accounts

Section 4. Income Taxes/Information Returns (Cont. 1)

21.7.4  Income Taxes/Information Returns (Cont. 1)

21.7.4.4 
Income and Information Returns Procedures

21.7.4.4.1 
Form 1041, U.S. Income Tax Return for Estates and Trusts

21.7.4.4.1.12  (01-01-2005)
Form 1041-T, Allocation of Estimated Tax Payments to Beneficiaries

  1. Form 1041-T is used by a trust, or for its final tax year, a decedent’s estate, which has made a Section 643(g) election to allocate the estimated tax payments made on Form 1041, among the beneficiaries.

  2. The beneficiary who is treated as making the payment is deemed to receive a distribution on the last day of the taxable year of the estate or trust and is deemed to make a payment of estimated tax on January 15 following the taxable year.

  3. The provisions in (2) above apply only to the extent the payments of estimated tax made by the trust for the taxable year exceed the tax shown as due on its return for the same taxable year.

    Note:

    There are no provisions of law for transferring the credit for Federal Income Tax Withheld (FITW) on a Form 1041 Trusts and Estates account, to an individual taxpayer's (beneficiaries) Form 1040 account. Section 643(g) allows the allocation of estimated tax payments on Form 1041-T and section 643(d) allows for the allocation of back-up withholding. However, there are no provisions for transferring FITW. See instructions for line 24e of the Instructions for Form 1041 and IRM 21.6.3.4.2.2(13), Withholding (W/H) Tax Credit. However, an overpayment can be transferred to the individual account with a TC 820/700, using the later of; the due date of the Form 1041 return; or the date of payment that created the overpayment. DO NOT transfer with a TC806/807.

  4. Correspondex Letter 2305C was revised to answer most inquiries received on Form 1041-T. However, you may use another letter if it fits the situation better.

21.7.4.4.1.12.1  (01-01-2005)
Form 1041-T Filing Dates

  1. Form 1041-T must be filed on or before the 65th day (March 5, 2008 for calendar year 2007) after the close of the calendar year.

  2. If the return is the final return of an estate or trust, the election should be filed by the 65th day after the close of the trust’s or estate’s tax year.≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

21.7.4.4.1.12.2  (04-27-2007)
Transferring Credits/Payments (Form 1041-T)

  1. Since these payments are claimed as ES credits by the beneficiaries, the credits must be transferred on an expedite basis. TC 150 does not have to be posted before transferring these credits. Once the election is made and the credits transferred to the beneficiaries, it cannot be revoked.

  2. Form 1041-T is considered correspondence and must meet Action 61 time frames.

  3. Follow the table below when making credit transfers.

    1. Use CC INOLE with definer "T" or "S" and determine if the beneficiary is the primary taxpayer.
    1.1 Credit should only be transferred to the primary SSN.
    1.2 For businesses, credit should be transferred to their income tax return.
    2. Use CFOL command codes to research the accounts of all the beneficiaries listed on Form 1041-T.
    3. Verify the total amount of estimated taxes shown as being allocated to the beneficiaries on line 1 and 4 (these two amounts must be equal) on Form 1041-T, is posted to the Form 1041 account.
    4. If the amount is not posted, adjust the allocation for each beneficiary by the percentage shown on Form 1041–T and inform the trust of the change.
    5. When additional information is needed to complete the credit transfers, correspond (L2305C) or phone the trust to obtain the needed information.
    6. Advise the trust of any action taken which changes the information originally submitted.
    7. Input CC ADD/ADC24 to transfer all calendar year Form 1041 ES payments received by January 15 using the January 15 date of the year following the tax period ending date of the trust. (Send the appropriate closing letter notifying an estate of the credits transferred.)
    7.1 Enter TC 820 on the debit side.
    7.2 Enter TC 660 on the credit side.
    7.3 Insert a "1" in the Bypass Indicator Field on the credit side to bypass the unpostable check or input TC 570 blank as appropriate.
    7.4 Use the payment date with TCs 820 and 660 on ES payments posted after January 15.
    7.5 Use TC 672 to reverse payments posted with a TC 670.
    8. If the Form 1041 was filed for a fiscal year and the due date is earlier than January 15 of the year following the close of the calendar year during which the trust return was due, transfer the credit(s) using the due date of the trust’s return on the TC 820 debit side.
    8.1 Use TC 700 with a 1/15/XXXX (for example, 1/15/2008) date and a designated payment code of "00" on the credit side of the credit transfer.
    8.2 Also, use an override indicator of "2" on both sides of the credit transfer.
    9. If the Form 1041-T is received late ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , reject the form (See IRM 21.7.4.4.1.12.1(2).)
    9.1 Send Letter L2305C explaining the reason for the rejection and request information for the disposition of the credit on the trust’s account.
    9.2 This credit can be applied to the trust’s ES payments for next year or can be refunded.
    9.3 If no reply is received, refund the money and send L2305C.
    9.4 To refund the credit and release the -P freeze, input an ADD24 credit transfer with a TC 820 debit and TC 700 credit to the same tax period. This releases the freeze and allows the credit to refund.
    10. If TC 150 has not posted, Input TC 930 to have Form 1041-T attached to Form 1041 after action has been completed.
    10.1 If TC 150 has posted to MF, do not input TC 930, route Form 1041-T for association with TC 150.

21.7.4.4.1.12.3  (01-01-2005)
CP 208

  1. When Form 1041 posts with credit shown on the election line and the credit has not been transferred, a -P freeze generates. The freeze is released when the module balance becomes zero or debit status.

  2. If the freeze is not released within 6 cycles after the return has posted, a CP 208 generates.

  3. Action required:

    If Then
    Form 1041-T is located (filed on or before the 65th day after the close of the taxable year) Follow procedures in IRM 21.7.4.4.1.12.2 above.
    Credit cannot be transferred due to Form 1041-T not being timely filed 1. Correspond with or phone the trustee to explain the credit balance and why the credit cannot be applied to the beneficiaries accounts.
    2. Request information for disposition of the credit.
    3. Suspend the case awaiting the taxpayer’s response.
    4. Upon receipt of the taxpayer’s response, take the necessary action to resolve the -P freeze. (See IRM 21.7.4.4.1.12.2, Step 9.3 in the table.)

21.7.4.4.1.12.4  (01-01-2005)
Balance Due Notices on IMF Accounts

  1. In situations where Form 1041-T is not processed because of late filing, the beneficiary may receive a balance due notice from the IMF account.

  2. The Accounts Management employees (IMF and BMF) may need to coordinate resolution of the case when there is an indication the credits were to come from the trust’s account. Action required:

    1. Determine the status of Form 1041-T by researching the trust’s account. (Form 1040, Schedule E can provide the trust’s EIN.)

    2. If Form 1041-T is located and credit can be transferred, follow procedures in IRM 21.7.4.4.1.12.2 above.

    3. If there is no record of Form 1041-T being filed, or if Form 1041-T was filed and later rejected, send a letter to the beneficiary explaining the balance due is correct and the trust should be contacted to resolve the balance due on the IMF account.

21.7.4.4.1.13  (01-06-2004)
Victims of Terrorism Tax Relief Act of 2001 - Tax Forgiveness

  1. The Victims of Terrorism Tax Relief Act of 2001 (the act) was enacted on January 23, 2002. The act amends section 692 of the Internal Revenue Code, inserting section 692(d). Section 692(d) provides that the IRS will forgive the federal income tax liability of those killed in the following attacks for certain tax years:

    • The April 19, 1995 attack on the Alfred P. Murrah Federal Building (Oklahoma City attack)

    • The September 11, 2001 attacks on the World Trade Center, the Pentagon, and United Airlines Flight 93 in Somerset County, Pennsylvania (September 11, attacks)

    • Terrorist attacks involving anthrax occurring after September 10, 2001 and before January 1, 2002 (anthrax attacks)

    • The Military Family Tax Relief Act of 2003 amended section 692(d) to include families of astronauts whose death occurs in the line of duty after December 31, 2002. This includes the Space Shuttle Columbia Heroes.

  2. Section 692(d) also allows that the minimum amount of relief for victims of the specified attacks is $10,000. The $10,000 minimum forgiveness applies to the original or amended Form 1040, U. S. Individual Income Tax Return, and Form 1041, U. S. Income Tax Return for Estates and Trusts.

  3. Income received after the date of death must be reported on Form 1041 if the estate has gross income of $600 or more. However, part of this income is now exempt from income tax and is not included on Form 1041 if received;

    • After the date of the decedent's death, and

    • Before the end of the decedent's tax year (determined without regards to death)

    In addition, the following income is not exempt from tax and the tax on it is not eligible for forgiveness:

    • Deferred compensation that would have been payable if the death had occurred because of an event other than these attacks

    • Amounts that would not have been payable but for an action taken after September 11, 2001

  4. For tax year 1995, Form 1041 filers should file an amended Form 1041 to exclude the exempt income. These amended returns should be marked "KITA - Oklahoma City" . The statute of limitations was extended to January 22, 2003, for these claims.

  5. For tax year 2001, taxpayers are to exclude the exempt income when filing Form 1041. Taxpayers who have already filed their tax year 2001 return, should file an amended return to exclude the exempt income. These amended returns should be marked "KITA -9/11 or KITA - Anthrax" .

  6. Taxpayers claim the tax forgiveness on Form 1040, F1040-NR or F1040-X. Forward any claims you receive on these forms to the Andover Campus per IRM 21.6.6.4.19, Federal Income Tax Forgiveness. Detailed instructions to work these cases can be found in IRM 21.6.6.4.19.1.3.(6)–(9). Also see Publication 3920, Tax Relief for Victims of Terrorist Attacks, for more information on excludable income. The Andover Campus considers adjustments on Form 1041 accounts when working these claims.

  7. Taxpayers should mail their amended Form 1041 to the Andover Campus. Andover photocopies the return (for their records) and sends the original amended return (on a Form 3210 transmittal) to Cincinnati's Technical Unit for processing.

21.7.4.4.1.14  (01-01-2005)
Pooled Income Trusts (GNMA)

  1. Government National Mortgage Association (GNMA) Trusts are each assigned a pool number which becomes the name of the trust with the first four digits of the pool number being the name control on the account. The fiduciary name is the owner of the GNMA. When an EIN is assigned to a GNMA pool number, it must remain with the pool number even when purchased by another fiduciary. ENMOD shows the pool number assigned to the GNMA at the beginning of the first name line. Therefore, when a GNMA account is sold, the EIN and pool number remain the same and only the fiduciary name changes.

  2. GNMA Pool Returns are Non-Taxable Grantor Trust returns which should contain no taxable income.

  3. When a GNMA trust is sold and bought during the year, each fiduciary files a short period return, which results in a duplicate filing condition (DUPF). Determine which fiduciary is selling and which one is purchasing to perfect the fiduciaries name and address on ENMOD to the purchasing fiduciary.

  4. It is not necessary to process the short period return to the current period. Adjust the account accordingly. The seller should show in box F and G; the pool number, that it is a final return, and the date of sale. The buyer should show in box F and G; the pool number, that it is an initial return, and the date of purchase. If you cannot determine which fiduciary is selling and which one is buying from the available information, attempt to contact the taxpayer. If unable to secure the information, DO NOT change the care of/sort name line and the address currently on ENMOD.

  5. If you receive a DUPF in which the pool number does not match the EIN:

    • Search cc NAMEE for the correct EIN.

    • If unable to secure the correct EIN, contact the Fiduciary for the correct number.

    • If unable to obtain the correct EIN from the Fiduciary, send to Entity to assign a new number.

    • Wait for the new EIN to post. Reprocess the return to the new EIN after the new number posts.

    • Entity will send a notice to the taxpayer with the new EIN information.

    • See IRM21.7.9, Duplicate Filing Conditions, for more information on processing DUPFs.

21.7.4.4.1.15  (07-17-2007)
Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, Received in Conjunction with Form 1041

  1. If an estate or trust is the recipient of a portion of an early distribution, they may be required to file Form 5329. Estates and trusts who would not otherwise be required to file Form 1041, may file Form 5329 by itself.

  2. If you receive a loose Form 5329 from a trust or estate reporting an addition to tax, prepare a "dummy" Form 1041 for processing. Complete the entity section and write-in the amount of the addition to tax, on page 2, Schedule "G" , line 7. Carry this amount from line 7 to line 23, total tax, on page 1 of Form 1041.

21.7.4.4.2  (04-20-2005)
Form 1065, U.S. Return of Partnership Income

  1. A partnership is the relationship between two or more persons who join to carry on a trade or business. The term partnership includes a limited partnership, syndicate, group, pool, joint venture, or other unincorporated organization, that is not a corporation, trust, estate, or sole proprietorship. (See Publication 541, Partnerships, for additional information.)

    1. Each partner contributes money, property, labor, or skill and all expect to share in the profits and losses of the business.

    2. The partnership must file a Form 1065 to report its taxable income or loss.

    3. Each partner's distributive share of the income or loss must be reported on the partner’s individual income tax return.

    4. Each partner must make estimated tax payments if necessary.

  2. Every partnership that engages in a trade or business, or has gross income, must file an information return on Form 1065 showing its income, deductions and other required information. A partnership is not considered to engage in a trade or business, and is not required to file a Form 1065, for any tax year in which it neither receives income nor pays or incurs any expenditures treated as deductions or credits for federal income tax purposes.

  3. Form 1065 is used by partnerships to report income.

    1. The return is due on the 15th day of the 4th month following the close of the tax year.

    2. One general partner or limited liability company manager must sign the return. See Who Must Sign in the instructions to Form 1065 when the return is made by a receiver, trustee or assignee.

    3. The MFT is 06.

    4. The name control of a partnership is the first four letters of the legal name of the partnership.

    5. See IRM 21.7.4.4.2.8.1 for information on partnerships with more than 100 partners.

21.7.4.4.2.1  (07-17-2007)
Form 1065-B, U.S. Return of Income for Electing Large Partnerships

  1. The TPRA of 1997 provides that certain partnerships can elect large partnership status (100 or more partners in the preceding tax year) by filing Form 1065-B, U.S. Return of Income for Electing Large Partnerships, instead of Form 1065.

  2. One of the benefits is being able to file "simplified Schedules K-1" .

  3. Complete programming, including assessment of tax liability on original processing, became available in 2002. Prior to 2002, tax on Forms 1065-B was assessed with a TC 290 since programming was not available to assess it with a TC 150. If a tax adjustment is required:

    1. Input TC 290 or 291 to adjust to correct amount.

    2. It is not necessary to input any credit reference numbers.

      Exception:

      TCs 766/767 are valid.

    3. Credit transfers can be made if necessary. However, credit elect is not available on these forms.

  4. Beginning in 2002, these returns are processed in Ogden. Beginning in 2007, foreign partnerships returns are also processed in Ogden

  5. Forms 1065-B have a FRC 2 and Doc Code 68.

  6. Form 1065-B filers were not required to file their return electronically for taxable years beginning before January 1, 2002.

  7. Once the partnership elects large partnership status by filing the 1065-B, the partnership and all its partners are bound by the election. The election applies to the tax year for which it was made and all later years, and cannot be revoked without IRS consent. (However, a partnership may cease to be treated as an electing large partnership for a tax year in which the number of partners is reduced below 100.) IRS consent is obtained through a Private Letter Ruling. (A user fee is required to obtain a letter ruling. See Rev. Proc.2007-1 or its successor.) Requests for letter rulings must be sent to the following address:

    Sent via US Postal Service Sent via Private Delivery Service (e.g., UPS, FEDEX, etc.)

    Internal Revenue Service
    Attn.: CC:PA:LPD:DRU
    P.O. Box 7604
    Ben Franklin Station
    Washington, D.C. 20044
    Internal Revenue Service
    Attn.: CC:PA:LPD:DRU, Room 5336
    1111 Constitution Avenue N.W.
    Washington, D.C. 20224
    See the Note directly below

21.7.4.4.2.2  (01-01-2005)
Publicly Traded Partnerships

  1. The TPRA of 1997 provides for electing 1987 (year is correct) partnerships to continue exception from treatment of publicly traded partnerships as corporations. A tax of 3.5% of such partnership’s gross income receipts, is imposed for the taxable year from the active conduct of trades and businesses of the partnership.

  2. The election had to be made in early 1998. If a partnership makes the election and later revokes it, the election cannot be reinstated in the future.

  3. There are less than 10 electing partnerships in the country. Beginning in 2002, these partnerships file returns in Ogden (OSPC).

  4. The doc code for these returns is 67.

  5. Programming is available to assess tax on original input in 2002. If adjustments are required, follow same procedures as for Forms 1065-B. Credit transfers can be made if necessary. However, credit elect is not available on these forms.

21.7.4.4.2.3  (01-01-2005)
Required Tax Year (Partnerships)

  1. Partnerships are generally required to conform their tax years to the tax years of their partners (usually December 31).

  2. An exception to the rule is made when a partnership either:

    • Establishes a business purpose for having a different tax year (identified by TC 054)

    • Makes a Section 444 election on Form 8716, Election to Have a Tax Year Other Than a Required Tax Year (identified by TC 055)

  3. Taxpayers electing Section 444 are required to file Form 8752, Required Payment or Refund Under Section 7519. See IRM 21.7.4.4.7 for more information.

21.7.4.4.2.4  (01-01-2005)
Schedules K and K–1 (Forms 1065)

  1. Schedules K-1 must be attached to Form 1065.

  2. Schedule K (Form 1065, page 3) contains the total amount distributed for each applicable item.

  3. Schedules K-1 contain the partner’s share of the total distribution.

  4. If loose Schedules K-1 are received, determine if they were sent due to possible assertion of a missing information penalty. See IRM 20.1.2.9.4, Penalty Relief, and IRM 21.7.4.4.2.7. Follow the table directly below.

    If Then
    A Missing Information Penalty (TC 246 with no reference number) was assessed Adjust the penalty per IRM 20.1.2.9.4.
    No penalty was assessed Associate the Schedule(s) K–1 with the return.
    TC 150 is not posted Input TC 930 to have document returned to you when the return posts to assure a Missing Information Penalty was not assessed in error.

21.7.4.4.2.5  (01-12-2006)
Extensions of Time to File Form 1065

  1. Beginning January 1, 2006, IRS consolidated Forms 2758, 7004, 8736 and 8800. New revised Form 7004, Application for Automatic 6-Month Extension of Time To File Certain Business Income Tax, Information, and Other Returns, is now used to file for an extension on Form 1065. Each partner is required to file the appropriate extension of time to file his/her individual income tax return.

  2. See IRM 21.7.4.3.5, Revised Form 7004, for additional information.

21.7.4.4.2.6  (01-01-2005)
Publication 541, Partnerships

  1. Publication 541, Partnerships, can be used to determine the various forms and schedules required to be filed with Form 1065.

21.7.4.4.2.7  (02-11-2005)
Partnership Penalties

  1. Partnerships may be assessed a penalty for failure to timely file a return, including extensions (TC 160/TC 166) or a failure to provide information penalty, when Form 1065 is lacking the required information such as Schedules K-1 or a balance sheet (TC 240/246). See IRM 3.11.15.16.6, Missing Schedule Codes.

  2. Small partnerships, i.e., a partnership that has 10 or fewer partners, may qualify for a statutory exception (Rev. Proc. 84-35) to the penalty. See IRM and LEM section 20.1.2.9.4, Penalty Relief, for details. Also, see this same section, 20.1.2.9.4, if the taxpayer is assessed a penalty for filing an incomplete return because of a missing balance sheet.

  3. For information on penalties involving the requirement for large partnerships to file electronically, see IRM 21.7.4.4.2.8.1.1.

21.7.4.4.2.8  (01-01-2007)
Electronic Filing of Partnership Returns

  1. All calendar year Form 1065 filers with 100 partners or less can voluntarily file their returns electronically. (See IRM 21.7.4.4.2.8.1 for information on partnerships with more than 100 partners.) Publication 1524 provides procedures while Publication 1525 provides specifications, validation criteria and record layouts for filing Forms 1065 electronically. Also, see Publication 3416, Electronic Filing of Form 1065, U.S. Return of Partnership Income (Publication 1525 Supplement), and Publication 3112,IRS e-file Application and Participation.

  2. Beginning January 7, 2007, partnerships can file Forms 1065, 1065-B and 7004 via the new MeF system. Allelectronically filed Forms 1065 must be transmitted to the Electronic Management System (EMS) at the Tennessee Computing Center in Memphis Tennessee. The returns are processed at Ogden Submission Processing Center (OSPC). For additional information, consult OSPC at the address in IRM 21.7.4.3.1. For information involving waivers to the requirement for large partnerships to file their returns electronically, see IRM 21.7.4.4.2.8.1.1(3) and 21.7.4.4.2.8.1.2.

  3. Taxpayers may now apply to participate in all IRS e-file programs using one application, Form 8633 Application to Participate in IRS e-file Program. This applies to Electronic Returns Originator (ERO), transmitter, software developers and intermediate service providers. See IRM 21.7.4.4.1.9 for more information on Form 8633.

  4. In order to file Form 1065 electronically, filers, transmitters and software developers participants MUST successfully pass the Business Acceptance Testing System (BATS). The BATS process tests hypothetical scenarios to ensure the participant's computer program has the correct file specifications to file returns electronically. Participants are required to develop and submit their own test scenarios. BATS is mandatory and required each year. Generally, BATS begins the first week of December and continues through the 15th of the following October. Publication 3225, Test Package for Electronic Filers of U.S. Return of Partnership Income, is no longer available. See Section 8 of Publication 1524 for more information on the testing process.

  5. The Form 1065 Electronic Filing System does not operate between October 22 through the following January 22 of any year. Effective January 23, 2007 through October 22, 2007, the IRS will begin to accept and process tax year 2006 Forms 1065. The Electronic Filing System accepts

    • Calendar year returns for the current processing year. For example, for January 23, 2007 - October 22, 2007, the system only accepts tax year 2006 returns.

    • Fiscal year returns ending January through June of the current processing year. For example, for January 23, 2007 - October 22, 2007, the system only accepts returns which have a fiscal year ending June, 2007 or sooner.

  6. The following cannot file their returns electronically for 2006.

    • Electing Large Partnerships (Forms 1065–B)

    • Fiscal year filers with periods ending after June 30, 2006

    • Short year filers

  7. Electronically filed Form 1065 returns are processed in Ogden and are assigned file location codes 72 and 64, tax class 2, and document code 65. See IRM 3.42.4.4.1.1, e-file Entity Codes, for more information.

  8. For TY 2006 (filing season 2007), See Publication 1524, Procedures For the 1065 e-file Program, for a complete listing of the forms and schedules that are/are not accepted electronically. If the form needs to be filed with the partnership return, the return must be filed on paper.

  9. Under the current program, electronic partnership returns have two parts:

    1. One part consists of the return information and computation.

    2. The other part, Form 8453-P, U.S. Partnership Declaration and Signature for Electronic Filing, is the signature form and may have other forms or supporting documentation attached which require a signature.

  10. Use CFOL command codes to research the account. Request the original return only when absolutely necessary. If it is necessary to secure the signature document, use CC ESTAB and note "Provide Form 8453-P" in the remarks section. See IRM 21.7.4.4.1.9 for more information on securing signature document for 1999 and prior years, and recharging the document back to Files.

  11. Currently there is no automated way to retrieve a Form 8453-P through IDRS. To retrieve a 2002 and subsequent year Form 8453 -P;

    1. Prepare Form 2275, Records Request, Charge and Recharge, and fax it to Stacie Peck at 801–620–7622.

    2. OSPC will provide you with the DLN and the Form 8453-P (which are currently being maintained in the e-file unit).

  12. The current 1065 e-file program does not accept amended returns electronically. Taxpayers must complete an amended return on paper and file it with the campus where they normally would file a paper return.

  13. A new telephone number for the e-help desk is now available. Taxpayers may call 1-866-255-0654 for assistance. Also, see IRM 21.7.4.3.2 for research material that is available on filing Form 1065 electronic returns.

21.7.4.4.2.8.1  (01-01-2005)
Partnerships with More Than 100 Partners

  1. The TPRA of 1997 authorized the issuance of regulations mandating the filing of partnership returns with more than 100 partners (large partnerships) on magnetic media. The regulations also provide that the Commissioner may mandate one form of magnetic media on which the returns must be filed. As a result, the Commissioner determined these returns must be filed electronically. Final regulations were published in Internal Revenue Bulletin 1999-48.

  2. The regulations are effective for tax years ending on or after December 31, 2000. The following large partnerships are excluded from the mandate, and are not required to file electronically in 2007. It is also not necessary for these partnerships to file a request for waiver as described in IRM 21.7.4.4.2.8.1.2. Publication 1524 also contains information on exclusions from filing electronically.

    • Fiscal year filers

    • Partnerships filing amended Forms 1065

    • Fiscal year short year returns

    • Fiscal year final return

    • Electing large partnerships (Forms 1065-B)

    • Returns filed under IRC sections 6020(b), 501(d)(3), or 761(a)

    • Calendar year returns ending before December 31, 2006 (See NOTE below)

    • Calendar year final returns

    • Inactive partnerships with no income on pages 1, 2, 3, and 4 of Form 1065

      Note:

      Fiscal year filers with periods ending on or before June 30, 2007 can file electronically, but are not required to do so. Also, Notice 2002-3 (see IRM 21.7.4.4.2.8.1.2.(7)) states that delinquent returns are excluded from the filing mandate. This actually means that the system does not accept prior year returns. It does not exclude large partnerships filing Forms 1065 after the required due date, from the mandate to file electronically. They are still subject to the penalty for failure to file electronically, if they file on paper.

21.7.4.4.2.8.1.1  (01-01-2005)
Large Partnership Penalty for Failing to File Electronically

  1. Final regulations under IRC 6011(e) provide for a penalty to be assessed if large partnerships fail to file their return electronically for tax years ending December 31, 2000 and subsequent. (See information concerning waivers for this requirement in IRM 21.7.4.4.2.8.1.2.)

  2. The penalty is $50 per partner over 100. For example, if a partnership has 120 partners and does not file electronically (unless a waiver is approved), a penalty of $1,000 is assessed. It is assessed as TC 246 with reference number 688.

  3. If a taxpayer believes they can establish reasonable cause due to hardship after the penalty is assessed,they must write to OSPC at the address below. Penalty abatement requests CANNOT be worked by phone or correspondence at other sites. If a taxpayer calls or corresponds regarding where to file the request, instruct him to file the request at the address below. If an abatement request is received at another site, fax the correspondence to OSPC at 801-620-7622. Be sure to include a phone number where you can be reached. OSPC will call you back to let you know they received the request. If you do not hear from OSPC within three working days, it is your responsibility to re-fax the correspondence to them. Send Letter 86C to the taxpayer. Taxpayers should not file returns on paper and wait for a penalty to be assessed before requesting abatement. They should request a waiver (if they meet the criteria) as detailed in IRM 21.7.4.4.2.8.1.2.

    Sent via US Postal Service Sent via Private Delivery Service (e.g., UPS, FedEx, etc.)

    Internal Revenue Service
    Ogden Submission Processing Center
    e-file Team, Mail Stop 1057
    Ogden, UT 84201
    Internal Revenue Service
    1973 Rulon White Blvd.
    Mail Stop 1056, Attn.: EFU
    Ogden, UT 84404

  4. Taxpayers must establish reasonable cause due to hardship based on economic reasons or reasons out of their control such as equipment breakdown, destruction of magnetic media filing equipment, etc. If reasonable cause due to hardship is established, a TC 241 is generated when a TC 290 $.00 with Reference Number 688 with a minus sign is input on IDRS. See the table below.

    IF THEN
    Hardship is established 1. Input TC 290 $.00 in BS 17 with Reference Number 688 with a minus sign.
    2. Use RC 062 in the first position and the appropriate RC in the fourth position - usually RC 022.
    3. Inform the partnership (by letter) the request for penalty abatement has been accepted. Also, inform the partnership the request is allowed for this tax period only, and if they believe they meet the hardship criteria in future years, they must request a waiver each year. Also, inform them they must attempt to meet the electronic filing requirement in future years. The fact that their reason was accepted this year, does not necessarily mean it will be accepted in future years.
    Hardship is not established 1. Input TC 290 $.00 in BS 98.
    2. Input RC 062 in the first position.
    3. Do not input Reference Number 688.
    4. Send Letter 854C.

  5. If a taxpayer's request for penalty abatement is denied (unlike waiver requests), the taxpayer has the option to follow normal penalty appeals procedures.

  6. If a request for penalty abatement is received when the partnership files a paper Form 1065, Code and Edit faxes a copy to OSPC at 801-620-7622. These requests must be worked by OSPC within three working days of receipt. OSPC follows the instructions below.

    If Then
    The partnership establishes hardship 1. Input TC 971 Action Code 320.
    2. Follow the procedures in IRM 21.7.4.4.2.8.1.1(4), Step 3 of the first Then box which reads "Inform the partnership (by letter) the request ..."
    The partnership does not establish hardship 1. Input TC 971 Action Code 321.
    2. Send Letter 854C.

  7. If a large partnership files a Form 1065 electronically, but it is systemically rejected and the partnership files the return on paper, the partnership should attach a copy of the rejection notification to the paper Form 1065. If the postmark is within 10 days of notification from the Service that the electronic return was rejected, Code and Edit enters Computer Condition Code (CCC) "R" to suppress the FTF penalty. (See IRM 3.11.15.14, Computer Condition Codes, for additional information on Code and Edit's usage of CCCs.) They also fax a copy of page 1, Form 1065 and a copy of the ELF rejection notification (indicating "rejection notification from ELF" ) to OSPC at 801-620-7622. OSPC must:

    1. Work these cases within 3 working days of receipt.

    2. Input TC 971 Action Code 320.

  8. If a large partnership is erroneously assessed a penalty for failure to file electronically (TC 246 with Reference Number 688) due to Service error, the penalty must be abated. Examples of this include but are not limited to, returns where the number of partners was transcribed incorrectly (partnership has less than 100 partners but the number transcribed was more than 100) or the penalty was assessed for a tax period prior to period ending December 31, 2000. OSPC must:

    1. Input TC 290 $.00 in BS 17 with Reference Number 688 (for the amount of the penalty you are abating) with a minus sign.

    2. Use RC 045 in the fourth position.

    3. Inform the partnership by letter that the penalty has been abated. An apology for the erroneous assessment must be included.

21.7.4.4.2.8.1.2  (10-16-2006)
Waiver Requests by Large Partnerships Required to File Electronically

  1. Final regulations provide for waiver of the requirement if the taxpayer can establish hardship. A major factor in the decision is whether the taxpayer will incur undue economic hardship.

  2. The request must be in writing with the notation on the envelope and at the top of the actual request Waiver - IRC 6011(e)(2). The Tax Matters Partner, as defined in IRC section 6231(a)(7), must sign the request and include a statement; "Under penalties of perjury, I declare that the information contained in this waiver request is true, correct and complete to the best of my knowledge and belief" . It must contain a detailed explanation as to why the partnership is unable to file electronically, including:

    1. What steps they took to comply.

    2. Why the steps were unsuccessful.

    3. The hardship that would result, including any incremental costs to the partnership of complying with the electronic filing requirements. Incremental costs are those costs that are above and beyond the costs to file on paper. The incremental costs must be supported by a detailed computation. The detailed computation must include a schedule detailing the cost to file on paper and the costs to file electronically.

    4. An explanation of the steps they will take to comply next year.

  3. In addition to a detailed explanation, the waiver request must also contain:

    • Name of partnership

    • EIN of partnership

    • Mailing address of partnership

    • Tax year for which waiver is being requested

  4. All waiver requests must be filed with OSPC at the address in IRM 21.7.4.4.2.8.1.1(3), except add a line after the address on the envelope "Attn.: Form 1065 e-file Waiver Request" . Waiver requests cannot be attached to the partnership's paper tax return. Also, extension to file requests cannot be attached to the waiver request. Requests from the partnership's tax advisor/preparer must be accompanied by a valid power of attorney. Waiver requests must be filed with OSPC during one of the following periods.

    • For returns due April 15, 2007 (Form 7004 not filed): January 15, 2007 - March 1, 2007

    • For returns due October 15, 2007 (Form 7004 filed): January 15, 2007 - September 15, 2007

  5. A waiver can only be requested for a specific tax period. Acceptance of the waiver does not waive the requirement for future tax periods. (See IRM 21.7.4.4.2.8.1.1(3).) Partnerships should receive written notice of the determination of their request within 30 days from the date the request was received. Unlike penalty abatement requests, denial of waiver requests cannot be appealed.

  6. After considering a waiver request, a TC 971 Action Code 320 is input, if the request is accepted. This prevents the assessment of the penalty for failure to file electronically. If a request is denied, a TC 971 Action Code 321 is input. (If both TC 971 Action Code 320 and 321 appear on the module, the latest TC 971 Action Code 320/321 takes precedence.) Letter 3403C, informing the taxpayer of the decision, must be sent.

  7. Taxpayers with questions concerning waiver requests can call the e-help desk in Ogden at 1-866-255-0654 (toll-free). Announcement 2002-3 was issued to provide information on the waiver request procedure. It can be found in Internal Revenue Bulletin 2002-2.

21.7.4.4.2.8.2  (02-11-2005)
Small Partnership Penalty Abatement

  1. IRC section 6231(a)(1)(B)(i) provides for a statutory exception for penalty abatement imposed for failure to timely file a partnership return, for small partnerships, i.e., a partnership that has 10 or fewer partners, that meet the requirements of Rev. Proc. 84-35 will not be subject to the penalty for failure to file a timely partnership return. See LEM 20.1.2.9.4, Penalty Relief, for details

21.7.4.4.2.9  (01-12-2006)
Duplicate Filing Conditions on Form 1065

  1. A duplicate filing condition occurs when more than one return posts to an account which already contains a return (TC 150). A CP 193 is generated. The returns are secured and routed to Accounts Management for processing.

  2. TEFRA allows for the filing of an AAR by a flow-through entity (partnership or S-Corporation). Form 8082, Notice of Inconsistent Treatment or Amended Return (Administrative Adjustment Request (AAR)), was designed to alert IRS to this condition.

  3. Since Form 8082 is not consistently being attached as required, the amended/corrected/superseding Forms 1065 listed below that are filed by SB/SE taxpayers only, must be routed to Examination. Check the current BOD Code on cc ENMOD. If the current BOD code is SBSE, route the case to Examination if any of the following conditions are present: (Do not route if the BOD code is LMSB.) Research using cc BRTVU.

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    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. Action required on the amended/corrected/superseding returns that meet the above criteria:

    1. Recharge the amended and original return (if received with CP 193) to Exam.

    2. If the amended return was not received with the CP 193, perform a "special search" .

    3. If a charge-out is received, forward to Exam (AAR classifier) with the case file. (Exam accepts special search if unable to secure the return. CC BRTVU is used by Exam, if terminals are available. Otherwise, use the "print screen" capability and attach it to the case.)

    4. Exam is responsible for forwarding the returns to Files, if not needed for their case.

    5. Release the -A freeze.

    6. Close the control base using Activity Code "AAREXAM" .

21.7.4.4.2.9.1  (02-05-2007)
Items to Compare on CP 193s (Forms 1065)

  1. Compare the items listed below on each return to determine if the TC 976 return is a true duplicate, amended, supplemental, or belongs to another tax period or entity.

    • TIN

    • Tax period

    • Names and number of partners

    • Income and deduction figures

    • Balance sheet

    • Schedules K-1

    • Signature and signature dates