21.6.3  Credits (Cont. 1)

21.6.3.4 
Credits Procedures

21.6.3.4.1 
Non-Refundable Credits Procedures

21.6.3.4.1.38  (10-01-2012)
Form 8910, Alternative Motor Vehicle Credit

  1. Form 8910, Alternative Motor Vehicle Credit, is used to claim a credit for the purchase of new qualifying alternative motor vehicles placed in service after December 31, 2008. Except for qualified fuel cell motor vehicles for which the credit is available for purchases through December 31, 2014, this credit is not available after 2010, or for plug-in electric conversions made after 2011.

  2. The credit can be claimed as a general business credit on Form 3800, General Business Credit, if the vehicle is property that is subject to an allowance for depreciation.

  3. See IRM 21.7.4.4.8.3.27, Form 8910, Alternative Motor Vehicle Credit, for additional information.

  4. When adjusting the tax account:

    1. Use TC 291 with a money amount to allow/increase the credit.

    2. Use TC 290 with a money amount to decrease the credit.

    3. Use RC 036 and the appropriate SC and blocking series.

  5. See Form 8910, Alternative Motor Vehicle Credit, or the instructions for detailed information.

21.6.3.4.1.39  (02-20-2013)
Form 8911, Alternative Fuel Vehicle Refueling Property Credit

  1. Form 8911, Alternative Fuel Vehicle Refueling Property Credit, is used to claim a tax credit for a portion of the cost of qualified alternative fuel vehicle refueling property placed in service after December 31, 2005, and before January 1, 2014 (January 1, 2015, for hydrogen related property). The refueling property may be used in the taxpayer's trade or business or installed at the taxpayer's principal residence. If the credit is not subject to depreciation, the credit is limited to $1,000.00.

  2. The credit can be claimed as a general business credit on Form 3800, General Business Credit, if the property is subject to an allowance for depreciation.

  3. See IRM 21.7.4.4.8.3.28, Form 8911, Alternative Fuel Vehicle Refueling Property Credit, for additional information.

  4. When adjusting the tax account:

    1. Use TC 291 with a money amount to allow/increase the credit.

    2. Use TC 290 with a money amount to decrease the credit.

    3. Use RC 036 and the appropriate SC and blocking series.

  5. See Form 8911, Alternative Fuel Vehicle Refueling Property Credit, for detailed information.

21.6.3.4.1.40  (10-01-2011)
Form 8912, Credit to Holders of Tax Credit Bonds

  1. Form 8912, Credit to Holders of Tax Credit Bonds, is used to claim the credit for various tax credit bonds.

  2. When adjusting the tax account:

    1. Use TC 291 with a money amount to allow/increase the credit.

    2. Use TC 290 with a money amount to decrease the credit.

    3. Use RC 036 and the appropriate SC and blocking series.

  3. See Form 8912, Credit to Holders of Tax Credit Bonds, for detailed information.

21.6.3.4.1.41  (12-02-2011)
Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit

  1. Form 8936, Qualified Plug-In Electric Drive Motor Vehicle Credit (Including Qualified Two- or Three-Wheeled Plug-in Electric Vehicles), is used to claim a credit for qualified plug-in electric drive motor vehicles placed in service during the tax year. The credit is available for tax years beginning after 2009.

    Note:

    Qualified 2- or 3-wheeled plug-in electric vehicles must be acquired after December 31, 2011 before January 1, 2014.

  2. The credit can be claimed as a general business credit on Form 3800, General Business Credit, if the vehicle is property subject to an allowance for depreciation.

  3. See IRM 21.7.4.4.8.3.37, Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit, for additional information.

  4. When adjusting the account:

    • Use TC 291 with a money amount to allow / increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate SC and blocking series.

  5. See Form 8936, Qualified Plug-In Electric Drive Motor Vehicle Credit, for detailed information.

21.6.3.4.1.42  (10-01-2014)
Form 8941, Credit for Small Employer Health Insurance Premiums

  1. IRC § 1421, Credit for Employee Health Insurance Expenses of Small Business, of the Patient Protection and Affordable Care Act, P.L. No. 111-148, added IRC § 45R to the Internal Revenue Code. This section offers a non refundable tax credit to certain eligible small employers that provide health insurance coverage to their employees.

  2. The credit is designed to encourage small employers to offer health insurance coverage to their employees for the first time or to maintain existing coverage. The credit is effective for taxable years beginning in 2010. This credit applies to certain IMF accounts as well as BMF accounts. The credit is calculated on Form 8941, Credit for Small Employer Health Insurance Premiums, and is claimed on Form 1040. Impacted IMF taxpayers could be Schedule C or F sole proprietors with employees, Schedule H household employers, or Schedule E filers.

  3. In order to qualify for the credit, the small employer must have met the following conditions:

    1. Have fewer than 25 full time equivalent (FTE) employees for the taxable year, and

    2. Employees must have an average annual wage of less than $50,000 per FTE (for details, see instruction to Form 8941), and

    3. Beginning in 2010, the employer must pay a uniform percentage (not less than 50%) of the premiums for each employee enrolled in single (employee-only) coverage and no less than an equivalent amount for each employee enrolled in family coverage.

    4. Beginning in 2014, the employer must have participated in the Small Business Health Options Program (SHOP), unless they qualify for transition relief as indicated on Form 8941.

      Note:

      More information about the SHOP can be found at HealthCare.gov.

  4. For tax years prior to 2014, the maximum health insurance credit is generally equal to 35% (25% for tax-exempt small employers) of the lesser of the premiums paid by the employer, subject to a cap determined by the small group market in the rating area in which the employee enrolls for coverage.

  5. For tax year 2014 and subsequent, the maximum health insurance credit is generally equal to 50% (35% for tax-exempt small employers) of the lesser of the premiums paid by the employer, subject to a cap determined by the small group market in the rating area in which the employee enrolls for coverage.

  6. The credit phases out gradually for the eligible small employers if the number of FTEs exceeds 10 or if the average annual wages exceed $25,000 (for tax years 2014 and subsequent, the dollar amount in effect is equal to $25,000, multiplied by the cost-of-living adjustment for the calendar year). For an employer with both more than 10 FTEs and average annual wages exceeding $25,000, the total reduction is the sum of the two reductions. This may reduce the credit to zero for some employers in this instance. See Notice 2010-044 for specific information on computing the phase out credit.

  7. For tax years 2014 and subsequent, the credit is limited to 2 consecutive taxable years. Command Codes (CC) ENMOD and IMFOLE will display a 45R year indicator (in a 45R YR1 > YYYY / 45R YR2 > YYYY format).

    Exception:

    Schedule E filers are not subject to the limitation (these can be identified by Form 8941 with only lines 15 and/or 16 completed), nor will the indicator be set.

  8. The small business credit for the qualifying Schedule C or F small proprietor and Schedule H household employer is claimed on Form 8941, carried onto Form 3800 and then onto Form 1040. Schedule E filers, whose only source of this credit is from a pass-through entity, are not required to complete Form 8941. Instead, they can report this credit directly on Form 3800.

  9. This credit is a non refundable business credit. For tax years after 2010, the unused portion of the credit can be carried back one year and then forward for 20 years.

  10. Verify the taxpayer has filed a Schedule C, E, F or H. If neither schedule was filed, follow no consideration procedures.

  11. Action required:

    IF THEN
    Tax year 2014 or subsequent amended returns
    • Verify the SHOP checkbox on Form 8941 was checked "yes" . If checked "no" , disallow the claim. If checked yes and no or blank, reject as an incomplete claim.

    • Verify the 45R year indicator on CC ENMOD. Update the 45R year indicator as appropriate using CC ENREQ / INCHG. Ensure the 1st and 2nd year indicators accurately display the year(s) the credit was claimed.

      Note:

      On joint returns, the 45R year indicator is displayed on the entity of the SSN reported on the Form 8941. In cases where both spouses file a Form 8941, the indicator will be present on both spouse's entity

    Any year
    • Math verify the Form 8941

    • Input a TC 291 to increase the credit

    • Input a TC 290 to decrease the credit

    • Input item reference number 870 to increase or decrease the credit. For example, when increasing the credit for $500, input an item reference number 870 $500 along with your TC 291 $500-

      Note:

      Item reference number 870 is effective for tax year 2011 and subsequent.

  12. For tax year 2014 and subsequent, control amended returns claiming the 45R credit using category code ACAX and correspondence using category code ACA6.

  13. See the Instructions to Form 8941 for more specific information. Additional information can be found on IRS.gov/.

21.6.3.4.2  (10-01-2014)
Refundable Credits

  1. Refundable credits:

    • Withholding (W/H)

    • Estimated(ES) tax payments

    • Make Work Pay and Government Retiree Credits

    • Earned Income Tax Credit (EITC)

    • Form 8812, Additional Child Tax Credit

    • Form 8863, Refundable American Opportunity Credit

    • Form 5405, First-Time Homebuyer Credit

    • Excess Social Security, Medicare, and Excess Social Security & Railroad Retirement Tax Act (RRTA) Tax Credits

    • Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains

    • Form 4136, Credit for Federal Tax Paid on Fuels

    • Form 8885, Health Coverage Tax Credit

    • Form 8801, Credit for Prior Year Minimum Tax - Individuals, Estates, and Trusts

    • Form 8839, Qualified Adoption Credit Expenses.

    • Recovery Rebate Credit (2008 only)

    • Form 8962, Premium Tax Credit

  2. In lieu of a refund, taxpayer may request all or a portion of the overpayment to be credited to the subsequent tax year as an estimated payment.

  3. If the credit requires a qualifying child, use CC INOLES to verify the name control, TIN, and date of birth of the qualifying child.

21.6.3.4.2.1  (10-05-2011)
Outstanding Balance Considerations Prior to Refund or Credit-Elect

  1. An overpayment is refunded or applied as credit-elect only after all other outstanding obligations are satisfied (spousal obligations, non-tax debts, etc.).

    Reminder:

    If a manual refund is planned, be sure to check Non-Master File accounts for any outstanding balance.

    If And Then
    A tax return for a period more than one year prior to the current processing year The "TO" module (module to be credited) is exactly one year later (not a short period), and/or does not contain TC 150 A credit-elect is generated, for the first attempt only.
    The credit-elect posted is less than the original return requested The date is prior to the end of the processing year in which the credit-elect originated The computer continues to auto-offset as more credit becomes available until the full credit elect amount is satisfied. This capability exists until the TC 150 for the next year's return posts.
    An additional credit-elect amount should be applied The adjustment may not post until after the computer generated credit-elect auto-offset capability has ended. Credit-elect is transferred with TC 830/710 (use hold code on adjustment).
    A TC 832 was previously input A math/clerical error indicator is present The computer will not generate a secondary TC 836.
    Taxpayer's claim requests application of an overpayment as credit-elect to the next year The computer generated credit-elect auto-offset capability has ended Credit-elect is transferred with TC 830/710 (use hold code on adjustment).
    Return was coded with Computer Condition Code (CCC) "F" (TC 540 was generated) The return was coded in error Reverse the TC 540 with TC 542 (corrects mail file requirement).

    Note:

    Computer-generated credit-elects greater than $24.99 will be compared against a non-tax debtor file provided by Financial Management Service (FMS). If a debt is found, a refund is issued up to the amount of the debt for offset by FMS. Remaining credit, if any, will be applied to the subsequent tax period.

21.6.3.4.2.2  (10-01-2014)
Withholding (W/H) Tax Credit

  1. Employers are required to withhold income tax on wages paid to employees. A Form W-2, Wage andTax Statement, is issued to the employee by January 31 following the end of the taxable year. This form shows the wages and the total withholding (W/H) deducted for the year. The amount withheld is allowed as a credit to the employee on the employee's individual tax return.

  2. For information on how to claim Backup Withholding (BUWH), see IRM 21.7.2.4.10.3.2, BUWH Claims for Taxpayers Other Than Exempt Entities.

  3. W/H may be deducted from various other types of income which the taxpayer may receive. Verify the W/H amount is picked up from the correct box.

  4. Taxpayer must furnish:

    • Form W-2, Wage and Tax Statement, or

    • Form W-2G, Certain Gambling Winnings, or

    • Form 1099–R, Distribution from Pensions, Annuities, Retirement, or Profit Sharing Plans, IRAs, Insurance Contracts, etc. or

    • Form 4852, Substitute for Form W–2, Wage and Tax Statement, or Form 1099–R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRA, Insurance Contracts, etc., or

    • Similar documentation

    Caution:

    If the W/H amount is altered, refer the case to Integrity & Verification Operation (IVO) only if it is a current year return and not yet available on IRPTR. Send an e-4442 (by selecting the AMS category "RICS IVO - Complex Issue Not ID Theft" ).

  5. Examine all documents and related information before making adjustments or answering taxpayer inquiries.

  6. Do not return an original Form W-2, Copy C, to taxpayer. If no adjustment is necessary, refile with original return. If filed electronically, destroy as classified waste. Treat photocopies as classified waste.

  7. If taxpayer received a notice showing math error code 283, refer to IRM 21.5.4, General Math Error Procedures.

  8. Use CC IRPTR, or the Transcript Delivery System (TDS), to access a summary of the Information Returns Master File data extracted from Forms W–2/W–2G and Forms 1099.

    Reminder:

    The Tax-Withheld summary may be used to allow W/H over the tolerance amount if it appears the taxpayer reported all income.

  9. Verify original return information using CC RTVUE, CC IRPTR, or CC IMFOL, as appropriate. Request the return only as a last resort.

  10. Federal Income Tax Withholding (FITW) reported on a Form 1041, U.S. Income Tax Return for Estates & Trusts, in the Trust's or Estate's name and Employer Identification Number (EIN) CANNOT be transferred from the Trust or Estate to an individual taxpayer's (beneficiary's) Form 1040, U.S. Individual Income Tax Return, account. There are no provisions of law that allow us to distribute FITW to beneficiaries. In contrast, estimated tax payments and back-up withholding can be allowcated to a beneficiary's Form 1040. See IRM 21.7.4.4.1.12, Form 1041- T, Allocation of Estimated Tax Payments to Beneficiaries .

  11. Consider the following before deciding to allow the W/H:

    If Then
    The W/H amount ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ of the income amount on Form W-2 or other income document. Refer the case to IVO
    The W/H amount is equal/similar to the FICA (Social Security and Medicare taxes) on the same amount of income The taxpayer has mistaken FICA for W/H. Allow W/H amount from the Form W-2.
    The total payment is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , but no entries are in the "payment" section Do not adjust the taxpayer's figures. (Code and Edit allowed the amount as "W/H" during processing.)
    If CC RTVUE shows W/H was reported/transcribed as refundable credit (i.e., EITC, ES Payment) Adjust the withholding.
    Form 1099-R also reflects the credits for back-up W/H Allow taxpayer's figures.
  12. Allow withholding requests of up to ≡ ≡ ≡ ≡ ≡ with oral statement or written request, if ALL the following criteria are met:

    1. The W/H credit amount was incorrectly reported, incorrectly processed, or not reported at all.

    2. The W/H relates to income already included on the original, a previously processed amended return or the amended return currently being processed.

    3. A previous adjustment has not been made to the W/H tax credit for this module.

      Note:

      If the taxpayer did not include a Form W-2 or other document showing the withholding, and the withholding exceeds ≡ ≡ ≡ ≡ ≡ and cannot be verified, "no consider" the claim and do not allow the withholding. Refer to IRM 21.5.3.4.6.3, No Consideration Procedures, for additional information.

    4. Neither paragraph below applies.

  13. Take the following actions on any type of request that claims withholding associated with social security (SSA) benefits or other types of income where the withholding may be questionable:

    • Determine if the refund is equal to the withholding

    • Research CC IRPTR to verify the withholding

    • No consider the request if CC IRPTR does not substantiate the request. See IRM 21.5.3.4.6.3, No Consideration Procedures.

    Note:

    These procedures should be followed even though the withholding is below the specified tolerance amount.

    Note:

    Do Not treat these cases as ID Theft and do not assign these cases to the Andover holding number.

  14. A taxpayer not eligible for an SSN must use an ITIN when filing his/her return. The taxpayer provides an SSN to the employer in order to obtain employment. Thus, the employer withholds income tax on the taxpayer's wages under the SSN the taxpayer provided, and any Form W-2 or Form 1099 filed with the IRS will contain the SSN.

    1. When the taxpayer files his/her return and claims the credit for income tax withheld, the taxpayer will need to demonstrate he/she truly earned wages for which the withholding credit is being claimed before the IRS can allow the credit. The taxpayer can provide documentation such as Form W-2, Form 1099, a paystub, earnings statement, or a statement from his/her employer to verify the amount of federal income tax withheld.

    2. When an ITIN taxpayer files an amended or supplemental return and the additional income and/or withholding is reported under an SSN, or when the name on the return doesn't match the name on the W-2, if you are able to verify the wages and withholding has been reported using CC IRPTR, allow the income and withholding.

      Note:

      IRPTR data may also be found under the taxpayer's ITIN.



      If the wages and withholding cannot be verified on current year returns prior to IRPTR being fully loaded, document the CIS case information on an e-4442 (by selecting the AMS category "RICS IVO ITIN Only Wage/WH Verification" ) and route to IVO. Suspend the CIS case. Within 30 days, IVO will verify the income and withholding, add history to AMS stating "income verified good" or "unable to verify income" , and update the IDRS control base activity to alert the employee IVO's process is complete. Allow or disallow the claim based on IVO's response, or based on IRPTR for prior years, see IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures.

      Note:

      Do not request verification of income and/or withholding allowed during original processing.

21.6.3.4.2.2.1  (02-12-2009)
Withholding Adjustments

  1. Check for possible estimated tax (ES) penalty changes. (Refer to IRM 20.1.3, Estimated Tax Penalties)

    If And Then
    TC 176/177 is on the module   ES penalty is systemically recomputed

    Reminder:

    Priority Code 8 is not required

    TC 170/171 is on the module Document Locator Number (DLN) doc code is 17, 18, 24, 47, 51, 52 or 54 1. Manually recompute ES penalty.
    2. PC 8 is not required.
    TC 170 is on the module Has the same DLN as the TC 150 The ES penalty systemically recomputes only if ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    Reminder:

    Use Priority Code 8 to bypass unpostable condition 158-0.

    TC 170/171 is on the module The DLN is not the same as the TC 150 1. Manually recompute the ES penalty.
    2. PC 8 is not required.
  2. Input an adjustment to allow the W/H credit using:

    1. TC 290 .00, if no tax change is required.

    2. TC 806 to increase the posted credit, or TC 807 with a minus (-) to decrease the posted credit.

      Note:

      If decreasing the withholding because the taxpayer overstated his/her federal income tax withholding credit on a previously filed return or claim for refund, see IRM 21.4.5.4.3, Category B Erroneous Refunds, to ensure using a TC 807 is appropriate.

    3. The appropriate SC, RC(s), and blocking series.

21.6.3.4.2.3  (10-01-2013)
Estimated Tax (ES)

  1. Estimated tax (ES) is the method used to pay:

    • Tax on income not subject to withholding

    • Tax when the amount withheld is not enough

    • Income tax and self-employment tax, as well as other taxes and amounts reported on the return

      Note:

      See Form 1040-ES, Estimated Tax For Individuals, and its instructions, or Publication 17, Your Federal Income Tax (For Individuals), and Publication 505, Tax Withholding and Estimated Tax, for detailed information on ES payments and penalty.

  2. Estimated tax payments are submitted with Form 1040-ES, Estimated Tax For Individuals . Payment due dates for a calendar year return (unless the due date falls on a Saturday, Sunday, legal holiday, or as otherwise extended) are:

    • April 15

    • June 15

    • September 15

    • January 15 of the following year

  3. Taxpayer requests to apply current year estimated tax payments to a previous year's outstanding tax liability cannot be honored. IRC Section 6402(a) provides that in the case of an overpayment, the Secretary, within the applicable period of limitations, may credit the amount of the overpayment against any liability in respect of an internal revenue tax on the part of the person who made the overpayment and shall refund any balance to such person. The Service is authorized to make a refund only if an overpayment exists. Therefore the Service does not have the authority to apply an estimated tax installment to an outstanding tax liability until the estimated tax installment constitutes an overpayment. An "overpayment" cannot be determined until after the close of the taxable year when the tax liability is determined.

    Exception:

    The restriction above does not apply to a payment incorrectly processed as an estimated tax payment due to an IRS processing error. This can be verified by reviewing the payment document and/or requesting the payment Document Locator Number (DLN).

  4. If the taxpayer is not liable for ES payments based on the account history (i.e. no prior ES payment history, SE income, etc.) and a payment posted as an ES payment, it can be refunded back to the taxpayer. In this situation disregard any properly completed ES voucher. The payment can either be refunded back to the taxpayer or applied to the correct year's balance due.

  5. Taxpayers who do not report payments they made (estimated tax payments or a credit elect) of ≡ ≡ ≡ ≡ ≡ ≡ ≡ on their return will be sent a Letter 12C. Individual Return Incomplete for Processing, asking them to verify the dates and amounts of these payments. If a taxpayer calls in response to the 12C letter, do not provide the payment amounts, dates or a transcript of the account. Advise the taxpayer to respond in writing to the address provided on the letter.

21.6.3.4.2.3.1  (10-01-2011)
ES Penalty

  1. An ES penalty is charged if the taxpayer did not pay sufficient ES payments when due or did not have adequate tax withheld from income earned during the tax year.

    1. Taxpayers may compute the penalty on Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts, or Form 2210-F, Underpayment of Estimated Tax by Farmers and Fishermen, or have the IRS compute the penalty, if appropriate.

    2. Generally, the penalty may be avoided if the taxpayer paid either 90% of the current year's tax liability or 100% of the tax liability shown on the prior year's tax return. For higher income taxpayers (i.e., an individual with adjusted gross income for the preceding taxable year in excess of $150,000), substitute 110% (of the tax liability shown on the prior year's tax return) for 2002 and subsequent years.

    3. Specific instructions for computing the ES penalty are in IRM 20.1.3, Estimated Tax Penalties.

21.6.3.4.2.3.2  (10-01-2012)
ES for Decedents

  1. Deceased taxpayers are liable for ES payments due on installment due dates occurring prior to the date of death.

  2. When the primary taxpayer on a joint return is the decedent:

    1. The TC 150 posts with a Computer Condition Code (CCC) "F" and filing status 2.

    2. The secondary taxpayer account (if not currently on Master File) is established with a generated TC 000, blocking series 999.

    3. The generated TC 000 is resequenced for one cycle.

    4. One cycle after the TC 150 posts on the primary decedent's account the computer automatically transfers credit-elect and/or payment(s).

  3. Special handling may be required.

    If And Then
    A return is filed showing the primary taxpayer as deceased with credit-elect requested The secondary (surviving spouse) account was not established during the settlement cycle A "CR EL DECD" transcript generates.
    A return is filed showing the primary taxpayer as deceased with ES tax payments on the subsequent tax period The secondary account was not established during the settlement cycle A "DECD ES CR" transcript generates.
    Computer transcript "CR EL DECD" or "DECD ES CR" generates The secondary account is not established within two cycles of the transcript and both the valid and invalid SSNs were researched 1. Input TC 000.
    2. Transfer the credit-elect, payment(s), and/or ES tax payment(s) to the surviving spouse's account.
    Computer transcript "CR EL DECD" or "DECD ES CR" generates The secondary account is established on either the valid or invalid SSN Transfer credit elect or ES tax payment(s) to the surviving spouse's account.
    Either transcript generates The entity is erroneously coded as deceased Update the entity. If a TC 540 is present, reverse it with a TC 542.
    Either transcript generates Both taxpayers are deceased Send a Letter 112C, Payment/Overpayment/Credit Applied; No Record of Return Filed, to the address on record.

    Note:

    The surviving spouse should be:

    1. Sent a Form 1040-ES, Estimated Tax For Individuals, package.

    2. Advised to remit future ES tax payments under his or her own SSN.

    3. Reminded to update his or her name with SSA (if CC INOLE indicates a discrepancy).

21.6.3.4.2.3.3  (10-01-2012)
ES Joint Allocation

  1. If both spouses file separate returns that divide the aggregate amount of the ES payments between them, this is evidence the parties reached an agreement on the allocation and there is nothing for you to allocate.

  2. Use the following table for all other ES payments and joint allocation issues:

    If And Then
    Taxpayer requests to have all or a portion of ES payments and/or credit elect credited to his/her individual account You determine the taxpayer made separate ES payments (request the ES voucher, if necessary). You must determine the taxpayer's share of joint liability for the credit elect overpayment.

    Transfer the appropriate ES payment to the separate account.
    Transfer the allocated portions of credit elect to the appropriate accounts.
    Taxpayer requests to have all or a portion of ES payments credited to his/her individual account You determine the taxpayer made joint ES payments Advise the taxpayers they must allocate the payments between themselves.
    Taxpayer has been previously advised the payments must be allocated Both taxpayers cannot agree on an allocation of the joint payments Advise taxpayer to submit a computation indicating the allocation of the ES credit in proportion to each spouse's separate tax.
    Taxpayer submits computation with the allocation   Transfer the allocated ES credit to taxpayer's account. (Apply in four equal installments, unless directed otherwise.)
    Taxpayer cannot provide an allocation of joint payment You can determine allocation of payments per ratio of each spouse's separate tax Transfer the allocated ES credit to taxpayer's account. (Apply in four equal installments, unless directed otherwise.)
    Taxpayer resides in a community property state   Refer to Pub 555, Community Property.

21.6.3.4.2.3.4  (10-01-2011)
ES Form 1041-T (Trusts)

  1. A trust fiduciary may elect to treat any amount of ES payment(s) for any taxable year of the trust as a payment made by the beneficiary of the trust.

    Caution:

    Except for backup withholding, withheld income tax may not be passed through to beneficiaries on either a Schedule K-1 or Form 1041-T. See IRM 21.6.3.4.2.2, Withholding (W/H)Tax Credit.

    1. Input TC 290 .00, if no tax change is required.

    2. To transfer the credit appropriately, refer to IRM 21.7.4.4.1.12, Form 1041-T, Allocation of Estimated Tax Payments to Beneficiaries.

    3. Use the appropriate SC, RC(s), and blocking series.

  2. For information on balance due notices on IMF accounts involving Form 1041-T, Allocation of Estimated Tax Payments to Beneficiaries, credit transfers, see IRM 21.7.4.4.1.12.4, Balance Due Notices on IMF Accounts.

21.6.3.4.2.3.5  (10-01-2007)
Forms 1041-T Filed by Electing Small Business Trusts (ESBTs)

  1. Treasury Regulation section 1.641(c)-1(a) provides guidelines that an ESBT is treated as two separate trusts for purposes of determining income tax. For complete instructions regarding ESBTs, refer to IRM 21.7.4.4.1.1.3, Types of Trusts.

21.6.3.4.2.4  (10-01-2014)
Excess Social Security and RRTA Tier I Tax Credits

  1. Employees are subject to social security tax and the equivalent portion of the RRTA Tier I Tax based on various wage limitations:

    YEAR MAXIMUM SOCIAL SECURITY WAGES PERCENT EMPLOYEE TAX W/H MAXIMUM SOCIAL SECURITY TAX W/H
    2014 $117,000 6.2 $7,254.00
    2013 $113,700 6.2 $7,049.40
    2012 $110,100 4.2 $4,624.20
    2011 $106,800 4.2 $4,485.60
    2009 and 2010 $106,800 6.2 $6,621.60

    Note:

    PL 111-312, Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, created a payroll tax holiday period during 2011 which reduces the employee's portion of social security tax from 6.2% to 4.2%.

    Note:

    PL 112–96, Middle Class Tax Relief Act of 2012, extended the reduction to Dec. 31, 2012.

  2. Employees are subject to the employee portion of Medicare tax (shown separately on Form W-2, Wage and Tax Statement), at the rate of 1.45%. There is no wage base limit for Medicare tax. All wages are subject to the tax. Thus, there is no excess Medicare tax credit.

  3. For withholding purposes, the above social security tax (and equivalent portion of the RRTA Tier I tax) maximum applies separately with respect to each employer for whom an employee works. If an employee works for one employer and receives the maximum social security wages and also works for another employer in the same calendar year, the second employer is also required to deduct social security tax from the employee's wages up to the maximum social security tax.

  4. If more than the maximum social security tax (or equivalent portion of the RRTA Tier I tax) is deducted from the wages of the employee, the employee can receive a credit for the social security tax or RRTA Tier I withheld in excess of the maximum social security tax or RRTA Tier I tax. This credit is available only if such withholding is the result of the employee working for two or more employers. This credit is taken on the back of Form 1040, U.S. Individual Income Tax Return, payment section.

  5. If an employee has more than the maximum social security or RRTA Tier I taxes deducted from his or her total wages, appropriate action depends on the information that has been entered on the Forms W-2 received by the employee.

    If Then
    The employee has one Form W-2 on which more than the maximum social security or RRTA Tier I tax was withheld Return the claim to the taxpayer and inform the taxpayer of the following:
    • He/She cannot claim excess FICA withheld from the same employer as a credit against his/her income tax.

    • He/She will need to contact the employer to get a refund of the excess social security tax withheld.

    • Include Publication 505, Tax Withholding and Estimated Tax, and refer taxpayer to information under "Employer's Error" under the topic "Excess Social Security or Railroad Retirement Tax Withholding,"

    • Inform taxpayer that if he/she cannot obtain reimbursement from the employer, he/she will need a signed statement from the employer indicating the employee had not authorized employer to file a claim, nor had employee been reimbursed for amount over-withheld.

    • Taxpayer will need to submit Form 843.

    • Include Form 843 and instructions.

      Note:

      Form 843 claims for excess social security, route to a BMF campus.

      Form 843 claims for RRTA Tier I or Tier II, route to:
      IRS
      Large Corp/Technical Unit
      Stop 537G
      201 W. Rivercenter Blvd.
      Covington, KY 41011


    The employee has separate Forms W–2 with different EINs The employee can claim a credit for excess social security or RRTA Tier I tax.
    The employee has separate Forms W–2 with the same EIN The employee can claim a credit for excess social security or RRTA Tier I tax withheld only if the "Employer's Name" box (Box c) on the Form W-2 reflects the fact that the wages were paid as agent for another employer and such excess withholding was the result of paying wages as agent for one or more other employers. See instructions to Form W-2 (Special Reporting Situations).
  6. If an adjustment is required, take the following action:

    1. Verify the overpayment of social security or RRTA Tier I tax withheld based on Forms W–2.

    2. For adjusting accounts where the original return posted December 31, 2006 and prior, input credit reference number (CRN) 806 to allow the excess social security or RRTA Tier I tax withheld. Input CRN 807 with a minus (-) to reduce the previously allowed excess social security or RRTA Tier I tax. Use Reason Code 055, and the appropriate SC and blocking series.

    3. For adjusting accounts where the original return posted January 1, 2007 and subsequent, input Credit Reference Number (CRN) 252 to allow the excess social security or RRTA Tier I tax withheld. Input CRN 252 with a minus (-) to reduce the previously allowed excess social security or RRTA Tier I tax. The CRN 252 will generate a Transaction Code (TC) 766 or TC 767. Use Reason Code 055, and the appropriate SC and blocking series.

      Note:

      Input an override code "N" on CC ADJ54.

    4. Refer to IRM 20.1, Penalty Handbook, for possible estimated tax penalty adjustment.

      Note:

      The excess amount of social security or RRTA Tier I tax withheld must be computed separately for each spouse on a married filing joint return.

  7. For information regarding RRTA Tier I, Tier II or CT-1 claims, see IRM 21.7.2.6.5.7, Claims (Forms CT-1). Excess RRTA Tier 1 and Tier II tax credits must be claimed on Form 843, not the Form 1040.

21.6.3.4.2.5  (10-04-2010)
Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains

  1. A Regulated Investment Company (RIC) or Real Estate Investment Trust (REIT) may elect to keep and pay income tax on certain net capital gain income it received during the tax year. The RIC or REIT is required to issue a Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains, to each of its shareholders for the amount of the undistributed capital gains to be included on the shareholder's Form 1040, Schedule D. In addition, Form 2439 includes the shareholder's share of the tax paid by the RIC or REIT on the net capital gains not distributed. That amount may be claimed by its shareholders as a credit or refund on his/her respective Forms 1040.

  2. The shareholder should attach Form 2439, Copy B, to the original or amended tax return.

    Note:

    Do not reject for a missing Form 2439 if the taxpayer≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. Loose Forms 2439, Copy A and/or B, may be received. If "NOMINEE" is noted at the top of the form, no adjustment is made to the taxpayer's account. Associate the form with the return of the taxpayer who appears in the "Shareholder's" name and address box. If this refers to a Form 990, refer to Ogden AM per IRM 21.7.7.4.3.7, Composite Form 990-T. If this is a company entity refer to IRM 21.7.4.4.9.2.2, Loose Form 2439, Copies A and B, for BMF instructions.

  4. Action required if "NOMINEE" is not noted:

    • Input TC 290 .00, if no other adjustment is required.

    • Use credit reference number 766 to allow the credit.

    • Use credit reference number 767 (with a minus) to decrease a previously posted credit.

    • Use RC 057 and the appropriate SC and blocking series.

21.6.3.4.2.6  (10-01-2014)
Form 4136, Credit for Federal Tax Paid on Fuels

  1. Form 4136, Credit for Federal Tax Paid on Fuels, is used to claim certain nontaxable uses (or sales) of fuel during the income tax year. The corresponding Credit Reference Number applicable to the type fuel tax paid is shown in column (e) of the Form 4136.

    Reminder:

    The credit for an alcohol fuel mixture expired December 31, 2011. The biodiesel mixture credit, the renewable diesel mixture credit, and the alternative fuel mixture credit for all alternative fuel mixtures except those involving liquefied hydrogen expired on December 31, 2013. The alternative fuel mixture credit for alternative fuel mixtures involving liquefied hydrogen will expire on September 30, 2014.

  2. Form 4136 must be attached to an income tax return (Form 1040) or an amended tax return (Form 1040X), if the credit claimed is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and must be filed within the statute of limitations.

  3. Amounts previously claimed on Form 8849, Claim for Refund of Excise Taxes, or Form 720, Quarterly Federal Excise Tax Return, (Schedule C, Claims), cannot be included on Form 4136. Generally, Form 8849 may be used to claim a periodic refund of excise taxes instead of waiting to claim a credit on Form 4136. Similarly, Form 720 may be used to claim a periodic credit against excise tax liability. These returns are processed at the Cincinnati Processing Campus. For information regarding Form 8849 claims, refer to IRM 21.7.8.4.5, Form 8849, Claim for Refund of Excise Taxes, and for Form 720 claims, refer to IRM 21.7.8.4.1.6, Form 720, Schedule C Claims.

  4. The same documentation required for Form 8849 must be included with Form 4136.

  5. Form 4136 claiming a credit of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . See Exhibit 21.5.3–3, Examination Criteria (CAT A) - Credits.

  6. Claims on Form 4136, Part 1, Nontaxable Use of Gasoline, cannot be made for personal use. If the taxpayer does not show any business activity, such as a Schedule C, E, or F, no consider the claim.

21.6.3.4.2.6.1  (10-01-2011)
Fuel Tax Claims

  1. The Form 4136, Credit for Federal Tax Paid on Fuels, is:

    1. Processed in the receiving campus.

    2. Submitted with Form 1040, U.S. Individual Income Tax Return, to claim the entire year's credit.

  2. Any Form 8849, Claim for Refund of Excise Taxes, will be referred to and processed at the Cincinnati Campus.

21.6.3.4.2.6.2  (10-01-2013)
Form 4136, Adjustment Action

  1. The applicable Credit Reference Number (CRN) is listed in column (e) of the Form 4136, Credit for Federal Tax Paid Fuels.

    Note:

    If Form 4136 is not attached (under tolerance), and the specific fuel type cannot be determined, process using CRN 362.

  2. Input an adjustment to reflect the correct fuel credit:

    1. Input TC 290. 00, if no other adjustment is required.

    2. Use RC 061, the appropriate SC and blocking series.

    3. Use the applicable CRN and credit amount. The CRN converts to TC 766/767 at Master File.

    4. The 45-day interest free period procedures apply. Enter the amended claims date on ADJ54.

      Note:

      Tax increases or decreases must be addressed.

    5. Allow computer generated refund and/or offsets when possible.

  3. If the claim is disallowed in full or in part:

    1. Send the appropriate certified C letter.

    2. Input TC 290.00 with Source Code 0, Reason Code 061 and Hold Code 3.

    3. Use the appropriate blocking series.

21.6.3.4.2.7  (02-20-2013)
Earned Income Tax Credit (EITC)

  1. Earned Income Tax Credit (EITC) is available for certain low-income individuals who meet earned income, Adjusted Gross Income (AGI) and certain other requirements. EITC greater than the tax liability may be refunded to the taxpayer.

  2. Use CC DDBCK when processing Tax Year 2011 and subsequent amended returns/Forms 1040X resulting in an increase to EITC due to adding, changing, or deleting an EITC dependent. When adding or increasing EITC, DDBCK will determine if the claim meets CAT-A criteria and in most cases will update the Duplicate TIN database. CC DDBCK must be used in conjunction with the appropriate IRM procedure to determine subsequent actions.

    Exception:

    Employees who do not have access to CC DDBCK should review the amended return or Form 1040X for CAT-A criteria. See IRM 21.5.3-2, Examination Criteria (CAT-A) - General. If the claim does not meet CAT-A criteria and all other requirements are met then allow the EITC. Update CC DUPED, if appropriate.

    Exception:

    If CC DDBCK cannot be used on current year amended returns/Form 1040X involving EITC increases, then CC DUPED should be used to update DUPOL. See IRM 21.6.1.6.2, Command Code DDBCK, for a list of exceptions when CC DDBCK cannot be used.

  3. EITC for eligible families with three or more children is increased for tax years 2009 - 2017.

21.6.3.4.2.7.1  (10-01-2011)
EITC Eligibility Criteria

  1. Taxpayers may be eligible for EITC if:

    • Earned income is at least $1, but less than the established limits.

    • AGI is less than the established limits (IRM 21.6.3.4.2.7.6, Adjusted Gross Income).

    • Investment income is not more than the established limits. (IRM 21.6.3.4.2.7.5, Investment Income Limitation).

    • Filing status is other than married filing separately (FS 3).

    • The taxpayer (and spouse, if filing jointly) is not the qualifying child of another person for the same year.

    • Does not file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion.

    • Has a valid social security number.

      Note:

      U.S. military personnel stationed outside the U.S. on extended active duty are considered to live in the U.S. during that duty period for purposes of the EITC.

  2. For additional information, refer to Publication 17, Your Federal Income Tax (For Individuals), or Publication 596, Earned Income Credit (EIC).

21.6.3.4.2.7.1.1  (04-09-2004)
Taxpayer with No Qualifying Child

  1. Taxpayers with no qualifying child must also meet the following requirements:

    • Must be at least age 25 but under age 65 (either spouse, if joint).

    • The principal residence must be in the U.S. for more than one-half of the tax year (both spouses, if joint).

    • Must be able to claim his/her exemption on the return (both spouses, if joint).

  2. The application of age criteria for a taxpayer claiming EITC without qualifying children must be made in the most taxpayer favorable manner at both ends of the 25 - 65 range.

    • For a taxpayer whose birthday is on January 1st and is turning age 25 on January 1st of a year immediately subsequent to the tax year (e.g., taxpayer turns 25 on January 1st, 2006 and is filing a Tax Year 2005 return), the Service will allow the claim for EITC, provided other eligibility criteria are met.

    • For a taxpayer whose birthday is on January 1st and is turning age 65 on January 1st of a year immediately subsequent to the tax year (e.g., taxpayer turns 65 on January 1st, 2006 and is filing a Tax Year 2005 return), the Service will allow the claim for EITC, provided other eligibility criteria are met.

21.6.3.4.2.7.1.2  (11-07-2012)
EITC With Qualifying Children

  1. Children on Schedule EIC are qualifying children if they meet four tests. The four tests are:

    • Relationship

    • Age

    • Residency

    • Joint Return

  2. Relationship-- A child meets the relationship test if he/she is the taxpayer's:

    • Son

    • Daughter

    • Stepchild

    • Descendant of the taxpayer's child or stepchild

    • Brother, sister, half brother, half sister, stepbrother, stepsister

    • A descendant of the taxpayer's brother, sister, half brother, half sister, stepbrother, or stepsister

    • A foster child (a child placed with the taxpayer by an authorized placement agency)

    Note:

    An adopted child, including a child placed with the taxpayer for adoption by an authorized placement agency is treated as a biological child.

  3. Age-- The child meets the age requirement if he/she is:

    • Under the age of 19 at the end of the calendar year and younger than the taxpayer, OR

    • Under the age of 24 at the end of the calendar year and younger than the taxpayer and a full-time student

      Note:

      A full-time student is defined as a student who is enrolled for the number of hours or courses the school considers to be full-time attendance. The child must be a full-time student during some part of each of any five calendar months during the tax year. The five calendar months need not be consecutive.

      OR

    • Any age, if permanently and totally disabled at any time during the tax year

  4. Residency-- The child must live with taxpayer in the U.S. for more than half the tax year. Temporary absences, such as for schooling, medical care, or vacation are counted as time lived at home. If a child fails the residency test solely because the child was born or died during the tax year, the child is treated as meeting the test, if the child lived with taxpayer for more than half the time the child was alive during the tax year.

    Note:

    Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, does not allow a taxpayer to claim EIC.

    Note:

    See IRM 21.6.3.4, Credit Procedures, if research and/or CC DDBCK indicates a date of death for the qualifying child prior to the tax year involved.

  5. Joint Return --To meet this test, the child cannot file a joint return except if it is filed only as a claim for refund.

21.6.3.4.2.7.2  (10-01-2002)
Kidnapped Child

  1. For tax years 2000 and subsequent, the taxpayer's kidnapped child can meet the residency requirement. The following requirements must be met:

    1. The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of the family of the child or the taxpayer.

    2. The child must have had, for the taxable year in which the kidnapping occurred, the same principal place of abode as the taxpayer for more than half of the portion of the year before the date of the kidnapping.

  2. If these requirements are met, the child is treated as meeting the residency requirement for all taxable years ending during the period that the child is kidnapped.

  3. This rule applies for all tax years ending during the period that the child is kidnapped. It does not apply as of the first tax year beginning after the year in which the child is determined to be dead (or, if earlier, the year in which the child would have reached age 18).

21.6.3.4.2.7.3  (10-01-2011)
EITC SSN Requirements

  1. To claim the EITC, the taxpayer and spouse, if filing jointly, must have valid SSNs. Any EITC qualifying child(ren) listed on Schedule EIC must also have a valid SSN. A valid SSN does not include an ITIN (Individual Taxpayer Identification Number), ATIN (Adoption Taxpayer Identification Number child only) or an IRSN (Internal Revenue Service Number). See the following references for information on how to identify these types of TINs:

    • ITIN IRM 3.13.5.21, Individual Taxpayer Identification Number (ITIN) Format

    • ATIN IRM 3.13.5.23 , Adoption Taxpayer Identification Number (ATIN) Format

    • IRSN IRM 3.13.5.22, Internal Revenue Service Number (IRSN) Format

  2. For purposes of the EITC, a valid SSN is a number issued by the Social Security Administration (SSA) to (1) a U.S. citizen, or (2) a non-citizen who obtained the SSN for purposes other than to obtain a benefit partially or fully funded by the Federal Government. Examples of these benefits include Medicaid and food stamps. Below are several examples of Social Security cards you may receive.

    1. Taxpayer submits a copy of a Social Security card containing either no legend or a legend that says "valid for employment only with INS (or DHS) authorization" . If the card is for the primary or secondary taxpayer, allow the EITC. If the card is for the qualifying child, allow the EITC on the basis of that child .

    2. Taxpayer submits a copy of a Social Security card with "not valid for employment" legend and says the SSN was obtained to receive a federally funded benefit. If the card is for the primary or secondary taxpayer, do not allow EITC. If the card is for a qualifying child, do not allow EITC on basis of this child. Explain the SSN requirements to the taxpayer.

    3. Taxpayer submits a copy of a Social Security card with "not valid for employment" legend in response to a math error and does not indicate reason why the SSN was obtained. If the card is for the primary or secondary taxpayer or for a qualifying child, follow procedures in IRM 21.5.4.4.5, Math Error Unsubstantiated Protest Processing.

    4. Taxpayer submits a copy of a Social Security card for primary or secondary taxpayer or a qualifying child with "not valid for employment" legend and says the SSN was obtained (1) to obtain a driver's license or to register a vehicle in a state that required an SSN for either (since 2002, SSNs have not been issued for this purpose), or (2) from an embassy for tax purposes (since 1996, SSNs have not been issued for this purpose). Do not question the accuracy of this statement, allow EITC. If taxpayer gives any other reason for obtaining the SSN, do not allow EITC.

  3. If the taxpayer meets all the EITC requirements for the tax year and is currently going through the immigration process to become a legal resident and cannot obtain an SSN until the process is completed:

    • Advise taxpayer he/she will qualify for EITC for the tax year when he/she obtains an SSN, provided the tax year is still open

    • If taxpayer subsequently provides a valid SSN, follow normal procedures to make the required adjustment. Do not verify the year the SSN was issued. When the taxpayer obtains an SSN, he/she may claim EITC for previous open years

  4. Before allowing EITC, verify the validity of the name(s) and SSN(s) provided by the taxpayer for the individual(s) with the invalid indicator on CC RTVUE. Research using CC INOLE, CC NAMES, and CC RTVUE to verify the name, number, and date of birth. .

    Note:

    See IRM 21.6.3.4.2.7.17, EITC and Command Code DDBCK and IRM 21.6.1.6, Command Code DUPED and DDBCK, for appropriate usage of CC DUPED and CC DDBCK.

    Reminder:

    CC RTVUE will show the validity of the primary/secondary taxpayer(s) and up to four dependents shown on the original return. The dependent's TIN will show an indicator of "2" if the account is not present on the NAP and a "9" if invalid.

    If And Then
    EITC was previously claimed for the tax year and was not allowed Name and SSN are valid Taxpayer is eligible for EITC if all other eligibility criteria are met.
    EITC was previously claimed for the tax year and was not allowed Name and SSN are not valid Taxpayer is not eligible for EITC.
    EITC qualifying child was born in the U.S. and died in the same tax year Does not have an SSN Allow EITC if all other eligibility criteria are met.
    EITC qualifying child is in the process of a domestic adoption An SSN from SSA has not been issued. Parent has applied for an ATIN for the child. EITC is not allowed with an ATIN. (EITC may be claimed AFTER a valid SSN is received.)
    EITC qualifying child is in the process of a foreign adoption The child is ineligible for an SSN from SSA. Parent has applied for an ITIN for the child. EITC is not allowed with an ITIN. (EITC may be claimed AFTER a valid SSN is received.)
    Age of taxpayer is under 25 or over 64 at the end of the tax year There is no qualifying child Disallow the EITC.

    Reminder:

    EITC is not allowed for "Amish" ,"Mennonite" ," Exempt Form 4029" , or"conscience-based objection" without a valid SSN, although the dependent exemptions and other credits may be allowed.

  5. See IRM 21.6.3.4, Credits Procedures, for additional information regarding incorrect SSNs due to the child being deceased prior to the tax year for which EITC is being claimed.

21.6.3.4.2.7.4  (10-01-2011)
EITC Earned Income

  1. Earned income includes all employee compensation subject to income tax, net earnings from self-employment, and gross income received by a statutory employee.

    Note:

    For Tax Year 2004 and subsequent, a taxpayer (or the spouse, if married filing jointly) receiving nontaxable combat pay may elect to include the amount when figuring his/her earned income for purposes of computing EITC.

  2. Taxable earned income includes:

    • Wages

    • Salaries

    • Tips

    • Strike pay

    • Sick pay

    • Union strike benefits

    • Disability benefits (not disability social security) received by taxpayers under minimum retirement age (normally, this is reported on the Form 1040, U.S. Individual Income Tax Return, as wages).

      Note:

      Minimum retirement age may vary.

    • Net earnings from self-employment (SE) or gross income received by a statutory employee.

      Note:

      Net earnings from self-employment may not appear on Schedule SE if under $400.

      Caution:

      Earned income for EITC purposes does not include amounts inmates in penal institutions are paid for work while an inmate.

      Note:

      Earned income does not include workfare payments to the extent subsidized under a state program for work experience (including work associated with the refurbishing of publicly assisted housing if sufficient private sector employment is not available) or for work in community service programs.

  3. For EITC purposes, use SE income as reported on Schedule SE, minus the 50% deduction of SE tax or use EITC Worksheet B in Publication 596, Earned Income Credit.

    If Then
    Schedule SE is not present because the net earnings from self-employment shown on Schedule C, C-EZ, or F (or the combined net earnings) are less than $400 Use the amount of net profit or loss reported on Schedule C, C-EZ or F.
    Schedule SE is not present and net earnings from self-employment appear to be $400 or more See IRM 21.6.3.4.2.7.7, EITC and SE Tax.
    SE income is a loss Subtract the amount from other earned income.
    The optional method is used Use the optional amount as income; do not subtract the SE loss.
    Taxpayer is a statutory employee (indicated on Form W-2, box 15) Use Schedule C or C-EZ, line 1, as earned income.

    Caution:

    If taxpayer receives wages from ministerial duties, some of the income reported on Form 1040, line 7, may also be shown on Schedule SE, line 2. Subtract the Schedule SE, line 2 amount from taxpayer's other earned income.

    Note:

    If taxpayer receives wages from ministerial duties and also receives a housing allowance or the rental value of a parsonage, the housing allowance or rental value is included in net earnings from self-employment. Thus, this amount is earned income, even though it is not subject to regular income tax.

  4. Income not included in earned income includes:

    • Interest

    • Dividends

    • Welfare payments

    • Pensions

    • Veteran benefits

    • Taxable scholarships or fellowship grants not reported on Form W-2

    • Alimony

    • Child support

    • Social Security and Railroad Retirement benefits

    • Workers compensation benefits

    • Unemployment compensation (insurance)

  5. For ministers or members of religious orders, CC ENMOD shows the ministerial indicator (MIN-SE) when Form 4029, Application for Exemption from Social Security and Medicare Taxes and Waiver of Benefits, or Form 4361, Application for Exemption from Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, is approved or denied.

    If Then
    Form 4361 is approved Income from ministerial duties performed as an employee is earned income. Form W-2 will not reflect any FICA wages, or FICA tax withheld.
    Any income for services unrelated to ministerial duties (whether as an employee or a non-employee) is earned income.

    Income from non-employee ministerial duties is not earned income.

    Note:

    See Publication 517, Social Security and Other Information for Members of Clergy and Religious Workers, for additional information.

    Form 4029 is approved All wages, salaries, tips, and other employee compensation are earned income, even if FICA tax is not withheld.
    Amounts received from self-employment are not earned income.
    Losses from Schedule C, C-EZ, or F cannot be subtracted from wages.
  6. The Emergency Economic Stabilization Act of 2008 added a special rule that allows taxpayers living in a Midwestern Disaster area to elect to use his/her 2007 earned income to figure the 2008 EITC.

21.6.3.4.2.7.5  (03-14-2012)
Investment Income Limitation

  1. EITC is denied if taxpayer receives investment income (sometimes referred to as disqualified income) of more than a certain amount. The maximum amount of investment (disqualified) income is:

    • $3,300 for tax year 2013

    • $3,200 for tax year 2012

    • $3,150 for tax year 2011

    • $3,100 for tax year 2009 and 2010

  2. Investment income includes:

    • Interest ( Form 1040, U.S. Individual Income Tax Return, lines 8a and 8b).

    • Dividends ( Form 1040, line 9a).

    • Child's interest and dividends from Form 8814, Parents' Election to Report Child's Interest and Dividends, included on Line 21 of Form 1040. For more details see Publication 596, Earned Income Credit (EITC).

    • Royalty income (Schedule E, line 4, minus the related expenses on Schedule E, line 21).

    • Net income from rentals of personal property not used in a business (the rental income included on Form 1040, line 21, minus the PPR (rental of personal property) amount deducted on Form 1040, line 36).

    • Capital gain net income (Form 1040) does not include gain from selling certain business assets such as from the sale of "culled" cows. This income is reported in Part 1 of Form 4797, Sales of Business Property. Subtract the gain, if any, from Form 4797, line 7, column (g) (or from line 9, column (g), if lines 8 and 9 were completed), from the amount on Form 1040, line 13. Include only the result, if more than zero, in investment income.

    • Income from passive activities included on Schedule E, lines 26, 28 column (g), 33 column (d), and 39, minus the losses from passive activities included on Schedule E, lines 26, 28 column (f), 33 column (c), and 39.

    Exception:

    Do not consider any royalty income or loss included on line 26 of Schedule E or any amount included in taxable income as income related to passive activities. These amounts are used in computing "Royalties and Rental Income from Personal Property" .


21.6.3.4.2.7.6  (10-01-2002)
Adjusted Gross Income

  1. Adjusted Gross Income (AGI) is used in determining the earned income tax credit. See Publication 596, Earned Income Credit (EIC), for specific information on how the credit is computed.

21.6.3.4.2.7.7  (03-14-2012)
EITC and Self Employment Tax

  1. Taxpayer's failure, during original processing, to compute self employment (SE) tax on income which appears to be subject to SE tax, will result in:

    1. Assessment of SE tax if less than the EITC claimed on the original return. (EITC is not allowed if the income is not considered earned income.)

    2. Assignment of Unallowable (UA) 99 if the SE tax will exceed the amount of allowable EITC. A CP 19 / CP 20 notice will be issued through the Examination function. Forward replies to Examination.

  2. If the taxpayer was assessed SE tax on original filing and states the income is earned income for purposes of EITC, but not subject to SE tax, verify the income source to determine whether the SE tax should be abated.

    If Then
    Income is not subject to SE tax Abate the SE tax using the appropriate item reference number(s), SC, RC, and blocking series.
    Income is subject to SE tax Reply to taxpayer and explain the issue thoroughly.
    Income is not earned income for EITC purposes Refer to the Examination function with Form 5101. In remarks, state: EITC allowed on original return; SE tax assessed; income may not be "earned income" .
    Taxpayer requests the SE tax be eliminated, but is unable or unwilling to provide the information needed (after receiving a full explanation of the law's provisions) Follow the unsubstantiated math error procedures in IRM 21.5.4.4.5, Math Error Unsubstantiated Protest Processing .
  3. Taxpayer states the income reported on the original return was SE income and subject to SE tax.

    If And Then
    Reply includes a CP 19/20 and/or there is an open AIMS base   Refer the reply to Examination function.
    There is no open Examination base Taxpayer reports an SE tax amount and signs the reply Compute the SE tax based on the original return, taking the new information into consideration.
    The SE tax is equal to or less than the amount of EITC the taxpayer reported   Assess SE tax and allow EITC (if proper).
    The SE tax exceeds the amount of EITC the taxpayer reported   Refer with Form 5101, Examination Referral Slip, to the Examination function.
    Examination returns the referral for adjustment   1. Assess the SE tax up to the total amount of EITC claimed.
    2. Use the appropriate item reference number(s), SC, RC, and blocking series.
    3. Correspond with the taxpayer, if necessary.
  4. A taxpayer files a claim/amended return claiming and qualifying for EITC but fails to compute SE tax on income which appears to be subject to SE tax. Compute EITC and SE tax.

    If Then
    SE tax does exceed the amount of EITC claimed
    1. Refer to Examination function with Form 5101 as CAT A if the SE income is over $10,000.

    Note:

    The case will be handled by Examination; corresponds to the Unallowable (UA) 99 considerations set for pipeline processing.


    2. If the SE income is under $10,000, assess the SE tax up to the amount of EITC. Set the math error freeze, see IRM 21.5.4.4.1, Setting the Initial Math Error Action.
    The SE tax does not exceed the amount of EITC claimed, or if Examination returns the referral for adjustment 1. Set the math error freeze per IRM 21.5.4.4.1.
    2. Assess the SE tax up to the amount of EITC.
    3. Use SC 6, RC 044/053 and appropriate item reference number(s) and blocking series.
    4. Correspond with taxpayer, if necessary.

    Note:

    If taxpayers who are Native American Tribe Members report Form 1099 MISC, Miscellaneous Income, tribal related income on Form 1040, line 21, these amounts are not considered "earned income" for EITC purposes. Do not assess SE tax if any of the following literals are provided:

    • Indian gaming

    • Indian gaming proceeds

    • IGP

    • Indian tribal distribution

    • Indian tribal income

    • Indian tribal fund

    • Indian tribal earnings

    • Native American distribution

    • Alaska Permanent Fund

    • Alaska Permanent Fund DIV

    • APF

    • APFD

21.6.3.4.2.7.8  (05-07-2012)
EITC CP 09 / CP 27

  1. If taxpayer appears to qualify for EITC but did not claim it on his/her original return:

    • A CP 09, Earned Income Credit - You May Be Entitled to EIC, will be issued to taxpayers with dependent child(ren).

    • A CP 27, EIC Potential for T/P Without Qualifying Children, will be issued to taxpayers with no dependent children.

    Exception:

    The CP 09/27 will only generate for tax returns with no unallowable conditions.

    Note:

    A TC 971 Action Code (AC) 503 indicates the CP 09/27 notice was suppressed.

  2. The notice advises the taxpayer to allow 8 weeks for receipt of refund or correspondence. Take the following action if contacted by the taxpayer:

    If And Then
    Less than 8 weeks have passed since taxpayer submitted CP 09/ CP 27 There is no open IDRS control, and adjustment has not been made
    or
    Research shows a tax examiner/unit has an open control, but adjustment has not been made
    Advise Taxpayer to allow 8 weeks for normal processing time.
    8 weeks have passed since taxpayer submitted CP 09/ CP 27 Research indicates no record of receiving taxpayer's response Advise Taxpayer to complete Form 1040X, Amended U. S. Individual Income Tax Return, and attach Schedule EIC, if applicable.
    8 weeks have passed since taxpayer submitted CP 09/ CP 27 The taxpayer's response has been received, there is an open control, adjustment has not been made
    • Prepare Form 4442, Inquiry Referral, and route it to the employee/unit with the open control.

    • Advise taxpayer to allow 30 days for response.

    Note:

    Do not prepare a referral if the taxpayer is calling only to check on the status of their claim.

  3. Generally, a completed CP 09 or CP 27 is considered an informal claim. However, if the taxpayer returns the CP 09 or CP 27 notice indicating he/she is not eligible for EITC (no other issue involved), a reply is not necessary. Destroy as classified waste per IRM 21.5.1.4.10, Classified Waste.

  4. Taxpayers must complete, sign, and return the CP 09 notice or the CP 27 notice, if qualified. If the CP 09/27 is incomplete, follow IRM 21.5.3.4, General Claims Procedures.

  5. IRM 21.6.3.4.2.7.3, EITC SSN Requirements, to verify SSN validity for qualifying child(ren)'s SSNs. If SSN provided for qualifying child is not valid, disallow the credit.

  6. Compute the EITC amount using normal procedures and adjust the account accordingly. If the taxpayer is not eligible for EITC based on our computation:

    • Deny the credit

    • Input a TC 290 .00, BS 05, SC 1, RC 054

    • Send Letter 76C

  7. When adjusting an account based on a CP 09/27, use:

    • Priority Code 3 when allowing the credit. Refer to IRM 20.2.4.7.5.5, 45-Day Rule and IRS Initiated Adjustments, for more information.

    • Reason Code (RC) 17, in addition to the appropriate RC (IRM 21.6.3.4.2.7.9, EITC - Adjusting the Account, when increasing/disallowing the credit). The RC 017 is for tracking purposes only; nothing prints on the CP 21 / CP 22.


    Note:

    Do not input the amended claims date.

    Note:

    The Additional Child Tax Credit may have to be recomputed if EITC is allowed and the taxpayer claimed three or more qualifying children for the Child Tax Credit. See Part III of Schedule 8812, Child Tax Credit, for specific instructions.

  8. If current year, update Command Code DUPED when allowing EITC based on a CP 09.

  9. Unpostable CP 27 adjustments input in the pipeline are forwarded to the Customer Service function.

21.6.3.4.2.7.9  (10-01-2011)
EITC Adjusting the Account

  1. EITC allowed on the original return posts as a computer-generated TC 768 with a minus after the amount.

  2. Action required to adjust EITC:

    1. Verify the EITC on any claim involving an income change. EITC must be recalculated when earned income changes, even if taxpayer does not address it. Advise taxpayer of any resulting change to EITC.

    2. Do not research CC DUPOL; do not use information found on DUPOL to disallow EITC.

    3. When adjusting an account that changes, adds or deletes an EITC qualifying child's SSN, see IRM 21.6.1.6, Command Code DUPED and DDBCK, and IRM 21.6.3.4.2.7.17, EITC and Command Code DDBCK .

    4. Use CRN 764 to allow/increase EITC.

    5. Use CRN 765 to decrease EITC.

    6. Use RC 053 when increasing or decreasing the credit. Use RC 054 if all EITC on the current claim is being disallowed.

      Note:

      Use RC 103 in addition to RC 053 when CC DDBCK indicates "OK to input adjustment if eligibility met, enter reason code 103" . and the taxpayer is part of the certification program.

    7. Use PC 8 ONLY if the adjustment contains TC 764 and there is a previously posted TC 29X on the module (except a previously posted TC 290 with PC 6 or TC 290 with Julian Date 999).

    8. Use the Letter 3050C, EITC/Dependent/Child & Dependent Care Credit - Math Error, to notify taxpayer of any change in the amount of EITC requested, or if taxpayer claims EITC on an amended/duplicate return which was previously allowed/corrected during pipeline processing.

      Exception:

      Do not use Letter 3050C, when disallowing the amount of EITC requested. See IRM 21.6.3.4.2.7.10, EITC Claims.

    9. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    Follow normal adjustment procedures for missing or incomplete information in IRM 21.5.1.4.3, Incomplete Inquiry.

21.6.3.4.2.7.10  (07-03-2007)
EITC Claims

  1. The following items are necessary for EITC to be claimed on an amended return (See IRM 21.5.3.4, General Claims Procedures):

    • Schedule EIC is required to be attached if qualifying children (not claimed as EITC dependents originally) are being claimed for EITC

    • Schedule EIC must contain the qualifying children's SSN information

    • The type of income must be identified


    Note:

    Loose Schedules EIC supporting an entry claimed on the original return do not require a signature for adjustment. However, if EITC was not claimed on the original return, and a Schedule EIC is being submitted, an amended return is required. Review CC RTVUE to determine if a return EITC line item was transcribed from the original return.

  2. If taxpayer is not entitled to the full amount of EITC claimed, allow the amount of EITC to which the taxpayer is entitled.

    Note:

    See IRM 21.6.1.6, Command Code DUPED and DDBCK, for appropriate use of DUPED and DDBCK and IRM 21.6.3.4.2.7.17, EITC and Command Code DDBCK, for information on verifying claim information and subsequent actions.

    If taxpayer claimed EITC And Then
    Based on three EITC qualifying children Has only one EITC qualifying child Allow EITC based on one EITC qualifying child if all other criteria are met.
    Based on one, two or three qualifying child(ren) Has no EITC qualifying child(ren) Allow EITC based on no qualifying children if all other criteria are met (e.g., age of the primary/secondary taxpayer meets criteria).
  3. When taxpayer does not qualify for any EITC claimed and EITC is the only issue:

    1. Fully disallow the claim sending a certified Letter 105C, Claim Disallowed, or Letter 1265C, EIC Disallowance.

    2. Use RC 054, SC 0, Hold Code 0, and blocking series 98 or 99, as appropriate.

  4. When all of the requested EITC is disallowed but EITC is not the only claim issue, OR, only part of the requested EITC is allowable:

    1. Partially disallow the claim sending Letter 106C, Claim Partially Disallowed, or Letter 1265C, EITC Disallowance.

    2. If all EITC is disallowed and any other issue(s) is allowed or partially allowed, use RC 54 (for EITC) and the appropriate RC for the other issue. Use SC 0, HC 3 and the appropriate refile blocking series. The 106C or 1265C must clearly explain why the EITC was completely disallowed and the other issue was allowed or partially allowed.

    3. If EITC is partially allowed, use RC 53 (for EITC) and the appropriate RC(s) for the other issue. Use the appropriate SC, HC, and blocking series.

21.6.3.4.2.7.11  (10-01-2013)
EITC and Filing Status Changes

  1. If the taxpayer changes filing status from Married Filing Jointly (MFJ) or Married Filing Separately (MFS) to Single (S) or Head of Household (HOH), the taxpayer must clearly be eligible.

    Note:

    DO NOT change the account unless taxpayer meets all criteria for "Single" or "Head of Household Considered Unmarried" in the instructions for filing status in Publication 501, Exemptions, Standard Deduction, and Filing Information and Publication 17, Your Federal Income Tax (For Individuals), or has submitted marital status documentation, such as a Dissolution of Marriage.

  2. The taxpayer can provide documentation such as court documents showing the marriage was not valid, copy of divorce decree or separate maintenance, documents verifying the taxpayers did not live together during the last six months, such as a lease agreement, utility bills, etc.

  3. If the taxpayer does not provide proper documentation, refer to IRM 21.5.3.4, General Claims Procedures.

  4. The taxpayer may reply to the previous situation and:

    If Then
    Reply is acceptable information (e.g., a copy of the divorce decree) Adjust the account appropriately.
    Reply includes no substantiation (e.g., taxpayer informs he/she was not married during the tax year) Review the prior year tax account (under primary and secondary TIN, if available).
    Prior year shows taxpayer was married to the same spouse Disallow the claim informing taxpayer of the prior year filing status.
    Prior year shows taxpayer was NOT married, OR NOT married to the same spouse Allow the claim and adjust the account appropriately.
  5. If the taxpayer changes filing status from Married Filing Jointly to Head of Household and indicates the spouse is a non-resident alien (NRA), use the table below to determine if the taxpayer has submitted a binding election or a timely revocation of election. Even with a timely revocation of election, the taxpayer is not entitled to the EITC unless he meets the remaining four requirements to be considered unmarried. (See Publication 501, Exemptions, Standard Deduction, and Filing Information, and Publication 519, U.S. Tax Guide for Aliens, for more information.)

    Caution:

    A taxpayer who filed jointly with an NRA spouse and claims EITC must submit a valid SSN for both spouses and qualifying child(ren).

    If And it is Then
    This is the first year a joint return was filed Prior to the return due date, including extensions Taxpayers may change his/her election with a written request. Follow normal procedures to make the changes per IRM 21.6.1.4.6, Only One Spouse Requesting Filing Status Change.
    This is the first year a joint return was filed After the return due date, including extensions Taxpayers are not eligible to change from joint to head of household. Disallow the claim per IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns.
    Taxpayers filed as joint with the same spouse in the prior year Prior to the return due date, including extensions Taxpayers may change his/her election for this year with a written request.
    Taxpayers filed as joint with the same spouse in the prior year After the return due date, including extensions Taxpayers are not eligible to change from joint to head of household. Disallow the claim per IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns.
  6. If the taxpayer filed Head of Household and received EITC and subsequently files a MFS return or joint return with a spouse who has an ITIN or invalid SSN, the taxpayers are not eligible for EITC.

    1. Change to MFS or joint filing using normal procedures.

    2. Back out the EITC using normal procedures.

    3. Set the math error if additional EITC was claimed or if the taxpayer did not consider the previously received EITC when completing the subsequent return (see IRM 21.5.4.1, General Math Error Procedures Overview).

    4. Send the Letter 3050C, EITC/Dependent/Child & Dependent Care Credit - Math Error, to thoroughly explain the math error to taxpayers.

21.6.3.4.2.7.12  (10-01-2002)
EITC Erroneously Allowed

  1. If EITC was erroneously allowed on the account, either in full or part, but the refund is frozen due to an invalid TIN condition, the account will have an "I" freeze.

    1. If taxpayer's SSN is not a valid SSN, EITC should not be allowed and must be reversed.

    2. Remove the EITC using normal procedures.

    3. Set the math error, see IRM 21.5.4.4.1, Setting the Initial Math Error Action.

    4. Send Letter 3050C, EITC/Dependent/Child & Dependent Care Credit - Math Error, to the taxpayer to thoroughly explain the math error.

  2. If EITC was erroneously allowed after initial processing (e.g., freeze release, adjustment action):

    If Then
    Refund can be stopped Follow normal procedures to correct the account.
    Refund was issued Follow erroneous refund procedures in IRM 21.4.5, Erroneous Refunds.

21.6.3.4.2.7.13  (10-01-2011)
EITC Math Errors

  1. A math error notice will be issued if taxpayer fails to:

    • Include a valid SSN for the primary taxpayer

    • Include a valid SSN for the secondary taxpayer

    • Include a valid SSN for each EITC qualifying child

    • Pay SE tax on SE income (SE tax will be assessed to the extent of allowable EITC; if SE tax is over the allowable EITC amount, it will be assigned an Unallowable code 99)

    • Correctly compute AGI (EITC may be reduced or eliminated)

    • Correctly consider investment income in the EITC computation (EITC may be reduced or eliminated)

    • Meet the age requirement when there is no qualifying child

    • Claim a qualifying child meeting the age criteria for EITC.

      Note:

      See IRM 21.6.3.4, Credits Procedures, paragraph (5) for information regarding an incorrect SSN due to SSA records indicating the TIN belongs to a person that was deceased prior to the tax year.

  2. In addition, a math error notice will be issued if taxpayers claim for EITC was denied as the result of deficiency procedures and taxpayer claims EITC in a subsequent year without attaching a properly completed Form 8862, Information to Claim Earned Income Credit After Disallowance. See IRM 21.6.3.4.2.7.15, EITC Recertification, for procedures.

  3. If Taxpayer Notice Codes (TPNC) 701/702/741/743/745/748 are used, a special math error notice (CP 11A/ 12A/ 13A) is issued to the taxpayer. Additional TPNCs may be present on the math error notice. Use CC IMFOLR to determine the TPNC(s). (See Document 6209, IRS Processing Codes and Information, for the complete TPNC listing and wording.)

21.6.3.4.2.7.13.1  (10-01-2011)
EITC Math Error Reply

  1. Taxpayers may reply to an EITC math error or submit a claim, amended, or duplicate return to request EITC. Perform SSN validity check, as needed.

    Note:

    See IRM 21.6.3.4.2.7.15, EITC Recertification, for EITC recertification math errors.

  2. The age requirement for taxpayers claiming EITC will be reviewed for correctness. A math error will be issued for taxpayers without a qualifying child and for the qualifying child(ren) when the year of birth does not match SSA records or fall within the age range (see IRM 21.6.3.4.2.7.1, EITC Eligibility Criteria).

  3. If the case has an L freeze, forward to the Examination function via Form 5101, Examination Referral Slip.

  4. If taxpayer agrees with the math error on a debit balance account:

    1. Input TC 290 .00 with priority code 6 to release the G freeze.

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

    3. If taxpayer does not respond, the G freeze will release automatically in 12 cycles.

  5. If a response to the math error requires EITC allowance, math verify the EITC if the amount is ≡ ≡ ≡ ≡ ≡ . (If EITC was claimed on the original return it was not math verified during original processing). If available, use CC RTVUE to determine if non-taxable earned income (NEI) was transcribed. Do not pull the return solely for NEI review; use the information on CC RTVUE. See IRM 21.6.3.4.2.7.17, EITC and Command Code DDBCK.

  6. If a taxpayer submits informant correspondence indicating that someone used his/her SSN or the SSN of an EITC qualifying child, refer to IRM 21.5.10.4.2, Exam Soft Notices CP 85A, CP 85B and CP 85C and CP 87A, CP 87B, CP 87C, and CP 87D.

  7. If a taxpayer submitted an original return for the IRS to compute, CP 51 was issued. Math error TPNCs set by Error Resolution System (ERS) will not print on the notice. Take this into consideration if the taxpayer replies.

    If Then
    Taxpayer inquires about EITC Verify SSN.
    SSN is not a valid SSN 1. DO NOT allow EITC.
    2. Set a math error by inputting TC 290 .00, HC 3, SC 2, RC 053, blocking series 77/78. (Creates a G freeze.)
    3. Send the Letter 3050C, EITC/Dependent/Child & Dependent Care Credit - Math Error, to thoroughly explain the math error issue.
    SSN is a valid SSN Allow EITC using normal procedures.

    Reminder:

    EITC was not math verified at this point.

  8. Mixed Entity/Scrambled SSN EITC case considerations:

    If Then
    EITC is claimed on a mixed entity case (See IRM 21.6.2.4.2.4, Mixed Entity Procedures) Do not allow EITC until the mixed entity condition is resolved. Once resolved use CC DUPED, if current year return, to update DUPOL. Do not use CC DDBCK when processing mixed entity cases.
    It is a "true" scrambled SSN case (both taxpayers are moved to IRSNs because SSA issued the same SSN to multiple taxpayers) Allow EITC for both taxpayers. For all other scrambled cases, refer to IRM 21.6.2.4.3, Scrambled SSN Case Procedures .

21.6.3.4.2.7.13.2  (10-12-2006)
Inquiries Concerning EITC Math Error Notices

  1. If a taxpayer makes a statement, asks a question, or indicates a misunderstanding of the EITC math error(s):

    1. DO NOT follow unsubstantiated math error procedures.

    2. Follow "no consideration procedures" in IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns, if a claim/amended/duplicate return is received.

    3. Close the case with a Letter 3050C, EITC/Dependent/Child & Dependent Care Credit - Math Error, explaining the EITC criteria.

  2. If taxpayer does not provide the correct information and requests the account adjustment be made (after a full explanation of the legislative provisions was given), follow the unsubstantiated math error procedures in IRM 21.5.4.4.5, Math Error Unsubstantiated Protest Processing.

    Note:

    If the -G freeze is no longer present on the account then see IRM 21.5.4.4.3, Processing Responses to Math Error Notices.

  3. Taxpayers with an invalid SSN may have EITC erroneously allowed and refunded if TC 510 was input in a prior year. If a taxpayer requests an adjustment which will increase EITC:

    1. DO NOT begin erroneous refund procedures to recover the EITC previously refunded.

    2. DO NOT allow additional EITC.

    3. Input an adjustment to set the math error per IRM 21.5.4.4.1, Setting the Initial Math Error Action; consider other changes requested by the taxpayer.

    4. Send the Letter 3050C to the taxpayer to thoroughly explain the math error.

  4. A taxpayer who is incarcerated, as shown in the address or on a Form W-2, Wage and Tax Statement, requires additional research if EITC is claimed.

    1. If a taxpayer reports an additional Form W-2 with wages from a penal institution, refer to Examination.

    2. If a taxpayer reports information other than income earned while in a penal institution and:

      If Then
      No EITC allowed previously on the account 1. The taxpayer cannot claim EITC for amounts received for services while an inmate, (includes on a work-lease program or in a halfway house). Does not matter if income is from a penal institution (e.g., telemarketing from prison). If the taxpayer worked prior to or following incarceration, that income could be earned income.
      2. Research to determine if the wages/income on which the EITC is based was received for services provided while an inmate in a penal institution. (Use CC IRPTR, review of the return, etc.)
      EITC was allowed previously on the account Research to determine if the wages/income on which the EITC is based was received for services provided while taxpayer was an inmate in a penal institution. (Use CC IRPTR, review of the return, etc.)
      EITC allowed based on penal institution income Refer to Examination.
      EITC allowed appropriately Follow normal procedures to process the claim.

21.6.3.4.2.7.13.3  (10-01-2011)
CP 54 Notices With Math Error Involvement

  1. When a primary taxpayer's TIN is invalid, the taxpayer may receive a CP 54 and/or math error notice. Written responses to CP 54 notices that do not involve EITC are worked in Entity. If taxpayer attaches correspondence in response to a math error notice or attaches correspondence inquiring about a math error issue, these will be worked in Accounts Management. See the following IRMs to resolve the issues:

    • IRM 3.13.5, Individual Master File (IMF) Account Numbers, for resolving invalid TINs and IRCHG instructions

    • IRM 21.6.1.5.4, Missing or Invalid Exemption TINs Procedure, for correcting exemptions

    • IRM 21.6.3.4.2.7, Earned Income Tax Credit, and IRM 21.6.3.4.2.7.13.1, EITC Math Error Reply, for addressing EITC math errors

21.6.3.4.2.7.14  (11-12-2010)
Advance EITC

  1. Taxpayers who expect to qualify for the EITC may get the credit in advance. It is included in his/her pay.

    1. Taxpayers must file a Form W-5, Earned Income Credit Advance Payment Certificate, with his/her employer each year.

    2. The amount of Advance Earned Income Credit Payments (AEIC) paid to a taxpayer is shown on Form W-2, Wage and Tax Statement.

    3. The amount of AEIC, reported on Form 1040, U.S. Individual Income Tax Return, is included with the TC 150 amount and is displayed on a transcript or TXMOD.

    4. The allowable EITC is shown as a TC 768.

  2. Taxpayers may file an amended return to change the amount of AEIC if he/she receives an additional or corrected Form W-2, or if originally claimed AEIC is not transcribed with the return.

  3. Due to the enactment of PL 111-226, Section 219, the Advanced Earned Income Credit, was repealed. This was effective with IMF returns beginning after December 31, 2010.

  4. Action required:

    1. Verify AEIC change with the Forms W-2.

    2. Input TC 290 for a positive amount to change the tax and item reference number 885, for the same positive amount to increase the AEIC.

    3. Input TC 291 with a minus after the amount and item reference number 885, for the same negative amount to decrease previously reported AEIC. Do not reduce the posted amount to less than zero.

    4. Use RC 049, and the appropriate SC and blocking series.

21.6.3.4.2.7.15  (10-01-2011)
EITC Recertification

  1. Due to the complex nature of the EITC Recertification Process, this subsection and the following subsection (IRM 21.6.3.4.2.7.15.1, EITC Recertification Math Errors) should be read in their entirety. Adhere closely to all procedures on this issue.

  2. Under the Taxpayer Relief Act of 1997, Public Law 10534, taxpayers who are denied EITC as a result of deficiency procedures, will be denied EITC as a mathematical or clerical error for the subsequent year(s) unless they provide information that demonstrates eligibility for the credit and file Form 8862, Information to Claim Earned Income Credit After Disallowance, with the subsequent tax return. Beginning with tax year 1997 returns:

    1. Taxpayers who are denied EITC as a result of deficiency procedures will be denied EITC for a tax year filed after the denial unless the taxpayer attaches a properly completed Form 8862 to his/her return and otherwise demonstrates eligibility for the credit.

      Note:

      If the sole reason the EITC was reduced or disallowed in the earlier year was because it was determined that a child listed on Schedule EIC was not the taxpayer's qualifying child, AND the taxpayer is claiming the EITC without a qualifying child, Form 8862 is not required. The recertification indicator will remain until the taxpayer claims the credit with a qualifying child(ren), attaches a properly completed Form 8862, and otherwise demonstrates eligibility for the credit.


    2. Taxpayers who are denied EITC as a result of deficiency procedures, and whose claim for EITC is determined to be due to reckless or intentional disregard of the EITC rules and regulations, will be denied EITC for two tax years after the determination. Such denial shall be made pursuant to deficiency procedures.

    3. Taxpayers who are denied EITC as a result of deficiency procedures, and whose claim for EITC is determined to be due to fraud, will be denied EITC for ten tax years after the determination. Such denial shall be made pursuant to deficiency procedures.

  3. When EITC is disallowed due to deficiency procedures, Examination sends CP 79, Earned Income Credit Eligibility Requirement, to the taxpayer explaining the EITC disallowance and the recertification requirements. Examination will set a Recertification Indicator based on the result of the examination (IRM 21.6.3.4.2.7.15.1, EITC Recertification Math Errors).

  4. To claim EITC for a current tax year (after EITC was disallowed in a previous tax year as a result of deficiency procedures), taxpayers must file Form 8862WITH the current tax year return.

    Note:

    Generally, Form 8862 is required only for the first return the taxpayer files claiming the EITC after the disallowance. However, if the taxpayer files a second return claiming the EITC before demonstrating eligibility with respect to the first return, the indicator will not have been removed, and the taxpayer is required to attach Form 8862 to the second return.

    Exception:

    If the sole reason the EITC was reduced or denied in the earlier year was because it was determined that a child listed on Schedule EIC was not the taxpayer's qualifying child, AND the taxpayer is claiming the EITC without a qualifying child, Form 8862 is not required.

  5. If taxpayer submits Form 8862 for a year other than the current tax year, research CC TXMOD to determine if the form was submitted in response to a math error on a late filed prior year return. If the form was filed in response to a math error, see IRM 21.6.3.4.2.7.15.1, EITC Recertification Math Errors, for appropriate procedures.

    Note:

    If the Form 8862 is submitted for the year in which the denial (deficiency assessment) occurred (TC 300 present), return Form 8862 to the taxpayer explaining that the form does not certify the taxpayer for EITC claimed on a prior return. Include Publication 3598, "What You Should Know About the Audit Reconsideration Process" . Use the appropriate paragraph in Letter 0032C, EITC Qualifications and Adjustments, when corresponding with the taxpayer.

  6. If taxpayer submits Form 8862 prior to filing his or her first tax return after the denial (deficiency assessment), return Form 8862 to taxpayer and explain the requirement to file it with the next tax return on which he or she claims the EITC (next tax return claiming the EITC with a qualifying child, if the sole reason the EITC was disallowed in the earlier year was because it was determined that a child listed on Schedule EIC was not the taxpayer's qualifying child).

  7. If Form 8862 is received without the return and the return has posted, research to see if a math error notice was issued. If the taxpayer files the Form 8862 in response to the math error notice and the recertification indicator is present (1, 2, 3, 4 or 9), see IRM 21.6.3.4.2.7.15.1, EITC Recertification Math Errors.

    Note:

    If the taxpayer files the Form 8862 in response to the math error notice but the recertification indicator has been removed (blank or 00), verify the SSNs are valid and allow the EITC. DO NOT use Blocking Series 74.

  8. If the taxpayer calls and states he filed his return and Form 8862 was not attached or taxpayer wants to fax Form 8862, advise taxpayer he will receive a math error notice and to send in the form when he receives the notice.

  9. If taxpayer received a CP 79 and the reason for taxpayer's contact is for information or clarification concerning the CP 79 or the recertification process, explain:

    • EITC was disallowed in full or in part as the result of an examination.

    • In order to claim EITC for the next return on which the taxpayer claims the EITC after the deficiency assessment, taxpayer must file Form 8862 with the return.

    • If the return is filed claiming EITC and a completed Form 8862 is not attached, any EITC claimed will be disallowed.

      Caution:

      Refer to IRM 21.6.3.4.2.7.15.1, EITC Recertification Math Errors, when the recertification indicator "1" .

    • If the return is filed claiming EITC and a completed Form 8862 is attached, the refund may be delayed until taxpayer's entitlement to claim EITC is verified.

  10. When the 2 or 10 year ban is set, a CP 79A, Earned Income Credit Two Year Ban, or CP 79B, Earned Income Credit Ten Year Ban, is issued advising the taxpayer of the ban and of the next year he/she will be eligible to claim EITC again.

  11. When the EITC Recertification Indicator 1 or 9 is removed, a CP 74 is issued informing the taxpayer that they have recertified for EITC and will receive a refund within 6 weeks, provided they owe no other taxes or debts the IRS is required to collect.

  12. If taxpayer has additional information to submit, or requests reconsideration, follow the procedures in IRM 21.5.10, Examination Issues.

21.6.3.4.2.7.15.1  (10-01-2013)
EITC Recertification Math Errors

  1. Once EITC is disallowed through deficiency procedures (TC 30X with TC 765), taxpayers must file Form 8862 with the next return on which the taxpayer claims the EITC. Examination reviews all returns with Form 8862, Information to Claim Earned Income Credit After Disallowance, to determine if EITC is allowable.

    Note:

    When applying tolerance criteria per the instructions below, and the taxpayer submits Form 8862 for multiple tax periods, treat each year as a separate case.

  2. The entity module will reflect the EITC recertification indicator if EITC was disallowed through deficiency procedures, or if Examination determines that recertification is no longer required. Command Code ENMOD displays the EITC indicator under the literal: EIC-RECERT-IND> and displays the year the taxpayer is first required to recertify again if claiming EITC children after the prohibited years, under the literal: EITC-EL-TXPD>.

  3. Exam may impose a two year or ten year ban that prevents the taxpayer from claiming EITC for the applicable banned years.

    1. The ENMOD literal: EITC-EL-TXPD> will identify the tax year the ban will be lifted. The ENMOD literal: EIC-TXPD> will identify the tax year the ban was set.

    2. The IMFOLE literal: EIC ELG TXPD> will identify the tax year the ban will be lifted. The IMFOLE literal: EIC RECRT TXPD> will identify the tax year the ban was set.

  4. If the taxpayer responds to an EITC recertification error and does not understand the reason for the math error notice, see IRM 21.5.4, General Math Error Procedures , and explain:

    1. The prior disallowance.

    2. The need to file Form 8862 if the taxpayer believes he or she is entitled to EITC for the current tax year

    3. If the taxpayer files Form 8862, Examination will review to determine if EITC is allowable.

  5. If the taxpayer cannot or will not file Form 8862 and demands EITC then follow procedures in IRM 21.5.4.4.5, Math Error Unsubstantiated Protest Processing.

  6. Use the following procedures if the account contains a recertification indicator (RI) and a claim or inquiry is submitted in response to an EITC recertification math error. See IRM 21.6.1.6.2, Command Code DDBCK, for DDBCK responses and the applicable procedures.

    Reminder:

    The claim or inquiry must include a Form 8862 if recertification is required.


    Note:

    Telephone assistor's only: If math error 653 is present, do not access command code DDBCK, tell the caller we will correct their account when they submit the Form 8862 by mail. Form 8862 cannot be faxed, it must be received by mail. If there are multiple math errors, ensure the taxpayer addresses those issues in their response.


    Caution:

    When working math error 653 responses and accessing DDBCK, DO NOT use Blocking Series 74 unless DDBCK's response is "Selected, Input ADJ54 using BS 74, reroute to EITC" or "Selected ME 653 - Reroute to EITC" (both responses may provide a campus).

    RI is and Action: unable to access DDBCK Action: able to access DDBCK
    Blank or 00   Recertification is no longer required. Verify SSN(s) are valid and allow claim. Do not use BS 74. Recertification is no longer required. Verify SSN(s) are valid and allow claim. Do not use BS 74.
    1

    Note:

    Recertification required

    EITC is:
    • < ≡ ≡ ≡ ≡ - allow claim

    • = or > ≡ ≡ (filed within 60 day statutory period) - follow unsubstantiated math error procedures

    • = or > ≡ ≡ ≡ (filed after 60 day statutory period) - route to Examination as CAT A

    See DDBCK response shown in IRM 21.6.1.6.2, Command Code DDBCK

    Reminder:

    On DDBCK's Return Summary Screen overlay "YYYYMMDD" , under Change Dates, with the received date of the Form 8862. Use Category Code "EICC" .

    9

    Note:

    Recertification required

    Note:

    Denotes taxpayer's EITC was adjusted due to an adjustment in income.

    EITC is:
    • < ≡ ≡ ≡ - allow claim

    • = or > ≡ ≡ ≡ ≡ ≡ (filed within 60 day statutory period) - follow unsubstantiated math error procedures

    • = or > ≡ ≡ ≡ ≡ ≡ (filed after 60 day statutory period) - route to Examination as CAT A

    See DDBCK response shown in IRM 21.6.1.6.2, Command Code DDBCK

    Reminder:

    On DDBCK's Return Summary Screen overlay "YYYYMMDD" , under Change Dates, with the received date of the Form 8862. Use Category Code "EICC" .

    2 The tax year is < the EITC-EL-TXPD

    Note:

    Taxpayer is under a 2 year EITC ban & not entitled to EITC

    Disallow the credit.
    Send a Letter 1265C , include appeal rights, and use the following language:
    "Your Earned Income Tax Credit (EITC) has been disallowed because your return is subject to IRC 32(k)(1)(B)(ii) which places a two year prohibition on claiming EITC. This prohibition resulted from a prior examination in which your EITC was disallowed and it was determined that your EITC claim was due to reckless or intentional disregard of the EITC rules and regulations."
    Follow procedures, located to the left, used by employees unable to access DDBCK
    2 The tax year is > or = to the EITC-EL-TXPD

    Note:

    Recertification required

    EITC is: See DDBCK response shown in IRM 21.6.1.6.2, Command Code DDBCK
    • < ≡ ≡ ≡ ≡ ≡ - allow claim

    • = or > ≡ ≡ ≡ (filed within 60 day statutory period) - follow unsubstantiated math error procedures

    • = or > ≡ ≡ (filed after 60 day statutory period) - route to Examination as CAT A

    See DDBCK response shown in IRM 21.6.1.6.2, Command Code DDBCK
    3 The tax year is < the EITC-EL-TXPD

    Note:

    The taxpayer has recertified for EITC after the banned period, but is still under a ban for the banned years.

    Example:

    Taxpayer's EITC is disallowed for tax year 2010 in October of 2011. RI 2 is set and the taxpayer is prohibited from claiming EITC for tax years 2011 and 2012. For tax year 2011 the taxpayer claims EITC, attaches Form 8862 to his/her return and successfully recertifies for EITC. The RI 2 is then replaced with an RI 3.

    Disallow the credit.
    Send a Letter 1265C , include appeal rights and use the appropriate language based on whether the taxpayer was under a 2 year or 10 year ban.
    Follow procedures, located to the left, used by employees unable to access DDBCK
    3 The tax year is > or = to the EITC-EL-TXPD

    Note:

    Recertification not required

    EITC is:
    • < ≡ ≡ ≡ ≡ ≡ - allow claim

    • = or > ≡ ≡ ≡ ≡ - send to Examination as CAT A

    See DDBCK response shown in IRM 21.6.1.6.2, Command Code DDBCK
    4 The tax year is < the EITC-EL-TXPD

    Note:

    Taxpayer is under a 10 year ban & not entitled to EITC

    Disallow the credit.
    Send a Letter 1265C, include appeal rights, and use the following language:
    "Your Earned Income Tax Credit (EITC) has been disallowed because your return is subject to IRC 32(k)(1)(B)(i) which places a ten year prohibition on claiming EITC. This prohibition resulted from a prior examination in which your EITC was disallowed and it was determined the claim for EITC was due to fraud."
    Follow procedures, located to the left, used by employees unable to access DDBCK
    4 The tax year is > or = to the EITC-EL-TXPD

    Note:

    Recertification required

    EITC is:
    • < ≡ ≡ ≡ - allow claim

    • = or > ≡ ≡ (filed within 60 day statutory period) - follow unsubstantiated math error procedures

    • = or > ≡ ≡ ≡ (filed after 60 day statutory period) - route to Examination as CAT A

    See DDBCK response shown in IRM 21.6.1.6.2, Command Code DDBCK
  7. Use the following procedures for claims or inquiries for accounts that do not reflect an EITC recertification math error:

    If And Then
    Taxpayer did not claim EITC on the original return Files Form 1040Xclaiming EITC for self/spouse only and the recertification indicator is 1 Verify the SSNs
    1. If the SSNs are missing or invalid, reject the claim (See IRM 21.5.3, General Claims Procedures).
    2. If the SSNs are valid, allow the EITC.
    3. Return Form 8862, if attached, to the taxpayer explaining the need to file when claiming EITC with qualifying children.
    Taxpayer did not claim EITC on the original return. Files Form 1040X with Form 8862 attached, claims EITC for qualifying children, the recertification indicator is 1 or 9 and the amount of EITC claimed is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    1. Update CC DDBCK using Category Code "EICX" .
    2. If CC DDBCK validates SSNs, allow the EITC.

    Note:

    The TC 971 Action Code 056 is not required as CC DDBCK systemically removes the recertification indicator.


    If unable to access CC DDBCK:
    • Validate SSNs

    • If the SSNs are missing or invalid, reject the claim per IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns.

    • If valid allow the EITC

    • Input TC 971 Action Code 056 to remove recertification indicator

    Taxpayer did not claim EITC on the original return Files Form 1040X with Form 8862 attached, claims EITC for qualifying children, the recertification indicator is 1 or 9 and the amount of EITC claimed is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ 1. Update CC DDBCK using Category Code "EICX" .
    2. If CC DDBCK validates the SSNs follow DDBCK response shown in IRM 21.6.1.6.2, Command Code DDBCK.
    If unable to access CC DDBCK:
    • Validate SSNs

    • If the SSNs are missing or invalid, reject the claim per IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns .

    • If valid, route claim to Examination as CAT A.

    • Use the appropriate routing procedures.


    Note:

    If the case is not being sent to Exam and EITC is being allowed, input a TC 971 AC 056 to remove the recertification indicator. DDBCK will only perform this action if below tolerance.

    Taxpayer did not claim EITC on the original return Files Form 1040X without Form 8862, claims EITC for qualifying children and the recertification indicator is 1 1. Reject the claim per IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns.
    2. Advise taxpayer EITC was disallowed in a previous year and he/she must submit a completed Form 8862 with the claim for EITC.
    Taxpayer files Form 1040X or other claim to increase EITC claimed on the original return The recertification indicator is 1 or 9 and the case is open on AIMS in Campus Examination Forward the case to the open Examination control using Form 5101, Examination Referral Slip .
    Taxpayer did not claim EITC on the original return Files Form 1040X claiming EITC and the recertification indicator is 2 Follow the same procedures for recertification indicator 2 in (6) above.

21.6.3.4.2.7.16  (10-01-2011)
EITC Criminal Investigation Referrals

  1. The Criminal Investigation (CI) function reviews original returns deemed suspicious. CI:

    1. Intercepts questionable paper refunds with CC NOREF or CC NOREFE.

    2. Stops electronic funds transfer refunds with CC CRMNLE TC 916.

    3. Codes the original return with a Computer Condition Code (CCC) 3 to generate TC 570 and an R freeze to hold the credit.

  2. See IRM 21.5.6.4.51, Z – Freeze, for the appropriate action(s) to take.

  3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

21.6.3.4.2.7.17  (01-10-2014)
EITC and Command Code DDBCK

  1. Command Code DDBCK must be used on all current processing year and two years prior for Forms 8862 or amended returns claiming EITC:

    • To determine if the claim meets Examination selection criteria and/or

    • To update Duplicate TIN database (DUPOL)

    Exception:

    Employees who do not have access to CC DDBCK should review the amended return for CAT A criteria. See Exhibit 21.5.3–3, Examination Criteria (CAT-A) - Credits. If the claim does not meet CAT A criteria and all other requirements are met then allow the EITC. Update CC DUPED, if appropriate.

    Exception:

    CC DDBCK is not used when working claims for abatement which include increases to EITC. See IRM 21.6.3.4.2.7.18, EITC Increases and Claims for Abatement.

    Note:

    See IRM 21.6.1.6.2, Command Code DDBCK, for all other exceptions.


    Command Code DDBCK must be used when a phone call or correspondence is received which corrects an EITC TIN related math error. These cases will be scored but not selected and DUPOL will be updated. During the scoring process, DDBCK will identify if the math error meets the criteria to be referred for review by Exam Classification.

    Note:

    Telephone assistor's only: If math error 653 is present, do not access command code DDBCK, tell the caller we will correct their account when they submit the Form 8862. Form 8862 cannot be faxed, it must be received by mail. If there are multiple math errors, ensure the taxpayer addresses those issues in their response.


    Note:

    EITC TIN related math errors include ME 604 / 605 / 610 / 701 / 702 / 741 / 743 / 745 / 748. CC DDBCK should not be used when working EITC Non-TIN related math error responses except for ME 653. NOTE: ME 654 / 667 / 742 / 774 could be seen in prior years. See IRM 21.6.1.6.2, Command Code DDBCK, for a list of additional exceptions when CC DDBCK cannot be used.



    If the CC DDBCK response is to adjust the account, review the required actions in (10) of IRM 21.6.1.6.2, Command Code DDBCK, prior to adjusting the account.

  2. See IRM 21.6.3.4, Credits Procedures, if the DDBCK return summary screen or response screen indicates a date of death prior to the tax year involved for the qualifying child.

  3. When processing claims involving EITC, DUPOL is required to be updated when changing, adding, or deleting EITC dependents.

  4. CC DDBCK updates DUPOL on cases when the response includes "OK to input ADJ54" .

  5. CC DDBCK does not update DUPOL on cases when the response includes "Follow IRM" ,"Selected" , or "Send as CAT A"

    • If working a current year claim and CC DDBCK's response is "Follow IRM" and following the IRM procedure results in the adjustment being made, CC DUPED must be used to update DUPOL.

    • If working a current year claim and CC DDBCK's response is "Selected" do not use CC DUPED to update DUPOL. The claim is being referred to Examination for further review.

    • If working a current year claim and CC DDBCK's response is "Send as CAT A" and the claim is later returned by Examination "accepted as filed" CC DUPED must be used to update DUPOL.

  6. CC DDBCK will determine if a claim with an EITC increase meets examination selection criteria, and if so, will systemically input a TC 971 Action Code 013 and open the case on AIMS. If a TC 971 Action Code 010 is present, the Customer Service Representative (CSR) must manually input the TC 971 Action Code 013.

    Reminder:

    All tax increases and/or credit decreases must be input before routing a case to Examination. See IRM 21.5.3.4.7, Processing Claims and Amended Returns with Examination Involvement.

    Note:

    When working Non-Correspondence Imaging System (CIS) cases that are selected, manually route the case to Examination within 3 business days.

  7. When working EITC TIN-Related Math Error or Math Error 653 responses overlay the "YYYYMMDD" on DDBCK's Return Summary Screen, under Change Dates, with the received date of the Form 1040X/Correspondence/Phone Call/ Form 8862.

    Note:

    When a Math Error 653 is assigned in original processing, CC DDBCK will reflect an indicator of "X" for each dependent claimed on the Schedule EIC. Overlay the "X" with an "A" on CC DDBCK when adding that qualifying child for EIC purposes.

  8. For claims involving an original claim for EITC or an increase to the amount of EITC claimed, input the "Category Code" ,"Claim Amount" , "AGI INC/DEC Amount" (if applicable), and the "EIC Increase Amount."

  9. Input one of the following in the "Category Code" field:

    • EICX - EITC increases claimed on an amended return/CP 36/DUPF cases which do not involve an EITC math error.

    • EICC - EITC increases due to a correspondence/amended return/CP 36/DUPF case which corrects an EITC TIN related math error OR Form 8862 filed, with or without an amended return, in response to Math Error 653.

    • EICP - EITC increases due to a phone call which corrects an EITC TIN related math error.

      Note:

      Category Code EICN is used when decreasing EITC. Additional case scenarios are listed in IRM 21.6.1.6.2,Command Code DDBCK.

  10. The "Claim Amount" is the end result of the amended return (REQ54) or correction to the math error including Form 8862. The end result of the claim can be:

    • Net Zero - enter "0" as the "Claim Amount " .

    • Overpayment - enter the amount of the overpayment as the "Claim Amount" but not more than "9999" .

    • Balance due - enter the amount of the balance due as the "Claim Amount" . This amount must be input as a positive amount since the "Claim Amount" will not accept a negative figure.

      Reminder:

      The "claim amount " is the net result of the adjustment (REQ54) and may differ from the taxpayer's computation on the refund/balance due on the amended return. Do not include any balance due into the computation.

  11. If applicable, use the amount of the increase or decrease to the Adjusted Gross Income (AGI) being claimed when inputting the "AGI INC/DEC Amount" .

  12. Use the amount of the increase to EITC being claimed when inputting the "EIC Increase Amount" .

  13. Update the Schedule C (SCHED-C) indicator field on DDBCK with a "Y" when the taxpayer is claiming EITC and:

    • Submits a new Schedule C or

    • Submits a Schedule C which amends a previously filed Schedule C or

    • Claims additional income (except Schedule F, Schedule E, Schedule K-1, or minister income) which is subject to Self Employment Tax (SE Tax)

      Example:

      Form 1040X reflects SE Tax due to non-employee compensation from a Form 1099–MISC . The Schedule C indicator would be "Y" . The non-employee compensation income shown on the Form 1099–MISC would be the amount of the "Gross Receipts" and the "Net Profit" on the DDBCK Return Update Screen - Schedule C.

    An "N" is input when a Schedule C is attached but it is a duplicate of a previously filed Schedule C or a Schedule C is not attached.

  14. See IRM 21.6.1.6.2, Command Code DDBCK, for a table showing possible DDBCK responses and appropriate subsequent actions.

  15. If the CC DDBCK response screen indicates "Validation Failed, Reject/Disallow # Child" (# indicates the number of children failing validation), and # equals the total number of children being claimed/added to the taxpayer's account:

    • Answer "Process Update" question with an "N."

    • See IRM 21.5.3.4, General Claims Procedures, for applicable procedures.

  16. If the CC DDBCK response screen indicates "Validation Failed, Reject/Disallow # Child" (# indicates the number of children failing validation),

    and # does not equal the total number of children being claimed/added to the taxpayer's account:

    If... Then
    The child failed validation due to an invalid TIN/name issue 1. Following normal procedures, input an adjustment for the child passing validation.
    2. Set a math error (See IRM 21.5.4.4.1, Setting the Initial Math Error Action) for the child failing validation and issue a Letter 3050C, explaining the issue.
    3. Reinput CC DDBCK to reflect the TIN/Name of the child passing validation, and the applicable EITC amount in the "Amount of EIC Claimed" field. Answer "Process Update" question with a "Y" .
    The child failed validation due to reasons other than an invalid TIN/Name issue See IRM 21.6.3.4.2.7.10, EITC Claims, for appropriate procedures.

21.6.3.4.2.7.18  (10-01-2012)
EITC Increases and Claims for Abatement

  1. A claim for abatement is a request for abatement of unpaid income tax. IRC § 6404(b) prohibits the filing of a claim for abatement of income tax.

    Caution:

    A math error response is not considered a claim for abatement.

  2. Although taxpayers have no right to file a claim for abatement of income tax, the Service will consider a taxpayer's request for an abatement of such taxes when the taxpayer files an amended return that shows a decrease in the tax assessed. AM processes claims for abatement using normal adjustment procedures, unless Examination criteria is applicable.

  3. If a claim for abatement is received and includes an increase to EITC less than ≡ ≡ ≡ :

    • DO NOT use CC DDBCK.

    • Process claim using normal adjustment procedures.

    • Allow EITC, if eligibility met.

    • Update CC DUPED, if current year claim.

  4. If a claim for abatement is received and the claim includes an increase to EITC of ≡ ≡ ≡ or more:

    • DO NOT use CC DDBCK.

    • Close the case as a "no consideration" . See IRM 21.5.3.4.6.3, No Consideration Procedures .

    • Advise the taxpayer that the tax must be paid in full. After the tax is paid in full, he/she can then file a claim for refund.

21.6.3.4.2.8  (10-01-2014)
Additional Child Tax Credit (ACTC)

  1. Certain individuals who get less than the full amount of the non-refundable child tax credit are entitled to this refundable credit. The additional child tax credit may result in a refund even if no tax is owed.

  2. Bona fide residents of Puerto Rico must have 3 or more children to qualify for the Additional Child Tax Credit if they are excluding all of his/her income under IRC section 933.

    • Bona fide residents of Puerto Rico do not have taxable income if it is excluded under IRC section 933, which applies to income derived from sources within Puerto Rico.

    • Amounts received for services performed as an employee of the United States or any agency thereof is not subject to exclusion under IRC section 933.

    • If a taxpayer has U.S. Government wages, he/she must file Form 1040/1040A and use Schedule 8812 to claim the additional child tax credit. If the taxpayer has excluded income under IRC section 933 or is filing Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion, he/she must use the worksheet in Publication 972, Child Tax Credit, to compute the child tax credit. Depending on the circumstances, the taxpayer may be entitled to claim the child tax credit, as well as the additional child tax credit, even if he/she has fewer than three qualifying children.

    • See IRM 3.38.147.9.2, Additional Child Tax Credit (ACTC)(Refundable), for additional information. If the taxpayer calls regarding additional child tax credit on a Form 1040PR, prepare a Form 4442 , if applicable.

  3. For taxpayers indicating a religious (e.g., Amish/Mennonite) or conscience-based objection to obtaining a TIN, refer to IRM 21.6.1.5.1, Determining the Exemption Deduction.

  4. For tax year 2009 and subsequent, a taxpayer must claim the qualifying child as a dependent to be a qualifying child for the Child Tax Credit.

21.6.3.4.2.8.1  (10-01-2013)
ACTC -Taxpayer Inquiries

  1. A taxpayer may inquire concerning the credit.

    If the taxpayer... And... Then...
    Claimed the credit on the original return The missing information is provided. Refer to IRM 21.6.3.4.1.26.1, Child Tax Credit Qualification, for more information. Adjust the account. See IRM 21.5.4.4.3, Processing Responses to Math Error Notices
    Claimed the credit on the original return DOES NOT provide missing information Follow IRM 21.5.4, General Math Error Procedures
    Credit WAS NOT claimed on the original return   Advise the taxpayer to file an amended return.

21.6.3.4.2.8.2  (01-29-2014)
ACTC - Adjusting the Account

  1. If present, math verify the Additional Child Tax Credit on Schedule 8812.

    Note:

    Recompute the Additional Child Tax Credit if there is a change to other non-refundable credits impacting the amount of Child Tax Credit allowed.

  2. If a taxpayer (or the spouse if married filing jointly) received nontaxable combat pay, he/she must include the amount in figuring his/her earned income when figuring the additional child tax credit.

  3. If Schedule 8812 is incomplete or missing and cannot be perfected or "dummied in" with available information, follow claim processing in IRM 21.5.1, General Adjustments.

  4. Determine if the ES penalty should be computed or recomputed on any refundable portion of the credit. Refer to IRM 20.1, Penalty Handbook.

  5. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡

  6. When adjusting the tax account:

    • Use Credit Reference Number (CRN) 336 to allow/increase the credit.

    • Use CRN 336 with a minus sign (-) to decrease the credit.

    • Use RC 061 and the appropriate SC and blocking series.

    Reminder:

    The CRN will convert to TC 766 Ref 336 at Master File.

  7. When processing amended returns, if the taxpayer was allowed the credit during original processing, but is not entitled to all or a portion of the credit:

    1. Follow the procedures in IRM 21.5.4.4.1, Setting the Initial Math Error Action.

    2. Explain to the taxpayer the adjustment was made and he will receive a notice explaining the adjustment and his appeal rights.

21.6.3.4.2.8.3  (10-03-2012)
CP 08, Additional Child Tax Credit

  1. The CP 08, You May Qualify for a Refund From the Additional Child Tax Credit, is generated if specific criteria based on the original return is met. Taxpayers will be issued a CP 08, informing them of their potential eligibility to claim the Additional Child Tax Credit, when they:

    1. Compute an amount for the Child Tax Credit, have no tax liability, and fail to use the remaining portion of the credit to claim the Additional Child Tax Credit, or

    2. Indicate eligibility for the Child Tax Credit (by checking the boxes on line 6c), do not claim the Child Tax Credit due to no tax liability and do not claim the Additional Child Tax Credit.

  2. Taxpayers must complete, sign, and return the CP 08 notice, if qualified.

  3. The notice advises the taxpayer to allow 8 weeks for receipt of refund or correspondence. Take the following action if contacted by the taxpayer:

    If... And... Then...
    Less than 8 weeks have passed since taxpayer submitted CP 08 There is no open IDRS control, and adjustment has not been made
    or
    Research shows a tax examiner/unit has an open control, adjustment has not been made
    Advise Taxpayer to allow 8 weeks for normal processing time.
    8 weeks have passed since taxpayer submitted CP 08 Research indicates no record of receiving taxpayer's response Advise Taxpayer to complete Form 1040X, Amended U. S. Individual Income Tax Return, and attach Form 8812.
    8 weeks have passed since taxpayer submitted CP 08 The taxpayer's response has been received, there is an open control, adjustment has not been made
    • Prepare Form 4442, Inquiry Referral, and route it to the employee/unit with the open control.

    • Advise taxpayer to allow 30 days for response.

  4. Generally, a completed CP 08 is considered an informal claim. However, if the taxpayer returns the CP 08 notice indicating they are not eligible for the Additional Child Tax Credit (no other issue involved), a reply is not necessary. Destroy as classified waste per IRM 21.5.1.4.10, Classified Waste.

  5. When adjusting an account based on a CP 08:

    1. Use Credit Reference Number (CRN) 336 to allow the credit.

    2. Use RC 061, SC 1 and the appropriate blocking series.

    3. Use Priority Code 3 to allow interest to be systemically calculated as an IRS initiated adjustment. Refer to IRM 20.2.4.7.5.5, 45-day Rule and IRS Initiated Adjustments, for more information and procedures when a manual interest computation is required.

    4. Do not input the amended claims date.

  6. Compute the amount of the credit based on the qualifying children claimed on the CP 08 that meet the following criteria:

    • The same children were allowed as dependent exemptions.

    • The children are less than 17 years old at the end of the calendar year.

  7. Partially / completely deny the claim by inputting a TC 290 .00, BS 05 and sending a Letter 76C if:

    • the taxpayer claims additional children on the CP 08 that were not claimed on the original return as dependent exemptions

    • the taxpayer claims any children on the CP 08 that were disallowed as dependent exemptions

    • the taxpayer does not meet all of the criteria (see IRM 21.6.3.4.1.26, Child Tax Credit)

    .

  8. Follow the procedures below when a taxpayer claimed the Child Tax Credit on his/her original return, and submits a CP 08 with less than 3 qualifying children claimed, and does not submit Form 8812, Additional Child Tax Credit:

    1. Verify the taxpayer meets the criteria for receiving the Child Tax Credit, and if eligible, compute the amount of the Additional Child Tax Credit per Schedule 8812 instructions.

    2. If the refundable portion of the tax credit is determined with reference to the taxpayer's earned income, the credit is refundable to the extent of 15% of earned income greater than a certain amount (for example, $3,000 for tax years 2013 and 2014, see the special rule in IRC § 24 (d)(4) and Revenue Procedures 2013-15 and 2013-35); research for the presence of a "combat zone" indicator on the account (See IRM 20.2.7.8, Combat Zone - IRC 7508, and IRM 5.19.10.6.3, Combat Zone Freeze Codes). .

    3. If the "combat zone" identifier is not present, adjust the account accordingly.

    4. If the identifier is present, research CC RTVUE to determine if the taxpayer used non-taxable combat pay when figuring his/her earned income tax credit, if claimed, and include that amount when figuring the amount for earned income on Form 8812.

    5. If the identifier is present and the taxpayer did not use an amount for non-taxable combat pay when figuring EITC, or if EITC was not claimed, correspond and include Form 8812.

  9. If a taxpayer submits CP 08 with 3 or more qualifying children and does not include Form 8812, correspond for the missing form.

21.6.3.4.2.9  (03-28-2014)
Form 8885, Health Coverage Tax Credit

  1. The credit is a refundable credit that will pay for 72.5% (80% for months beginning before Feb. 13, 2011) of eligible health insurance costs of eligible recipients of trade readjustment allowances (paid to workers displaced by trade) as well as eligible recipients of pensions that are being paid at least in part by the Pension Benefit Guaranty Corporation (PBGC).

  2. An advance credit option was available for eligible taxpayers allowing them to submit 27.5% of his/her total health insurance costs to the Health Coverage Tax Credit (HCTC) Processing Center, where the remaining 72.5% will be included in the total amount forwarded to his/her insurer.

  3. The credit was effective December 01, 2002, thru Dec. 31, 2013.

  4. Direct callers as follows:

    • Callers wanting general information about the HCTC Program should be directed to the program website at www.irs.gov/hctc

    • Callers wanting information about insurance plans qualified for the HCTC Program should be directed to the program website at www.irs.gov/Individuals/HCTC:-Eligibility-Requirements-and-How-to-Receive-the-HCTC, and then go to section 3, clicking on the ‘qualified health plans; hyperlink

    • Callers with eligibility questions, specifically regarding qualified family members, should be directed to the program website at www.irs.gov/Individuals/HCTC:-Information-for-Qualified-Family-Members

    • Callers with other questions relating to the monthly HCTC should call 1-855-379-0440 and leave a message

  5. Form 8885 must be attached to the return or claim.

    Note:

    See Form 8885, Health Coverage Tax Credit, and the instructions for more detailed information.


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