21.6.3  Credits (Cont. 2)

21.6.3.4 
Credits Procedures

21.6.3.4.2 
Refundable Credits

21.6.3.4.2.9 
Form 8885,

21.6.3.4.2.9.1  (10-01-2011)
Eligibility Requirements / Claim Processing

  1. Forward HCTC claims meeting CAT A criteria (See Exhibit 21.5.3-3, Examination Criteria (CAT A) - Credits) to the following address:
    IRS
    Stop 4103 AUSC
    Attn: Manager
    3651 South IH 35
    Austin, TX 73301

    Note:

    Input a TC 971 Action Code 013 and close the case with activity code EXAM/AUSC. Form 3210 must be attached to ensure proper handling.


  2. The presence of a TC 971 Action Code (AC) 172 on TXMOD for the specific tax year will indicate the taxpayer is potentially eligible for the credit. Research must be conducted on the primary and secondary SSNs to determine taxpayer eligibility. If the taxpayer or spouse (if married filing jointly) does not have a TC 971 AC 172 present, disallow the claim per IRM 21.5.3, General Claims Procedures . Do not include appeal rights if this is the only disallowance issue. Use the appropriate paragraph(s) in the 105/106c letter.

    Note:

    After contacting the appropriate agency, taxpayers will receive notification of his/her potential eligibility from that agency. The notification will include instructions to send a copy of the "reconsideration letter" to the IRS Andover Campus at:
    IRS
    310 Lowell Street
    Andover, MA 01812

    Upon receipt of the "reconsideration letter," the credit will be allowed if the documentation from the DOL, PBGC or his/her state workforce agency indicates they are eligible to claim the credit. See IRM 21.6.3.4.2.9.2, Adjusting the Account.


    Reminder:

    Taxpayer must complete and submit the necessary forms and supporting documentation and meet the age criteria in (3) below in order to qualify for the credit.

  3. Taxpayers enrolled in Medicare, Part A or B, are not eligible to claim the Health Coverage Tax Credit. Taxpayers entitled to Medicare are not eligible to claim the Health Coverage Tax Credit. Generally, Medicare is available for people age 65 or older. If the taxpayer was 65 or older on the first day of the tax year, disallow the claim per IRM 21.5.3, General Claims Procedures. Do not include appeal rights if this is the only disallowance issue. Use the following text in the disallowance letter:
    "We did not allow the amount of $(amount of credit claimed) claimed for the Health Coverage Tax Credit. If you are entitled to Medicare Part A or enrolled in Medicare Part B, you are not eligible to claim the credit."

  4. Periodically, updates will be applied to accounts for HCTC eligibility. The TC 971/972 Action Code (AC) 172 will reflect the appropriate date of the revision. If a taxpayer has filed his/her return prior to the update, and claimed HCTC, the credit may have been allowed or disallowed incorrectly.

    1. Ineligible taxpayers will have the credit reversed and will be denied the credit. The HCTC portion of any refunds will be addressed through erroneous refund procedures in IRM 21.4.5.4.5, Overview of Category D Erroneous Refunds.

    2. Eligible taxpayers, incorrectly denied the credit during original processing, may contact the IRS regarding the denial. The credit may be allowed if all criteria are met.

      Note:

      It will be necessary to request the original return to verify if invoices and proof of payments were attached. This is necessary since original processing does not verify if the taxpayer is ineligible per the "potentially eligible" database.

  5. Taxpayers must check the appropriate boxes in Part I, Form 8885, indicating the months they were eligible to receive the credit and provide invoices and proof of payments for verification. If no boxes are checked in Part I, and/or no invoices and proof of payments are attached, and a TC 971 Action Code 172 is present on TXMOD, see IRM 21.5.3, General Claims Procedures, for information on incomplete claims.

    Reminder:

    When corresponding for Part I information, include information requesting invoices and proof of payments (e.g. cancelled checks or credit card statement) if not present, for any amounts included on line 2 of Form 8885.

  6. Follow the procedures below when processing Form 1040X, Amended U.S. Individual Income Tax Return, claiming the credit. The credit can be identified by Credit Reference Number (CRN) 250 on TXMOD.

    Note:

    If Form 8885 is not submitted with Form 1040X or available information is not sufficient to determine if the claim is complete, it will be necessary to request the original return to verify the information.

    If Form 1040X is received and ... And ... Then ...
    No HCTC was claimed during original processing Taxpayer is claiming HCTC Math verify and allow the credit if:
    • Form 8885 is complete, and

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ,

    No notice was issued during original processing denying the credit Credit was allowed originally Math verify and allow the appropriate additional credit.
    A notice was issued during original processing denying the credit Form 8885 is attached and
    • At least one box is checked in Part I, and

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

    • Taxpayer was not age 65 or older on the first day of the tax year, and

    • Taxpayer is eligible per (2) above.

    Math verify Form 8885 and allow the appropriate credit.
    A notice was issued during original processing denying the credit Form 8885 is attached and
    • No boxes are checked in Part I, or

    • Invoice/proof of payment are not attached

    Request the original return to verify if any boxes were checked in Part I or if invoices/proof of payment were attached.
    A notice was issued during original processing denying the credit. Form 8885 is not attached to Form 1040X but invoices/proof of payment are attached. If invoices/proof of payment are attached to Form 1040X, request the original return and take appropriate action.
    A notice was issued during original processing denying the credit. Form 8885 is not attached to Form 1040X and no new information is submitted. "No consider" the claim per IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns.

21.6.3.4.2.9.2  (11-07-2012)
Adjusting the Account

  1. Math verify Form 8885, Health Coverage Tax Credit.

  2. Verify a TC 971 action code 172 is on the module. If adjusting a joint account and the TC 971 action code 172 is on the secondary taxpayer's account only, input the TC 971 on the primary taxpayer's account. Use a posting delay code 1 on the adjustment to avoid an unpostable.

  3. Action required:

    • Input TC 290 for zero (.00), if no other adjustment is required.

    • Use credit reference number 250 to allow/increase the credit.

    • Use credit reference number 250 with a minus (-) to decrease a previously posted credit.

    • Use RC 072 and the appropriate SC and blocking series.

    • Use Category Code HCTC when inputting the adjustment.

  4. If documentation is received from the Pension Benefit Guaranty Corporation (PBGC) or the Department of Labor (DOL), indicating the taxpayer is potentially eligible for the credit, input a TC 971 Action Code (AC) 172 on the appropriate module.

21.6.3.4.2.10  (10-01-2014)
Refundable Credit for Prior Year Minimum Tax - Individuals, Estates, and Trusts

  1. Form 8801 is used to:

    • Figure the current year nonrefundable credit, if any, for alternative minimum tax the taxpayer incurred in prior years

    • Figure the refundable credit, if any, for any unused credit carryforward from the statute year (2008 for a 2011 return, 2009 for 2012)

    • Figure any credit carryforward to the next tax year

  2. This credit was a refundable credit through tax year 2012, for tax year 2013 and subsequent, the credit is nonrefundable.

  3. To adjust the account:

    1. Use Credit Reference Number (CRN) 255 to allow/increase the credit.

    2. Use CRN 255 with a minus sign (-) to decrease the credit.

      Reminder:

      The CRN will convert to TC 766 Ref 255 at Master File.

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

21.6.3.4.2.11  (10-01-2010)
First-Time Homebuyer Credit

  1. The Housing and Economic Recovery Act of 2008 (HERA) (PL 110-289), enacted on July 30, 2008, allows a taxpayer who is a first time homebuyer a refundable tax credit of the lesser of $7,500 ($3,750 for Married Filing Separate) or 10% of the purchase price. The law is effective for qualifying homes purchased on or after April 9, 2008, and on or before December 31, 2008.

  2. The American Recovery and Reinvestment Tax Act of 2009 (ARRA) (PL 111-5), enacted on February 17, 2009, allows a refundable tax credit of the lesser of 10% of the purchase price of the residence or $8,000. The credit is available for first time homebuyers who purchased a home after December 31, 2008 and before December 1, 2009.

  3. The Worker, Homeownership, and Business Assistance Act of 2009 (WHBAA) (PL 111-92), enacted on November 6, 2009, extends the eligibility period for the first time homebuyer credit to purchases made before May 1, 2010. Taxpayers who have entered into a written binding contract before May 1, 2010, must close on the home before July 1, 2010 to qualify. This bill also establishes special rules for long-time residents and members of the Armed Services, Foreign Service officers and the intelligence community.

  4. The Homebuyer Assistance and Improvement Act of 2010 (HAIA) (PL 111-198), enacted on July 2, 2010, extends the deadline to purchase a home to October 1, 2010, for taxpayers who have entered into a written binding contract before May 1, 2010, to close before July 1, 2010.

  5. For homes purchased in 2008, the credit is treated as a 15 year interest-free loan. The credit is recaptured over fifteen years beginning the second year after the home is purchased.

  6. For homes purchased in 2009 and 2010, the taxpayer must repay the credit only if the home ceases to be the taxpayer's main home within the 36 month period beginning on the purchase date.

  7. A "home" must be the taxpayer's primary and principal residence and be located in the United States.

  8. A "home" must meet the definition of a house, condo, co-op, mobile home, house trailer, or houseboat that has sleeping, cooking and toilet facilities.

  9. If a taxpayer is constructing a new home, the home will be treated as "purchased" by the taxpayer on the date the taxpayer first occupies the home as the principal residence. This also applies to manufactured homes installed on a new site.

  10. The credit cannot be claimed if the taxpayer is a nonresident alien or for the purchase of a residence in 2008, if the taxpayer qualifies for the DC First Time Homebuyer Credit.

21.6.3.4.2.11.1  (04-09-2010)
The Housing and Economic Recovery Act of 2008 (HERA) and the American Recovery and Reinvestment Act of 2009 (ARRA)

  1. For eligible purchases made in 2008, the credit must be claimed on the 2008 tax return or amended return.

  2. For eligible purchases made in 2009, an election can be made to claim the credit on either the 2008 tax return, amended 2008 tax return, or the 2009 tax return.

  3. For eligible purchases made in 2010, an election can be made to claim the credit on either the 2009 tax return, amended 2009 tax return or their 2010 tax return.

  4. For purchases made on or before November 6, 2009, the modified adjusted gross income (MAGI) is computed by the AGI increased by any foreign income under IRC 911, 931 or 933.

    1. The phase out of this credit begins when the MAGI exceeds $75,000 ($150,000 if Married Filing Joint).

    2. The credit is eliminated when the MAGI reaches $95,000 ($170,000 if Married Filing Joint).

  5. Homes purchased in 2009 that do not fall under the fifteen year repayment criteria and are claimed on the original 2008 return will be coded with a SPC "H" by Document Perfection. This can be identified on Master File on CC RTVUE.

21.6.3.4.2.11.2  (01-12-2010)
Worker, Homeownership and Business Assistance Act of 2009 (WHBAA)

  1. Under WHBAA, the First-Time Homebuyer Credit of up to $8,000 was extended from December 1, 2009, to April 30, 2010.

  2. Long time residents of the same principal home may qualify for a credit of up to $6,500, based on the purchase of a new home.

  3. In addition, taxpayers who enter into a binding contract before May 1, 2010, to close on the purchase of a principal residence before October 1, 2010, also qualify for the credit.

    Example:

    A taxpayer enters into a binding contract on April 1, 2010 to purchase a home. The taxpayer then closes on the home on June 17, 2010 (receives a properly executed settlement statement). The taxpayer submits Form 5405 with required documentation claiming the credit.

  4. Form 5405 cannot be electronically filed with Form 1040 series returns for the 2010 filing season due to the required documentation.

  5. For the 2010 filing season, the Form 5405 "Date Purchased" entry will be a transcribed field, so SPC "H" will not be necessary to identify these returns as not falling under the fifteen year repayment criteria.

21.6.3.4.2.11.3  (10-04-2010)
WHBAA Date of Enactment- November 6, 2009

  1. The Date of Enactment (DOE) for WHBAA of 2009 is November 6, 2009. Certain changes are applicable to the credit on purchases made after this date. These are:

    1. Allowing qualifying long time residents to claim a credit up to $6,500.

    2. Dollar limit in MAGI increased to $125,000 ($225,000 for Married Filing Joint).

    3. No credit allowed for home purchase over $800,000.

    4. The taxpayer must be at least 18 years old on the date of purchase and if married, only one spouse must meet this requirement.

    5. Credit cannot be claimed from property purchased from individuals related to family of a spouse.

    6. No credit is allowed for taxpayers who are eligible to be claimed as a dependent on another taxpayer's return.

      Note:

      These changes are not retroactive.

21.6.3.4.2.11.4  (10-01-2011)
WHBAA Military Exceptions Credit Extension

  1. WHBAA allows members of the military and certain other federal employees serving outside the U.S. to have an extra year to buy a principal residence in the U.S. and qualify for the credit.

  2. An eligible taxpayer must buy before May 1, 2011, or alternatively, enter into a binding contract before May 1, 2011, to buy a principal residence before July 1, 2011.

  3. Members of the uniformed services, members of the Foreign Service and employees of the intelligence community are eligible for this special rule.

  4. This applies to any individual (and, if married, the individual's spouse) who serves on qualified official extended duty service outside of the U.S. for at least 90 days during the period beginning December 31, 2008, and ending before May 1, 2010.

  5. Additional documentation is not required for the military. Taxpayers must check Part I, Line D on Form 5405 to indicate they are part of the military.

21.6.3.4.2.11.5  (02-01-2010)
WHBAA Long-Time Residents Credit

  1. WHBAA allows for a long-time resident of the same principal home to qualify for a credit of up to $6,500, based on the purchase of a new home.

  2. The taxpayer(s) must have lived in the same principal home for any five consecutive year period during the previous eight years ending on the purchase date of the new home.

    Note:

    If the taxpayers are Married Filing Joint, BOTH taxpayers must have owned and used the home as the principal residence for the five consecutive years. However, please note that only one taxpayer could be shown as "owner" on mortgage or interest statements.

    Example:

    #1- Single - The taxpayer owned and used a home as a principal residence for five years in a row (2002-2007) and then moved to a rental apartment for two years. At the time of the move, the taxpayer either sold the home or converted it to rental property. The taxpayer now decides to buy a principal residence to live in again and once it is purchased (after November 6, 2009) is entitled to a credit up to $6,500. If the taxpayer had lived in the apartment for three years, he would qualify for up to $8,000 as a First-Time Homebuyer.

    Example:

    #2- MFJ - The taxpayers both own and used the same home as a principal residence since November 6, 2004. They purchase a new home and close after November 6, 2009. They are entitled to a credit up to $6,500.

21.6.3.4.2.11.6  (05-07-2012)
First-Time Homebuyer Credit Claims

  1. Eligibility requirements for First-Time Homebuyer Credit claims will be determined by the purchase date on Form 5405 and whether claim requirements are under HERA, ARRA, or WHBAA.

  2. Disallow the FTHBC for home purchases prior to the WHBAA DOE if the credit limits or MAGI limits are exceeded.

    • MAGI limits BEFORE WHBAA are phased out from $75,000 and are eliminated at $95,000 for single taxpayers. For Married Filing Joint taxpayers the MAGI limits are phased out from $150,000 and are eliminated at $170,000.

  3. WHBAA requires the taxpayer to submit documentation to support any FTHBC claim and provides additional authorities to the IRS to enhance the administration of the credit.

  4. Valid documentation includes a settlement statement (i.e., HUD-1 Settlement Statement) with the property address, the seller(s) and buyer(s) names, purchase price and purchase date. The settlement statement may or may not contain the buyer(s) and seller(s) signatures. Mobile home purchasers may submit an executed retail sales contract including the names, address, purchase date and purchase price and signatures of both taxpayers if applicable. If the home was newly constructed, a copy of the occupancy permit is sufficient.

    Invalid documentation includes:

    • Refinance settlement statements,

    • Construction receipts.

    • Incomplete documentation (without regard to the signatures).

      Note:

      If the taxpayer submits alternative, official documentation that includes the property address, the seller(s) and buyer(s) names and purchase date, or something other than the certificate of occupancy as shown in IRM 3.11.6.8.13.4.2, Form 5405 Requirements, forward the case as CAT-A criteria (even if none of the CAT-A filters are met).


      If the official documentation does not include all of the required elements, the claim should be "No Considered" as outlined in (8) below.

  5. A copy of a properly executed settlement statement must be attached to Form 5405 for tax period 2009 and subsequent tax returns or 2009 amended returns. A 2008 amended return does not require a settlement statement.

  6. If the taxpayer enters into a binding contract before May 1, 2010, to close on the purchase of a principal residence before October 1, 2010, a copy of the "purchase contract " should be attached to the return or 2009 amended return (but not 2008) in order to receive the credit. Documentation is a contract containing all parties' signatures, the date, the property address, the seller(s) and buyers(s) names and the purchase price.

    Note:

    If a claim is received with the settlement statement and WITHOUT this binding contract documentation proving ownership, process through the xClaim tool. If appropriate, send to CAT-A, otherwise adjust the account accordingly. Do not "reject" the claim due to missing documentation. When allowing the credit, use RC 128 instead of RC 110.

  7. In addition, if the taxpayer is claiming the long time residents credit, documentation proving ownership for five out of eight consecutive years, should be attached to the original or amended return. Documentation includes any of the following:

    1. Prior year mortgage interest statements,

    2. Property tax records,

    3. Form 1098 issued by Mortgage Company, or

    4. Homeowner insurance records.

      Note:

      Audit Codes "A" and/or" I" could be present on CC RTVUE if this documentation is not submitted on the original return

      Note:

      If a claim is received with the settlement statement and WITHOUT the "5 out of 8 year" documentation proving ownership, process through the xClaim tool. If appropriate, send to CAT-A, otherwise adjust the account accordingly. Do not "reject" the claim due to the missing documentation. When allowing the claim, use RC 129 instead of RC 110.

  8. "No Consider" the claim following IRM 21.5.3.4.6.3, No Consideration Procedures, if the settlement statement is not attached.

    Note:

    Process the FTHBC claim through the xClaim tool to check for any disallowance criteria. If disallowance criteria is identified, send 105C/106C to the taxpayer with appropriate information. If CAT-A criteria is identified do not forward to CAT-A.

    • Note:

      Depending on the circumstance, multiple types of documentation may be required from the taxpayer, such as a copy of the settlement statement and documentation to support five consecutive years. When "no considering" or disallowing a claim, ensure all the missing elements are requested after reviewing with xClaim.

  9. Process WHBAA claims as follows: Disallow the claim following IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures, if any of the following conditions apply:

    1. Taxpayer is under age 18. If married, only one spouse must meet the age requirement.

    2. Home purchase price exceeds $800,000.

    3. Taxpayer's AGI limitations exceed $145,000 ("phase out" begins at $125,000) for individuals or $245,000 ("phase out" begins at $225,000) for Married Filing Joint.

    4. Taxpayer can be claimed as a dependent on another taxpayer's return for the tax year the FTHBC is being claimed.

    5. Taxpayer is claiming the FTHBC and has already received the credit in a prior year.

    6. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    7. Future home purchase dates on Form 5405.

    8. Home purchase dates after July 1, 2010 (and does not meet exception criteria).

    9. No response to request for missing documentation or unacceptable documentation received.

  10. If the taxpayer has submitted all required documentation and no disallowance or CAT-A criteria is met, adjust the taxpayer's account to allow the credit.

21.6.3.4.2.11.6.1  (10-01-2011)
First Time Homebuyer Math Error Responses

  1. The majority of First-Time Homebuyer Credit math errors can be adjusted based on oral statement and do not require additional documentation. Unless indicated in this section of the IRM, these math error responses are not required to be run through xClaim.

  2. Responses to First-Time Homebuyer Credit math errors for missing settlement statements (TPNC 691) and missing Forms 5405 (TPNC 683) bypass original return processing filters. When responses come into Accounts Management, this requires the use of the FTHBC tool in xClaim tool to assure the taxpayer is in compliance with other Exam criteria before allowing the credit.

  3. If a taxpayer submits a missing Form 5405 or a settlement statement in response to a math error notice, or a late reply is forwarded from Submission Processing, run the response through the FTHBC tool in xClaim. Disallow or send to CATA if indicated on the FTHBC tool. If no filters are identified by the FTHBC tool, allow the FTHBC as claimed on the original return.

    Note:

    If the taxpayer calls in about the missing Form 5405 or settlement statement, have them send in a copy of the Form or document to the center to process the adjustment.

  4. If the taxpayer receives a math error due to a missing settlement (TPNC 691), the settlement statement must be received in order to allow the credit. This document could be faxed or mailed in.

    Note:

    If the taxpayer calls in about the missing Form 5405 or settlement statement have them send in a copy of the Form or document to the center to process the adjustment.

  5. TPNC 641 is a math error based on specific filter checks made during processing of the original return which review data over the last two years. This math error states "We have disallowed the amount claimed for First Time Homebuyer Credit on page 2 of your tax return. Our records indicate you have a prior homeownership that would make you ineligible to claim the credit." If there is any mortgage interest found during the past two years, the First Time Homebuyers Credit will not be allowed and a TPNC 641 will be assigned.

  6. For TPNC 641, acceptable explanations of no previous home ownership must be submitted in writing. Taxpayers can submit the documentation via fax. The taxpayer must provide a reasonable explanation that any prior year mortgage interest/real estate tax was for something other than a principal residence. Some examples are:

    1. Timeshare or vacation property.

    2. Rental property and the mortgage interest/real estate tax was claimed on Schedule A instead of Schedule E.

    3. Taxpayer erroneously claimed interest in a previous year (i.e., did not pay the mortgage interest and the mortgage interest is not on IRPTR L. Note: Tell the taxpayer to amend the prior year but do not hold up adjusting the account waiting for the Form 1040X.

      Note:

      If it is evident the taxpayer is claiming the Long Time Residents Credit and an error was made, documentation is not needed. If the taxpayer originally claimed FTHBC and now states he wants LTRC, an amended return must be filed.

      Note:

      Keep in mind, the taxpayer must submit their acceptable explanation in writing with TPNC 641. This information can be faxed and the account adjusted. The examples listed above are not all-inclusive and the taxpayer may provide other explanations.

      Note:

      For informational purposes, CSR can run the tool for specifics of the TPNC 641 assignment. If any secondary CATA criteria exists, disregard.

  7. If a taxpayer's explanation is not considered acceptable for TPNC 641, follow procedures in IRM 21.5.4.4.5, Math Error Unsubstantiated Protest Processing.

  8. When a taxpayer submits a previously disallowed claim based on prior year homeownership over the past two years and the new information is not acceptable as described in 6 above, forward to Appeals.

  9. If a taxpayer is responding to a math error notice from the original return or a disallowance letter and states they are "appealing" the disallowance of FTHBC, do not refer to the Office of Appeals. These are responses to math error notices and should be resolved by the assistor. Specific examples of erroneous referrals to Appeals would include:

    • Taxpayer calls and wishes to "appeal" a math error notice related to the FTHBC and the taxpayer is referred to the Appeals Customer Service Line. The math error should be explained to the taxpayer.

    • Taxpayer calls indicating they wish to appeal the disallowance of the FTHBC and research indicates a 105C letter was issued and shows a disallowance letter was issued and there is a disallowance adjustment. As outlined in the 105C letter information provided to the taxpayer, the request for appeal must be submitted in writing.

    Note:

    Just because the taxpayer uses the word "appeals" in his statement, does not necessarily indicate the taxpayer should be given the Appeals telephone number. Taxpayers may only be trying to obtain a status on their account. Only refer to Appeals if there is a clear cut indication on AMS the account is in Appeals.

  10. Math error responses for disallowance for the FTHBC include the following disallowance literals:

    • 638- Disallowance of FTHBC due to sale of property to a person related to you or spouse.

    • 639- Disallowance of FTHBC due to purchase price of residence exceeding $800,000.

    • 640- Disallowance of FTHBC due to settlement statement not attached to return.

    • 641- Disallowance of FTHBC due to prior homeownership.

    • 683- Disallowance of FTHBC due to missing or incomplete Form 5405.

    • 685- Disallowance of FTHBC due to home being purchased before April 8, 2008 or after July 1, 2010.

    • 686- Disallowance of FTHBC due to taxpayer or spouse (if married filing joint) must be 18 or older.

    • 690- Disallowance of FTHBC due to home being purchased prior to year tax year being filed.

    • 691- Disallowance of FTHBC due to properly executed settlement statement not attached.

    • 692- Disallowance of FTHBC due to modified AGI being exceeded.

21.6.3.4.2.11.6.2  (01-10-2014)
First-Time Homebuyer Taxpayers Not Entitled to Credit

  1. If the First Time Homebuyer taxpayer calls or writes in response to a letter (i.e., 3064C, open control issue) reverse the FTHBC when the taxpayer states the following:

    1. They did not intend to purchase a home, or

    2. They are not going to buy a home, or

    3. They have not closed on their home, or

    4. They are now going to close on a different home

  2. If the taxpayer calls or writes concerning the FTHBC and states any of the following which is NOT in response to any letter:

    1. They did not intend to purchase a home, or

    2. They are now not going to buy a home, or

    3. They have not closed on their home, or

    4. They are now going to close on a different home, then


    If the account indicates a TC 766 with a CRN 258 and a TC 846 has posted, inform the taxpayer the credit should not have been allowed and they must file an amended return to correct the account. Send the taxpayer Form 1040X to file an amended return, or

    If the account indicates a TC 766 with a CRN 258 and a TC 846 has not yet posted, inform the taxpayer their refund will be stopped because they are not entitled to the credit. Stop the refund. Refer to IRM 21.4.1.4.10, Refund Intercept CC NOREF with Definer "P" , and IRM 21.4.1.4.11, IRS Holds Automated Listing (HAL), for additional instructions. Send the taxpayer From 1040X to file an amended return.

  3. When reversing a credit, interest and penalties are due on these accounts and computed as normal adjustments and computed from Return Due Date. The taxpayer had use of this money to the date or repayment of this credit.

  4. Instruct the taxpayer to send repayment with the bottom half of the notice to assure proper posting.

  5. If the taxpayer files an amended return to reverse the FTHBC after the ASED has expired, refer the case to Exam as a Category A2 erroneous refund. See IRM 21.4.5.4.2, Category A2 Erroneous Refunds. If Exam does not accept the case and returns it back to the originator, see IRM 25.6.1.9.9.1, Procedures for Expeditious Assessments, (7). In addition, if the home was purchased in 2008, advise the taxpayer that we cannot reverse the credit, that he/she is liable for the annual repayment, and he/she can voluntarily choose to prepay the remaining balance of annual installments.

21.6.3.4.2.11.7  (11-02-2011)
First-Time Homebuyer Adjusting Accounts

  1. Always review Forms 1040X for a new address and update master file accordingly. Refer to IRM 21.6.7.4.4.4, Entity Verification.

  2. When adjusting an account, review CC IMFOLF or CC ENMOD prior to allowing the FTHBC to assure the credit was not previously taken on another tax period. If there is an entry in the primary and/or secondary credit amount fields, the credit was previously taken.

  3. When adjusting an account for the FTHBC use Credit Reference Number (CRN) 258 to allow/increase the credit and CRN 258 with a minus sign (-) to decrease the credit.

    Note:

    The CRN converts to TC 766/767 Reference Number 258 at Master File. Enter only one of the following reason codes:

    1. Use RC 109 (First Time Homebuyer Credit) when the home was purchased in 2008.

    2. Use RC 110 (First Time Homebuyer Credit) when the home was purchased in 2009 or 2010.

    3. Use RC 125 (First Time Homebuyer Credit) when the home was purchased by a long time resident (up to $6,500).

    4. Use RC 126 (First Time Homebuyer Credit) only for homes purchased by first time homebuyers that are military using their one year extension.

    5. Use RC 127 (Requirement to repay the First Time Homebuyer Credit Waived) only for military forgiveness.

    6. Use RC 128 (First Time Homebuyer Credit) - for homes purchased by first time homebuyer WITHOUT binding contract documentation attached.

    7. Use RC 129 (First Time Homebuyer Credit) - for long time residents WITHOUT binding contract or 5 out of 8 year documentation attached.

      Caution:

      It is imperative to use the correct reason code when adjusting the 2008 accounts. This code will be used to identify homes purchased in 2008 that require repayment.

    Note:

    For any home purchased in 2010 and the Form 5405 is for a 2009 tax period, input a reference code 880 .10, RC 121 (primary), or RC 000 (joint) along with the appropriate RC 110, 125, 126, 128, or 129. This is necessary to show the correct year of purchase on CC IMFOLF.

    Note:

    For any home purchased in 2011 (military), input a reference code 880 .11 and use the appropriate RCs. Input RC 121 (primary) or RC 000 (joint) as well.

  4. Use the appropriate SC and blocking series.

  5. When adjusting the "year" the credit was taken, use item reference number 880 with a two year digit indicator (including the decimal.)

    Example:

    The primary taxpayer mistakenly entered a purchase date of 07/08/09 on Form 5405 and submits a Form 1040X with a corrected date of 07/08/08. We would show the adjustment as follows: TC 290 .00, IRN 880 .08, RC109, RC 121, BS 05.

    Note:

    Use Reason Code 121- (internal use only) adjust primary FTHBC year or Reason Code 122 - (internal use only) adjust secondary FTHBC year with TC 880 credit reference code.

  6. If two valid Forms 5405 need to be adjusted onto one account, Priority Code 9 will be needed in order to override any unpostable condition.

    Example:

    Two single taxpayers purchase separate homes. They were both single first time homebuyers. They then marry. Both purchases then qualify for the credit provided each residence is the principal residence of the purchasing taxpayer. In this case, we could get two Forms 5405 if they decide to file an amended return. We would need to use PC 9 on our adjustment.

  7. When backing out or reducing the FTHBC on an account, always check the entity on CC IMFOLF to assure the FTHBC credit amount field has data posted. If the field is blank, you must first bring the data back from the cross reference account before backing out the tax module account. Failure to do this will cause an unpostable.

    1. Reverse the credit amount shown on CC IMFOLF using a reference number 875 for the primary amount (negative), or a 975 for the secondary amount (negative), RC 109, 110, 125 or 126.

    2. To create the FTHBC entity on the account where the FTHBC is being back-out or reduced, input the same transaction in (a) above with a positive.

    3. Wait until the following week to work the remainder of the case to assure posting of these transactions or use a posting delay code of 1.

    Note:

    If CC IMFOLF indicates a repayment of 1/15 of the credit, the tax and repayment amount on CC IMFOLF can be adjusted if the repayment was assessed via math error authority. If the taxpayer reported the repayment on their original or amended return, the taxpayer will have to file an amended return to correct the tax / IMFOLF.

  8. Due to a systemic problem, there may be instances where the FTHBC has been backed out of an account, but still shows on CC IMFOLF. CC IMFOLF information must be removed with item reference code 875 / 975 as listed in the example above, one cycle prior to posting the FTHBC or the adjustment will unpost.

21.6.3.4.2.11.8  (10-01-2011)
Recapture of First-Time Homebuyer Credit

  1. Refer to IRM 21.6.4.4.18.1, Recapture of First-Time Homebuyer Credit, for more information.

21.6.3.4.2.11.8.1  (10-01-2010)
First-Time Homebuyer Military Exceptions Waiver of Recapture of Credit

  1. The recapture requirement is waived for members of the uniformed services, members of the Foreign Service and employees of the intelligence community.

  2. This relief applies where a home is sold or stops being the taxpayer's principal residence after December 31, 2008, in connection with Government orders received by the individual (or individual's spouse) for qualified official extended duty service.

  3. The credit is still allowable even if this happens during the year of purchase.

  4. Qualified official extended duty is any period of extended duty while serving at a place of duty at least 50 miles away from the taxpayer's principal residence (whether inside or outside the U.S.) or under orders compelling residence in government furnished quarters.

  5. Extended duty is defined as any period pursuant to a call or order to such duty for a period in excess of 90 days or for an indefinite period.

21.6.3.4.2.12  (01-05-2009)
Recovery Rebate Credit (RRC)

  1. As part of the Economic Stimulus Act of 2008, eligible individuals were sent an Economic Stimulus Payment (ESP) giving them an advance payment of the 2008 Recovery Rebate Credit (RRC). The RRC is figured in the same manner as the ESP except that the amounts are based on Tax Year 2008 instead of 2007.

  2. Individuals may be able to claim the RRC on his/her 2008 tax return only if:

    • He/she did not receive an ESP in 2008 OR

    • His/her ESP was less than $600 ($1200 MFJ in 2007) plus $300 for each qualifying child they have for 2008.

  3. A Recovery Rebate Credit Job Aid is provided to assist in determining if a taxpayer is eligible for the credit. The job aid will be accessible from the Employee Tools link on the Recovery Rebate Credit Resource page and on the "IRM Supplements" tab on SERP. Use of the job aid is not mandatory but is recommended.

  4. Taxpayers whose ESP is larger than the RRC amount figured on the 2008 tax return will not have to pay back the difference.

  5. Individuals who did not qualify for the ESP can claim the RRC on his/her 2008 tax return, provided they are otherwise eligible. See IRM 21.6.3.4.2.12.3, RRC Qualifications.

21.6.3.4.2.12.1  (01-05-2009)
RRC General Research

  1. Except as specified in the following instructions, normal procedures should be followed to resolve most account problems or discrepancies. You may also need to reference other IRM sections. See IRM 21.6.3.5.1, General Research, for links to specific IRM sections.

21.6.3.4.2.12.2  (10-01-2011)
Explanation of RRC

  1. If eligible, the 2008 RRC is claimed on Form 1040, Line 70; Form 1040A, Line 42; or Form 1040EZ, Line 9.

  2. The 2008 income tax instructions include a worksheet (for each F1040 series return) to help taxpayers figure the Recovery Rebate Credit (RRC). The worksheet will help taxpayers who did not receive an economic stimulus payment or received a reduced amount, determine if they are eligible for the RRC.

    Note:

    Taxpayers can choose to have the Service figure the credit for them by simply writing the letters" RRC" to the left of the appropriate Recovery Rebate Credit line (Line 70 on Form 1040, Line 42 of Form 1040A, or Line 9 of Form 1040EZ). For taxpayers who are filing electronically, the software will figure the credit for them.

    Note:

    To complete the RRC worksheet, the taxpayer must know the amount of the ESP allowed on the 2007. If the taxpayer does not have the ESP amount and you have IDRS access then provide the amount. If you do not have IDRS access, follow normal procedures and transfer the call to the appropriate application.

  3. The Recovery Rebate Credit Calculator is available internally on RRC Calculator.

  4. On taxpayer inquires, provide general eligibility information below or use the RRC job aid. Unless the taxpayer insists or is without a filing requirement (i.e., Social Security, Veteran, Railroad Retirement benefit recipient), do not calculate the credit amount, and then, only if the taxpayer has completed his/her tax return to the appropriate line (Line 61, Form 1040; Line 37 Form 1040A or Line 6, but including Line 11Form 1040EZ) for the credit. For ease of calculation use the Recovery Rebate Credit Calculator not the worksheets found in the Form 1040 series instructions.

    Note:

    If applicable, access the taxpayer's 2007 tax account and notate the amount of ESP allowed. Then access the online calculator and use the 2007 ESP amount along with the 2008 tax return information provided by the taxpayer to figure the RRC.

  5. The maximum credit is $600 ($1200 MFJ) with an additional $300 for each qualifying child.

    Note:

    A change in the 2008 Filing Status Code (FSC) from the 2007 FSC and/or a change in the number of qualifying children may result in a change in the allowable amount of 2008 RRC.

    IF your filing status in 2007 was... AND your filing status in 2008 changed to... THEN use the following Economic Stimulus Payment (ESP) amount(s) to figure your Recovery Rebate Credit (RRC)
    Not Married Filing Jointly Married Filing Jointly The total Economic Stimulus Payment amount received by you, as shown on Notice 1378, including any amount for qualified children PLUS the Economic Stimulus Payment amount received by your spouse, as shown on Notice 1378. Note: If you new spouse filed jointly with a different spouse in 2007, then your new spouse's stimulus payment was half of their joint stimulus payment amount
    Married Filing Jointly Not Married Filing Jointly Half of the total Economic Stimulus Payment amount received by you and your spouse, as shown on Notice 1378. including any amount for qualified children.  
    Married Filing Jointly Married Filing Jointly with a different spouse Half of the total Economic Stimulus Payment amount received by you and your former spouse, as shown on Notice 1378, including any amount for qualified children PLUS the Economic Stimulus Payment amount received by your now spouse, as shown on Notice 1378. Note: If your new spouse filed jointly with a different spouse in 2007, then your new spouse's stimulus payment was half of their joint stimulus payment amount.
    • Example 1 - Taxpayer A filed MFJ for 2007 and files MFS for 2008. Taxpayer A and spouse received $1200 ESP based on 2007 return ($600 for each spouse). Taxpayer A is not entitled to the RRC since he/she received the maximum credit ($600) based on 2008 filing status of MFS.

    • Example 2 - Taxpayer B filed MFJ for 2007 subsequently gets a divorce and remarries. Taxpayer B files MFJ for 2008 with new spouse. Taxpayer B and ex-spouse received $1200 ESP based on 2007 return ($600 for each spouse). Taxpayer B's new spouse did not file a 2007 return and therefore did not receive an ESP. Depending on their 2008 net income tax liability, Taxpayer B and his/her new spouse may qualify for the RRC. When figuring the RRC, Taxpayer B and new spouse will reduce the credit by Taxpayer B's portion ($600) of the ESP received based on the 2007 tax return.

    • Example 3 - Grandmother claims qualifying child in 2007 and receives ESP in the amount of $300 for the qualifying child portion of the ESP. In 2008, mother claims the same qualifying child that grandmother did in 2007. Because the mother did not claim the qualifying child in 2007 she is entitled to $300 of RRC for the qualifying child if all of the other qualifications are met.

  6. The RRC DI application tool will supply the 2007 ESP data but is based on posted account information through cycle 200852. Any subsequent adjustments to the module, which may affect the ESP data, are not considered (e.g., the ESP is reversed in cycle 200904).

  7. If the taxpayer states he/she did not receive the ESP check as shown on the 2007 tax account, initiate a refund trace as outlined in IRM 21.6.3.5.6.4, Refund Traces.

21.6.3.4.2.12.3  (10-01-2010)
RRC Qualifications

  1. Taxpayers must meet the following qualifications to claim the Recovery Rebate Credit (RRC).

    • A Tax Year 2008 Federal income tax return must be filed.

    • Maximum credit, based on 2008 filing was not realized on the 2007 tax account.

    • A valid social security number (including spouse, if married filing joint). No ITIN, ATIN, IRSN, or invalid SSN.

      Exception:

      The Heroes Earnings Assistance and Relief Tax Act of 2008 provides that Social Security Number requirement for both spouses and children does not apply in the case of a joint return where at least one spouse is a member of the Armed Forces of the United States at any time during the taxable year.

    • All qualifying children must have a valid social security number.

      Exception:

      If the child was born and died in Tax Year 2008, a Social Security Number was not issued and the child can be claimed as an exemption on the tax return, that child is a qualifying child for RRC purposes.

    • A net income tax liability greater than zero OR qualifying income of $3000 or more.

      Note:

      Net income tax liability equals tax before credits plus alternative minimum tax minus nonrefundable credits except child tax credit.

      Note:

      Qualifying income equals earned income, including nontaxable combat pay, Social Security Benefits, certain Tier 1 Railroad Retirement Benefits, and certain Veteran's Benefits.

  2. Form 1040NR, Form 1040PR, and Form 1040SS are not eligible for the RRC.

    Note:

    Residents of Puerto Rico were eligible for a recovery rebate from the Puerto Rico Department of the Treasury.

  3. Individuals that can be claimed as a dependent of another taxpayer are not eligible for the RRC.

  4. Changes made during the processing of a return are considered. For example: If Error Resolution System (ERS) changes a return which increases/decreases the tax, the RRC is similarly increased/decreased.

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

    Note:

    This includes any changes to the number of qualifying children.

21.6.3.4.2.12.3.1  (01-05-2009)
RRC Social Security Recipients, Veterans, and Other Beneficiaries

  1. Individuals who do not have to file a 2008 tax return for tax purposes, may file a return in order to receive the Recovery Rebate Credit (RRC). In order to qualify, these individuals must have received qualifying income of $3000 or more in Tax Year 2008.

    Note:

    Qualifying income equals earned income, including nontaxable combat pay, Social Security Benefits, certain Tier 1 Railroad Retirement Benefits, and certain Veteran's Benefits.

  2. During processing, these returns are coded with a Special Processing Code "P" to identify them as a claim for the Recovery Rebate Credit.

  3. When a duplicate filing condition exists and one or both returns involved have been "P" coded, a CP 36P is generated. CP36P cases are worked by Andover Accounts Management. See IRM 21.6.3.4.2.12.3.2, CP 36P.

21.6.3.4.2.12.3.2  (04-18-2011)
CP 36P

  1. Individuals with no tax liability, such as recipients of Social Security, certain Railroad Retirement and certain veterans' benefits, are eligible to receive a Recovery Rebate Credit (RRC) of $300 ($600 if MFJ), if they had at least $3000 of qualifying income. These individuals are required to file a TY 2008 return, to report his/her qualifying income, in order to receive the RRC. When these returns are received they are "P" coded in processing.

  2. When a duplicate filing condition occurs and one or both returns involved are "P" coded a CP 36P generates. CP 36P cases are worked in Andover Service Center (ANSC).

  3. If an international return (Form 1040PR/Form 1040NR ONLY) is identified while working the CP 36P then reassign the case in CIS to employee 0534021572 . If the case is not on CIS then mail to:
    IRS/PAMC/International IMF
    BLN 1-D08,113
    Philadelphia, PA 19106

21.6.3.4.2.12.3.3  (10-01-2011)
U.S. Territory Recovery Rebate Credit (RRC)

  1. Federal employees residing in U.S. territories (Puerto Rico, Guam, US Virgin Islands, American Samoa, Commonwealth of the Northern Mariana Islands) that are required to file income tax returns with both the Internal Revenue Service (IRS) and his/her territory treasury ARE NOT ENTITLED to the Recovery Rebate Credit (RRC) from the IRS.

  2. These federal employees should enter "TR" on Line 70 of Form 1040, Line 42 of Form 1040A, or Line 9 of Form 1040EZ, Recovery Rebate Credit. They should NOT enter "RRC" next to the credit line.

  3. If the RRC is received from the United States Treasury by a territory resident based on his/her 2008 U.S. Federal tax return, the payment must be returned IMMEDIATELY to the IRS.

  4. If an individual, residing in the U.S. territories, calls or writes asking for guidance in regard to the receipt of or returning a U.S. Treasury refund check which includes the RRC, advise the individual of the following:
    PAPER CHECK

    • Mark the back of the check "VOID" and return to the issuing campus which is identified by the Filing Location Code (FLC) of the TC 150.

    • Include a letter stating they are returning the RRC and why.

      Reminder:

      Please remind the individual to include his/her name and social security number in the letter.


    Direct Deposit or Cashed Paper Check

    • Return payment in the amount of the RRC in the form of check or money order with name, social security number, and 2008 notated on the payment. Send payment to the IRS campus where the 2008 tax return was filed.

    • Include a letter stating they are returning the RRC and why.

      Reminder:

      Please remind the individual to include his/her name and social security number in the letter.


    And take the following action:

    • Reverse the RRC.

      Note:

      See IRM 21.6.3.4.2.12.7, Adjusting 2008 RRC. See IRM 21.4.5, Erroneous Refunds, if applicable.

  5. Take the following action, if an individual, residing in the U.S. territories, calls or writes asking for guidance in regard to the RRC and the RRC was offset to pay outstanding Federal tax debt, child support, Federal agency non-tax debt or State Income Tax obligation:

    • Reverse the offset

      Note:

      See IRM 21.5.8, Credit Transfers, IRM 21.4.6, Refund Offset, IRM 21.4.6.5.13, Input of Tax Offset Reversals, TC 821/TC 822.

    • Reverse the RRC

      Note:

      See IRM 21.6.3.4.2.12.7, Adjusting 2008 RRC.

21.6.3.4.2.12.4  (10-01-2011)
RRC IDRS Account Information

  1. Use CC RTVUE to determine the amount of Recovery Rebate Credit (RRC) claimed by the taxpayer and allowed by the computer during processing. The RRC will be shown on Form 1040, Line 70; Form 1040A, Line 42; or Form 1040EZ, Line 9.

  2. The RRC posts to the 2008 tax module as a TC 766 with credit reference number (CRN) 338/256/257.

  3. Use TC 29X with CRN 338/256/257 when adjusting the 2008 RRC. Use Reason Code (RC) 096 with the appropriate Source Code (SC) and any other reason codes. RC 096 reads: "Recovery Rebate Credit" See IRM 21.6.3.4.2.12.7, Adjusting 2008 RRC, for more information on how to adjust the RRC.

21.6.3.4.2.12.5  (10-01-2011)
Original Processing and RRC

  1. Original processing will automatically compute the Recovery Rebate Credit (RRC) on all returns even if not claimed by the taxpayer.

    Exception:

    If the taxpayer does not claim the RRC and a TIN is invalid or missing on the return then the RRC will not be computed in processing.

  2. After the systemic Economic Stimulus Payment (ESP) reversal was completed in cycle 200852 (See IRM 21.6.3.5.4.2, End of Year Reversals) the Tax Year 2007 ESP amount was passed to the National Account Profile (NAP) and the Integrated Customer Communications Environment (ICCE). The ESP amount passed to the NAP will be used by Submission Processing when processing an individual's 2008 return to verify/compute the RRC. In the case of a joint 2007 return, then 1/2 of the ESP will be passed for each spouse.

  3. Adjustments posting after cycle 200851 to the 2007 account involving the ESP will not be considered when passing the ESP amount to the NAP and ICCE. Therefore, in some cases the RRC amount claimed by an individual will be incorrectly disallowed or decreased during processing.

    Example:

    Taxpayer's 2007 account indicates an ESP of $200 (TC 766 with CRN 338/256/257) and a check was issued. Taxpayer never received the ESP of $200 and calls the Service to initiate a refund trace. The refund trace is completed, the ESP is manually reversed but after cycle 200851, the taxpayer is advised to claim the RRC when filing the 2008 return. When the taxpayer's 2008 original return is processed, original processing will still consider the ESP of $200 even though the ESP has subsequently been reversed. Therefore, the taxpayer may not receive the correct amount of RRC.

21.6.3.4.2.12.6  (10-01-2010)
RRC Taxpayer Notice Codes (TPNC)

  1. ERS will assign the following TPNCs for RRC errors identified during processing:

    • TPNC 615 - We didn't allow the recovery rebate credit you claimed on your tax return. Your social security number (SSN) was either missing or incomplete.

    • TPNC 616 - We didn’t allow the recovery rebate credit you claimed on your tax return. Your spouse’s social security number (SSN) was either missing or incomplete.

    • TPNC 617 - We changed the amount of the recovery rebate credit you claimed on your tax return. The social security number (SSN) of a dependent(s) who qualifies you for additional credit was either missing or incomplete.

    • TPNC 618 - We didn’t allow the recovery rebate credit you claimed on your tax return. Information on your return indicates that you are being claimed as a dependent on another person’s tax return.

    • TPNC 619 - We changed the amount of the recovery rebate credit you claimed on your tax return. Your qualifying dependent(s) must be under the age of 17 as of December 31, 2008, for you to receive the additional credit amount.

    • TPNC 620 - We didn't allow the recovery rebate credit you claimed on your tax return. Because the qualifying income shown on your return is less than $3000, you do not qualify for the credit.

    • TPNC 621 - We changed the amount of the recovery rebate credit you claimed on your tax return because the amount you entered was computed incorrectly.

    • TPNC 622 - We changed the amount of the recovery rebate credit you claimed on your tax return. There was an error in the application of the adjusted gross income limitation of $75,000 ($150,000 if married filling jointly) for your filing status.

    • TPNC 623 - We didn’t allow the recovery rebate credit you claimed on your tax return. Because there was no qualifying income shown on your return, you do not qualify for the credit.

    • TPNC 624 - We computed your recovery rebate credit for you.

  2. TPNCs assigned during processing do not consider adjustments to the Economic Stimulus Payment (ESP) posted to the 2007 tax account after cycle 200851. Based on this information, you will need to research the 2007 tax account for subsequent actions and determine if the TPNC is correct. If the TPNC is determined to be incorrect the 2008 RRC may require adjusting.

    Example:

    Taxpayer called to state he did not receive the ESP check for $600. Review of the 2007 module reflects a TC 766/CRN 338 and corresponding TC 846 for $600. A refund trace was initiated which resulted in a TC 841 returning the $600 credit to the 2007 module. However, the TC 841 posted after cycle 200852. The taxpayer subsequently files his 2008 return claiming a RRC of $600 which is changed to zero (.00) in processing and receives TPNC 621. His refund is $600 less than expected. Both the 2007 and 2008 tax accounts need to be corrected. For the 2007 tax account, the ESP must be reversed. The 2008 account needs adjusting to allow the correct RRC amount. Once verified, input TC 290 for zero and CRN 256 for $600 using RC 096 and the appropriate SC.

21.6.3.4.2.12.7  (02-05-2010)
Adjusting 2008 RRC

  1. Use the following rules when increasing the Recovery Rebate Credit (RRC) on the 2008 account AND:
    A CRN 338 is present on the module

    • Apply the maximum amount to the CRN 338 - Base amount - not to exceed $600 ($1200 MFJ)

      Example:

      If MFJ and a CRN 338 for $1000 is present, the CRN 338 could only be increased by an additional $200.

    • Apply the remainder, if any, to the CRN 257


    A CRN 338 is NOT present on the module

    • Apply the maximum amount to the CRN 256 - Base amount not to exceed $300 ($600 MFJ) when no CRN 338 is on the module.

    • Apply the remainder, if any, to the CRN 257 - (either the remainder when there is qualifying children involved and CRN 338 is present on the module) or (remainder of base amount with/without children for 2008 and no CRN 338 is on the module).

  2. Use the following rules when decreasing :

    • Decrease the CRN 338 first

    • Decrease the CRN 256, if present, second

    • Decrease the CRN 257, if present, last

  3. Use RC 096 when adjusting the RRC.

21.6.3.4.2.12.8  (06-04-2009)
Recovery Rebate Credit (RRC) Inquiries

  1. Use the following subsections to assist taxpayers who contact the service concerning issues related to the amount of RRC allowed/not allowed on the return. For balance due inquiries involving Social Security Recipients, Veterans, and other Beneficiaries, see IRM 21.6.3.4.2.12.8.3, RRC Social Security Recipients, Veterans and Other Beneficiaries.

21.6.3.4.2.12.8.1  (06-04-2009)
Deceased Qualifying Child

  1. Children who are born and die within the same tax year are not always issued a Social Security Number by the Social Security Administration. If the taxpayer claims a child on the 2008 tax return for exemption purposes who does not have a Social Security Number because that child died within the same year, that child is a qualifying child for RRC purposes and you would allow RRC for the child. See IRM 21.6.3.4.2.12.7, Adjusting 2008 RRC.

21.6.3.4.2.12.8.2  (10-01-2010)
RRC Name Control Mismatch

  1. Taxpayers may have been denied the Recovery Rebate Credit (RRC) for primary, secondary or a qualifying dependent child because the name associated with the Social Security Number (SSN) did not match the National Account Profile (NAP) but the SSN(s) provided were the correct number(s). These cases can often be identified for a dependent child by NAP Access Indicator "9" associated with an SSN on CC RTVUE. The primary or secondary SSN can be identified by an asterisk "*" behind the SSN.

  2. When contacted by a taxpayer who was denied a portion of the RRC because a SSN (primary, secondary or dependent) was invalid due to a name mismatch, take the following actions:

    • Validate the SSN using CC INOLE

    • If the invalid SSN condition was due to a name mismatch only (i.e., the taxpayer provided the correct SSN(s) on the return but the name did not match SSA records), follow IRM 21.6.3.4.2.12.7Adjusting 2008 RRC and allow the RRC that was denied for the name control mismatch condition.

    • If the invalid SSN condition was due to taxpayer error in providing the incorrect SSN on the return and the taxpayer does not provide the correct SSN, follow appropriate procedures and do not allow the RRC. The taxpayer must report the correct SSN before the RRC can be corrected on the account.

21.6.3.4.2.12.8.3  (10-01-2011)
RRC Social Security Recipients, Veterans and Other Beneficiaries

  1. Taxpayers who receive Social Security(SS), Veterans Affairs (VA) or Railroad Retirement (RR) benefits may file a return ONLY to claim the Recovery Rebate Credit (RRC).

  2. Correspondence or Oral Statement will be allowed for recipients of Social Security, Tier 1 Railroad Retirement or certain Veterans' benefits, who filed ONLY to receive the RRC. An amended return is not required to correct these accounts. If a recipient of Social Security, Tier 1 Railroad Retirement or certain Veterans' benefits fitting the criteria below contacts the Service follow procedures below.

  3. If the taxpayer reported his/her Social Security (SS), Veterans Affairs (VA) or Railroad Retirement (RR) benefits on the wage line of the return, resulting in a balance due

    • Adjust the account to remove the SS/VA/RR benefits that were reported on the wrong line by inputting:

    • TC 291 to remove the Tax

    • IRN 886 to remove the Taxable Income

    • IRN 888 to remove the Adjusted Gross Income

    • RC 099, SC 2, HC 3

    • Input a STAUP for 4 cycles

    • Input MFR 01 on CC ENREQ to remove mail filing requirement

      If the RRC was allowed based on the original return then:

      • Verify the RRC shown on the module is accurate

      • If not accurate, adjust (increase/decrease) per IRM 21.6.3.4.2.12.7Adjusting 2008 RRC

        Reminder:

        Validate any Economic Stimulus Payment (ESP) that was allowed last year when verifying the RRC

      • Advise the taxpayer verbally or in writing of the action taken

  4. If the taxpayer reported his/her SS/VA/RR benefits on the correct line but did not claim the RRC and the RRC was not allowed during initial processing:

    • Verify the individual(s) qualify for RRC

    • Adjust the RRC per IRM 21.6.3.4.2.12.7, Adjusting 2008 RRC

      Reminder:

      Validate any Economic Stimulus Payment (ESP) that was allowed last year when verifying the RRC

    • Advise the taxpayer verbally or in writing of the action taken

  5. If the taxpayer reported his/her SS/VA/RR benefits but forgot to claim his/her personal exemption:

    • Verify the individual qualifies for the RRC

    • Adjust the RRC per IRM 21.6.3.4.2.12.7, Adjusting 2008 RRC .

      Reminder:

      Validate any Economic Stimulus Payment (ESP) that was allowed last year when verifying the RRC

    • If adjusting to allow RRC also adjust the account to allow the personal exemption

    • Advise the taxpayer verbally or in writing of the action taken

21.6.3.4.2.12.8.4  (06-04-2009)
Peace Corp Volunteers and the Recovery Rebate Credit

  1. Peace Corp Volunteers are allowed to claim his/her wages and/or living expenses as wages on line 7 of Form 1040 to qualify for the RRC.

  2. If you are contacted by a Peace Corp Volunteer that reported his/her income on Form 1040 and as a result did not receive the RRC, validate the return to see what line the income was reported on.

  3. If the income was reported on any line other than line 7 then advise the taxpayer as follows:

    • Wages and/or Living Allowances received from the Peace Corp should have been reported on Line 7 of the Form 1040

    • An amended return, Form 1040X, Amended U.S. Individual Income Tax Return, must be filed to change any information reported on your original tax return

    • Form 1040X can be downloaded at www.irs.gov

21.6.3.4.2.12.8.5  (02-05-2010)
Recovery Rebate Credit (RRC) Figured for Taxpayers Who Did Not Qualify

  1. In error, the Service computed and allowed the RRC when the taxpayer did not qualify for the Recovery Rebate Credit (RRC). Examples of when the credit was computed and allowed, in error, by the Service are:

    • Taxpayers who received the maximum Economic Stimulus Payment (ESP) in 2008

    • Taxpayers who did not have a tax liability and did not have at least $3,000 in qualifying income

    • Taxpayers who filed using an ITIN who were not covered by the Heroes Earnings Assistance and Relief Tax Act of 2008

  2. These taxpayers are contacting the Service concerning receipt of the RRC. If you receive a telephone call or correspondence let the taxpayer know that the RRC was allowed in error and that he/she should return the RRC amount to the Service.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    This does not pertain to cases where adjustments/corrections are input on an account due to an amended return, subsequent return, or correspondence.

  3. Advise the taxpayer to:

    • Return payment in the form of a check or money order with the name, SSN, and "Tax Year 2008" noted on the check or money order

    • Include a note with the payment stating that he/she is returning the RRC that he/she received in error

    • Send the check to the issuing campus which is identified by the Filing Location Code (FLC) of the TC 150

  4. Do not adjust the account to remove the RRC based on the call or correspondence. The RRC will be adjusted once the payment is received.

21.6.3.4.2.13  (04-01-2013)
Making Work Pay Credit - Schedule M

  1. Earlier in 2009, the withholding tables were adjusted to allow additional "take home" pay for most taxpayers. Schedule M, Making Work Pay and Government Retiree Credit, was developed to offset potential reduction in refunds and provide taxpayers with an additional refundable credit. Effective for 2010, the Schedule was changed to only the Making Work Pay Credit. The Government Retiree Credit section was eliminated.

  2. For tax years 2009 and 2010, this credit is reported on Schedule M of the Form 1040 and Form 1040A as well as on the worksheet on the back of Form 1040EZ. For 2010, the Schedule is only composed of the Making Work Pay Credit. For 2009, the Schedule is actually composed of the following two credits:

    • Making Work Pay Credit

    • Government Retiree Credit

  3. Each credit is subject to different rules. The total of both credits is included on Line 14 total on Schedule M.

  4. The Making Work Pay Credit will be calculated at a rate of 6.2% of earned income with a credit amount up to $400 ($800 - married filing joint). The credit cannot be claimed if:

    • The taxpayer is a non-resident alien (usually Files a Form 1040NR), or

    • The taxpayer can be claimed on another taxpayer's return, or

    • The MAGI is in excess of $95,000 ($190,000 for married filing joint).

    • The taxpayer does not have a valid social security number.

      Exception:

      For married filing joint, only one valid SSN is required, either the primary or secondary taxpayer’s, and the full credit amount is allowable. A rejected or revoked ITIN would not qualify for the credit.

  5. Earned income includes:

    • wages listed on line 7.

    • non taxable combat pay received.

    • Schedule C, F gain or loss.

    • Statutory employee income reported on Schedule C.

      Note:

      Do not include income from any statutory employee who is exempt from SE tax.

      Note:

      Although taxpayers who have filed a Form 4029 and are exempt from self-employment taxes (e.g., the Amish) are entitled to this credit because it can be based on earned income from wages that are not from self employment, they may not wish to receive the credit. If the refund is returned, reverse the credit.

  6. For 2010, the Making Work Pay Credit will be reduced if the taxpayer (or spouse, if married filing jointly) received a $250 Economic Recovery Payment (ERP) from SSA/VA/or RRB during 2010.

  7. For 2009, the Making Work Pay Credit will be reduced if either of the following situations occur:

    • The taxpayer (or spouse, if married filing jointly) received a $250 Economic Recovery Payment (ERP) from SSA/VA or RRB during 2009.

    • The taxpayer claims the Government Retiree Credit on Schedule M, Line 11.

  8. Taxpayers must have earned income in order to claim the Making Work Pay Credit. This includes wages, nontaxable combat pay, or profits or losses from Schedule C of F. Pensions are not considered earned income unless indicated as disability income received under the retirement age.

  9. If the taxpayer does not compute the Making Work Pay Credit on the tax return, the credit will be calculated for the taxpayer and TPNC 661 will be assigned. A new notice will generate to the taxpayer (CP 11M, 12M, or 13M). This notice has a special toll free number (1–800–908–4184) to assist taxpayers in understanding why this credit was given to the taxpayer.

  10. For 2009, the Government Retiree Credit is a credit of up to $250 ($500 if married filing joint and both spouses qualify) for taxpayers who received a pension or annuity (i.e., surviving spouse) payment in 2009 from the U.S. Government or any state or local government (or agency of these) NOT covered by Social Security. The Government Retiree Credit is not reduced by the AGI phase out. However, the credit cannot be allowed if the taxpayer (and/or spouse) received a $250 Economic Recovery Payment during 2009.

    Note:

    The Government Retiree Credit is NOT based on earned income.

  11. For 2009, Document Perfection will code the return with SPC "M" if the box on Line 11 of Schedule M is checked or there is an amount present on Line 11.

  12. The Economic Recovery Payment (ERP) is a $250 payment sent to the taxpayer directly by the U.S. Treasury representing social security benefits, supplemental social security benefits, veterans disability benefits, and/or railroad retirement benefits. Each taxpayer may have received a $250 payment from a different agency. These payments were NOT issued from IRS accounts. The agencies sent electronic files to IRS and can be researched on the CC INOLE response screen. These payments could have been issued in 2009 or 2010.

  13. CC INOLE(S) and CC INOLE(X) responses will display the literal "ERP" (Economic Recovery Payment) with the following literals:

    • SSA

    • SSI

    • RRB

    • VA

    • NP (This indicates "No Payment Received" )

    These literals indicate whether or not a taxpayer received an ERP disbursement and from what agency.

    1. CC INOLE(S) is used when a return has been filed. The literal "ERP" is displayed on the far right of the second line.

    2. CC INOLE(X) is used when a return has not been filed. The literal "ERP" is displayed on the far right of the third line.

  14. Only one agency code is displayed and does not reflect the year the payment was made.

  15. If the taxpayer attempts to file electronically and does not indicate an ERP was received, the ELF return will be rejected. The taxpayer may then file electronically without the Schedule M or report the $250 until the problem is resolved with the agency. This could impact either the Making Work Pay Credit or the Government Retiree Credit. The taxpayer will need to resolve any discrepancies with the appropriate agencies directly. Documentation will need to be submitted with any subsequent Form 1040X with Schedule M attached. Contact information for agencies is as follows:

    • Social Security Administration - 1-800-772-1213

    • Veterans Administration - 1-800-827-1000

    • Railroad Retirement Board- 1–877–772–5772

  16. The IRS will match the information provided from each agency against what the taxpayer has claimed and process the return accordingly. Then if the taxpayer's amount claimed does not match the agency's data, a corrected refund or adjusted balance due notice will be issued to the taxpayer with a math error notice. Taxpayers stating they have not received the ERP must contact their respective agency for confirmation documentation.

  17. If the taxpayer contacts the Service about any erroneous credit from Schedule M, apologize for the inconvenience.

    1. If the refund check has not been cashed, advise the taxpayer to write VOID in the endorsement area on the back of the check and do not write on the front of the check. Advise the taxpayer to return the refund check, a copy of the CP notice and a note of explanation to the issuing campus Refund Inquiry Unit, so the credit can be reversed. Do not adjust the account based on "Oral Statement Authority" .

    2. If the check has been cashed, advise the taxpayer to return payment in the exact amount of the credit, a copy of the CP notice and a note of explanation to the address on the CP notice, so the credit can be reversed. Do not adjust the account based on "Oral Statement Authority" .

    3. Beginning April 1, 2010, when adjusting the account, if the module is settled (no balance due), reverse the Schedule M overpayment and restrict debit interest and Failure to Pay Penalty (FTP) on the account with a TC 340 .00 and TC 270 .00 on REQ 54. Use the 23c date of the adjustment in the DB-INT-TO-DT field.

    4. If the taxpayer only makes a partial payment, reverse the full amount of the erroneous credit.

  18. Adjust the account:

    • Use credit reference number 259 to allow/increase the credit.

    • Use credit reference number 259 with a minus sign (-) to decrease the credit.

    • The credit reference number will convert to a TC 766 / TC 767 reference 259 at Master File.

    Note:

    If you are also changing the filing status, use a posting delay code on your adjustment to avoid unpostable condition 189.

  19. Use the appropriate reason codes, SC and blocking series:

    • RC 105, 108, or 111 (Making Work Pay and Government Retiree Pay)

    • Use RC 105 when Schedule M, Line 11 is blank or zero.

    • Use RC 108 when $250 is shown on Line 11 of Schedule M.

    • Use RC 111 when $500 is shown on Line 11.

    Note:

    RC 105 will be the only RC applicable for 2010.

21.6.3.4.2.14  (02-20-2013)
American Opportunity Tax Credit

  1. The American Opportunity Tax Credit (AOTC) is a tax credit of up to $2,500 of the cost of tuition and related expenses paid during the taxpayer year. This credit is one of two credits reported on Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits), and is the only refundable education credit. Taxpayers will receive a tax credit based on 100% of the first $2,000 of tuition and related expenses (including books) paid during the taxable year and 25% of the next $2,000 of tuition and related expenses paid during the taxable year. 40% of the credit would be refundable. For more information on Education Credits, refer to IRM 21.6.3.4.1.5, Form 8863 Education Credits.

  2. AOTC is available for tax years 2009 through 2017.

  3. A taxpayer can elect, for any year, only one of the education credits for each student.

  4. AOTC is for taxpayers who paid qualified education expenses to an eligible postsecondary education institution (college) for themselves, their spouse or their child for whom they claimed a dependency exemption. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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    ≡ ≡
  5. In addition to (3), if there are any other circumstances that make the claim questionable, if the Form 1098-T cannot be verified, no consider the claim.

  6. Adjust the tax account:

    1. Adjust the non refundable portion of the credit with a TC 29X. Do not use a credit reference number for the nonrefundable portion of the credit. Use RC 35.

    2. Use credit reference number 260 to allow/increase the refundable portion of the credit.

    3. Use credit reference number 260 with a minus sign (-) to decrease the refundable portion of the credit.

      Reminder:

      The credit reference number will convert to a TC 766/767 Reference 260 at Master File.

    4. Use RC 106 (Refundable American Opportunity Credit) and the appropriate SC and blocking series for the refundable credit portion of the adjustment.

21.6.3.4.2.15  (02-20-2013)
Form 8839 Qualified Adoption Expenses

  1. The adoption tax credit is used to defray qualified adoption expenses, helping to make adoption possible for families who could not otherwise afford it. The definition of qualified adoption expenses did not change under the new tax law.

  2. For tax years 2010 and 2011 only, the adoption credit is refundable, which means that even if the taxpayer owes zero taxes, they can receive the applicable tax credit amount in the form of a refund. A taxpayer who paid qualified expenses to adopt an eligible child may verify that they are eligible to claim the adoption credit by using the Form 8839, Qualified Adoption Expenses.

    Note:

    See Form 8839, Qualified Adoption Expenses, and its instructions for detailed qualification information.

  3. Taxpayers are entitled to claim a credit for qualified adoption expenses paid during the immediately preceding tax year, if the child was a citizen or resident of the U.S., when the adoption process began. In the case of a child with special needs, the credit can be claimed in the year the adoption is final even if no qualified expenses are paid.

  4. If the adoption was not finalized or was unsuccessful, taxpayers are instructed to attach one or more of the following documents:

    • An adoption taxpayer identification number (ATIN).

    • A home study completed by an authorized placement agency.

    • A placement agreement with an authorized placement agency.

    • A document signed by a hospital official authorizing the release of a newborn child from the hospital to the taxpayer for legal adoption.

    • A court document (a copy showing official seal) ordering or approving the placement of a child with the taxpayer for legal adoption.

    • An original affidavit or notarized statement signed under penalties of perjury from an adoption attorney, government official, or other authorized person, stating the signer either placed, or is placing, a child with the taxpayer for legal adoption, or is facilitating the adoption process for the taxpayer in an official capacity, with a description of the actions taken to facilitate the process.

    If this documentation is incomplete or not attached, follow instructions in IRM 21.5.3.4, General Claims Procedures.

  5. With the enactment of Affordable Care Act Tax Provision (ACA), the adoption credit is refundable and increased up to $13,170 in expenses for tax year 2010 and $13,360 for tax year 2011.

  6. The eligible child must be:

    1. Any child under age 18. If the child turned 18 during the year, the child is an eligible child for the part of the year he/she was under age 18.

    2. Any age, if physically or mentally incapable of caring for him/herself.

  7. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  8. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  9. All non-refundable Adoption Credit claims will be worked in the Andover Campus. If a claim is to be sent to Andover, reassign through CIS to IDRS number 0830141335.

  10. All 2010 and 2011 Adoption Credit claims will be run through the xClaim tool to determine which Examination site will work the claim (i.e., Memphis or Andover), if selected.

  11. Use category code NYCX for all 2010 and 2011 claims.

  12. Taxpayers may file amended returns for earlier periods to release the carryforward of the adoption credit. See IRM 21.6.3.4.1.27, Form 8839 Qualified Adoption Expenses for Tax Year 2009 and Prior, for procedures on processing prior year claims.

    1. Do not reject these claims with carryforwards because the adoption documentation is missing.

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  13. Use CC ADOPT to assist in identifying any Examination filters that were used during original processing for not allowing the credit for 2010 and 2011 claims. This may assist in explaining to the taxpayer why their adoption credit was not allowed.

  14. When processing Forms 1040X," No Consider" the claim following IRM 21.5.3.4.6.3, No Consideration Procedures, if the Form 8839 is not attached. Do not "No Consider" the claim if any adoption documentation is missing.

  15. Adoptions will either be "final" or in process. Actual documentation for 2010 and 2011 returns will not need to be reviewed or verified by AM. However, AM will need to confirm the taxpayer's (mother and/or father) and the child(ren)'s name(s) on the Form 8839 against the documentation. If the confirmation cannot be accomplished, send to CATA.

  16. If there is no adoption documentation attached to the 2010 or 2011 amended return, run through IAT tool and send to Exam, regardless. You must indicate which filters have been broken in the Notes Field in CIS for Exam.

  17. If there is adoption documentation attached to the 2010 or 2011 amended return and the adoption is "In process" :

    1. And the documentation and the return are verified, and filters A, B or C are broken, send to Exam. Use criteria in xClaim for making the determination.

    2. If no filters are broken, allow the adjustment.

      Note:

      If the assistor cannot determine if documents are valid (questionable), send to CATA.

  18. If there is adoption documentation attached to the 2010 or 2011 amended return and the adoption is final:

    1. And Filter A breaks, send to Exam

    2. And Filters B or C break, or there is no break in any filter, send to CATA as HQ-2. Use criteria in xClaim for basing the determination.

  19. When adjusting the tax account for the refundable credit:

    1. Use TC 290 with a zero.

    2. Use Credit Reference 261 with the money amount to increase the credit.

    3. Use Credit Reference 261 with the money amount with a (-) to decrease the credit.

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

      Note:

      Credit reference 261 is for the refundable credit only. Use TC 291/290 for previous tax periods and RC 36.

  20. See Form 8839, Qualified Adoption Expenses, and its instructions for detailed information.

  21. See IRM 21.5.3-6, Adoption Credit - Additional CAT-A Criteria, for additional information.

21.6.3.4.2.16  (10-01-2014)
Premium Tax Credit

  1. The Patient Protection and Affordable Care Act (ACA) (PL 111-148), as amended by the Health Care and Education Reconciliation Act of 2010 (PL 111-152), created IRC § 36B, which provides a refundable tax credit to help individuals and families afford health insurance purchased through the Health Insurance Marketplace. The Premium Tax Credit (PTC) is effective for tax years 2014 and subsequent.

  2. The computation will vary based on household income, family size and the cost of health insurance available to the taxpayer. The credit will equal the difference between the Second-Lowest Cost Silver Plan (SLCSP) (also known as the benchmark plan) and the computed premium contribution amount (see (4)).

  3. The Marketplace offers health insurance plans at four standardized levels: bronze, silver, gold and platinum. The coverage for all plans at a certain level will be the same, but costs and providers may differ. Bronze plans have the lowest premiums and cover 60% of health care costs; platinum plans have the highest premiums and cover 90% of costs.

  4. The credit amount is generally the difference between the benchmark plan premium and the taxpayer's expected contribution. The expected contribution is a computed percentage of the amount of premium costs the household should pay. The percentage increases as the taxpayer's household income increases, from 2% of the household income for a family at 100% of the Federal Poverty Line (FPL) to 9.5% of the household income for a family at 400% of the FPL. The credit is computed on a month-by-month basis and involves many special rules. The credit is capped at the smaller of the taxpayer's actual premium amount or the amount of the benchmark plan minus the contribution amount.

    Note:

    FPL tables change from year to year. The appropriate table to use is the table in effect at open enrollment, so for tax year 2014, the 2013 FPL table will be used.

  5. To claim the credit, taxpayers must complete Form 8962, Premium Tax Credit.

  6. Eligible taxpayers can choose to have the credit taken in advance to help cover the cost of insurance premiums. The Marketplace (not IRS) determines the amount of advance payment by using information from a variety of sources (e.g. tax data provided by the IRS, information provided by the applicant, data from other government agencies, etc.). The Bureau of the Fiscal Service issues the advance payment directly to the insurance provider on a monthly basis.

  7. Taxpayers who choose to receive advance payments must reconcile the amount of the advance payment with the amount of the Premium Tax Credit, which is all done on Form 8962, Premium Tax Credit. A taxpayer who receives excess advance payments must treat the excess amount as additional tax, subject to limitations based on the household percentage of FPL (limitations do not apply in all circumstances). Taxpayers whose credit amount exceeds the amount of advance payment for the taxable year may receive the excess as a refundable credit.

  8. The repayment limitation for advance payments ranges from:

    • $300 for single ($600 for all other filing statuses) with household income under 200% of the FPL

    • $1,250 for single ($2,500 for all other filing statuses) with household income above 300% but less than 400% of the FPL.

    • There is no limitation if the taxpayer's household income exceeds 400% of the FPL.

    The taxpayer's liability is the smaller of the excess advance payment or repayment limitation.

  9. Taxpayers who purchased health insurance through an insurance marketplace will receive a summary of the information reported to IRS on a Form 1095-A, Health Insurance Marketplace Statement. The data on Form 1095-A will assist taxpayers in completing Form 8962.

  10. Form 8962, Premium Tax Credit, is allowable on Form 1040, 1040A and 1040NR.

  11. Additional information can be found in Pub 974, Premium Tax Credit.

  12. Correspondence regarding PTC, APTC or a loose Form 8962 should be controlled using category code PTCC (for Spanish use ACAC), unless otherwise stated.

  13. If a 4442 is required, see IRM 21.3.5.4.1, When to Prepare a Referral, use category code TWRA for any ACA related referral.

21.6.3.4.2.16.1  (10-01-2014)
Affordable Care Act (ACA) Terminology

  1. Healthcare related issues add many new terms. To understand terminology used in later sections, below are some terms to be familiar with:

    • Total Premium Tax Credit – the full amount of credit a taxpayer is entitled to receive without considering any advance payment.

    • Advance Payment of Premium Tax Credit (APTC) – the amount of credit paid to the insurer on behalf of covered individuals in the tax household.

    • Premium Tax Credit (PTC) – the amount of PTC the taxpayer is entitled to receive as a refundable credit after reconciling the Total PTC with APTC.

    • Excess Advance Payment of PTC – the amount of APTC in excess of the Total PTC.

    • Repayment Limitation - the maximum amount of excess advance payment a taxpayer must repay based on PTC regulations.

    • Excess Advance Premium Tax Credit Repayment – the amount of additional tax liability the taxpayer must repay with their tax return.

    • Health Insurance Marketplace – a state or federally run program, also referred to as an "Exchange" , where people can purchase health insurance, obtain exemptions from coverage and APTC.

    • Family Size - the total number of exemptions claimed on Form 1040.

    • Household Income (HHI) - the aggregate of the MAGI for all members of the tax household with a filing requirement.

    • Tax Household - all the individuals claimed on a tax return.

    • Coverage Household - the members of the tax household who enroll in a qualified health plan; coverage household may change from month to month.

    • Shared Responsibility Payment (SRP) – the penalty imposed if an applicable individual in a tax household lacks minimal essential coverage for any month.

    • Health Coverage Exemption – if an individual is eligible for an exemption, the SRP will not be imposed. Health coverage exemptions are granted by the marketplace or by IRS and can be for specific months or the entire year.

    • Exemption Certificate Number (ECN) – an identifying number provided by the Health Insurance Marketplace to the taxpayer for a coverage exemption.

    • Coverage Data Repository (CDR) – the database that stores all the insurance data as provided by the Department of Health and Human Services, accessed via AMS.

    • ACA Verification Service (AVS) – the bridge between Account Management Services (AMS) and accessing data in CDR. AVS is the system that calculates the premium tax credit and identifies math errors or 3rd party discrepancies.

21.6.3.4.2.16.2  (10-01-2014)
Qualifications

  1. To be eligible to receive PTC, an individual must:

    • Have obtained health insurance through a Health Insurance Marketplace.

    • Have household income for the taxable year at least 100%, but not more than 400%, of the FPL for the taxpayer's family size for the taxable year.

      Note:

      Taxpayers at less than 100% of the FPL can claim PTC when they are not eligible for Medicaid due to citizenship status or when the taxpayer was projected to fall between 100% and 400% of the FPL and received advanced payment.

    • Not have access to minimum essential coverage (MEC), such as Medicare, Medicaid, or affordable employer-sponsored coverage.

    • Have a filing status other than married filing separately, unless an exception applies.

    • Be a United States citizen, or lawfully present and not incarcerated.

    • Claim self as an exemption on his/her tax return.

  2. Household income is defined as an amount equal to the sum of the:

    • Modified adjusted gross income (MAGI) of the taxpayer, plus

    • Aggregate MAGI of all dependents claimed on the return with return filing requirements

  3. MAGI is defined as the taxpayer's adjusted gross income plus:

    • Foreign earned income exclusion (Line 45, Form 2555 or Line 18, Form 2555-EZ)

    • Housing deduction (Line 50, Form 2555)

    • Tax-exempt interest (line 8b, Form 1040)

    • Non-taxable social security benefits (Form 1040, line 21a minus line 21b)

  4. Taxpayers may qualify to file as married filing separately if one of the situations below apply:

    Situation 1. Taxpayers not divorced or legally separated under a court decree at the end of the tax year are considered unmarried if all the following apply:

    • Lived apart from their spouse for the last 6 months of the tax year

    • File a separate return from their spouse

    • Paid over half the cost of keeping up the home for the tax year

    • The home was the main home of their child, stepchild, or foster child for more than half of the tax year

    • Claim the child as a dependent unless the rule for children of divorced or separated parents applies



    Situation 2. Taxpayer is a victim of domestic abuse or abandonment, files a return as married filing separately and meet the following:

    • Live apart from their spouse at the time of filing their tax return

    • Unable to file a joint return because they are a victim of domestic abuse or spousal abandonment


    If either situation above applies, the taxpayer must certify on their tax return they meet this situation by checking the "relief" check-box on Form 8962, Premium Tax Credit

  5. For purposes of determining the excess advance premium tax credit repayment, taxpayers who married during the tax year can elect to compute the credit using the Alternative Calculation for Marriage (ACM). This method allows taxpayers to reduce their repayment amount. Taxpayers compute the credit for the pre-marriage months separately as if each taxpayer were unmarried and had annual household income equal to one-half of the actual household income for the year. For these pre-married months, the taxpayers must determine their family sizes based on the numbers of individuals in their pre-marriage families. The taxpayers may include a dependent of both taxpayers in either taxpayer's family size for the pre-marriage months. For the months when they were married, the credit is computed using actual household income for the year.

  6. Taxpayers who divorced during the tax year must allocate the applicable benchmark premium amount, the actual premium cost, and the advance payments for the period the taxpayers were married. The allocation can be made in any proportion, but if the taxpayers cannot agree on a proportion, they are allocated 50% to each taxpayer.

21.6.3.4.2.16.2.1  (10-01-2014)
Form 8962 Overview

  1. Form 8962, Premium Tax Credit, is broken down into 5 parts:

    1. Part I: Annual and Monthly Contribution Amount - This section provides the family size and income. The household income is then compared with the FPL to obtain the Federal poverty line percentage (i.e., the household income divided by the Federal poverty line amount). The taxpayer uses the FPL percentage to locate an applicable figure in the table in the Form 8962 instructions. The applicable figure is used to calculate the taxpayer's annual contribution and monthly contribution, which are used in Part II.

      Note:

      The dependent's modified AGI (MAGI) is not a computed figure, it is provided by the taxpayer.

    2. Part 2: Premium Tax Credit and Reconciliation of Advance Payment of Premium Tax Credit - This section is where the taxpayer enters their policy information, such as premiums paid and advanced payment received. If the tax household had coverage from January - December with no changes to the monthly premium and Second Lower Cost Silver Plan (SCLSP) amounts, the taxpayer can complete the annual totals line, otherwise monthly amounts have to be provided. This section is also where the taxpayer computes their Total Premium Tax Credit, compares the credit to any advance payment received (APTC), and if greater than the advance payment, determines the refund amount (PTC).

    3. Part 3: Repayment of Excess Advance Payment of the Premium Tax Credit - This section is for those taxpayers who received more advanced payment (APTC) than they were entitled to receive. When this happens, taxpayers compare the excess amount to the Additional Tax Limitation Table to determine if all or part of the excess payment has to be repaid.

    4. Part 4: Shared Policy Allocation - This section allows taxpayers covered under one insurance policy to allocate the policy premiums, the premiums for the SLCSP and the advance payment among themselves. The shared policy allocation rules apply to the following classes of taxpayers:
      1. Taxpayers who divorce or separate during the taxable year;
      2. Married taxpayers who live apart from their spouses for the last 6 months of the taxable year, pay more than one-half of the costs for keeping a home for a child, and file separate returns as heads of household;
      3. Married taxpayers who use the filing status of married filing separately because they are victims of domestic abuse and cannot file joint returns with their spouses filing status;
      4. Taxpayers sharing policies with individuals claimed as dependents by other taxpayers (e.g., the taxpayer and the taxpayer's child are on the same policy and the taxpayer's former spouse claims the child as a dependent.); and
      5. One policy covering more than one tax households (e.g., the taxpayer and her dependents share a policy with the taxpayer's 25-year old child; the taxpayer and her dependents share a policy with the taxpayer's domestic partner and his dependents).
      In the cases of (1) and (4) above, taxpayers can allocate the amounts by any percentage to which they agree; and the amounts are allocated equally if they do not agree on percentage. In the cases of (2) and (3), the amounts are allocated equally between the taxpayers at issue. In the case of (5), each taxpayer identifies the SLCSP for his or her family (applicable SLCSP), and the amounts are allocated in proportion to the premiums for each taxpayer's applicable SLCSP premium.

      Example:

      John claims his son as a dependent. John's ex-wife Sue enrolled for insurance at the Marketplace which provides coverage for her and her son. Sue's insurer received $5,000 advanced credit to help her pay the premiums. John and Sue agree that John will report 75% of the advanced credit.

    5. Part 5: Alternative Calculation for Year of Marriage - This section allows taxpayers to use the alternative method to compute the credit for a year in which they were single for part of the year and married for the remainder of the year.

      Note:

      To qualify for Part 5, taxpayers must file a joint return and report APTC.

21.6.3.4.2.16.3  (10-01-2014)
At-Filing Overview

  1. Upon receipt of an originally filed Form 1040, Form 1040A or Form 1040NR, with a Form 8962, Premium Tax Credit, attached, Submission Processing will use AVS to calculate the form and identify mismatches between the taxpayer and 3rd party data for premium(s), SLCSP(s) and APTC amounts. In addition, Submission Processing will also check CDR on all returns to verify if the taxpayer received APTC and reconciled the advance payment.

  2. Math error authority can apply when a taxpayer's entry differs from an IRS computed value, such as addition or multiplication errors, an incorrect entry from an FPL table, or an entry on Form 8962 does not match information on Form 1040. However, when there is 3rd party data (CDR) mismatch, math error procedures cannot be used, and the return may be referred to Compliance.

  3. When 3rd party discrepancies exist, in most instances Submission Processing will correspond with Letter 12C to try to resolve the discrepancy. If the discrepancy is resolved, the return continues through processing. If the discrepancy cannot be resolved, the return is processed as filed, the refund is frozen or partially frozen, and the return is referred to Compliance.

  4. The following sub-sections provide math error conditions and Compliance criteria.

21.6.3.4.2.16.3.1  (10-01-2014)
Math Error Conditions

  1. The following table provides PTC math error conditions:

    Error Point TPNC AVS Error Code
    Taxpayer’s entry for MAGI does not equal IRS computed MAGI 784 271
    Taxpayer’s entry for household income (HHI) does not equal IRS computed HHI 784 271
    Taxpayer’s entry for family size on Form 8962 differs from the number of exemptions claimed on Form 1040, line 6d 784 271
    Taxpayer’s entry for FPL does not equal IRS computed FPL for family size (table) 784 271
    Taxpayer’s entry for HHI as a percent of FPL does not equal IRS computed entry 784 271
    Taxpayer’s entry for applicable percentage does not equal IRS computed applicable percentage (table) 784 271
    Taxpayer’s entry for annual contribution does not equal IRS computed annual contribution 784 271
    Taxpayer’s entry for monthly contribution does not equal IRS computed monthly contribution 784 271
    Taxpayer using the alternative calculation for marriage (ACM), but the taxpayer’s ACM monthly contribution for primary does not match IRS computed ACM monthly for primary 785 273
    Taxpayer using ACM, but the taxpayer’s ACM monthly contribution for spouse does not match IRS computed ACM monthly for spouse 785 273
    Taxpayer’s entry for annual maximum premium assistance does not equal IRS computed annual amount 786 274
    Taxpayer’s entry for annual premium tax credit does not equal IRS computed annual amount 786 274
    Taxpayer’s total PTC on Form 8962 does not equal IRS computed total 786 274
    Taxpayer’s entry for monthly maximum premium assistance does not equal IRS computed monthly amount for any month (January through December) 786 274
    Taxpayer’s entry for monthly premium tax credit does not equal IRS computed monthly amount for any month (January through December) 786 274
    Taxpayer’s total APTC on Form 8962 does not equal IRS computed total 787 275
    Taxpayer’s entry for Reconciled PTC on Form 8962 does not equal IRS computed total 788 346
    Taxpayer’s entry for Excess APTC on Form 8962 does not equal IRS computed amount 789 276
    Taxpayer’s entry for tax limitation does not equal IRS computed tax limitation (table) 789 276
    Taxpayer’s entry for Advance PTC Repayment on Form 1040 does not equal IRS computed amount 789 276
    Taxpayer’s filing status is MFS and no relief indicated, but taxpayer is claiming PTC 790 345
    Taxpayer’s HHI as a percent of FPL is greater than 400%, but taxpayer claiming PTC 791 345
    Taxpayer did not claim exemption for self, but claimed PTC 792 345
    Taxpayer used ACM, but did not report APTC on Form 8962 – ineligible for ACM 793 272
    Taxpayer indicates an ACM family size, but filing status is not MFJ – ineligible for ACM 793 272
    Missing Form 8962, PTC claimed and no APTC received 794 344

21.6.3.4.2.16.3.2  (10-01-2014)
Compliance Conditions

  1. PTC 3rd party data mismatch errors requiring correspondence with the taxpayer will be given unique error codes to route the case for treatment if the taxpayer fails to respond, or does not provide sufficient information. Error codes indicate one of the following conditions exist:

    • The taxpayer is most likely eligible for PTC but based on error checks, there is a problem in the calculation; PTC is recomputed using CDR data and compared to the taxpayer’s calculation; the difference is recorded as an exposure amount which is used to prioritize Compliance case selection

    • The taxpayer fails the most basic eligibility check of enrollments in a qualified health plan at the Marketplace

    • The taxpayer is ineligible for PTC but attempts to claim PTC, or received APTC but did not attach Form 8962

  2. When PTC is frozen from refund, a "PTC Exposure Amount" field will be populated in the posted return section on CC TXMOD.

  3. A list of the 3rd party error codes can be found in IRM 21.6.3.4.2.16.6.1, 8962 PTC Calculator Response.

  4. Procedures for responding to refund inquiries involving a pre-refund Compliance condition can be found in IRM 21.5.6.4.10, -E Freeze.

21.6.3.4.2.16.4  (10-01-2014)
Accessing Taxpayer Data

  1. To compute a taxpayer’s Form 8962, Premium Tax Credit, information such as family size, household income, FPL, and premiums paid must be taken into consideration. In the case of verifying the amount of taxpayer reported APTC, the amount of advanced payment reported to have been paid on the taxpayer’s behalf must be taken into consideration.

  2. AMS provides tools to verify taxpayer health care related information, input health care exemptions and for computing Form 8962. The tool pulls information from posted return data, FPL tables and insurance data from CDR, including any APTC paid on behalf of an individual.

  3. Since all data and reference material, except for posted return information, is maintained outside of IDRS, an Integrated Automation Technologies (IAT) tool cannot be used to research or calculate, but IAT can still be used to adjust accounts.

  4. To access taxpayer data, pull up the taxpayer’s account on AMS following normal procedures. Select the ACA tools menu option.

  5. The "8962 PTC Calc" tool will:

    • Provide the user the ability to select ACA data by year (the default is the current processing year ending in 12, Fiscal Year filers must be set to active prior to accessing the tool)

    • Retrieve and display Form 8962 data reported on the original return

    • Allow the user to invoke AVS PTC calculation and verification

    • Retrieve and display AVS PTC calculation and 3rd party verification discrepancies

    • Provide the ability to recalculate PTC

    • Calculate and display the posted data and AVS calculated amounts which require adjustment action

  6. The "8962 PTC Calc" screen will be pre-populated with posted return and Form 8962 data, if available. The user will then input or update the data prior to recalculating. After clicking the calculate button, the "AVS Figures" column will be returned and displayed to the right of the taxpayer’s figures.

  7. The "8962 PTC Calc" provides an option to calculate with CDR validation or without CDR validation. Using the calculator WITHOUT the CDR validation only performs math verification. Using the calculator WITH CDR validation performs math verification and conducts a 3rd party data check. CDR validation is required when Form 8962 data is not on file (not filed with original return) or when adding or deleting an exemption (dependent or spouse).

  8. The "8965 Tool" displays the coverage exemption data from the posted return. The tool is used to update exemption information as updated by the taxpayer.

  9. The "Search CDR Data" tool provides the ability to search by SSN, name, address, date of birth, policy number, and ECN. AMS also provides the ability to search reference tables such as the FPL, payback limitation and applicable percentage tables.

  10. AMS does not have the ability to store the AVS responses to the calculation / verification requests.

21.6.3.4.2.16.4.1  (10-01-2014)
Disclosure of Taxpayer Data

  1. General disclosure guidelines are found in IRM 21.1.3.2, General Disclosure Guidelines. The following information provides disclosure guidelines related to providing 3rd party data of another taxpayer (e.g., Form 1095-A data found in CDR).

  2. When a 3rd party discrepancy exists, as shown in IRM 21.6.3.4.2.16.5, Premium Tax Credit Math Error Notice Responses and IRM 21.6.3.4.2.16.6.1, 8962 PTC Calculator Response, advise the taxpayer of the discrepancy and how to address it. Do not provide 3rd party data unless requested by the taxpayer.

  3. If a taxpayer requests assistance in obtaining Form 1095-A data, the following information can be provided so that the taxpayer may comply with his or her own filing or reporting requirements:

    • Recipient's name

    • Premium amount

    • SLCSP amount

    • APTC amount

    Note:

    Data belonging to one individual may be disclosed to another taxpayer if the use of that data is directly related to resolving the other taxpayer's filing / reporting requirements.

  4. The following are examples of when a taxpayer may request Form 1095-A data of another taxpayer:

    Example:

    Taxpayer A files a return claiming his daughter as a dependent. His ex-wife (Taxpayer B) provides the health insurance coverage for the daughter. When Taxpayer B purchased insurance via the Marketplace, she received advance payment of the premium tax credit. Even though the daughter was part of Taxpayer's B policy, Taxpayer A is required to reconcile the advance payment received on his daughter's behalf.

    Example:

    Taxpayer A files a return claiming his son as a dependent. His son purchased insurance through an insurance marketplace and advance payments of the premium tax credit were paid on his behalf.



    In both of these examples, Form 1095-A data belonging to another taxpayer may be disclosed to the taxpayer that is required to reconcile the APTC even though the Form 1095-A is not his/her data.

    Caution:

    Only information about who obtained health insurance and amounts should be disclosed if the taxpayer specifically requests assistance. Do not provide the recipient's SSN or address.

21.6.3.4.2.16.5  (10-01-2014)
Premium Tax Credit Math Error Notice Responses

  1. Explaining PTC math errors can generally be done using Command Code (CC) RTVUE / CC TRDBV and/or using the math error notice table found in IRM 21.6.3.4.2.16.3.1, Math Error Conditions.

  2. The majority of PTC math errors can be adjusted based on oral statement and do not require additional documentation, see IRM 21.5.2.4.2, Adjustments With Oral Statement. As with other credits, math errors impacting other areas of the return, such as filing status, exemptions and total income, can have an impact on PTC.

  3. When a taxpayer provides substantiation that the math error condition is incorrect, recalculate the Form 8962 using the "8962 PTC Calc" , found in the AMS ACA tools. 3rd party validation (CDR) is not needed in most instances. However, if a Form 8962 was not attached to the return, see (4), or if correcting an SSN to allow an exemption, see (5).

    Note:

    If the taxpayer's filing status is Married Filing Separately, PTC is not allowed unless the taxpayer meets the relief criteria, as shown in IRM 21.6.3.4.2.16.2, Qualifications.

  4. When a taxpayer provides a missing Form 8962, 3rd party verification (CDR) must be conducted, via the "8962 PTC Calc" tool, to verify the amounts reported for premium(s), SLCSP(s) and APTC.

  5. When correcting an SSN, 3rd party verification (CDR) must be conducted to verify if APTC was paid on behalf of the person for whom the exemption is being allowed.

    Note:

    If APTC was paid on behalf of the individual for whom the exemption is being allowed, a Form 8962 must be provided to reconcile the APTC before correcting the TIN related math error. If a Form 8962 was filed with the original return, determine the impact, if any, using the AMS “8962 PTC Calc” tool. If a Form 8962 was not filed, research CDR to see if APTC was reported for that TIN.

  6. For both (4) and (5), if a 3rd party discrepancy is identified by CDR, advise the taxpayer he/she must file an amended return and attach documentation addressing the discrepancy, and no action will be taken at this time.

  7. See IRM 21.6.3.4.2.16.7, Adjusting Accounts, for the appropriate reference numbers and reason codes.

  8. Control ACA math error responses on IDRS/CIS using category code ACA5.

21.6.3.4.2.16.6  (10-01-2014)
Premium Tax Credit Amended Returns

  1. All amended returns impacting PTC will be run through “8962 PTC Calc” tool in AMS. For some amended returns the impact will be obvious, such as a Form 8962 attached, or PTC claimed on the amended return. For others, the impact to PTC will not be obvious, such as a change to income, adding/deleting a dependent, or changing a filing status but a Form 8962 is not attached nor addressed on the amend return. For these types of amended returns, review Command Code (CC)TXMOD or CC IMFOLR / T for the presence of the PTC associated data elements shown in IRM 21.6.3.4.2.16.7, Adjusting Accounts. If present, or adding a dependent or spouse, follow the table below. If not present, follow normal procedures.

  2. The "8962 PTC Calc" tool provides an option to calculate with CDR validation or without CDR validation. CDR validation is required when:

    • Form 8962, Premium Tax Credit, data is not on file (not filed with the original return)

    • Changing data elements on Form 8962 such as premium amounts, SLCSP, APTC or family size

    • Adding or deleting an exemption (dependent or spouse)

    • Updating the TIN of an exemption

  3. The appropriate actions to take to process an amended return claiming PTC, reporting APTC or impacting PTC depends on what is being requested, what information is being provided and what information we currently have on file.

  4. The following table provides initial actions for amended returns impacting PTC:

    If And Then
    Form 8962 is attached to Form 1040X   Input the data into the 8962 PTC calculator
    Form 8962 is NOT attached to Form 1040X -
    PTC associated data elements are present on the module
    Form 1040X is reporting an increase / decrease in income AND/OR adding / deleting an exemption Input the data into the 8962 PTC calculator
    Form 1040X is NOT:
    1. reporting an increase / decrease in income

    2. adding / deleting an exemption

    • 1040X filed to increase PTC - reject as an incomplete claim, see IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing

    • 1040X filed to decrease PTC - input the requested adjustment and correspond for the missing form, see IRM 21.5.3.4.1, Tax Increase or Credit Decrease Processing

    Form 1040X filed to decrease Excess APTC Repayment - Form 8962 is NOT attached to Form 1040X Form 1040X is NOT reporting an increase / decrease in income AND/OR adding / deleting an exemption Reject as an incomplete claim, see IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing
    Form 1040X filed to increase Excess APTC Repayment - Form 8962 is NOT attached to Form 1040X Form 1040X is NOT reporting an increase / decrease in income AND/OR adding / deleting an exemption Input the requested adjustment and correspond for the missing form, see IRM 21.5.3.4.1, Tax Increase or Credit Decrease Processing
    Form 8962 is NOT attached to Form 1040X -
    PTC associated data elements are NOT present on the module
    Form 1040X is adding an exemption Use the "Search CDR Data" tool to determine if APTC was paid on behalf of the individual being added to the account.


    APTC was paid - suspend and contact the taxpayer for the missing Form 8962
    • Form 8962 provided - input data into PTC calculator

    • Form 8962 NOT provided - forward case as CAT-A




    APTC was NOT paid - follow normal procedures for adding exemption
    Form 8962 is NOT attached to Form 1040X - PTC is NOT on the module 1040X reporting a PTC credit Reject as an incomplete claim, see IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing
    Form 8962 is NOT attached to Form 1040X - APTC is NOT on the module 1040X reporting Excess APTC Repayment Input the requested adjustment and correspond for the missing form, see IRM 21.5.3.4.1, Tax Increase or Credit Decrease Processing
  5. See the following subsection for responses to the 8962 PTC calculator.

  6. See IRM 21.6.3.4.2.16.7, Adjusting Accounts, for the appropriate reference numbers and reason codes.

  7. Control amended returns impacting PTC / APTC on IDRS/CIS using category code PTCX.

21.6.3.4.2.16.6.1  (10-01-2014)
8962 PTC Calculator Response

  1. After data is entered into the calculator, the response provided dictates the course of action. Any error condition will be displayed at the top of each section of the calculator.

  2. If no error conditions or 3rd party data mismatches occur, the account can be adjusted as requested by the taxpayer.

  3. If AVS identifies a math error condition only (such as addition or multiplication errors or an incorrect entry from a table), follow procedures in IRM 21.5.4.4.1, Setting the Initial Math Error Action. AVS will provide the recomputed PTC and/or Excess APTC Repayment.

    Note:

    See IRM 21.6.3.4.2.16.3.1, Math Error Conditions, for a list of math error conditions. Be sure to select the appropriate paragraph in the 474C letter that best describes the math error.

  4. If AVS identifies a 3rd party mismatch, AVS will continue with the calculation but will also provide the corresponding CDR data. Capture a screen-shot of the AVS response in CIS. Below is a list of the 3rd party discrepancy error conditions and corresponding error code:

    Note:

    When a case meets CAT-A criteria, update the category code to PTCA.

    3rd Party Error Condition AVS Error Code
    F8962 is not attached, APTC received, and Taxpayer claims PTC in F1040/1040A 344
    F8962 is not attached, APTC received, and Taxpayer reports APTC Repayment in F1040/1040A 190
    F8962 is not attached, APTC received, and Taxpayer reports APTC Repayment equal to APTC 190
    F8962 is not attached, taxpayer received APTC, and no PTC claimed on 1040 190
    Failed Exchange Enrollment 195
    NO SSN claimed as an Exemption 195
    Taxpayer entry for dependent MAGI on Form 8962 exists, but does not claim at least one dependent as an exemption on tax return 192
    Taxpayer's Dependent MAGI amount equal to computed MAGI amount 192
    Ineligible for PTC based on Citizenship, FPL% is less than 100%, and no APTC 191
    Taxpayer indicates an ACM family size, but ACM family size is greater than or equal to computed family size 193
    Filing status incompatible with ACM, filing status is not MFJ in F1040/1040A - Ineligible for ACM 272
    Incorrect ACM start and stop month (Start or stop month is not present, or stop month is before the start month) 193
    Taxpayer indicates an ACM family size, but the sum of ACM family sizes does not equal computed family size 193
    Monthly Premium Exchange data match failure (January – December) 197
    Monthly Premium for SLCSP Exchange data match failure (January – December) 198
    Monthly APTC Exchange data match failure (January – December) 199
    Taxpayer provides annual calculation, but Form 8962 includes entries for ACM or shared policy allocation 196
    Incomplete Allocation Method Data (Taxpayer does not complete all the entries required for an allocation. Required entries are Allocated Policy Number, Allocation SSN, at least one Allocation Percentage, and start/stop months) 194
    Incorrect Allocation Method Data (Start month is before stop month) 194
    Incomplete Allocation Method Data (Taxpayer did not provide any of percentage of allocation for premium, percentage of allocation for SLCSP, and percentage of allocation for APTC) 194
    Allocation Policy Mismatch with Exchange Policy 194
    Invalid use of annual calculation, Exchange data shows premium and SLCSP are not the same values for all 12-months 196
    Annual Premium Exchange data match failure 197
    Annual Premium for SLCSP Exchange data match failure 198
    Annual APTC Exchange data match failure 199
  5. When a 3rd party discrepancy is identified, correspondence is required to request the taxpayer address the error condition. Use the appropriate ACA paragraph in letter 178C or 324C. However, if the taxpayer attached Form(s) 1095-A that address the condition, run the tool again without CDR verification and adjust the account accordingly.

    Example:

    The error condition is APTC Exchange data match failure and the taxpayer attached Form(s) 1095-A showing the data we have on file is incorrect.

    Caution:

    Ensure the response completely addresses the issue. Keep in mind multiple policies may be involved that the taxpayer may not know about.

    Example:

    The error condition is APTC Exchange data match failure. AVS shows 2 policies for the tax household. The taxpayer attached Form(s) 1095-A addressing one policy but did not address the 2nd policy.

    Exception:

    If correspondence was previously sent addressing the issue, do not correspond again, follow the incomplete or no response procedures below.

    Example:

    Research shows the account was in ERS status code 190, ENMOD shows a letter 12C was sent, or CIS indicates a letter 324C was sent.

  6. If a response is received, or no response and the suspense period has expired, see the following table for the appropriate action.

    Note:

    CAT-A criteria identified below is ≡ ≡ ≡ ≡ ≡ .

    If And Then
    Response received that completely addresses the error condition   Input the information into the PTC Calc Tool. Perform a calculation only. Adjust the account as appropriate.
    Incomplete or no response CAT-A criteria is met Refer the case to Exam as CAT-A criteria. Document the exposure amount, as provided by AVS, in CIS. Update the category code to PTCA.
    CAT-A criteria is NOT met Error code is 190 or 344
    • 1040X reporting PTC - reject as an incomplete claim, see IRM 21.5.1.5.6, Incomplete CIS Claims

    • 1040X reporting Excess APTC Repayment - accept as filed

    • 1040X reporting neither - accept as filed

    CAT-A criteria is NOT met Error code is 191 Masterfile indicates:
    • PTC - do not allow PTC if reported on 1040X and remove previously allowed PTC

    • Excess APTC Repayment - do not allow PTC if reported on 1040X, do not remove previously assessed liability

    • Neither - do not allow PTC if reported on 1040X, however, do assess Excess APTC Repayment reported on 1040X

    See IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns
    CAT-A criteria is NOT met Error code is other than one listed above 1040X reporting:
    • Increase to PTC or decrease to Excess APTC Repayment - no consideration

    • Decrease to PTC or increase to Excess APTC Repayment - accept as filed

    • Neither - accept as filed

    See IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns

21.6.3.4.2.16.7  (10-01-2014)
Adjusting Accounts

  1. PTC allowed on the original return posts as a computer-generated Transaction Code (TC) 766, credit reference number 262. Excess APTC Repayment is included in the total tax.

  2. Posted PTC associated data can be viewed in the posted return section of CC TXMOD and CC IMFOLR. These data elements are:

    Data Element Term
    Total Premium Tax Credit TOTAL PTC
    Advance Premium Tax Credit TOTAL APTC
    Excess Advance Payment Above Limitation LIMIT AMT
    Excess APTC Repayment APTC TX LIAB

    Note:

    Total Premium Tax Credit and Premium Tax Credit (CRN 262) are not the same.

  3. When adjusting PTC related data, use the following reference numbers, as appropriate:

    • 262 - adjusts the PTC refundable credit (Form 8962, line 26)

    • 865 - adjusts the Advance Payment of Premium Tax Credit (TOTAL APTC as shown on IDRS) (Form 8962, line 25)

    • 866 - adjusts the Total PTC (Form 8962, line 24)

    • 867 - adjusts the Excess Advance PTC Repayment (APTC REPMT as shown on IDRS) (Form 8962, line 29)

    • 868- adjusts the Repayment Limitation ( LIMIT AMT as shown on IDRS) (Form 8962, the difference between line 27 and line 28)

  4. When adjusting PTC related data, use the following reason codes, as appropriate:

    • 151 - PTC

    • 152 - Excess Advance PTC Repayment

21.6.3.4.2.16.8  (10-01-2014)
Shared Responsibility Payment Overview

  1. Beginning in 2014, individuals must have minimum essential coverage, have an exemption, or make a shared responsibility payment (SRP). On their returns, taxpayers may either:

    • Check a coverage checkbox on Form 1040, which indicates all members of the tax household had minimum essential coverage for the entire year

    • Attach Form 8965, Health Coverage Exemptions, indicating an approved coverage exemption from the Marketplace or to request a coverage exemption from the IRS

    • Make a shared responsibility payment (SRP)

    This requirement applies to all members of the household.

  2. For information regarding updating the coverage checkbox, see IRM 21.6.3.4.2.16.8.3, Coverage Checkbox. For information regarding updating the SRP, see IRM 21.6.3.4.2.16.8.1, Shared Responsibility Payment Inquiries. For information regarding updating exemption information, see IRM 21.6.3.4.2.16.8.2, Reporting of Exemption from the Shared Responsibility Payment.

  3. Generally, a taxpayer is liable for the SRP if the taxpayer or the taxpayer's dependent does not have either minimum essential coverage or an exemption. The taxpayer's SRP is the sum of the monthly payment amounts for all months when any member of the taxpayer's tax household is neither exempt nor has minimum essential coverage. The monthly payment amount is 1/12 of the annual payment amount.
    The annual payment amount is the greater of:

    • the flat dollar amount, or

    • the excess income amount


    The annual payment amount is capped at the annual national average premium for a bronze-level qualified health plan available through the Marketplace.

  4. The flat dollar amount is the sum of the applicable dollar amounts (ADAs) for all members of the household who are not exempt and do not have minimum essential coverage in a particular month. The ADA is $95 per individual for 2014, $325 per individual for 2015, and $695 per individual for 2016, and is subject to indexing for subsequent years. For a child who is not yet 18 years old as of the beginning of the month when the child is neither exempt nor has minimum essential coverage, the ADA is one-half of the amounts listed earlier. The flat dollar amount for a tax household is capped at 300 percent of the ADA for adult.

  5. A percentage of the excess income amount is the excess of the taxpayer’s household income over the taxpayer’s filing threshold, multiplied by 1% for 2014, 2% for 2015 and 2.5% after 2015.

  6. Detailed information about computing the SRP can be found in the instructions for Form 8965, Health Coverage Exemptions, and IRM (TBD).

  7. SRP is reported on Form 1040, line 61, Health care: individual responsibility (Form 1040EZ line 11, Form 1040A line 29). The amount reported is carried to MFT 35 and assessed as a TC 240 with penalty reference number (PRN) 692. MFT 35 will post one cycle after MFT 30.

    Note:

    Since the SRP amount is carried to MFT 35, the total tax shown on Form 1040, line 63, will not be the total tax amount (TC 150) shown on MFT 30. A TC 971 action code 530 will post to MFT 30 with the SRP amount in the memo field.

  8. SRP notices can be identified by an "H" after the CP number (i.e., CP 14H, CP 501H, etc.)

  9. Refund offsets to MFT 35 are applied with a Transaction Code 896.

  10. Control correspondence related to SRP on IDRS/CIS using category code ACA7.

21.6.3.4.2.16.8.1  (10-01-2014)
Shared Responsibility Payment Inquiries

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  2. If a taxpayer is requesting abatement / adjustment due to an incorrect computation, review the account to determine if a Compliance function assessed / adjusted the SRP (which can be identified by a TC 240, PRN 692, RC 154 on MFT 35), or is in the process of reviewing the taxpayer's account (which can be identified with a -L freeze or TC 922 on MFT 30).

  3. If no Compliance involvement, accept the taxpayer's request and input a PRN 692 on MFT 35, for the appropriate amount, RC 153.

  4. If Compliance adjusted the account, route to the assessing function. If a -L freeze or TC 922 is on MFT 30, follow normal procedures.


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