Accessibility Skip to Top Navigation Skip to Main Content Home  |  Change Text Size  |  Contact IRS  |  About IRS  |  Site Map  |  Español  |  Help  

Part 21. Customer Account Services

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

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

21.7.4  Income Taxes/Information Returns (Cont. 1)

21.7.4.4 
Income and Information Returns Procedures

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

21.7.4.4.1.15  (03-26-2009)
Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, Received in Conjunction with Form 1041

  1. If an estate or trust is the recipient of a portion of an early distribution, or if the trust or estate fails to receive at least the minimum required distribution (excess accumulations) from their Individual Retirement Arrangement (IRA), they may be required to file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax Favored Accounts. Estates and trusts who would not otherwise be required to file Form 1041, may file Form 5329 by itself.

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

  3. If the trust or estate fails to receive at least the minimum required distribution, a 50-percent excise tax (penalty) is assessed on the excess accumulations. The amount posts to Master File as part of the TC 150. The excise tax is waived if the taxpayer establishes that the excess accumulation was due to a reasonable error and that steps were taken or are being taken to correct the situation. Follow normal reasonable cause criteria for analyzing abatement request. Abate with TC 291.

21.7.4.4.2  (01-28-2008)
Form 1065, U.S. Return of Partnership Income

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

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

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

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

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

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

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

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

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

    3. The MFT is 06.

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

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

  4. An unincorporated business jointly owned by a married couple is generally classified as a partnership for Federal tax purposes. For tax years beginning after December 31, 2006, the Small Business and Work Opportunity Tax Act of 2007 (Public Law 110-28) provides that a "qualified joint venture," whose only members are a husband and a wife filing a joint return, can elect not to be treated as a partnership for Federal tax purposes.

  5. A qualified joint venture is a joint venture that conducts a trade or business where:

    • The only members of the joint venture are a husband and wife who file a joint return

    • Both spouses materially participate in the trade or business, and

    • Both spouses elect not to be treated as a partnership. A qualified joint venture, for purposes of this provision, includes only businesses that are owned and operated by spouses as co-owners, and not in the name of a state law entity (including a general or limited partnership or limited liability company). The spouses must share the items of income, gain, loss, deduction, and credit in accordance with each spouse's interest in the business.

  6. Beginning with 200712, these taxpayers make the election on a jointly filed Form 1040 by dividing all items of income, gain, loss, deduction, and credit between them in accordance with each spouse’s respective interest in the joint venture. Partnerships who do not file a final (200612) return, may receive a CP 515 Notice. Follow the procedures in IRM IRM 5.19.2.6.5.4.21, BMF Response Form 1065, U.S. Return of Partnership Income, if you receive a call from a taxpayer stating that they are not liable to file Form 1065 due to the section 761 provision. See the article on irs.gov at http:/www.irs.gov/businesses/small/article/0,,id=177376,00.html .

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

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

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

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

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

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

      Exception:

      TCs 766/767 are valid.

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

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

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

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

  7. Once the partnership elects large partnership status by filing the 1065-B, the partnership and all its partners are bound by the election. The election applies to the tax year for which it was made and all later years, and cannot be revoked without IRS consent. (However, a partnership may cease to be treated as an electing large partnership for a tax year in which the number of partners is reduced below 100.) IRS consent is obtained through a Private Letter Ruling. (A user fee is required to obtain a letter ruling. See Rev. Proc. 2009–1 or its successor.) Requests for letter rulings must be sent to the following address:

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

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

21.7.4.4.2.2  (01-01-2005)
Publicly Traded Partnerships

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

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

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

  4. The doc code for these returns is 67.

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

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

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

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

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

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

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

21.7.4.4.2.4  (02-11-2009)
Schedules K and K–1 (Forms 1065)

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

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

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

  4. If loose Schedules K-1 are received, determine if they were sent due to possible assertion of a missing information penalty. See IRM 20.1.2.9.3, Penalty Relief, and IRM 21.7.4.4.2.7. Follow the table directly below.

    If Then
    A Missing Information Penalty (TC 246 with no reference number) was assessed Adjust the penalty per IRM 20.1.2.9.3.
    No penalty was assessed Associate the Schedule(s) K–1 with the return.
    TC 150 is not posted Input TC 930 to have document returned to you when the return posts to assure a Missing Information Penalty was not assessed in error. See IRM 21.3.3.5.2, Loose Schedules, if this is a CIS case.

21.7.4.4.2.5  (08-04-2008)
Extensions of Time to File Form 1065

  1. Beginning January 1, 2006, IRS consolidated Forms 2758, 7004, 8736 and 8800. New revised Form 7004, Application for Automatic 6-Month Extension of Time To File Certain Business Income Tax, Information, and Other Returns, is now used to file for an extension on Form 1065. Each partner is required to file the appropriate extension of time to file his/her individual income tax return. However, extension requests for Forms 1041, Form 1065, and Form 8804 are shortened from 6-months to 5-months beginning with extension requests that are due on or after January 1, 2009 (200809 and subsequent). In addition, the title of the form is now Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. Each partner is required to file the appropriate extension of time to file his/her individual income tax return (Form 1040).

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

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

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

21.7.4.4.2.7  (02-11-2009)
Partnership Penalties

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

  2. Small partnerships, i.e., a partnership that has 10 or fewer partners, may qualify for a statutory exception (Rev. Proc. 84-35) to the penalty. See IRM 20.1.2.9.3 , Penalty Relief, for details. Also, see this same section if the taxpayer is assessed a penalty for filing an incomplete return because of a missing balance sheet.

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

  4. Section 8, Modification of Penalty for Failure to File Partnership Returns; Limitation on Disclosure, of the Mortgage Forgiveness Debt Relief Act of 2007, P.L. 110–142, increased the failure to file penalty and failure to file a complete return penalty on Form 1065 Partnership returns from $50 a month per partner to $85 per month per partner. The provision also increases the time period for assessing the penalty from 5 months to 12 months. The changes are effective for returns that are due on or after January 15, 2008.

  5. P.L. 110-458, section 127 of the Workers, Retiree, and Employer Recovery Act of 2008, increased the penalty for failure to file a partnership return. For returns due after December 31, 2008, the penalty amount is increased by $4 to $89. In addition, per P.L. 110-141, Hokie Spirit Memorial Fund, the penalty is increased by $1 if the tax year began in 2008. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

21.7.4.4.2.8  (07-31-2009)
Modernized e-file (MeF) - Electronic Filing of Partnership Returns

  1. All calendar year Form 1065 filers with 100 partners or less can file on paper or can voluntarily file their returns electronically. Certain partnerships with more than 100 partners must file electronically. See IRM 21.7.4.4.2.8.1 for information on partnerships with more than 100 partners.

  2. Beginning January 7, 2007, partnerships can file Form 1065, 1065-B and 7004 via the new Modernized e-file (MeF) system. The returns are processed at the Ogden Submission Processing Center (OSPC). For additional information, see IRM 3.42.4.2.1.3, 1065 and 1065-B MeF Programs. For information involving waivers to the requirement for large partnerships to file their returns electronically, see IRM 21.7.4.4.2.8.1.1(3) and IRM 21.7.4.4.2.8.1.2.

  3. Publication 4163, Modernized e-file (MeF) Information for Authorized IRS e-file Providers and Large Taxpayers (Corporations, Partnerships and Tax Exempt Organizations), is designed to provide Authorized IRS e-file Providers and Large Taxpayers specific requirements and procedures for electronic filing through the Modernized e-file System.

  4. Taxpayers may now apply to participate in all IRS e-file programs using one application, Form 8633, Application to Participate in IRS e-file Program. This applies to Electronic Returns Originator (ERO), transmitter, software developers and intermediate service providers. Applicants must submit the application 60 days prior to participation, if filing a paper application.

  5. Applicants and participants of IRS e-file are encouraged to use the new electronic IRS e-file Application which is available through the Internet-based business tools called "e-services" . By using the electronic application, processing time is reduced from 60 days, to 30 to 45 days. For more information on IRS e-file Application, visit the IRS website @ http:/www.irs.gov/efile. Type in e-services as the IRS Keyword and press go. Additionally, a fingerprint card or evidence of professional status must be submitted for each application. Taxpayers are required to pass a suitability background check. For more information, see Publication 3112, The IRS e-file Application Package, IRM 3.42.4.5, IRS e-file Application Information and IRM 3.42.10, Authorized e-file Providers. Taxpayers may also call the Help Desk toll-free at 1-866-255-0654 for assistance. Taxpayers must mail the completed Form 8633 to the following address:

    Daytime Mail Overnight Mail
    Internal Revenue Service
    Andover Campus
    Attn.: EFU Acceptance
    Testing Stop 983
    P.O. Box 4099
    Woburn, MA 01888–4099     		Internal Revenue Service
    Andover Campus
    Attn.: EFU Acceptance
    Testing Stop 983
    310 Lowell Street
    Andover, MA 05501–0001

  6. In order to file Form 1065 electronically, transmitters and software developers participants MUST successfully pass the Acceptance or Assurance Testing System (ATS). Only those entities developing software or transmitting returns directly to the IRS go through the testing process. The ATS process tests hypothetical scenarios to ensure the participant's computer program has the correct file specifications to file returns electronically, that required fields will post to Master File correctly and that Providers understand the mechanics of IRS e-file. Communication testing is a requirement for reporting Agents and Transmitters. See Publication 3112, IRS e-file Application and Participation, and Publication 4505, Modernized e-file Test Package for Forms 1065/1065-B, for more information on the testing process. Taxpayers may also call the Help Desk toll-free at 1-866-255-0654.

  7. Beginning January 4, 2010, the MeF system will accept TY 2009 MeF filed partnership returns. The system also accepts MeF filed amended returns for TY 2006 and forward. See IRM 21.7.9.4.1.2.2 , MeF Filed Amended Returns, for more information. Only the MeF system accepts amended returns. Taxpayers must complete an amended return on paper and file it with the campus where they normally would file a paper return if they filed through any other system.

  8. See IRM 21.7.4.4.2.8.1 below for the partnership returns that are excluded from the mandate too file electronically.

  9. Electronically filed Form 1065 returns are processed in Ogden. For 2006 and prior, returns filed via the legacy system were assigned file location codes 72 and 64, tax class 2, and document code 65. For 2007 and subsequent, returns filed via the MeF system are assigned the following codes: (See IRM 3.42.4.4.1.1, e-file Entity Codes, for more information.)

    Form Filing Location Codes Tax Class Document Code
    1065 88/93
    (OVFL 92)     		3 69
    1065–B 68

  10. For TY 2009 (filing season 2010), see Publication 4163, Modernized e-file (MeF) Information for Authorized IRS e-file Providers and Large Taxpayers (Corporations, Partnerships and Tax Exempt Organizations), for a complete listing of the forms and schedules that are/are not accepted electronically. If a form cannot be filed electronically with the partnership return, it can be attached as a PDF document.

  11. All returns filed through the MeF system must be signed. If the return does not have a valid signature, the e-help Desk unit requests a signature. The MeF system requires taxpayers and Providers to use one of the two signature options:

    1. The Practitioner PIN (Personal Identification Number) method

    2. The scanned Form 8453 method

  12. The Practitioner PIN (Personal Identification Number) method (Form 8879) can only be used if the taxpayer uses an ERO. A paper copy of the signed Form 8879 is retained by the ERO and provided to the partnership, but should not be mailed to the IRS. Form 8879-PE is for Form 1065 and Form 8879-B is for Form 1065-B.

  13. With the scanned Form 8453 method, Form 8453-PE, U.S. Partnership Declaration and Signature for Electronic Filing, or Form 8453-B, U.S. Electing Large Partnership Declaration for an IRS e-file Return, are scanned and submitted with the e-filed return as a Portable Document Format (PDF) file. Form 8453-PE also should not be mailed to the IRS.

  14. Electronic returns that were not filed through the MeF system (some TY 2006 and all TY 2005 and prior) attached Form 8453-P, U.S. Partnership Declaration and Signature for Electronic Filing. Only Forms 8453-P for TY 2004 and subsequent can be retrieved via IDRS and cc ELFRQ.

  15. Use CFOL command codes to research the account. Request the original return only when absolutely necessary. Returns filed through the MeF system are stored immediately after the returns are processed on the Modernized Tax Return Database (MTRDB). The Employee User Portal (EUP) allows access to these returns through the Return Request and Display (RRD) subsystem. For more information on how to gain access to EUP, see IRM 3.42.4.2.3, Employee User Portal (EUP).

  16. DO NOT attach information (e.g., loose forms, schedules, and correspondence) to an electronically filed return. To identify an electronic DLN, see Document 6209, Section 4, Document Locator Number, Part 3 Campus and Filing Location Codes, or IRM 3.42.4.4.1.1, BMF Identification Codes. Use the following procedures: File the information using TC 290 $.00 with the applicable blocking series for the type of return/situation you are adjusting using the non-refile DLN. DO NOT use an "attachment" or "association form" .

    Note:

    These procedures are not needed for documents scanned into Correspondence Imaging System (CIS). CIS serves as the retention area for these documents.

  17. A toll-free telephone number for the e-help desk is available. Taxpayers may call the e-help Desk at 1-866-255-0654 for assistance. Also, see IRM 21.7.4.3.2 for research material that is available on filing Form 1065 electronically.

21.7.4.4.2.8.1  (05-30-2008)
Partnerships with More Than 100 Partners

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

  2. The regulations are effective for tax years ending on or after December 31, 2000. The following large partnerships are excluded from the mandate, and are not required to file electronically in 2008. It is also not necessary for these partnerships to file a request for waiver as described in IRM 21.7.4.4.2.8.1.2.

    • Common Trust Fund Returns (excluded, but can be e-filed)

    • Nominee Returns

    • Electing large partnerships (Forms 1065-B)

    • Section 501d Religious Organizations

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

    • Returns with address changes (TY 2006 only)

    • Returns with name changes (TY 2006 only)

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

      Note:

      Announcement 2002-3 (IRM 21.7.4.4.2.8.1.2(7)) states that delinquent returns are excluded from the filing mandate. This actually means that the system does not accept prior year returns. It does not exclude large partnerships filing Forms 1065 after the required due date, from the mandate to file electronically. They are still subject to the penalty for failure to file electronically, if they file on paper.

21.7.4.4.2.8.1.1  (05-30-2008)
Large Partnership Penalty for Failing to File Electronically

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

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

  3. If a taxpayer believes they can establish reasonable cause due to hardship after the penalty is assessed, they must write to OSPC at the address below. Penalty abatement requests CANNOT be worked by phone or correspondence at other sites. If a taxpayer calls or corresponds regarding where to file the request, instruct him to file the request at the address below. If an abatement request is received at another site, fax the correspondence to OSPC at 877–477–0575. Be sure to include a phone number where you can be reached. OSPC will call you back to let you know they received the request. If you do not hear from OSPC within three working days, it is your responsibility to re-fax the correspondence to them. Send Letter 86C to the taxpayer. Taxpayers should not file returns on paper and wait for a penalty to be assessed before requesting abatement. They should request a waiver (if they meet the criteria) as detailed in IRM 21.7.4.4.2.8.1.2.

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

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

  4. Requests for abatement of FTF Electronically Penalty only, will be worked by the e-help Desk unit in Ogden. Inquiries requesting both FTF Penalty and FTF Electronically Penalty abatement will also be worked by the e-help Desk unit in Ogden. Requests for FTF Penalty abatement only will be worked in Accounts Management.

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

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

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

  7. If a request for penalty abatement is received when the partnership files a paper Form 1065, Code and Edit faxes a copy to OSPC at 877–477–0575. These requests must be worked by OSPC within three working days of receipt. OSPC follows the instructions below.

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

  8. If a large partnership files a Form 1065 electronically, but it is systemically rejected and the partnership files the return on paper, the partnership should attach a copy of the rejection notification to the paper Form 1065. If the postmark is within 10 days of notification from the Service that the electronic return was rejected, Code and Edit enters Computer Condition Code (CCC) "R" to suppress the FTF penalty. (See IRM 3.11.15.14, Computer Condition Codes, for additional information on Code and Edit's usage of CCCs.) They also fax a copy of page 1, Form 1065 and a copy of the ELF rejection notification (indicating "rejection notification from ELF" ) to OSPC at 877–477–0575. OSPC must:

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

    2. Input TC 971 Action Code 320.

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

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

    2. Use RC 045 in the fourth position.

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

21.7.4.4.2.8.1.2  (05-30-2008)
Waiver Requests by Large Partnerships Required to File Electronically

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

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

    1. What steps they took to comply.

    2. Why the steps were unsuccessful.

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

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

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

    • Name of partnership

    • EIN of partnership

    • Mailing address of partnership

    • Tax year for which waiver is being requested

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

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

    • For returns due April 15, 2010 (Form 7004 not filed): January 15, 2010 - March 1, 2010

    • For returns due October 15, 2010 (Form 7004 filed): January 15, 2010 - September 15, 2010

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

  7. After considering a waiver request, a TC 971 Action Code 320 is input, if the request is accepted. This prevents the assessment of the penalty for failure to file electronically. If a request is denied, a TC 971 Action Code 321 is input. (If both TC 971 Action Code 320 and 321 appear on the module, the latest TC 971 Action Code 320/321 takes precedence.) Letter 4118C, Request for a Waiver From Filing Partnership Return Electronically, informing the taxpayer of the decision, must be sent.

21.7.4.4.2.8.2  (10-01-2008)
Small Partnership Penalty Abatement

  1. IRC section 6031(a), requires a partnership to file a federal tax return (Form 1065). IRC 6698 imposes a penalty against a partnership that fails to file a timely tax return or a complete tax return as required by IRC 6031(a). Rev. Proc. 84–35, provides for a statutory exception to the penalty for small partnerships. A small partnership as defined by IRC 6231(a)(1)(B)(i) , has ten or fewer partners.

  2. See IRM 20.1.2.9.4, Penalty Relief, for details.

21.7.4.4.2.8.3  (07-31-2009)
Known e-file Issues and Solutions - Form 1065

  1. Periodically, problems arise that prevent taxpayers from being able to file electronically through the Modernized e-file (MeF) System. When this occurs, Electronic Tax Administration (ETA), LMSB, or Submission Processing will issue a workaround to taxpayers by posting information on irs.gov. See Modernized e-file for partnerships. Go to irs.gov, click on e-file and look for the header, Business and Self-Employed Taxpayers. At the end of the paragraph is a link to Modernized e-file (MeF). Click on this link and it will take you to Modernized e-file (MeF) for Partnerships at the following address; http://www.irs.gov/efile/article/0,,id=200526,00.

  2. Under the "What's Hot" table of contents, are links to the Known e-file Issues and Solutions web-pages. Currently, there are links to TY 2006, TY 2007 and TY 2008. When taxpayers contact the e-help unit with processing problems, taxpayers are directed to this site. In addition, Accounts Management will issue SERP Alerts or IPUs if the situation warrants. For example, an Alert was issued due to a problem with name control mismatches on Form 1065 and Form 1120 accounts.

  3. If you receive a call from a taxpayer stating that they are having problems e-filing, research the web-page. If you are unable to find any information, refer the caller to the e-help desk unit toll-free at 1-866-255-0654.

21.7.4.4.2.9  (12-10-2008)
Duplicate Filing Conditions on Form 1065

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

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

  3. Since Form 8082 is not consistently being attached as required, the amended/corrected/superseding Forms 1065 returns that meet any of the criteria below must be routed to Examination as Cat-A criteria (Research using cc BRTVU):

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

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

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

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

    1. Recharge the amended and original return (if received with CP 193) to Exam, unless the document is a CIS return.

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

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

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

    5. Do not release the -A freeze, Examination will release the freeze.

    6. Input TC 971 ac 013 to indicate that the amended return was forwarded to Examination Branch.

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

21.7.4.4.2.9.1  (04-23-2009)
Items to Compare on CP 193s (Forms 1065)

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

    • TIN

    • Tax period

    • Names and number of partners

    • Income and deduction figures

    • Balance sheet

    • Schedules K-1

    • Signature and signature dates

  2. Action required:

    If Then
    TC 976 return is a true duplicate, amended, or supplemental 1. Input TC 290 $.00 BS 00 (with original) or 17 (without original).
    2. Adjust penalties as appropriate. See IRM 20.1.1, Penalty Relief.
    Partners’ names are the same, but the percentage of ownership on Schedules K–1 has changed by 50-percent or more It is no longer necessary to route the case to Entity for determination if another partnership exists.
    TC 976 return belongs on another TIN or tax period 1. Input TC 290 $.00 using BS 00 or 17.
    2. Correct the information on the TC 976 return.
    3. Prepare, attach, and route Form 13596 for reprocessing to the correct tax period or TIN. See IRM 21.7.9.4.1.1, CP 193s Involving Reprocessing Returns, for more information.
    4. Input TC 971 as appropriate, per instructions in IRM 21.5.1, General Adjustments. (Do not reprocess a TC 976 return to an account which contains a TC 150. Input a TC 290 $.00 to the account and attach the TC 976 return to the adjustment document.)
    One of the returns is a 6020(b) and the taxpayer filed an original return 1. Check the received date on the taxpayer’s return. (If prior to the 6020(b) return, the FTF penalty may need to be adjusted.)
    2. Verify the taxpayer’s return is complete and the number of partners involved. (If the information differs, penalties may need to be adjusted.)
    3. Input TC 290 $.00 in BS 00 or 17 and adjust penalties as appropriate.

21.7.4.4.2.9.2  (01-01-2005)
Duplicate Filing under IRC Section 708(b)(1)(B)

  1. Prior to 1997, Section 708(b)(1)(B) stated that a partnership was considered terminated if within a 12-month period there is a sale or exchange of 50-percent or more of the total interest in partnership capital and profits.

  2. Special rule for Section 708(b)(1)(B) terminations. Treasury Decision T.D. 8717, effective May 9, 1997, provided that a partnership that is terminated under IRC Section 708(b)(1)(B) shall retain the EIN of the terminated partnership. The Instructions to Form 1065 also advises taxpayers, "Do not request a new EIN for a partnership that terminated because of a sale or exchange of at least 50-percent of the total interest in partnership capital and profit."

  3. If multiple returns are filed under the same EIN citing Section 708(b)(1)(B), input TC 290 $.00 to release the -A freeze.

21.7.4.4.2.10  (01-01-2005)
Multiple Filed Forms 1065

  1. Banks acting as managers for underwriting syndicates to issue bonds, are permitted to use the same EIN when filing partnership returns on behalf of each syndicate.

  2. CP 193s are suppressed on these cases. The first return posts as a TC 150 and subsequent returns as TC 976s. A "Consolidated Transcript" is generated when overflow conditions are reached. Action required:

    1. Input TC 290 $.00 to have the transcript of the TC 976 postings and the original return re-filed under the adjustment DLN.

    2. Use BS 00 (with original) or 17 (without original).

21.7.4.4.2.11  (02-11-2009)
CP282, Notification of Possible Filing Requirements

  1. Beginning January 1, 2003, CP282, Notification of Possible Filing Requirements, is issued to Forms 1065/1065-B filers who marked the "YES" checkbox next to question 16, Foreign Partners, on the 2008 Schedule B, Form 1065, or next to question four on Schedule B, Form 1065-B. This indicates that the partnership had foreign partners (for purposes of section 1446) during the tax year. Responses are received and worked in both the Cincinnati and Ogden campuses.

  2. Generally, when a foreign person engages in a trade or business in the United States, all income from sources within the United States other than certain investment income, is considered to be Effectively Connected Income (ECI). This applies whether or not there is any connection between the income and trade or business being carried on in the United States during the tax year. It is the partnership's (CPA, attorney, accountant) responsibility to determine if the partnership has ECI allocable to a foreign partner. Taxpayers can research ECI @ http:/www.irs.gov .

  3. If the partnership had taxable income effectively connected with the conduct of a trade or business within the United States that is allocable to a foreign partner, the partnership may have to report and pay a withholding tax to the IRS under section 1446, on income allocable to foreign partners (without regards to distributions) and file Forms 8804, 8805 and 8813.

  4. For information on reporting and paying the Section 1446 withholding tax as well as the general reporting obligations, see the Instructions to Form 8804, Annual Return For Partnership Withholding Tax, Form 8805, Foreign Partner’s Information Statement of Section 1446 Withholding Tax, and Form 8813, Partnership Withholding Tax Payment Voucher.

  5. Special rules apply to publicly traded partnerships. Unlike all other partnerships which withhold in the year the effectively connected taxable income is allocated to a foreign partner, publicly traded partnerships withhold in the year there is a distribution to a foreign partner. Also, instead of filing Forms 8805, 8805, 8813, publicly traded partnerships must file Forms 1042 and 1042-S.

  6. If the taxpayer contacts IRS and states;

    IF AND THEN
    Not liable Taxpayer incorrectly checked the yes box or if an input error was made by IRS

    • Acknowledge receipt of the issue.

    • Apologize, if our error.

    • Advise TP you will notate their file. (Use correspondence or prepare Form 4442/4442 DI/AMS, as source document.)

    • Associate the above document to Files using local procedures.
    Liable Needs forms

    • Send necessary forms to TP or give toll-free forms number.

    • Instruct TP to file at
      OIRSC
      Ogden, UT, 84201

      Original return(s) attached

    • Route to Ogden

    • If payment is received with F8804, transfer to Ogden on F2158 for processing to ANMF system.
      TP states that they have already filed and sends clearly marked copy of return(s)

    • Destroy as classified waste, respond only if TP asks question.

21.7.4.4.2.12  (02-03-2006)
Form 1065 Filed under Revenue Procedure 2003-84

  1. Rev. Proc. 2003-84 allows certain partnerships that invest in tax-exempt obligations to make an election that enables the partners to take into account monthly inclusions required under sections 702 and 707 of the IRC and provides rules for partnership income tax reporting. Thus, a partnership that has a monthly closing election in effect for the entire taxable year and meets the other requirements in section 8 of this revenue procedure, is not required to file a Form 1065 or issue Schedules K-1 (Form 1065).

  2. An eligible partnership makes a monthly closing election that is effective as provided under section 4.02 of this revenue procedure and all partners consent to the election.

  3. The monthly closing election is effective on the latter of:

    1. The start-up date of the partnership (as defined by section 4.05(1) of this revenue procedure), or

    2. The first day of the month in which the provisions described in section 5.01 of this revenue procedure is first included in the entity’s governing documents.

  4. A partnership must file an abbreviated return (considered abbreviated because only certain information is required to be completed on the form) for the first taxable year during which the monthly closing election was in effect. The abbreviated return must be filed by the date the partnership’s income tax return would ordinarily be due and must be signed by a person with the authority to sign the partnership’s Form 1065 return. The words "Filed in Accordance with Rev. Proc. 2003-84" must be typed or written across the top of the form.

  5. See Rev. Proc. 2003-84 for the specific information that must be supplied on the abbreviated return.

  6. Action required: If a taxpayer states they previously filed a Form 1065 under Revenue Procedure 2003-84, check the filing requirements. If filing requirements are still active, delete them by inputting TC 591 closing code 25 via command code FRM49. If a taxpayer is penalized for failing to file Form 1065 for a tax period AFTER they have filed the required abbreviated return, abate the penalty using penalty reason code 045, Service Error. Either correspond by phone or send 3012C letter advising the taxpayer that, based on the information provided they are not required to file future partnership returns. Apologize for any inconvenience.

21.7.4.4.2.13  (01-01-2007)
Schedule M-3 (Form 1065) Net Income (Loss) Reconciliation for Certain Partnerships

  1. Beginning with tax year 2006 returns, any entity that files Form 1065 or Form 1065-B, must complete and file Schedule M-3 in lieu of Schedule M-1, Reconciliation of Income (Loss) per Books With Income (Loss) per Return, if any of the following applies:

    1. The amount of total assets at the end of the tax year reported on Form 1065, Schedule L, line 14, column (d), is equal to $10 million or more.

    2. The amount of adjusted assets for the year is equal to $10 million or more.

    3. The amount of total receipts (as defined on page 20 of the Instructions to Form 1065, Schedule B, question 5), for the taxable year is equal to $35 million.

    4. An entity that is a reportable entity partner with respect to the partnership owns or is deemed to own, directly or indirectly, an interest of 50 percent or more in the partnership's capital, profit, or loss, on any day during the tax year of the partnership.

21.7.4.4.3  (01-01-2005)
Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return

  1. Form 1066 is used to report income, deductions, gains and losses from the operation of a REMIC. In addition, the form is used to report and pay the taxes on net income from prohibited transactions, foreclosure property, and contributions after the start-up day.

  2. Forms 1066 are filed at the Ogden Submission Processing Center (including International forms). The MFT is 07, Tax Class 3, and Document Code 60.

21.7.4.4.3.1  (08-04-2008)
Form 1066 Due Dates, Payments, and Extensions to File

  1. Form 1066 is a calendar year return and is due the 15th day of the 4th month following the close of the taxable year (tax year 2009 is due April 15, 2010). If the REMIC ceases to exist before the end of the calendar year, a short period return is due on the 15th day of the 4th month following the date the entity ceased to exist.

  2. Tax due must be paid by the original due date. Payments should be mailed directly to IRS. No ES payments are required.

  3. Beginning January 1, 2006, IRS consolidated Forms 2758, 7004, 8736 and 8800. New revised Form 7004, Application for Automatic 6-Month Extension of Time to file Certain Business Income Tax, Information, and Other Returns, is utilized to file for an extension on Form 1066. However, extension requests for Forms 1065, Form 8804 and Form 1041 are shortened from 6-months to 5-months beginning with extension requests that are due on or after January 1, 2009 (200809 and subsequent). In addition the title of the form is now Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. See IRM 21.7.4.3.5, Revised Form 7004, for additional information.

21.7.4.4.3.2  (02-11-2009)
Amended Forms 1066

  1. Forms 1066 can be amended. They are "G" coded and routed to Accounts Management. Action required:

    1. Follow procedures for resolving Form 1120 returns.

    2. Amended Forms 1066 are not Category A criteria.

  2. Route correspondence requests for extension of "foreclosure property" grace period pursuant to IRC section 856(e) by a real estate mortgage investment conduit (REMIC, Form 1066) to the address below:
    Internal Revenue Service
    Executive Assistant to Industry Director
    LMSB Financial Service
    290 Broadway, 12th Floor
    New York, NY 10007

21.7.4.4.3.3  (01-01-2005)
Schedule Q (Form 1066), Quarterly Notice to Residual Interest Holder of REMIC Taxable Income or Net Loss Allocation

  1. A copy of Schedule Q is sent to each residual interest holder by the last day of the month following the end of the calendar quarter. Schedule Q notifies the taxpayer of their share of the REMIC's quarterly taxable income (or net loss), the excess inclusion with respect to their interest, and their share of the REMIC's section 212 expenses for the quarter.

  2. The original Schedules Q (Copy A) for all quarters are attached and filed with Form 1066.

21.7.4.4.4  (02-23-2009)
Form 1120 Series Returns, Corporation Income Tax

  1. Form 1120 series returns are used to report income, gains, losses, deductions, and credits of U.S. corporations. Corporations must file an income tax return regardless of the amount of their income.

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

  3. For federal income tax purposes, the term "corporation" includes associations, joint stock companies, and partnerships which operate as corporations. Form 1120 must be signed by an officer of the corporation.

  4. The MFT is 02 and the tax class is 3. Document codes and filing requirement codes can be found in Document 6209.

  5. IRS began to accept some electronically filed TY 2003 Forms 1120 and 1120S in 2004, along with 49 various forms and schedules. See IRM 21.7.4.4.4.15, Electronic Filing of Corporate Returns, for more information.

21.7.4.4.4.1  (03-18-2008)
Types of Forms 1120

  1. There are several types of Forms 1120 which can be filed by a corporation depending on its business. Listed below are the types in the sequence they appear in this section:

    • Form 1120, U.S. Corporation Income Tax Return

    • Form 1120-A, U.S. Corporation Short-Form Income Tax Return (Obsolete for tax years beginning after December 31, 2006)

    • Form 1120S, U.S. Income Tax Return for an S Corporation

    • Form 1120-H, U.S. Income Tax Return for Homeowners Associations

    • Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations

    • Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return

    • Form 1120-L, U.S. Life Insurance Company Income Tax Return

    • Form 1120-IC-DISC, Interest Charge Domestic International Sales Corporation Return (processed as NMF)

    • Form 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons

    • Form 1120-F, U.S. Income Tax Return of a Foreign Corporation

    • Form 1120-FSC, U.S. Income Tax Return for Foreign Sales Corporation

    • Form 1120-SF, U.S. Income Tax Return for Settlement Funds

    • Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts

    • Form 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies

    • Form 1120X, Amended U.S. Corporation Income Tax Return

    • Form 1120-C, Income Tax Return for Cooperative Association

21.7.4.4.4.2  (01-01-2005)
Form 1120 Series Due Dates

  1. In general, corporation returns are due by the 15th day of the third month after the end of the tax year.

  2. A corporation filing a short period return must file by the 15th day of the 3rd month following the end of the short tax year. If a Subchapter S or personal service corporation previously elected to be a Section 444 filer and is now terminating that election and, as a result has a short tax year, the corporation should note "Section 444 Election Terminated" at the top of Form 1120/1120S.

  3. A newly organized corporation, except a Subchapter S or personal service corporation, can elect any accounting period. The return is due the 15th day of the 3rd month following the end of the tax year.

  4. A dissolving corporation is required to file a return for the short period from the first day of its normal accounting period to the date of dissolution. The return is due the 15th day of the 3rd month following the close of the short tax year.

21.7.4.4.4.3  (01-01-2005)
Personal Service Corporations

  1. A personal service corporation, as defined in Temporary Regulations Section 1.441-3T(b)(1), must use the calendar year, unless it meets one of the criteria below:

    1. The corporation can establish to the satisfaction of the Commissioner, there is a substantial business purpose for having a different tax year (TC 054 identifies approved business purpose).

    2. The corporation elects under Section 444 to have a tax year other than their required tax year. (These corporations must file Form 8716, Election to Have a Tax Year Other Than a Required Tax Year. An approved election can be identified by TC 055.)

  2. A corporation is a qualified personal service corporation as defined in Temporary Regulations Section 1.448-1T (and, thus, generally permitted to use the cash method of accounting) if it meets both of the tests below:

    1. Substantially all of the corporation’s activities involve the performance of services in the fields of accounting, actuarial science, architecture, consulting, engineering, health, law or performing arts, and

    2. At least 95-percent of the corporation's stock, by value, is owned directly or indirectly by; employees performing the services, retired employees who had performed the services listed above, any estate of the employee or retiree described above, or any person who acquired the stock of the corporation as a result of the death of an employee (but only for the 2-year period beginning on the date of the employee or retiree's death). (See IRC section 448(d)(2)(B).)

  3. A qualified personal service corporation is taxed at a flat rate of 35-percent on taxable income.

21.7.4.4.4.3.1  (01-06-2004)
CP 224, Notice of Potential Qualification as a Personal Service Corporation

  1. Beginning in January 2004, CP 224 is issued to businesses who, based on the business activity described on the Form 1120 they filed, may qualify as a personal service corporation. The notice is an informational notice to alert them to a potential issue that may affect their tax return. It further states that a corporation is a qualified personal service corporation if it meets both of the tests described in IRM 21.7.4.4.4.3(2) a) and b) above.

  2. Taxpayers are instructed to consider the information in the notice and review their income tax return. If they had a practitioner or other third-party prepare their return, they may want to contact them for assistance. The notice also states that no further action is necessary if their return is correct as filed, or to File Form 1120X, Amended U.S. Corporation Income Tax Return, if necessary.

21.7.4.4.4.4  (01-28-2008)
Consolidated Returns

  1. An affiliated group of corporations can elect to file a consolidated income tax return.

  2. The consolidated return must be filed on the basis of the common parent’s annual accounting period.

  3. The consolidated return must include all the income of the parent plus the income of each subsidiary for the portion of such taxable year during which it was a member of the group.

  4. Form 851, Affiliations Schedule, is filed to identify the common parent corporation and each member of the affiliation group, and for making the determination that each subsidiary corporation qualifies as a member of the affiliated group. See the Instructions for Form 851 for the requirements that must be met to qualify as an affiliated group. An affiliated group is one or more chains of includible corporations connected through stock ownership with a common parent corporation. See IRC sections 1504(a) and (b) for more information. Form 851 is filed with the consolidated tax return for the group. See IRM 21.3.3.5.2, Loose Schedules, for procedures for working loose Forms 851.

  5. Income not included in the consolidated return by a corporation, because it was not in the group for its complete taxable year, must be reported on a separate return. See the table below.

    If Then
    The group has filed a consolidated return by the due date for filing of a subsidiary’s separate return (including extensions of time) The separate return must be filed no later than the due date of such consolidated return (including extensions of time). See the Example below this table.
    The group has not filed a consolidated return by the due date for filing of a subsidiary’s separate return (including extensions of time) Such subsidiary must file a separate return no later than the due date of such subsidiary return (including extensions of time). See Reg 1.1502-76(c).

    Example:

    The scenario below describes the situation when a group has filed a consolidated return by the due date for filing of a subsidiary’s separate return (including extensions of time).

    1. Corporation A has a FY 03.

    2. Corporation Z has a FY 12.

    3. Corporation Z acquires all stock for Corporation A at the close of September 30, 2009.

    4. Corporation Z files a consolidated return for the group for calendar year 2009 on March 15, 2010.

    5. Since Corporation Z filed a consolidated return by the due date for Corporation A (June 15, 2010), the return of Corporation A for the short taxable year beginning April 1, 2009 and ending September 30, 2009 must be filed no later than March 15, 2010 (the due date for Corporation Z’s return).

    6. No penalty or interest would be due for the period December 15, 2009 (normal due date for a return with period ending September 30, 2009) through March 15, 2010.

    Note:

    C&E has procedures for identifying and coding this type of return. However, the possibility exists that penalties and interest may not be properly restricted. If taxpayer inquiries reference this situation, penalties and interest may need to be adjusted.

21.7.4.4.4.5  (08-04-2008)
Extensions to File Form 1120 Series Returns

  1. Form 7004, Application for Automatic 6-Month Extension of Time To File Certain Business Income Tax, Information, and Other Returns, is used to request a six month extension of time to file. It must be filed by the due date of the return (see paragraph (2) directly below).

  2. Beginning January 1, 2009, to reduce the burden on recipients of Schedules K-1, the extension of time to file partnerships (Form 1065 and Form 8804 filers) returns and estate and trust (Form 1041) returns has been shortened from 6-months to 5-months. This change is effective for extension requests due on or after 1/1/2009 (effective for TY 200809 and subsequent). The title of the form is now Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns.

  3. The extension is allowed upon the timely and proper filing of Form 7004 and full payment of the tentative tax. If these requirements are not met, the corporation may be subject to a late filing penalty from the prescribed due date until the date the return is received.

  4. Beginning in 2004, timely filed calendar year Forms 7004 are no longer date stamped and the envelope is no longer retained. However, the first document within a block of these forms will contain a received date. If the form is delinquent but the postmark on the envelope is timely, Code and Edit circles the received date. Consider timely any calendar year (200312 and subsequent) Forms 7004 that are not date stamped. Follow IRM 20.1.2.1.2.1, Extension of Time to File, for penalty abatement procedures.

  5. The taxpayer indicates on line 3, Form 7004, the tentative amount of tax for the taxable year. The amount is identified by TC 620 and is for reference purposes only.

  6. Even though a corporation has an extension of time to file, a failure to pay penalty may be assessed if the amount paid on or before unextended due date of the return, is not at least 90-percent of the tax shown on line 31, Form 1120. See IRM 20.1.2.1.2.1, Extension of Time to File, for more information.

  7. The filing of Form 7004 does not affect the amount of interest assessed. Interest is assessed on any unpaid liability from the original due date of the return.

  8. When correspondence is received requesting an explanation of the interest and/or penalties:

    1. Phone or send 219 C letter.

    2. If the taxpayer states Form 7004 was timely filed, research to locate the form. Follow IRM 20.1.2.1.2.1, Extension of Time to File, for penalty abatement procedures.

    3. If Form 7004 posted to an incorrect period or TIN, make any necessary credit transfers and re-input Form 7004 using REQ77 to input TC460/462.

21.7.4.4.4.6  (10-25-2007)
Change in Accounting Period (Corporations)

  1. Generally, a corporation must get the consent of IRS prior to changing its tax year. Form 1128, Application to Adopt, Change, or Retain a Tax Year, must be filed no later than the due date (not including extensions) of the federal income tax return for the first effective year (March 15th) to change to a calendar year return.

  2. Under certain conditions, corporations (other than Subchapter S or personal service corporations and as defined in revenue procedure 2006-45) may obtain automatic approval to adopt, change, or retain its annual accounting period under section 442 of the Internal Revenue Code. See Rev. Proc. 2006-45. In addition, see Rev. Proc. 2007–64, which modifies a scope provision and one of the terms and conditions under with IRS grants approval under Revenue Procedure 2006-45. Entities other than corporations may also obtain automatic approval to adopt, change, or retain its annual accounting period under section 442 of the Internal Revenue Code. See Rev. Proc 2006-46.

  3. See Publication 538, Accounting Periods and Methods, for more information on accounting periods and the Instruction to Form 1128.

  4. A change in accounting period can be identified by TC 053 or 054 on cc ENMOD.

21.7.4.4.4.6.1  (01-01-2005)
Taxpayer Requests Ruling on Accounting Period

  1. IRS charges a user fee when the taxpayer requests a ruling from National Office on an accounting period.

  2. If the taxpayer does not qualify for the automatic approval provisions, they are instructed to file Form 1128 with the Commissioner of IRS in Washington D.C.

  3. In the event the taxpayer sends Form 1128 to a campus with the payment:

    1. Receipt & Control returns the payment to the taxpayer with a letter of explanation (2340 C letter).

    2. Form 1128 is sent to Entity annotated "UFR" (User Fee Returned).

    3. If the taxpayer’s check also included a tax payment, the full amount is applied to his account and the taxpayer notified via 2340 C letter.

  4. Any correspondence received from the taxpayer requesting a refund of the user fees is sent to CAS:AM on Form 3465. Action required:

    1. If unable to locate the payment, contact the taxpayer via phone or correspondence.

    2. Once the payment is located, issue a manual refund for the portion of the payment applicable to the user fee.

  5. If correspondence is received from the taxpayer as a result of Form 1128 being denied because it was filed late and the taxpayer requests relief under Section 301.9100, quotes Rev. Proc. 79-63 or Rev. Proc. 92-85, or otherwise requests an extension be granted:

    1. Forward the request to Associate Chief Counsel (Procedures & Administration):

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

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

    2. Advise the taxpayer of the referral via 86 C letter.

    Note:

    Such requests are considered requests for letter rulings under Rev. Proc. 2006-1, and must be considered in the National Office. The taxpayer is charged a user fee for these types of requests. The amount of the user fee is listed in Appendix A of Rev. Proc. 2007-1 (and on any succeeding revenue procedure).

21.7.4.4.4.7  (08-04-2008)
Tax Computation (Corporations)

  1. Form 1120 filers compute tax on Schedule J using the Instructions for Form 1120. Most corporations figure their tax by using the tax rate schedule below. These rates are effective for tax periods beginning January 1,1993 and subsequent. Be sure to follow the Schedule J submitted by the taxpayer, as there can be other credits or taxes applicable. The total tax on Schedule J is entered on the "Total tax" line on Form 1120.

    If taxable
    income is over    		 But not over Tax is Of the
    amount over
    $0 $50,000 15% $0
    50,000 75,000 $7,500 + 25% 50,000
    75,000 100,000 13,750 + 34% 75,000
    100,000 335,000 22,250 + 39% 100,000
    335,000 10,000,000 113,900 + 34% 335,000
    10,000,000 15,000,000 3,400,000 + 35% 10,000,000
    15,000,000 18,333,333 5,150,000 + 38% 15,000,000
    18,333,333 ---------- 35% 0

  2. For computing tax on short period returns (annualizing tax), see Publication 538. Do not annualize tax on short period initial or final returns.

  3. Section 15311, Temporary Reduction in the Rate of Tax on Qualified Timber Gain of Corporations, of the Food, Conservation, and Energy Act of 2008, P.L. 110-234, provides for any taxable year ending after May 22, 2008 and beginning on or before the date which is 1 year after May 22, 2008, a corporation has both a net capital gain and qualified timber gain, a special rate shall apply. See sections 15311 through 15326 of the Act for special rules on timber provisions.

21.7.4.4.4.7.1  (01-01-2005)
Exceptions to the Standard Tax Rate (Corporations)

  1. Exceptions apply to the use of the standard tax rates for qualified personal service corporations and members of a controlled group.

  2. The corporation should check the appropriate box and complete the lines on Schedule J if the exceptions apply.

21.7.4.4.4.7.1.1  (01-01-2005)
Qualified Personal Service Corporations

  1. A qualified personal service corporation (as defined in IRC section 448(d)(2)) is taxed at a flat rate of 35-percent (for taxable years beginning on or after January 1, 1993) on taxable income. See IRM 21.7.4.4.4.3 for more information on personal service corporations.

21.7.4.4.4.7.1.2  (07-09-2009)
Members of a Controlled Group

  1. Beginning in tax year 2006, members of a controlled group must check the box on line 1 of Schedule J and attach new Schedule O, Consent Plan and Apportionment Schedule for a Controlled Group, to report the apportionment of taxable income, income tax, and certain benefits between the members of a controlled group.

  2. Schedule O is also used to indicate that all members of the control group:

    • Are not adopting an apportionment plan

    • Are adopting an apportionment plan

    • Already have an apportionment plan

    • Are amending a previously adopted apportionment plan

    • Are terminating the existing apportionment plan

  3. Members of a controlled group are entitled to one of each of the taxable income bracket amounts on Part II, Taxable Income Apportionment, of the Schedule O in the order listed below:

    1. $50,000

    2. $25,000

    3. $9,925,000

  4. When a controlled group adopts or later amends an apportionment plan, each member must attach to its tax return, a copy of its consent plan. The copy (or attached statement) must show the part of the amount in each taxable income bracket apportioned to that member. See Regulations 1.1561-3(b) for additional requirements.

  5. T.D. 9451 contains final regulations that provide guidance to taxpayers for determining which corporations are included in a controlled group of corporations.

  6. Members of a controlled group are treated as one corporation for purposes of figuring the applicability of the additional 5-percent and 3-percent tax which must be paid by corporations with taxable income in excess of $100,000 and $15,000,000, respectively. If the additional tax applies:

    1. Each member of the controlled group pays that tax based on the part of the amount used in each taxable income bracket to reduce that member’s tax.

    2. Each member of the group must enter its share of the additional tax in Part III, Income Tax Apportionment on column (f) and (g) and attach to its tax return, a schedule showing the taxable income of the entire group and how the corporation figured its share of the additional tax.

  7. Below is the tax computation worksheet for members of a controlled group.

    Worksheet for Members of a Controlled Group
    (keep for your records)
    Note : Each member of a controlled group (except a qualified personal service corporation) must compute the tax using the worksheet below.
    1. Enter taxable income (line 30, page 1, Form 1120) 1. ________
    2. Enter line 1 or the corporation’s share of the $50,000 taxable income bracket, whichever is less in Part !!, Column C 2. ________
    3. Subtract line 2 from line 1 3. ________
    4. Enter line 3 or the corporation’s share of the $25,000 taxable income bracket, whichever is less in Part II, Column D 4 .________
    5. Subtract line 4 from line 3 5. ________
    6. Enter line 5 or the corporation’s share of the $9,925,000 whichever is less in Part II, Column E 6. ________
    7. Subtract line 6 from line 5 7. ________
    8. Multiply line 2 by 15% 8. ________
    9. Multiply line 4 by 25% 9. ________
    10. Multiply line 6 by 34% 10. ________
    11. Multiply line 7 by 35% 11. ________
    12. If the taxable income of the controlled group exceeds $100,000, enter this member’s share of the smaller of 5% of the taxable income in excess of $100,000 or $11,750 in Part III, Column F, ) 12. ________
    13. If the taxable income of the controlled group exceeds $15,000,000 enter this member’s share of the smaller of 3% of the taxable income in excess of $15,000,000, or $100,000 in Part III, Column G 13.________
    14. Add lines 8 through 13. Enter here and on line 2, Schedule J, Form 1120 14. ________
    Members of controlled groups should attach a statement to their tax return (or amended return), showing their tax computation.

21.7.4.4.4.7.2  (01-01-2006)
Form 4626, Alternative Minimum Tax (Corporations)

  1. The alternative minimum tax helps ensure all corporations with economic income pay some amount of tax despite their allowable use of exclusions, deductions, and credits.

  2. The alternative minimum tax provides a formula for tax computation which, in effect, ignores certain preferential tax treatments allowed under law. By eliminating these preferential deductions and credits, a tax liability is created for a corporation which would otherwise pay little or nothing.

  3. Alternative minimum tax is computed on Form 4626, Alternative Minimum Tax — Corporations. A corporation may have alternative minimum tax if either of the following apply:

    • The corporation's taxable income or (loss) before the net operating loss (NOL) deduction plus its adjustments and tax preference items totals more than $40,000, or if smaller, its allowable exemption amount (as computed on Form 4626).

    • The corporation claims any general business credit, any qualified electric vehicle credit, or the credit for prior year minimum tax.

  4. The TPRA of 1997 provided an exemption from alternative minimum tax for small corporations (as defined in IRC Section 55(e)) applicable to tax years beginning after December 31, 1997. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . Generally, a corporation qualifies as a small corporation exempt from alternative minimum tax for its tax year beginning in 2009 if that year is the corporation's first year in existence (regardless of its gross receipts for the year) or, both of the following apply:

    • It was treated as a small corporation exempt from the alternative minimum tax for all prior tax years beginning after 1997, and

    • Its average annual gross receipts for the 3-year tax period (or portion thereof during which the corporation was in existence) ending before its tax year beginning in 2008 did not exceed $7.5 million ($5 million if the corporation had only one prior tax year)

      Note:

      Taxpayers can refer to Temporary Regulations 1.448-1(f)(2)(iv) to determine gross receipts. See Instructions for Form 4626 for more information on figuring gross receipts.

21.7.4.4.4.7.3  (01-01-2005)
CP 130 - Notice of Potential Exemption from Alternative Minimum Tax

  1. Beginning January 1, 2003, CP 130, Notice of Potential Exemption from Alternative Minimum Tax (AMT), generates when taxpayer completes Form 4626, Alternative Minimum Tax, and it appears that they are not liable for the tax.

  2. The Taxpayer Relief Act of 1997 provided an exemption from AMT for certain small corporations. See IRM 21.7.4.4.4.7.2(4) for criteria.

  3. Taxpayers are instructed to check their records to see if they meet the requirements to be deemed a small corporation, and therefore, exempt from AMT. For aggregation rules and other special rules that may apply in figuring gross receipts, see IRC section 448(c)(2) and (3). Taxpayer should also check prior years to determine if they were truly liable.

  4. If it is determined (by taxpayer) that they are exempt from the AMT, they should prepare a Form 1120X to delete the AMT reported on their original return. The Form 1120X should be marked "AMT - EXEMPT" at the top of the form and mailed to:
    IRS
    1160 West 1200 South
    Mail Stop 6552
    Ogden, UT 84201

21.7.4.4.4.8  (01-01-2006)
Schedules, Form 1120 Series

  1. Form 1120 consists of many schedules which must be completed by the taxpayer. They are all part of the 1120 tax package and are self-explanatory. The taxpayer is also required to submit various forms to substantiate credits or tax items applicable to the return. The schedules and forms are listed below:

    • Schedule A, Cost of Goods Sold

    • Schedule C, Dividends and Special Deductions

    • Schedule D, Capital Gains and Losses

    • Schedule E, Compensation of Officers

    • Schedule H, Section 280H Limitations for a Personal Service Corporation (PSC)

    • Schedule J, Tax Computation

    • Schedule K, Other Information

    • Schedule K-1, Shareholder’s Share of Income, Credits, Deductions, etc. (Form 1120S)

    • Schedule L, Balance Sheets per Books

    • Schedule M-1 and M-2 - pertain to Schedule L

    • Schedule M-3, Net Income (Loss) Reconciliation for Corporations with Total Assets of $10 Million or More

      Note:

      IRS News Release 2005-106, announced that it is deferring the planned effective date of Schedule M-3 reporting for life, property and casualty insurance companies that file Forms 1120L and 1120PC for tax years ending after December 31, 2006. Forms 1120S and 1065 filers are also required to file Schedule M-3 for tax years ending after December 31, 2006.

    • Schedule N, Foreign Operations of U.S. Corporations

    • Schedule PH, Computation of U.S. Personal Holding Company (PHC) Tax (Every PHC must attach this schedule to its income tax return.)

    • Schedule ), Consent Plan and Apportionment Schedule for a Controlled Group

21.7.4.4.4.9  (10-01-2009)
Credits, Form 1120 Series Returns

  1. Credits can be claimed by submitting the required forms for substantiation. See IRM 21.7.4.4.8 , Non-refundable Credits, Income Tax Returns, and IRM 21.7.4.4.9, Refundable Credits, Income Tax Returns, for more information on non–refundable and refundable credits.

21.7.4.4.4.9.1  (01-01-2005)
Investment Credit, General Business Credit — Missing or Incomplete Schedules

  1. When the original Form 1120 is processed, it is analyzed for the appropriate schedules to support the tax credits claimed. When a form is missing or incomplete:

    1. A letter is issued to the taxpayer requesting the information needed.

    2. If the appropriate forms are received within the suspense period, the credit is allowed.

  2. Late replies are received in CAS:AM if the requested forms were not received timely and, therefore, disallowed. Action required:

    1. Review the forms and/or information received from the taxpayer and verify the credits claimed.

    2. If you do not have a copy of the return, use CC BRTVU. (Do not request the original return unless absolutely necessary.)

    If And Then
    Credit forms/schedules are correct  
    1. Input TC 291 to decrease the tax for the amount of credit.
    2. Adjust penalties and interest if restricted.
    3. Notify the taxpayer of the action taken.
    Credit forms/schedules are correct The credit has been previously allowed Attach the information to the TC 150 return.

21.7.4.4.4.9.1.1  (01-01-2005)
Investment Credit Erroneously Computed or Claimed

  1. Sometimes a taxpayer receives and returns an erroneous refund which was generated due to either:

    1. The taxpayer recomputed investment credit from the prior year and included the credit amount in the remittance submitted with the return.

    2. The taxpayer claimed unused investment credit carryover, however, the return was filed and no tax due. The refund was generated because the unused investment credit was reported on the incorrect credit line.

  2. Action required:

    1. Determine where the error occurred. (Use CFOL. Do not request the original return, unless absolutely necessary.)

    2. Review the account for the returned refund check (TC 841) and monitor until the TC 841 posts.

    3. Input TC 290 for the amount of the tax increase.

21.7.4.4.4.10  (06-09-2005)
Payment of Tax (Corporations)

  1. There are two methods of paying corporation income taxes by which the taxpayer may avoid failure to file and pay penalties and interest assessments. They are:

    • Depositing taxes with an Federal Tax Deposit (FTD) coupon (Form 8109) or by the Electronic Federal Tax Payment System (EFTPS). (See IRM 21.7.1.4.8.1, Electronic Federal Tax Payment System, for more information on EFTPS.)

    • Filing Form 7004 and paying the balance of any tax due on or before the Form 1120 due date (See IRM 21.7.4.4.4.5 for more information on Form 7004.)

  2. See IRM 21.7.11.4.8 regarding corporate ES payments normally due in September 2001, also regarding the percentage due in September 2004, based on section 801 of the Economic Growth and Tax Relief Reconciliation Act, P.L. 107-16.

  3. See the 9-11-2001 Terrorist Attack link on SERP, under the IRM Supplements tab, for the postponement of certain estimated tax payments for "affected taxpayers" of the September 11, 2001, Terrorist Attack.

  4. See IRM 21.7.11.4.8 regarding corporate ES payments normally due on September 15, 2003 based on section 501 of H.R. 2, the Jobs Growth and Tax Relief Reconciliation Act of 2003

  5. See SERP Alerts regarding the postponement of certain estimated tax payments of taxpayers affected by the various hurricanes of 2004. Also, see the Hurricane Katrina/Rita Disaster Relief link on SERP, under the IRM Supplements tab for information on the postponement of estimated tax payments during 2005 due to hurricanes Katrina and Rita.

  6. See IRM 21.7.11.4.8 regarding corporate ES payments changes based on section 401 of the Tax Increase and Prevention and Reconciliation Act of 2005, P.L.109–222. The Act accelerates the payment of estimated taxes for corporations with assets of at least $1 billion for the following dates:

    • Payments due in July, August, and September 2006

    • Payments due in July, August, and September 2012

    • Payments due in July, August, and September 2013

  7. Also, the following payments have been postponed due to section 401 of the Tax Increase and Prevention and Reconciliation Act of 2005, P.L.109–222:

    • Payment due in September, 2010

    • Payment due in September, 2011

21.7.4.4.4.10.1  (03-15-2004)
Estimated Tax Payments - Due Dates

  1. A corporation's estimated tax payments for a full 12 month period are due on the 15th day of the 4th-month, 6th-month, 9th-month and the 12th-month ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . For a calendar year filer, this is the 15th day of April, June, September and December. The payment due dates for periods less than 12 months, are determined by the number of months in the short period. For more information, see IRM 20.1.3.6.3, Payment Due Dates, and Exhibit 20.1.3-2, Installment Due Dates and Percentages of Estimated Taxes for Short Period Returns.

  2. A corporation which does not pay estimated tax when due may be charged an estimated tax penalty. See IRM 20.1.3, Estimated Tax Penalties for more information.

  3. A corporation can file Form 8842, Election To Use Different Annualization Periods for Corporate Estimated Tax (now centralized in Cincinnati), to elect different annualization periods for estimated tax. Upon receipt of Form 8842, C&E inputs a TC 971 with Action Code 047 and routes the form to Files to be filed in the Alpha File.

21.7.4.4.4.10.2  (01-01-2005)
Large Corporate Underpayments

  1. A 2-percent increased rate of interest is imposed on large corporate underpayments (see IRM 20.2.5.8, Large Corporate Underpayments). A large corporate underpayment is defined as any underpayment of tax by a "C" corporation for any taxable period, if the amount of the underpayment exceeds $100,000. For purposes of determining interest for periods after December 31,1997, any letter or notice is disregarded if the following is $100,000 or less, not taking into consideration interest, penalties, or additions to tax:

    1. The amount of deficiency; or

    2. The proposed deficiency; or

    3. The assessment; or

    4. The proposed assessment

  2. A "C" corporation indicator is set in the entity section of corporations defined as "C" corporations.

  3. It is recommended that computations of interest on large corporate underpayments be performed by a restricted interest specialist.

21.7.4.4.4.11  (01-01-2005)
Other Form 1120 Series Returns

  1. There are various types of Form 1120 series returns which are filed dependent upon the type of corporation involved.

21.7.4.4.4.11.1  (03-18-2008)
Form 1120-A, U.S. Corporation Short-Form Income Tax Return

  1. Effective for tax years beginning after December 31, 2006, Form 1120-A is obsolete and can no longer be filed. Beginning in tax year 2007, all domestic corporations, unless required to file a special return, must file Form 1120, U.S. Corporation Income Tax Return.

  2. Form 1120-A had the same due dates and statute of limitations as Form 1120. Previously, Form 1120-A could be filed by certain corporations. See the 2006 and prior Instructions to Form 1120-A for the various qualifications required to be able to file Form 1120-A.

21.7.4.4.4.11.2  (07-17-2007)
Form 1120S, U.S. Income Tax Return for an S Corporation

  1. A domestic corporation can elect under IRC section 1362(b)(1) to be taxed under provisions of Subchapter S of the IRC by filing Form 2553, Election by a Small Business Corporation. An approved election can be identified by TC 090 on CC ENMOD. The filing requirement code (FRC) is 02 (1120-02).

  2. These corporations elect not to be subject to income taxes. If a corporation qualifies, its income is generally taxed to the shareholders. Shareholders are required to report their share of income (from Schedule K-1) on their individual (F1040) income tax returns. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

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

  3. Taxpayers electing to be considered as an S corporation, should mail their original election or fax a photocopy to the campus listed in the Instructions for Form 2553, (Cincinnati or Ogden) based on the taxpayer's geographical location.

  4. The campus notifies the corporation if its election is accepted and when it takes effect. The corporation is also notified if its election is not accepted. Generally, the corporation should receive notification within 60 days if mailed or faxed. If Box Q1 in Part II on page 2 is checked, a ruling letter from the IRS in Washington, DC, generally takes an additional 90 days for the Form 2553 to be accepted.

  5. If the corporation is not notified of denial or acceptance within 40 days of the date mailed or faxed, or within 130 days if box Q1 is checked, view CC ENMOD and look for the following codes and advise the taxpayer accordingly (either by correspondence, L385C, or by telephone):

    • TC 090 - Small Business Election accepted

    • TC 093 - Application for Sub-Chapter S Election Form 2553

    • TC 094 - Sub-Chapter S election denied

  6. If the time frame in (5) above has passed, and no information is available, or the transaction code on the account is TC 093, prepare Form 4442/4442 DI/AMS, Referral. Mark date Form 2553 was faxed or mailed, and advise taxpayer they will be contacted by the end of the time period in (5) above. FAX to BMF Entity Unit in the appropriate center:

    • Cincinnati - 859-669-5748

    • Ogden - 801-620-7116

  7. Previously, once the election was revoked (TC 091) or terminated (TC 096), the corporation was not eligible to make the election again for 5 years, unless the Commissioner consented. However, the SBJPA provides that any termination in a taxable year beginning before January 1, 1997, not be taken into account. Thus, corporations which terminated their election prior to January 1, 1997, may re-elect Subchapter S status without the consent of the Commissioner if they otherwise qualify to make the election. See IRM 3.13.2, BMF Account Numbers, for more information on filing of Form 2553 and acceptance or revocation of Subchapter S status.

21.7.4.4.4.11.2.1  (11-20-2007)
Relief for Late S Corporate Elections

  1. Section 1362(b)(1) provides that a small business corporation may make an election to be an "S" Corporation for any taxable year:

    • At any time during the preceding taxable year, or

    • At any time during the taxable year and on or before the 15th day of the 3rd month of the taxable year

  2. Under section 1362(3)(b), if an S corporation election is made after the 15th day of the third month of the taxable year and on or before the 15th day of the 3rd month of the following taxable year, then the S corporation election is treated as made for the following taxable year.

  3. If an election is made after the date prescribed in section 1362(b) or no election is made for any taxable year, the secretary may determine whether there is reasonable cause to treat the election as timely.

  4. Rev. Proc. 97–48 provides special procedures to obtain automatic relief for certain S corporation’s elections. Generally, relief is available in situations where a corporation intends to be an S corporation, the corporation and its shareholders reported their income consistent with S corporation status for the taxable year the S corporation election should have been made and for every subsequent year, and the taxpayer did not receive notification within the past six-months of the date on which the Form 1120S for the first year was timely filed.

  5. Rev. Proc. 2003–43 provides a simplified method to request relief for a late S corporation election when the entity fails to qualify solely because of the failure to timely file the election. This provision allows that certain entities may be granted relief for failure to timely file the election if the request for relief is filed within 24 months of the due date of the election.

  6. An eligible entity may elect to be classified by filing Form 8832, Entity Classification Election. The election is effective on the date specified on the Form 8832. The election cannot be more than 75 days prior to the date on which the election is filed and cannot be more than 12 months after the date on which the election is filed. The Commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election.

  7. Rev. Proc. 2002–59 provides guidance for an entity newly formed under local law that requests relief for an initial classification election filed by the due date of the entities first federal tax return (excluding extensions). Rev. Proc. 2004–48 provides a simplified method for taxpayer to request relief for a late S corporation election and a late corporate classification election which was intended to be effective on the same date the S corporation election was intended to be effective. To obtain relief under Rev. Proc. 2004-48, the entity must file a properly completed Form 2553 within six months after the due date of the tax return.

  8. Rev. Proc. 2007–62, Internal Revenue Bulletin 2007-41, dated October 9, 2007, provides a simplified method for taxpayers to request relief for a late S corporation election and supplements Rev. Proc. 2003–43. In addition, it also provides a simplified method for taxpayers to request relief for a late S corporation election and a late corporate classification election intended to be effective on the same date that the S corporation election was intended to be effective and supplements Rev. Proc. 2004–48. This revenue procedure is effective for S corporation elections and corporate classification elections intended to be effective for taxable years ending on or after December 31, 2007 (200712 and subsequent).

  9. Section 4.01 of Revenue Procedure 2007-62, provides the eligibility requirements for late S corporation election, and section 4.02 provides the procedural relief. An entity may request relief for a late S corporate election by filing a properly completed Form 2553 (which includes a statement establishing reasonable cause for the failure to timely file the S corporation election) with a Form 1120S for the first taxable year the entity intended to be an S corporation. The forms must be filed together no later than 6 months after the due date of the tax return (excluding extensions) of the entity for the first taxable year in which the S corporation election was intended. See Rev. Proc. 2009-62 for the eligibility requirements and more information on the procedural requirements for relief.

  10. Section 5.01 of Rev. Proc. 2007-62, provides the eligibility requirements for late S corporation election and a late corporate classification election. Section 5.02 provides the procedural relief. An entity may request relief for a late S corporate election and a late corporate classification election by filing a properly completed Form 2553 (which includes a statement establishing reasonable cause for the failure to timely file the S corporation election and a statement explaining the reason for the late corporate classification election) with a Form 1120S for the first taxable year the entity intended to be an S corporation. The forms must be filed together no later than 6 months after the due date of the tax return (excluding extensions) of the entity for the first taxable year in which the S corporation election was intended. See Revenue Procedure 2007-62 for the eligibility requirements and more information on the procedural requirements for relief.

21.7.4.4.4.11.2.2  (01-01-2005)
Estimated Tax Payments (Subchapter S Corporations)

  1. Generally, the Subchapter S corporation must make estimated tax payments for the following taxes if the total of these taxes is $500 or more:

    • Tax on certain capital gains

    • Tax on built-in gains

    • Excessive net passive income tax

    • Investment credit recapture tax

  2. The due date and extension to file requirements are the same as Form 1120. See the Instructions for Form 1120S for more information regarding the payment of tax.

21.7.4.4.4.11.2.3  (01-01-2005)
Required Tax Year (Subchapter S Corporations) and Exceptions

  1. Subchapter S corporations must generally use a calendar year.

  2. An exception is made when a business purpose for having a different tax year is established. An approved exception is identified by TC 054.

  3. The Subchapter S corporation can make a Section 444 election to have a tax year other than a required tax year.

    1. The election is filed on Form 8716.

    2. It is identified by TC 055.

    3. See IRM 21.7.4.4.6, Form 8716 Election to Have a Tax Year Other Than a Required Year, for more information.

21.7.4.4.4.11.2.4  (01-01-2005)
Refundable Credit (Form 1120S)

  1. Form 4136 is used to claim the refundable credit listed on Form 1120S.

  2. If the taxpayer files a nontaxable return and attaches Form 4136, the refund is allowed during initial processing.

  3. If the credit is not claimed on the initial return and the taxpayer files an amended return with Form 4136 attached, follow procedures in IRM 21.7.4.4.9.1(5).

21.7.4.4.4.11.2.5  (01-01-2005)
Item Reference Number (IRN) 886, Form 1120S

  1. Adjust IRN 886 when there is a change to the ordinary income (taxable income) line.

  2. See IRM 21.7.4.4.4.12 for more information on IRN 886.

  3. See IRM 21.7.4.4.4.11.2.7, regarding adjusting taxable income when converting Form 1120 back to Form 1120S.

21.7.4.4.4.11.2.6  (03-17-2006)
Form 8869, Qualified Subchapter S Subsidiary Election (Under Section 1361(b)(3) of the Internal Revenue Code)

  1. Form 8869 is used by a parent S corporation to elect to treat one or more of its eligible subsidiaries (see (2) below) as a qualified Subschapter S subsidiary (QSub). The QSub election results in a deemed liquidation of the subsidiary into the parent. Following the deemed liquidation, the QSub is not treated as a separate corporation; all of the subsidiary's assets, liabilities and items of income, deduction, and credit are treated as those of the parent.

    Note:

    Because the liquidation is a deemed liquidation, it is not necessary to file Form 966, Corporate Liquidation and Dissolution. However, a final return for the subsidiary may have to be filed if it was a separate corporation prior to the date of liquidation.

  2. An eligible subsidiary is a domestic corporation whose stock is owned 100-percent by an S corporation and is not one of the following ineligible corporations:

    • A bank or thrift institution that uses the reserve method of accounting for bad debts under Section 585

    • An insurance company subject to tax under the rules of Subchapter L of the Code

    • A corporation that has elected to be treated as a possessions corporation under Section 936

    • A Domestic International Sales Corporation (DISC) or former DISC

  3. Form 8869 should be filed at the campus where the subsidiary filed its most recent return. However, if the parent S corporation forms a subsidiary, and makes a valid election effective upon formation, Form 8869 should be filed at the center where the parent S corporation filed its most recent return. Generally, a determination as to the acceptance of the election is sent within 60 days of receipt at the campus.

  4. The election can be made at any time during the tax year. However, the effective date depends upon when it was filed. The effective date cannot be more than:

    1. 2 months and 15 days prior to the date of filing the election, or

    2. 12 months after the date of filing the election

  5. Once the QSub election is made, it remains in effect until terminated. If the election is terminated, IRS consent is generally required for another election by the parent corporation (or its successor) on Form 8869 for any tax year before the fifth tax year after the first tax year in which the termination took effect. See Regulations Section 1.1361–5(c) for more details.

  6. The following transaction codes on the entity module pertain to Form 8869.

    • TC 082 - Acceptance of Form 8869

    • TC 083 - Reversal of TC 082

    • TC 084 - Termination of Form 8869

    • TC 085 - Reversal of TC 084

    • TC 086 - Effective date of revocation

    • TC 087 - Reversal of TC 086

  7. If a taxpayer contacts us regarding their Form 8869, research cc ENMOD for the transaction codes in paragraph (6) directly above and advise taxpayer of the status. If the account reflects that the Form 8869 was either accepted or denied and the taxpayer states they received no response from IRS, prepare Form 4442 and route to Entity. If it has been more than 60 days since the taxpayer submitted Form 8869 and they have not received a response, or we have no record of receiving the form, advise the taxpayer to re-file Form 8869 at the location that they originally filed Form 8869. In addition, instruct the taxpayer to enclose an explanation on why they are re-filing the form and any proof they may have that they filed the form timely.

  8. See the Instructions for Form 8869 for additional information.


Prev Next

More Internal Revenue Manual