21.7.4  Income Taxes/Information Returns (Cont. 2)

21.7.4.4 
Income and Information Returns Procedures

21.7.4.4.4 
Form 1120 Series Returns, Corporation Income Tax

21.7.4.4.4.9 
Credits, Form 1120 Series Returns

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  (11-02-2010)
Payment of Tax (Corporations)

  1. Beginning after December 31, 2010, authorized depositories will no longer accept Form 8109 and Form 8109-B, Federal Tax Deposit Coupon, to deposit corporate taxes. Most taxpayers will be required to electronically deposit all income, employment, excise, and corporate depository taxes using the Electronic Funds Transfer (EFT). See IRM 21.7.1.4.8.1, Electronic Federal Tax Payment System, for information on EFTPS.

  2. Some taxpayers may be able to remit payment for their employment or excise taxes with their tax return. See IRM 20.1.4.6, De Minimis Exception to Deposit Requirements, for employment taxes and IRM 20.1.4.10.5, De Minimis Exception to Deposit Requirements Form 720, for more information. Corporate taxpayers can also remit payment when filing Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. Foreign corporate taxpayers without a U.S. office can also remit through electronic funds transfer such as EFTPS.

  3. See IRM 21.7.11.4.8, CP 234 - Processing Potential ES Penalty Notices, regarding the postponement of certain corporate ES payments due to disasters or terrorist attacks. Also see the IRS Disaster Assistance Program website for the postponement due to disasters.

21.7.4.4.4.10.1  (12-01-2010)
Estimated Tax Payments - Due Dates

  1. A corporation's estimated tax payments for a full 12 month period are due on the 15 day of the 4 month, 6 month, 9 month and the 12th month ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . For a calendar year filer, this is the 15 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 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.

  4. Per Chief Counsel, the IRS will not transfer or re-designate an estimated tax payment or a portion of an estimated tax payment that has been applied to a taxpayer’s account to satisfy a different liability of the taxpayer if the payment was applied according to the taxpayer's instructions. For example, taxpayer requests that we transfer an estimated tax payment from their Form 1120 account to their Form 941 account because the taxpayer believes they will have no tax liability when the Form 1120 is filed. The IRS will not transfer these payments. However, if the taxpayer designated an estimated tax payment to the incorrect form or tax period, or if the IRS applies a payment contrary to a taxpayer's instructions, the IRS will, upon request by the taxpayer, transfer the payment to the intended account.

  5. A corporation that believes it will have overpaid its estimated tax for the tax year may apply for a quick refund on Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax, before the 16 day of the 3rd month after the end of the tax year at issue, but before it files its income tax return, if the overpayment is at least 10 percent of the expected tax liability and at least $500. A corporation should not file Form 4466 before the end of its tax year. Form 4466 is worked in Accounting. See IRM 3.17.79.3.12, Form 4466, Corporation Application for a Quick Refund of Overpayment of Estimated Tax, for more information on the processing of Form 4466.

21.7.4.4.4.10.2  (01-01-2005)
Large Corporate Underpayments

  1. A 2 percent increased rate of interest may be 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 after January, 1991, if the amount of the underpayment exceeds $100,000 and is not paid within 30 days of the earliest: 30-day letter, 90-day letter, or a notice and demand (bill). For purposes of determining if the additional 2% interest applies 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. See IRM 20.2.5.8(1), Large Corporation Underpayment (LCU) for information on determining the 2 percent start (trigger date) and computing interest. "C" Corporation includes corporate income, employment and excise tax returns.

  4. Computations of interest on large corporate underpayments must be performed by a restricted interest specialist, because the system cannot always determine the start date. The 30-day or 90-day letter date should be annotated on Form 3198 or appropriate closing document and in the file when the tax is over $100,000.

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 for Form 1120-A for the various qualifications required to be able to file Form 1120-A.

21.7.4.4.4.11.2  (06-23-2014)
Form 1120S, U.S. Income Tax Return for an S Corporation

  1. A domestic corporation can elect under IRC 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) and the document code is 16.

  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. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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    • Claims and/or amended returns involving Ponzi Scheme issues (including language discussing removal of phantom or fraudulent income). Route to Examination as CAT-A ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Note:

      For more information on fraudulent arrangements (aka "ponzi schemes" ) see Revenue Ruling 2009-09, Rev. Proc. 2009-20, and Rev. Proc. 2011-58 which modifies Rev. Proc. 2009-20.

  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, S Corporation Election (F2553) Acknowledged/ Accepted, 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 e-4442/4442, Inquiry 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 campus:

    • 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 five 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.

  8. Certain taxpayers are unable to file Form 1120S electronically due to a mismatch on the filing requirements. In these cases, the taxpayer has filed Form 2553 and an un-reversed TC 090 is on ENMOD, however, the filing requirements have not been updated to 1120-02. Therefore, the return is rejected. If you receive a call from a taxpayer who states that they tried to file Form 1120S electronically but were rejected, check for an un-reversed TC 090 on the account for the tax period in question and follow the chart below:

    If Then
    If the taxpayer has a valid S Corporation election (TC 090) but their filing requirement code is 01
    Inform the taxpayer of the valid election.
    Tell them to follow the instructions provided by their ERO/e-file provider to file their return.

    Note:

    If their ERO/e-file provider has not contacted the e-help desk unit, advise the caller that the ERO/e-file provider should call the e-help desk toll-free at 1-866-255-0654 for instruction. See IRM 3.42.7.1.1, Hours of Operation.

    If the taxpayer has already contacted the e-help desk and they were unable to help them Tell the taxpayer to file their Form 1120S on paper and request abatement if and when they receive a penalty notice from the service. Apologize for the inconvenience. Also, prepare a Form 4442 and route to Entity. Entity will input a TC 092 and then a TC 090 (a cycle later) in an attempt to re-instate the 1120-02 filing requirement.

21.7.4.4.4.11.2.1  (06-09-2014)
Relief for Late S Corporate Elections

  1. IRC 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 15 day of the 3rd month of the taxable year.

  2. Under IRC 1362(b)(3), if an S corporation election is made after the 15 day of the third month of the taxable year and on or before the 15 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 IRC 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. IRC 1362(b)(5) provides that if:

    1. an election under IRC 1362(a) is made for any taxable year (determined without regard to IRC 1362(b)(3)) after the date prescribed by IRC 1362(b) for making the election for the taxable year, or no election is made for any taxable year, and

    2. the Secretary may treat the election as timely made for the taxable year (and IRC 1362(b)(3) shall not apply) if the Secretary determines that there was reasonable cause for the failure to timely make the election.

  5. Previously the following revenue procedures provided procedures by which taxpayers could request relief:

    • Rev. Proc. 97-48

    • Rev. Proc. 2002-59

    • Rev. Proc. 2003-43

    • Rev. Proc. 2004-48

    • Rev. Proc. 2007-62

  6. Rev. Proc. 2013-30 facilitates the granting of relief to taxpayers that request relief previously provided in numerous other revenue procedures by consolidating the provisions of those revenue procedures into one revenue procedure and extending relief in certain circumstances. It is the controlling revenue procedure for all late elections including those that were pending under the older revenue procedures.

  7. Rev. Proc. 2013-30 provides special procedures to obtain automatic relief for certain S corporation’s elections. Generally, relief is available when all the following conditions are meet:

    • The corporation intended 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.

  8. Rev. Proc. 2013-30 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.

  9. 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 and:

    1. The election cannot be more than 75 days prior to the date on which the election is filed and

    2. The election cannot be more than 12 months after the date on which the election is filed.

    3. The Commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election.

  10. Rev. Proc. 2009-41, 2009–2 C.B. 439, provides relief with respect to late entity classification elections for an eligible entity’s initial classification election or change in classification election. Eligible entities meeting the requirements under Section 4 of that revenue procedure must request relief within 3 years and 75 days of the requested effective date of the eligible entity’s classification election.

  11. Rev. Proc 2013-30 modifies and supersedes the revenue procedures below for taxpayers to request relief for late S corporation elections, Electing Small Business Trust (ESBT) elections, Qualified Subchapter S Trust (QSST) elections, Qualified Subchapter S Subsidiary (QSub) elections, and late corporate classification elections which the taxpayer intended to take effect on the same date that the taxpayer intended that an S corporation election for the entity should take effect:

    • Rev. Proc. 2003-43, 2003-1 C.B. 998

    • Rev. Proc. 2004-2, 2004-2 C.B. 172

    • Rev. Proc. 2007-2, 2007-2 C.B. 786

  12. Revenue Procedure 2013-30 also:

    • Incorporates certain relief provisions included in: Rev. Proc 97-48, 1997-2 C.B. 521 and Rev. Proc. 2004-49, 2004-2 C.B. 210.

    • Supersedes the relief provided in Situation 1 of Rev. Proc. 97-48.

    • Obsoletes the relief provided in Situation 2 of Rev. Proc. 97-48 because such relief is no longer available.

    • Modifies and supersedes the relief provided in sections 4.01 and 4.02 of Rev. Proc. 2004-49.

    • Obsoletes the relief provided in section 4.03 of Rev. Proc. 2004-49 because the time period for its narrow scope of relief has expired.

  13. Rev. Proc. 2003–43 provides a simplified method for taxpayers to request relief for late ESBT and QSST elections if the request for relief is filed within 24 months of the due date of the election

  14. Rev. Proc. 2013-30 provides the exclusive simplified methods for taxpayers to request relief for late S corporation elections, ESBT elections, QSST elections, QSub elections, and late corporate classification elections which the taxpayer intended to take effect on the same date that the taxpayer intended that an S corporation election for the entity should take effect.

  15. This revenue procedure provides procedures for situations within its scope that are in lieu of the letter ruling process ordinarily used to obtain relief for a late Election Under Subchapter S (as defined in Section 4.01(5)) pursuant to IRC 1362(b)(5), IRC 1362(f), or section 301.9100-1 and section 301.9100-3. Accordingly, user fees do not apply to corrective actions under this revenue procedure.

  16. Section 4.01 of Rev. Proc. 2013-30 provides the definitions of various terms. Section 4.02 provides the requirements for relief and section 4.03 provides the general procedural requirements for relief. Section 5 of this revenue procedure provides a simplified method for taxpayers to request relief for late S corporation elections (which may or may not include a Deemed Entity Classification Election (as defined in Section 4.01(1) of this revenue procedure).

  17. A requesting entity seeking relief for a late S corporation election under section 5.01 of this revenue procedure must file a completed Form 2553, signed by (1) an officer of the corporation authorized to sign, and (2) all persons who were shareholders at any time during the period that began on the first day of the taxable year for which the election is to be effective and ends on the day the completed Election Form is filed.

  18. Taxpayer's may file the required forms electronically through Modernized e-File (MeF) or on paper. Code and Edit (C&E) will edit Error Resolution System (ERS) Action Code (AC) 347 on paper returns and MeF will generate ERS AC 347 for electronically filed Form 1120S citing Rev. Proc. 2013-30. See IRM 3.12.2.7.5.1, ERS Action Code 347 - Revenue Procedure 2013-30, for more information.

  19. Section 6 of this revenue procedure provides a simplified method for taxpayers to request relief for late ESBT and QSST elections. Section 7 of this revenue procedure provides a simplified method for taxpayers to request relief for late QSub elections.

  20. Per section 8.01, except as provided in Section 8.02, this revenue procedure is effective September 3, 2013, the date of publication of this revenue procedure in the Internal Revenue Bulletin. This revenue procedure applies to requests pending with the IRS Service Center pursuant to Rev. Proc. 97-48, Rev. Proc. 2003-43, Rev. Proc. 2004-48, and Rev. Proc. 2007-62 on September 3, 2013, and to requests received thereafter. It also applies to all ruling requests pending in the IRS national office on September 3, 2013, and to requests for relief received thereafter.

  21. An entity that does not meet the requirements for relief or is denied relief under this revenue procedure may seek relief by requesting a letter ruling. The procedural requirements for requesting a letter ruling are described in Rev. Proc. 2014-1, 2014–1 I.R.B. 1, or its successors.

  22. Rev. Proc. 2013-30 provides relief if the taxpayer satisfies the general requirements of Section 4 and the specific requirements applicable to that taxpayer under Sections 5 through 7 of this revenue procedure. See IRM 3.12.2.7.5.1, ERS Action Code 347 - Revenue Procedure 2013-30, for Entity's procedures for processing returns requesting relief under Rev. Proc. 2013-30.

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 when 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, Credit for Federal Tax Paid on Fuels, 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, Form 4136, Credit for Federal Tax Paid on Fuels.

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 campus 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. Two 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 General Instructions for Form 8869 for additional information.

21.7.4.4.4.11.2.7  (05-30-2008)
Converting Form 1120 Back to Form 1120S

  1. When a taxpayer files a Form 1120S (Document Code 16) and does not have a valid Small Business Election, Form 2553 (TC 090 on ENMOD) on file, the TC 150 goes Unpostable Code 310 RC 4. Per IRM 3.13.222.64, Unpostable Code (UPC) 310 Reason Code 4, Entity searches for a valid election. If a valid election is not found, Entity contacts/corresponds with the taxpayer. At this point, Entity inputs a TC 971 AC 375 to identify that the 1120S has failed to post and that a phone call was made or a letter was issued to the taxpayer. See IRM 3.13.222.64, Unpostable Code (UPC) 310 Reason Code 4, for the action Entity takes based on the taxpayer’s response.

  2. If the taxpayer does not respond to Entity’s contact, Entity converts the Form 1120S to a Form 1120 (See IRM 3.11.16.4.2, Conversion of Form 1120S to Form 1120). Entity inputs TC 971 AC 376 to identify the conversion from Form 1120S to Form 1120 and that no reply was received. This action freezes the module from refunding or credit electing.

  3. If the taxpayer contacts us after the return has been processed as a Form 1120 and claims that they have a valid election, follow the instructions in IRM 21.7.4.4.4.11.2(6) and (7). If a valid election (TC 090) is found on the account, the freeze is released when the TC 090 posts. If the TC 971 was input to an incorrect EIN or tax module, input TC 972 AC 376 to reverse the TC 971 which will release the credit.

  4. When Entity determines that the taxpayer should have been classified as a small business and the previously converted Form 1120 should be converted back to a Form 1120S, they prepare a Form 3465 and route it to Accounts Management stating: "REMOVE THE TAX FROM POSTED FORM 1120 – TC 150 SHOULD BE A FORM 1120S." Entity ensures that the filing requirement of "02" is set.

  5. Accounts Management removes the tax from the account as requested. Input the adjustment using blocking series 18 so that it becomes the controlling DLN and has the original return attached to it. Only adjust taxable income if the original return is secured or if the taxpayer sends a copy (fax) of their return. It is not necessary to pull the original return strictly to adjust the taxable income.

  6. If the taxpayer never filed Form 8832, Entity Classification Election, and/or Form 2553, Election by a Small Business Corporation, and intended to be classified as a small business, advise them to see Rev. Proc. 2013.30, to request relief for a late S corporation election. (See IRM 21.7.4.4.4.11.2.1(8) and (9)). However, if the taxpayer never intended to be classified as a small business, advise them to file a Form 1120.

21.7.4.4.4.11.2.8  (03-18-2011)
Failure to File S Corporation Return Penalty

  1. Section 9, Penalty for Failure to File S Corporation Returns, of the Mortgage Forgiveness Debt Relief Act of 2007, P.L. 110-142, adds section 6699, Failure to File S Corporation Return to the IRC. See IRM 20.1.2.5, Failure to File S Corporation Return - IRC 6699, for more information.

  2. A S Corporation may be assessed a penalty under IRC 6699 for failure to file a timely and complete return as required under IRC 6037. The return is considered incomplete when Form 1120S is lacking the required information required by section 6037, such as Schedule(s) K-1, or a Schedule L, Balance Sheet. See IRM 3.12.217.2.18, Field 01MSC - Missing Schedule Code, for information on missing schedule codes. The incomplete return penalty is assessed with TC 240 or TC 246. The late filing penalty is assessed with TC 160 or TC 166.

  3. The provision is effective for returns that are due on or after December 20, 2007. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    Legally, a penalty for filing late can also be assessed on an S corporation return under IRC 6651(a)(1) if the return is required to show tax. (S corporation returns that are required to show tax, are required to be filed under IRC 6012 as well as under IRC 6037.) However, if the penalty under IRC 6651(a)(1) is assessed on an S corporation return for tax period 200812 and later, interest must be computed manually and restricted because interest on the penalty for filing late under IRC 6651(a)(1) begins on the return due date (including extensions) while interest on the penalty under IRC 6699 begins on the date of notice and demand. See IRC 6601(e)(2). Programming was fixed in 1/2012 to start interest on assessment date for the late filing penalty under IRC 6699. Therefore, interest no longer needs to be manually computed and restricted when this applies.

  4. For the purpose of the penalty, a "shareholder" is any person who held any shares in the corporation during any part of the taxable year covered by the return in question.

  5. Initially, the penalty was set to be assessed at $85 per shareholder for each month or part of a month that the return was late or incomplete, for up to 12 months. However, section 128 of the Workers, Retiree, and Employer Recovery Act of 2008, P.L. 110-458, increased the penalty by $4 to $89 per shareholder per month. The increase is effective for returns due after December 31, 2008, without regard to extensions. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. Section 16 of the Worker, Homeownership, and Business Assistance Act of 2009, P.L. 111-92, increased the penalty to $195 per shareholder per month for returns with a tax year beginning after December 31, 2009. For manual penalty adjustments, follow the chart below:

    If the tax period is And Then the penalty per shareholder per months is
    200812 through 200912   $89
    201001 through 201011 the tax period beginning start date is on or before 12/31/2009 $89
    201001 through 201011 the tax period beginning start date is after 12/31/2009 $195
    201012 and subsequent   $195
  7. Caution:≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  8. A CP 162 NoticeUntimely Filing Penalty - Partnership, is sent when there is no tax owed and the taxpayer has been assessed a Failure to File Penalty or an Incomplete Return Penalty. A CP 161 Notice No Math Error, Balance Due (Except Form 1065), is issued if tax is owed and a Failure to File Penalty or an Incomplete Return Penalty has been assessed.

    Note:

    Programming problems were identified with the processing of Form 1120S returns in processing cycles 201103 through 201106. Notice Review attempted to stop the notices and correct the accounts. A recovery was performed. However, if you receive a taxpayer inquiry questioning the penalty amount, check the IDRS message file (cc MESSG) for special instructions. If none are posted, follow the chart above and re-compute the penalty based on figures shown above, the tax period beginning start date and the number of shareholders shown on cc BRTVU. Apologize for any inconvenience.

  9. If you receive an inquiry from a taxpayer who has received a penalty notice for either filing late (TC 16X) or for filing an incomplete return (TC 24X) claiming that the number of shareholders is incorrect, perform the following research and confirm the number of Schedules K-1 filed matches number of Schedules K-1 claimed:

    • Research IDRS command code IRPTRO or IRPTRL, or

    • For electronically filed returns, review the return via command code TRDBV or via the Employee User Portal (EUP).

  10. If you are able to verify the number of shareholders claimed by the taxpayer matches our records, adjust the penalty accordingly (≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ). The penalty is computed at $89 or $195 (see chart above) multiplied by the number of persons who were shareholders (during any part of the taxable year) for each month or fraction thereof that such failure continues, but not to exceed 12 months.

  11. If unable to verify the accuracy of the oral statement:

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , inform the taxpayer to submit a written request for penalty abatement or to file an amended return (Form 1120-S with box H(4) checked) to correct the number of shareholders and (if applicable) the schedules K-1 attached to the return and request abatement.

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , adjust penalty based on number of shareholders the taxpayer claimed.

  12. If an amended return is received correcting the number of shareholders, adjust the penalty accordingly. The penalty is computed at $89 or $195 (see chart above) multiplied by the number of persons who were shareholders (during any part of the taxable year) for each month or fraction thereof that such failure continues, but not to exceed 12 months.

  13. See IRM 20.1.1.3.1, Unsigned or Oral Requests for Penalty Relief, for penalty relief guidelines if the request is received either orally or in writing, (but is unsigned) and does not exceed oral statement ceiling. See IRM 20.1.1.3.6.4, Oral Statement Ceiling Exceeded, when the amount exceeds the oral statement ceiling. If the penalty was caused by service error, oral statement ceiling does not apply, see IRM 21.5.2.4.9.2, Oral Statement and Penalty Relief Request, for more information.

21.7.4.4.4.11.3  (05-30-2008)
Form 1120-H, U.S. Income Tax Return for Homeowners Associations

  1. Homeowners associations elect to file Form 1120-H to take advantage of tax benefits provided by Section 528. These benefits allow the association to exclude exempt function income from its gross income. The filing requirement code is 10.

  2. A homeowners association which is a corporation may elect to file Form 1120 because the tax may be less than that figured on Form 1120-H. The taxable income of a homeowners association that files its tax return on Form 1120-H is taxed at a flat rate of 30 percent for condominium management associations and residential real estate associations. See paragraph (6) below for timeshare associations. These rates apply to both ordinary income and capital gains.

  3. The association makes the election to file Form 1120-H each year.

    1. The election must be made no later than the time, including extensions, for filing an income tax return for the year in which the election is to apply.

    2. Once Form 1120-H is filed, the election cannot be revoked for that year without the consent of the Commissioner.

  4. Form 1120-H is due and payable by the 15 day of the third month after the end of the tax year. Form 7004 is filed to request an extension.

  5. Estimated tax, alternative minimum tax, Investment Credit, Work Opportunity Credit, Welfare-to-Work Credit, Empowerment Zone Employment Credit, and Indian Employment Credit do not apply to Form 1120-H. However, a homeowners association which does not elect to file Form 1120-H may be required to make payments of estimated tax.

  6. The TPRA of 1997 permits timeshare associations to report tax on Form 1120-H. However, the tax rate for these associations is 32 percent rather than 30 percent. See the Instructions for Form 1120-H, for more specific information.

21.7.4.4.4.11.4  (12-11-2009)
Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations

  1. A political organization is a party, committee, association, fund (including a separate segregated fund described in IRC 527(f)(3) set up by a IRC 501(c) organization), or other organization. A political organization is organized and operated primarily for the purpose of accepting contributions or making expenditures, or both, to influence the selection, nomination, election, or appointment of any individual to any public office or office in a political organization, or the election of Presidential or Vice Presidential electors.

  2. The taxable income of a political organization is the excess of the gross income for the tax year (excluding exempt function income) over the deductions which are directly connected with that income. Taxable income also includes exempt function income (as defined in (4) below) for any period for which a political organization has not notified IRS that it is to be treated as such.

  3. The net operating loss deduction is not allowed, nor are other special deductions for corporations.

  4. The exempt function income is derived from:

    • Contributions of money or property

    • Membership dues, fees, or assessments paid by members of a political party

    • Proceeds from a political fund-raising or entertainment event (including bingo games) or from the sale of political campaign material, if those amounts are not received in the active conduct of a trade or business

  5. A political organization, whether or not it is tax-exempt, must file Form 1120-POL if it has any political organization taxable income. An exempt organization that is not a political organization must file Form 1120-POL if it is treated as having political organization taxable income under IRC 527(f)(1). An organization that files Form 1120-POL may also be required to file the following forms:

    • Form 8871, Political Organization Notice of Section 527 Status

    • Form 8872, Political Organization Report of Contributions and Expenditures

  6. The due date, payment dates, and extension requirements are the same as Form 1120. All Form 1120-POL are processed at Ogden. The filing requirement code is "09." See IRM 21.7.7.4.5, Form 1120-POL, U.S. Income Tax Return For Certain Political Organizations, for more information on Form 1120-POL, Form 8871, and Form 8872. Also see the General Instructions for Form 1120-POL for more specific information.

21.7.4.4.4.11.5  (01-01-2005)
Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return

  1. Form 1120-PC is filed by domestic non-life insurance companies subject to tax under Section 831 and by foreign corporations carrying on an insurance business within the U.S. which would qualify as a nonlife insurance company subject to tax under IRC 831, if they were U.S. corporations.

  2. Most of the rules for filing and paying Form 1120-PC are the same as Form 1120. The filing requirement code is "04." See the Instructions for Form 1120-PC, for more specific information.

21.7.4.4.4.11.5.1  (01-01-2005)
Section 847 Payments and Requirements

  1. Section 847(2) requires the company to make a special estimated tax payment in an amount equal to the tax benefit derived from the additional deduction permitted under Section 847. Section 847(3) requires companies allowed the deduction to establish a special loss discount account.

  2. Form 1120-PC filers claim the credit on a specific line. Other Form 1120 filers (Form 1120-L and consolidated Form 1120 with insurance companies as subsidiaries) electing the provisions under this section, in the margin near line 32b, write "Form 8816 " and the amount. Taxpayers must attach a schedule showing their computation of estimated tax payments.

  3. The area performing the credit transfer (determined by campus management) receives a copy of the return showing the credit, from C&E.

  4. The special estimated tax payment(s) is not subject to estimated tax penalty. The payment(s) is applied over a 15-year period against a portion of the corporation tax liability. In the 16 year, any amounts which remain in a corporation 15 year account are treated as estimated tax payments for that year. Refer to IRM 3.17.243, Miscellaneous Accounting, for processing instructions.

  5. Loose Form 8816 should be associated with the taxpayer's Form 1120, Form 1120-L or Form 1120-PC. Any issues involving Form 8816 should be referred to the Accounting Branch in Ogden Submission Processing.

21.7.4.4.4.11.6  (01-01-2005)
Form 1120-L, U.S. Life Insurance Company Income Tax Return

  1. Form 1120-L is filed by domestic life insurance companies subject to tax under IRC 801, and foreign corporations which would qualify as life insurance companies if they were U.S. corporations.

  2. The due date, payment dates, and extension requirements are generally the same as Form 1120. A foreign corporation which does not maintain an office or place of business in the U.S. has until the 15 day of the 6 month after the end of the tax year to file.

  3. The filing requirement code is "03." See the Instructions for Form 1120-L, for additional information.

21.7.4.4.4.11.7  (11-13-2012)
Form 1120-IC-DISC, Interest Charge Domestic International Sales Corporation Return

  1. Form 1120-IC-DISC is an informational return and is filed by domestic corporations that have elected to be treated as an IC–DISC and have satisfied the requirements under IRC 992. It is also filed by a domestic corporation that is a former DISC or former IC-DISC. Generally, an IC-DISC is not taxed on its income. Shareholders of an IC-DISC are taxed on its income when the income is actually (or deemed) distributed.

  2. A corporation must be organized under the laws of a state or the District of Columbia to be an IC-DISC and must meet certain requirements. See the Instructions for Form 1120-IC-DISC, for information on the requirements. Also, see IRC 992(d) for a list of the corporations that are ineligible to be treated as a DISC.

  3. A corporation files Form 4876-A, Election To Be Treated as an Interest Charge DISC, Form 1120-IC-DISC. Form 4876-A must be filed within 90 days after the beginning of the tax year if it is the taxpayers first tax year. For any other year other than the taxpayers first taxable year, the election must be made during the 90 days preceding the first day of that tax year. See the General Instruction for Form 4876-A for more information.

  4. Form 4876-A is worked in Code and Edit. If you receive an inquiry regarding Form, 4876-A, follow the instructions in the if and then table of IRM 21.7.12.4.6, Form 1120-IC-DISC, Interest Charge Domestic International Sales Corporation Return and Form 4876-A, Election To Be Treated as an Interest Charge DISC.

  5. Form 1120-IC-DISC is processed as NMF. The MFT is 23 and the tax class is 6. See IRM 21.7.12.4.6.1 through IRM 21.7.12.4.6.4 for more information on Form 1120-IC-DISC. Route loose Form 1120-IC-DISC to the Cincinnati campus, Stop 6111G. If CIS case, reassign to 0241358315. Taxpayers are instructed to file Form 1120-IC-DISC at the Cincinnati campus at the following address:

    Cincinnati Submission Processing Center
    201 W. Rivercenter Blvd
    Covington, KY 41019

21.7.4.4.4.11.8  (01-12-2006)
Form 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons

  1. Form 1120-ND is filed by nuclear decommissioning funds to report contributions received, income earned, the administrative expenses of operating the fund, and the tax on modified gross income. If there are initial taxes on self-dealing with the fund, the return is also used to report and pay the Section 4951 taxes on self-dealing.

  2. Except for self-dealers, the due dates for filing, paying, and requesting extensions are the same as those for Form 1120. The filing requirement code is "11" .

  3. Self-dealer returns must be filed by the 15 day of the 3rd month after the close of the tax year of the self-dealer. Form 7004 must be filed by self-dealers to request an extension of time to file. See the Instructions for Form 1120-ND, for more specific information.

21.7.4.4.4.11.9  (03-29-2013)
Form 1120-F, U.S. Income Tax Return of a Foreign Corporation

  1. A foreign corporation must file Form 1120-F if, during the tax year, it:

    • Engaged in a trade or business in the U.S., whether or not it had income from that trade or business.

    • Had income, gains, or losses treated as if they were effectively connected with that U.S. trade or business.

    • Had income from any U.S. source, only if its tax liability is not fully satisfied by withholding of tax at source.

    • Overpaid income tax which it wants refunded.

  2. A corporation does not need to file a Form 1120-F if:

    • It did not engage in a U.S. trade or business during the year, and its entire U.S. tax was withheld at the source

    • Its only income is not subject to U.S. taxation under IRC 881(d).

    • It is a beneficiary of an estate or trust engaged in a U.S. trade or business, but would itself, otherwise not need to file.

    • It files Form 1120-L as a foreign life insurance company.

    • It files Form 1120-PC as a foreign property and casualty insurance company.

    • It files Form 1120-FSC, it has filed Form 8279, Election To Be Treated as a FSC or as a Small FSC, and the election is still in effect.

  3. The MFT is 02 and the filing requirement code is "06." See IRM 21.8.2.9, Foreign 1120 Series Returns, for working these accounts, and the Instructions for Form 1120-F for more specific information.

  4. These returns are filed at the following location:

    Internal Revenue Service
    Ogden Campus
    P. O. Box 409101
    Ogden, UT 84409

  5. Forward all cases and correspondence to Ogden's Accounts Management Section at the following location:

    Internal Revenue Service
    Ogden Campus
    MS 6552
    1973 N. Rulon White Blvd.
    Ogden, UT 84404

21.7.4.4.4.11.10  (03-29-2013)
Form 1120-FSC, U.S. Income Tax Return of a Foreign Sales Corporation

  1. Form 1120-FSC is filed to report a foreign sales corporation’s income, deductions, credits, and taxes. The MFT is 02 and the filing requirement code is "15." See the Instructions for Form 1120-FSC for more specific information.

  2. These returns are filed at the following location:

    Internal Revenue Service
    Ogden Campus
    P. O. Box 409101
    Ogden, UT 84409

  3. Forward all cases and correspondence to Ogden's Accounts Management Section at the following location:

    Internal Revenue Service
    Ogden Campus
    MS 6552
    1973 N. Rulon White Blvd.
    Ogden, UT 84404

  4. See IRM 21.8.2.9, Foreign 1120 Series Returns, for working these accounts.

  5. Also, for information on Form 8873, Extraterritorial Income Exclusion, see IRM 21.7.4.4.14.

21.7.4.4.4.11.11  (07-17-2007)
Form 1120-SF, U.S. Income Tax Return for Settlement Funds

  1. Under IRC 468B, designated settlement funds (DSFs), qualified settlement funds (QSFs) for which a grantor trust election is not made, and disputed ownership funds (DOFs) taxed as qualified settlement funds must file Form 1120-SF. In general, DSFs are created by taxpayers who elect to be treated as DSFs and are used to pay the present and future claims against the electing taxpayer which arise out of personal injury, death, or property damage.

  2. QFSs generally are a fund, account, or trust that is:

    • Ordered or approved by a governmental authority (including a court of law).

    • Created to resolve or satisfy one or more contested claims that have resulted or may result form an event (or related series of events) that has occurred and that has given rise to at least one claim asserting liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 or arising out of a tort, breach of contract, or violation of law, and

    • A trust under applicable state law or segregated from other assets of the transferor. A DOF taxed as a QSF generally is an escrow account, trust, or fund that is established to hold money or property subject to conflicting claims of ownership and consists entirely of passive investment assets.

  3. Form 1120-SF is filed by DSFs and QSFs for which a grantor trust election is not made, and DOFs taxed as qualified settlement funds to report contributions received, income earned, administrative expenses of operating the fund, and the tax on its investment earnings.

  4. The income is taxed at the highest rate applicable to trusts. The Jobs and Growth Tax Relief Reconciliation Act of 2003 reduced the tax rate for tax years beginning after December 31, 2002 to 35 percent. The filing requirement code is "16" .

  5. The return due dates, payment dates, and requests for extensions are generally the same as those for Form 1120. Forms 1120-SF are filed at either Cincinnati or Ogden, based on the table located in the Instructions for Form 1120-SF.

21.7.4.4.4.11.12  (12-23-2013)
Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts

  1. Form 1120-REIT is filed to report the income, gains, losses, deductions, and credits of real estate investment trusts as defined in IRC 856. See section 3031 and section 3032, P.L. 110-289, of the Housing and Economic Recovery Act of 2008 for revisions to REIT income and asset tests.

  2. The return due dates, payment dates, and requests for extensions are generally the same as those for Form 1120. The filing requirement code is "18." See the Instructions for Form 1120-REIT, for more specific information.

  3. For information on Form 8875, Taxable REIT Subsidiary Election, see IRM 21.7.4.4.13.

  4. Route correspondence requests for extension of "foreclosure property" grace period pursuant to IRC 856(e) by a real estate investment trust (REIT, Form 1120-REIT) to Ogden Accounts Management, Mail Stop 6276. If CIS case re-control to 0438607158.

  5. An extension request is timely if it is filed more than 60 days before the grace period would expire.

    • The grace period expires as of the close of the third table year following the taxable year in which the REIT acquired the foreclosure property (the second taxable year for qualified health care properties).

    • Accordingly, if the grace period would expire on December 31 of a particular year, the extension request must be dated and filed by October 31 of that year to be timely. See IRM 3.11.212.1.7, Determination of Timely Filing – General, for more information.

  6. If the request is timely filed, Ogden Accounts Management will send the taxpayer a Letter 96C Acknowledgment Letter for General Use Inquiry. In addition, Ogden will input a CIS history statement that an extension request was received and that a Letter 96C was issued. Capture the screen of the Letter 96C for a record of the paragraphs used.

  7. In the 96C letter, use the open paragraphs and the enclosure option to address extension requests. Input the two open paragraphs per the following two bullets and follow the instructions in the third bullet:

    • If your extension request for foreclosure property described in IRC 856(e)(3) or IRC 860G(a)(8) is timely filed (i.e., more than 60 days before the grace period expires), then the grace period shall be automatically extended: (1) in the case of qualified health care property, for 4 years less the term of any prior grace period extension, and (2) in other cases, for three years.

    • However, if your extension request is timely filed and the Service subsequently reviews your request and determines that it shall not be granted, then the automatic extension of the grace period set out in the preceding paragraph shall end after the 30th day after you are notified by certified mail that the request was not granted. (See Treas. Reg. Section 1.856-6(g)(5).)

    • Attach a copy of the extension request that contains the taxpayers name, their EIN, date of request, and property description (the address) of each property that the taxpayer is requesting a foreclosure extension for.

  8. If the request is not timely filed, Ogden Accounts Management will send the taxpayer a Letter 3064C, IDRS Special Letter. In addition, Ogden will input a CIS history statement that an extension request was received and that a 3064C letter was issued. Capture the screen of the Letter 3064C, for a record of the paragraphs used.

  9. In the Letter 3064C, use the open paragraphs and the enclosure option to address extension requests. Input the two open paragraphs per the first two of the following bullets and follow the instructions in the third bullet

    • An extension request for foreclosure property described in IRC 856(e) or IRC 860g(a)(8) must be filed more than 60 days before the grace period would otherwise expire. Your request is untimely, since it was filed after this deadline. The property is also ineligible for the automatic extension provided for a timely filed request. See Treas. Reg. Sections 1.856-6(g) (3), (5).

    • While your extension request was untimely filed, you may make a separate request for the Service to treat it as timely filed, pursuant to Treas. Reg. Section 1.856-6(g) (6), by establishing that (1) there was reasonable cause for failure to file the extension request within the prescribed time and (2) you filed the separate request within a reasonable time under the circumstances.

    • Attach a copy of the extension request that contains the taxpayer’s name, its EIN, date of request, and property description (the address) of each property that the taxpayer is requesting a foreclosure extension for.

  10. If a subsequent inquiry is received AFTER the 96C has been sent (check ENMOD), advise the taxpayer that they may call the non toll-free numbers below if they have any questions and may speak to one of the:

    Senior Program Specialists (Technical Tax Analysts)
    Internal Revenue Service
    LB&I, Financial Services
    @ 212-298-2171 and/or 212-298-2250
    Between 8:00 AM and 4:30 PM (EST)

21.7.4.4.4.11.12.1  (08-31-2009)
Form 8927, Determination Under IRC 860(e)(4) by a Qualified Investment Entity

  1. Form 8927, Determination Under Section 860(e)(4), by a Qualified Investment Entity, is filed by a RIC (Regulated Investment Company, Form 1120-RIC), or a REIT (Real Estate Investment Trust, Form 1120-REIT). Form 8927 is filed when a RIC or REIT seeks to make a determination under IRC 860(e)(4). When properly completed and filed with the Internal Revenue Service, Form 8927 will be treated as a statement by the taxpayer attached to its amendment or supplement to a return of tax for the relevant tax year for purposes of IRC 860(e)(4).

  2. Generally, the date Form 8927 is mailed is the date of determination under IRC 860(e)(4). See section 4 of Rev. Proc. 2009-28, 2009-20 IRB, for details. Also, see the General Instructions for Form 8927 for more information.

  3. If a loose Form 8927, or correspondence citing section 860 of the IRC, or deficiency dividend procedures is received in Accounts Management, route to:

    Internal Revenue Service
    Ogden Submission Processing Center
    P.O. Box 9941
    Mail Stop 4912
    Ogden, UT 84409

  4. If an amended return is received with Form 8927 attached or with correspondence described in the paragraph directly above, route the case to the above address.

21.7.4.4.4.11.13  (01-31-2012)
Form 1120-RIC, U.S. Tax Return for Regulated Investment Companies

  1. Form 1120-RIC is filed to report the income, gains, losses, deductions, and credits of regulated investment companies as defined in IRC 851.

  2. The return due dates, payment dates, and requests for extensions are generally the same as those for Form 1120. The filing requirement code is "17" . See the Instructions for Form 1120-RIC, for more specific information.

  3. A domestic corporation that meets certain conditions must file Form 1120-RIC if it elects to be treated as a RIC for the tax year (or has made an election for a prior tax year and the election has not been terminated or revoked). The election is made by computing taxable income as a RIC on Form 1120-RIC.

  4. The term “regulated investment company” applies to any domestic corporation that:

    • is registered throughout the tax year as a management company or unit investment trust under the Investment Company Act of 1940 (ICA),

    • has an election in effect under the ICA to be treated as a business development company, or

    • is a common trust fund or similar fund that is neither an investment company under section 3(c)(3) of the ICA nor a common trust fund as defined under section 584(a).

  5. In addition, the RIC must meet the (1) income test, (2) asset test, and (3) distribution requirements. See the Instructions for Form 1120-RIC for more information on these requirements.

  6. Per section 101 of the RIC Modernization Act of 2010, P.L. 111-325, there is no limit on the number of tax years that a RIC can carryover a net capital loss for tax years beginning after December 21, 2010.

21.7.4.4.4.11.14  (04-02-2008)
Form 1120X, Amended U.S. Corporation Income Tax Return

  1. Form 1120X is filed to correct previously filed Form 1120 and Form 1120-A. Other types of Form 1120 can be corrected by filing an amended form and checking the box for "Amended Return" shown at the top of the form.

  2. An amended or corrected return posts to a taxpayer’s account as a TC 976 and generates a CP/TRNS 193. Refer to IRM 21.7.9, Duplicate Filing Conditions, for information on resolving duplicate filing conditions.

  3. Form 1120X are no longer worked in Submission Processing. All Form 1120X are routed directly to Accounts Management. See IRM 21.7.9.4, Duplicate Filing Conditions, for more information.

21.7.4.4.4.11.14.1  (04-02-2008)
Pre-Adjusted Form 1120X Procedures

  1. Prior to April, 2008, many Form 1120X, were worked in Submission Processing. These adjustments were processed in the 20 through 29 blocking series.

  2. If a TC 150 with math error codes is already on the module, a TRNS 193 generates and is sent to Accounts Management for review. A TRNS 193 also generates when an adjustment in blocking series 29 (disaster claim) posts.

  3. Action required:

    1. Review Form 1120X and TRNS 193 to verify all adjustments have posted and the refund or offset action was made.

    2. If the adjustment did not post, input the correct adjustment.

    3. Verify the taxable income was adjusted, if necessary.

    4. Math verify Form 1120X,≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and:

    If And Then
    An incorrect refund was issued The incorrect refund was due to a math error or erroneous refund 1. Use CFOL command codes to math verify the original return.
    2. Refer to IRM 21.4.5, Erroneous Refunds, for information on processing erroneous refunds and IRM 21.5.4, General Math Error Procedures, for information on returns involving mathematical and clerical errors.
    An incorrect refund was issued The incorrect refund was not due to a math error or erroneous refund 1. Use CFOL command codes to math verify the original return.
    2. Input TC 29X to correct the account using blocking series 00 or 15.
    3. Send a letter to the taxpayer explaining the change.
    There is no change   Refile using the 1120X DLN. (If the original return was secured, input TC 290 $.00, blocking series 00 to refile the return.)

21.7.4.4.4.11.14.2  (01-01-2005)
Line on Form 1120X To Apply Overpayment as Credit Elect

  1. Form 1120X contains a line where taxpayers can designate to have their overpayment applied as a credit elect to estimated taxes for the succeeding year.

    Reminder:

    As with all credit elects, the overpayment can only be applied to the immediately succeeding tax period. A TC 830/TC 710 can only be used when applying an overpayment as a credit elect to the immediate succeeding tax period. Pursuant to Treas. Reg. 301.6402-3(a)(5) and Treas. Reg. 301.6611-1(h)(2)(vii), interest is never allowed when applying overpayments as credit elects. This is different than when applying overpayments as other than credit elects.

  2. See the examples below illustrating instances where credit elects can be performed:

    Example:

    In 2013, taxpayer files Form 1120X correcting a 2011 tax period. Taxpayer requests overpayment be applied to 2012. Use TC 830/710 to apply credit elect. Use the date the first ES payment is due on the subsequent year, e.g., for 201212 the payment is due 4/15/2012.

    Example:

    In 2013, taxpayer files Form 1120X correcting a 2010 tax period. Taxpayer requests overpayment be applied to the 2011 tax period. This can be done, even though the due date has passed for the period to which the taxpayer requests the overpayment be applied. It is still the immediate succeeding tax period. (For example, the taxpayer may have a balance due on the 2010 tax period which he can use the credit elect against.) Use TC 830/710.

  3. See IRM 21.7.4.4.5 and IRM 21.7.4.4.5.1 for more information on credit elects.

21.7.4.4.4.11.15  (07-09-2009)
Form 1120-C, U.S. Income Tax Return for Cooperative Associations

  1. Effective with tax periods ending on or after December 31, 2006 (200612 and subsequent), Form 1120-C, Farmers' Cooperative Association Income Tax Return, replaces Form 990-C, Farmers' Cooperative Association Income Tax Return. See IRM 21.7.4.4.17 for information regarding Form 990-C.

    Note:

    Due to this change, payments may not have been properly credited to the Form 1120-C account, or overpayments intended for the Form 1120C account may have refunded to the taxpayer. Follow normal payment tracer procedures in IRM 21.5.7, Payment Tracer. If the taxpayer requested a credit elect from the 2006 Form 990C (MFT 33) account to the 2007 Form 1120C (MFT 02) account but the credit elect amount refunded and the refund was not returned, do not abate or reduce penalties for this reason. Also, ensure that penalties have been assessed correctly. Ensure that the proper prior year tax is considered when working ES Penalties.

  2. Form 1120-C, Farmers' Cooperative Association Income Tax Return, is filed to report income, gains, losses, deductions, credits and to figure the income tax liability of the cooperative. Every cooperative must file Form 1120-C, whether or not it has taxable income. The MFT is 02, tax class 3, doc code 032, and the filing requirement code is 20.

  3. Generally, a farmer’s cooperative is a farmer, fruit growers, or like association organized and operated on a cooperative basis to:

    • Market the products of members or other producers and return to them the proceeds of sales, less necessary marketing expenses, or

    • Purchase supplies and equipment for the use of members or other persons and turn over the supplies and equipment to them at actual cost, plus necessary expenses.

  4. A member is anyone who shares in the profits of the cooperative association and is entitled to participate in the management of the association.

  5. A cooperative may file its income tax return by the 15 day of the 9 month after the end of its tax year provided it meets the requirements of IRC 6072(d) prior to filing. Any cooperative not meeting the requirements of IRC 6072(d) must file their income tax return by the 15 day of the third month after the end of its tax year. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. Cooperatives may file Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns, to request an automatic 6 month extension of time to file see paragraph (7) directly below).

  7. Cooperatives with a SC80 are tax-exempt under IRC 521 (type of Org. code 6) and SC93 (Type of Org. code 7) are non-exempt. If the EO status shown on CC ENMOD is 40, it is treated as SC93, non-exempt.

  8. Cooperatives must make estimated tax payments, like a regular corporation must make.

  9. Form 1120-C is filed at the Ogden Internal Revenue Service, Ogden, UT 84201-0027.

  10. Beginning in January 2007, Form 990-C is obsolete and has been replaced with Form 1120-C, U.S. Income Tax Return for Cooperative Associations. Therefore, the last period that Form 990-C can be filed is tax period 200611. See IRM 21.7.4.4.17 for information on Form 990-C.

  11. Follow normal BMF CAT-A/claim procedures in IRM 21.5.3, General Claims Procedures.

21.7.4.4.4.12  (03-14-2014)
Adjusting Tax and Item Reference Number (IRN) 886

  1. Anytime taxable income is changed due to an adjustment (including TC 290 $.00) to an income tax return (Form 990-T, Form 1041, Form 1120, Form 1120-C and Form 1120S), Item Reference Number (IRN) 886 must be input to correct the taxable income/ordinary income/unrelated business taxable income on the master file. Action required:

    • Input IRN 886 to increase taxable income

    • Input IRN 886 with a minus sign to decrease taxable income.

  2. Anytime that the tax reported on a Form 990T, Form 1041 series return, or a Form 1120 series return is changed, input:

    • TC 290 to increase the tax.

    • TC 291 to decrease the tax.

21.7.4.4.4.13  (01-06-2004)
Insolvent Financial Institutions/Failed Savings and Loans, and Failed Banks

  1. IRS is authorized to pay refunds to a statutory or court-appointed fiduciary of an insolvent member of an affiliated group filing a consolidated income tax return.

  2. Tax returns can be filed on behalf of failed savings and loans. The returns and claims are generally prepared by large accounting firms. There are various ways to identify these returns/claims:

    • The words "Savings and Loan" or "Savings Bank" in the entity portion.

    • PBA codes 6030, 6060, 6090, or 6120.

    • Notations that the tax should be abated or refunded based on IRC Sections 7507 or 597, Notice 89-102, or "FIRREA" .

    • Large liabilities but no remittance.

    • Income but not a tax liability.

    • Asterisks on the tax due line.

    • "RTC" or "FDIC" in the entity portion.

  3. Failed Savings and Loans accounts are coded with the Large Corp indicator and are worked in the Large Corp. Units. See IRM 21.7.1.4.11.10, Failed Savings and Loans, for more information.

21.7.4.4.4.13.1  (01-01-2005)
Resolution Trust Corporation (RTC)/Federal Deposit Insurance Corporation (FDIC) Returns

  1. On January 1, 1996, RTC was taken over by FDIC. FDIC is now filing tax returns for institutions under RTC control. The entity section of the return shows "FDIC," however, the top of the return should be stamped "RTC Return."

  2. Returns identified by Exam as RTC or FDIC returns are blocked with a BS of 499 or 979.

  3. For those returns which reflect income but no tax liability, the liability is computer generated and a Math Error Notice sent to the taxpayer.

  4. C&E/ERS does not input a Taxpayer Notice Code (TPNC) if the return has a refund. If a notice is inadvertently generated, Notice Review should stop the notice.

21.7.4.4.4.13.2  (08-04-2008)
Adjustment Procedures (RTCs/FDICs)

  1. Accounts Management employees must have any returns, claims, correspondence, or internally generated notices with a savings and loan, savings bank, or bank type entity as described above, classified by Exam. Failed savings and loans are coded with an LCI.

  2. Any return or correspondence not reflecting an LCI but, nevertheless, has a savings or bank type entity, must be reviewed by Exam before any adjustments or refunds are allowed.

  3. If there is a clear indication the return was reviewed by Exam, do not have the return reclassified.

  4. Please contact the Headquarter's analyst for this IRM if the Large Corp Unit receives a Failed Savings and Loan case.

21.7.4.4.4.13.3  (05-12-2010)
Insolvent Financial Institutions/Failed Banks

  1. Route Form 1120X amended returns involving failed banks meeting any of the following three criteria to Exam in Ogden:

    • Return states "Claim for Refund under IRC 6402(k) or IRC 6402(i)" .

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

  2. See IRM 21.5.9.4.2.1, Carryback Applications/Claims from Financial Institutions in Receivership - Form 56-F Filed, for carrybacks application/claim received from a financial institution, and the ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

21.7.4.4.4.14  (01-01-2005)
Form 4466 Transcripts (Form 1120)

  1. Form 4466 transcripts are generated when both a Form 1120 corporation return (TC 150) and a manual refund (TC 840 with blocking series 30 - 39) posts to MF, resulting in a zero or debit module balance. The manual refund is the result of a Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax. These transcripts indicate the taxpayer may have received an excessive refund of estimated tax (ES) and could be liable for an ES penalty.

  2. Scan the transcript to determine if the taxpayer is subject to an ES penalty. (The related return need not be secured to assess the penalty.) Resolve the transcript by following the table below.

    If And Then
    Module balance is zero No money was paid with the return (TC 610) or no subsequent payment was made after issuance of the original TC 840 Taxpayer is not subject to the penalty and the transcript may be disposed of as classified waste.
    Module balance is zero There is a TC 610 amount and/or a subsequent payment made after issuance of the original TC 840 Taxpayer’s excessive refund of ES is the amount of the payment.
    1. Compute the ES penalty based on the TC 610 subsequent payment amount from the TC 840 date to the due date of the return.
    2. Input TC 170 in blocking series 15 to assess the penalty.
    Module balance is a debit   Taxpayer’s excessive refund is the amount of the debit (except when the debit is created by previously assessed or accrued penalty and/or interest charges).
    1. Combine the TC 610 payment (and similar credits) with the debit amount to determine the excessive refund.
    2. Compute the ES penalty based on the excessive refund amount from the TC 840 date to the due date of the return.
    3. Input TC 170 in blocking series 15 to assess the penalty.
    The Form 4466 refund was issued after the return’s original due date   There is no penalty assessed on the excessive refund amount.
  3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

21.7.4.4.4.15  (10-24-2012)
Modernized e-file Program (MeF) for Corporate and Exempt Organization Returns

  1. Beginning in January 2004, IRS began accepting certain tax year 2003 electronically filed corporate (Form 1120 and Form 1120S) and exempt organization returns. (See IRM 21.7.7.3.14, Modernized Electronic Filing, for MeF for exempt organizations). This was the first phase of the rollout of the Modernized e-File Project (MeF). MeF allows taxpayers to receive refunds via direct deposit and allows e-filers to e-pay their balance due through an authorized electronic funds withdrawal. Beginning in January 2007, Form 1120-F for TY 2006 were accepted. See IRM 3.42.4.6, e-file Revenue Procedures and Program Publications, for a complete list of e-file program publications and revenue procedures pertaining to the Modernized e-File Program.

  2. The MeF Project is a major modernization initiative which will develop the modernized platform for filing returns electronically. The MeF Project provides for the filing of tax and information returns electronically through the internet via registered electronic originators, Electronic Management System (EMS), or web Services. Eventually all forms will be included in the project. Electronic transmissions for these returns will be directed to the Ogden Submission Processing Center. Beginning February 17, 2010, the Service began accepting Form 1040, U.S. Individual Income Tax Return through the Modernized e-file system. See IRM 3.42.5.23, IRS e-file for 1040 Modernized e-File (MeF), for more information on Form 1040 and the MeF system.

  3. Business taxpayers can get information electronically concerning the MeF project by going to the IRS Web site @ www.irs.gov/efile and clicking on the e-file logo in the bottom right hand corner and then clicking on business.

  4. The retrieval, display, printing and archiving of the electronic return is quite different from the current electronic filing of Form 1040 and Form 1041. Employees access return information through IDRS. Documents are in HTML format and are accessed through the employee user portal on their NT workstation. The viewing of the tax return and up to (eventually) 700 different schedules and attachments is through Microsoft Internet Explorer.

  5. Electronically filed Form 1120 and Form 1120S returns are processed in Ogden. Returns filed via the MeF system are assigned the following codes (See IRM 3.42.4.4.2.1, Researching e-file BMF Identification Codes, for more information.):

    Form Filing Location Code Tax Class Document Code
    1120 88/93
    (OVFL 92)
    3 10 and 11
    1120S 16
    1120-F 93 (92 overflow)
    60 (ECI Foreign Address)
    78 (ECI US Possession Address)
    3 66 and 67
  6. Electronically filed Form 1120 and Form 1120S (MeF) returns that are rejected by the system, fall-out to ERS/Rejects and must be processed as a paper return. Beginning in January 2012, rejected (MeF) Form 1120 returns will be renumbered in ERS/Rejects with FLC 91 and blocking series 960-978, and rejected (MeF) Form 1120S returns will be renumbered with FLC 91 and blocking series 900-999. This will allow end users to identify that these return were originally filed electronically but were rejected and were processed as paper returns.

  7. Effective October 1, 2012, IRS e-file providers and applicants will be required to submit their IRS e-file applications online. The paper application, Form 8633, Application to Participate in the IRS e-file Program, has been discontinued. Providers and applicants must register for e-services in order to submit or update an e-file provider application online and pass a suitability test. This applies to Electronic Returns Originators (ERO), Transmitters, Software Developers and Intermediate Service Providers. Business and individuals can apply to the program on-line on the IRS Web site @ www.irs.gov/efile. Type in e-services as the IRS keyword and press enter. Additionally, a fingerprint card or evidence of professional status must be submitted for each application. Taxpayers may call the e-help desk toll-free at 1-866-255-0654 for assistance. See IRM 3.42.7.1.1, Hours of Operation.

  8. Large taxpayers filing only their own return are not required to pass a suitability background check. IRS only performs the suitability checks discussed in Publication 3112 on applicants that prepare returns for profit. Refer these taxpayers to the IRS Web site @ www.irs.gov, keyword "Large Taxpayer." Taxpayers may also call the e-Help Desk toll-free at 1-866-255-0654 for assistance.

  9. To file Form 1120 electronically, transmitters, and software developers MUST successfully pass Acceptance or Assurance Testing System (ATS). 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 5078, Modernized e-file (MeF) Test Package Business Submissions, Assurance Testing System (ATS), for more information on the testing process for the current tax year. Taxpayers may also call the Help Desk toll-free at 1-866-255-0654. Testing for 1120 for TY 2013 became available in ATS on November 4, 2013.

  10. On January 13, 2014, the MeF system began accepting TY 2013 MeF filed corporate returns. For processing year 2014, the MeF system will accept tax years TY 2013, TY 2012 and TY 2011. Beginning with TY 2006 returns, original, amended, and superseding returns are required to be e-filed if the taxpayer is required to file electronically (Unless the taxpayer has received a waiver to file that particular tax return on paper. See IRM 3.42.4.13.3, Certain Corporations and Tax-Exempt Organizations Waiver Procedures). Only the MeF system accepts amended returns. See IRM 21.7.9.4.1.2.2, MeF Filed Amended Returns, for more information on filing amended returns through the MeF system. Taxpayers who filed an original return through any other system must complete an amended return on paper and file it with the campus where they would file a paper return. For carrybacks filed via the MeF system, see IRM 21.5.9.5.1.1, Carrybacks Filed via the Modernized e-File (MeF) System (Ogden AM Campus Only), for more specific information.

  11. Paper Form 8453 (signature documents) are not sent to the IRS for returns filed through MeF. Preparer's must scan a signed, completed Form 8453 and attach it to the electronic return.

  12. Alternatively, most taxpayers can use a Personal Identification Number (PIN) to file their returns. Form 8879-C, IRS e-file Signature Authorization for Forms 1120, is used in the modernized e-file program. This form authorizes an officer of a corporation and an ERO to use a PIN to electronically sign a corporation's electronic income tax return and, if applicable, an Electronic Funds Withdrawal Consent.

  13. The Practitioner PIN option can only be used if the taxpayer uses an ERO. Large Taxpayers who file their returns directly with IRS must use a Form 8453 signature document. For purposes of electronic filing, the IRS defines a “Large Taxpayer” as a business or other entity with assets of $10 million or more, or a partnership with more than 100 partners, which originates the electronic submission of its own return(s).

21.7.4.4.4.15.1  (07-31-2009)
Modernized e-file (MeF) - Electronic Filing of Corporate and Exempt Organization Returns

  1. Beginning in January 2004, IRS began accepting certain TY 2003 electronically filed corporate returns (Form 1120, Form 1120-F, and Form 1120S). In addition, Form 990, Form 990-EZ, Form 1120-POL and Form 8868 for exempt organizations (See IRM 21.7.7.3.13, Modernized Electronic Filing) were also accepted.

  2. For 2005, the MeF System was modified to accept Form 990-PF, Return of Private Foundation, and Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. See IRM 3.42.4.2.8, Processing of Business e-file Returns by OSPC, for a complete listing of forms corporate and tax-exempt organization return that can be filed electronically.

  3. Treasury Regulations (TD 9175), mandated that corporations with assets of $50 million or more and exempt organizations with assets of $100 million or more to electronically file their tax returns for tax years ending on or after December 31, 2005. Final regulations (TD 9363) requires corporations that have assets of $10 million or more and file at least 250 returns annually to electronically file their Form 1120 and Form 1120S for tax years ending on or after December 31, 2006. This requirement extended to foreign corporations filing Form 1120-F, have assets of 10 million or more and who file at least 250 returns annually and is effective for tax years ending on or before December 31, 2008. See Treas. Reg. 301.6011-5.

  4. TD 9363 also requires certain exempt organizations to file their returns electronically. For tax years ending on or after December 31, 2006, exempt organizations with $10 million or more in total assets may be required to e-file if the organization files at least 250 returns in a calendar year. Private foundations and non-exempt charitable trusts are required to file Form 990-PF electronically regardless of their assets size, if they file at least 250 returns annually. See Treas. Reg. 301.6033-4 for more information. See the table below.

    Threshold for Filing Electronically Date Mandated to File Electronically
    Corporations with Assets of $50 million or more Taxable years ending on or after December 31, 2005 (200512)
    Exempt organizations with assets of $100 million or more Taxable years ending on or after December 31, 2005 (200512)
    Corporations and exempt organizations with assets of $10 million or more Taxable years ending on or after December 31, 2006 (200612).
    Private foundations or IRC 4947 (a)(1) trusts under IRC 6033 Taxable years ending on or after December 31, 2006 (200612)
  5. Under these regulations, an entities assets are determined based on total assets at the end of the taxable year as reported on the entities Form 1120, Form 1120-F, Form 1120S or Form 990.

  6. The electronic filing requirement only applies to entities that file at least 250 returns, including income tax, excise tax, employment tax and information return (includes Form W-2 and Form 1099), over a calendar year. All members of a controlled group of corporations are required to file their Forms 1120 electronically if the total number of returns required to be filed by the controlled group of corporations is at least 250. Under these regulations, corrected or amended returns are not included in determining the 250 return threshold.

  7. The returns that are excluded from electronic filing are set forth in Publication 4163, Modernized e-file (MeF) Information for Authorized IRS e-file Providers for Business Returns - Tax Returns Processed in 2014/, and on the IRS Web site @ www.irs.gov.

  8. IRS e-file Signature Authorizations allow an officer of the entity to enter their Personal Identification Number (PIN) as their signature on the corporation’s or exempt organization’s electronically filed return, and if applicable, consent to electronic funds withdrawal, or authorize their EEO to enter their PIN for them. The following signature authorization forms are completed and signed, but are not sent to the IRS. The ERO must retain the Form 8879 for three years from the return due date, extended due date or the IRS received date, whichever is later.

    Form Number Title
    8879-C IRS e-file Signature Authorization for Form 1120
    8879-I IRS e-file Signature Authorization for Form 1120-F
    8879-EO IRS e-file Signature Authorization for an Exempt Organization
    8879-S IRS e-file Signature Authorization for Form 1120S
  9. Corporate officers who do not use the Practitioner PIN method for signing the Form 1120, Form 1120-F, Form 1120-POL, Form 1120S, Form 990, Form 990-EZ, Form 990-PF, Form 8453-I or Form 8879-S as outlined in paragraph (8) above, must sign their return using the appropriate form indicated in the list below:

    • Form 8453-C, U.S. Corporation Income Tax Declaration for an IRS e-file return

    • Form 8453-S, U.S. S Corporation Income Tax Declaration for an IRS e-file Return

    • Form 8453-EO, Exempt Organization Declaration and Signature for Electronic Filing

    • Form 8453-I, Foreign Corporation Income Tax Declaration for an IRS e-file Return

    Note:

    These forms are signed, scanned and submitted with the electronic return in PDF format.

  10. 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 3.42.4.4.2.1, Researching e-file 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.

  11. These regulations also allow the Commissioner to waive the requirement to file electronically in case of undue hardship. Because the Treasury Department and IRS believe that electronic filing will not impose significant burdens on taxpayers under these regulations, the Commissioner only grants waivers in exceptional cases.Notice 2010-13, 2010-4 IRB, sets out the procedures by which a taxpayer can request a hardship waiver.

21.7.4.4.4.15.2  (10-01-2014)
Corporate and Exempt Organization Penalty for Failure to File Electronically

  1. Per IRS Temporary Regulation T.D. 9175, 2005-10 IRB, beginning January 1, 2006, certain corporations and exempt organizations are required to file electronically if they meet certain thresholds. Treasury Decision T.D. 9363 extended the requirement to e-file for certain corporations including Form 1120-F, beginning January 2009. See IRM 21.7.4.4.4.15.1 directly above to identify those corporations and exempt organizations mandated to file electronically beginning in 2005.

  2. On November 11, 2005, IRS issued Notice 2010-13 providing guidance on steps large corporations and tax-exempt organizations can take to seek waivers from electronic filing. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

21.7.4.4.4.15.3  (07-31-2009)
Known e-file Issues and Solutions - Form 1120

  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), LB&I, or Submission Processing will issue a work-around to taxpayers by posting information on the IRS Web site. Go to www.irs.gov, click on e-file, then click on Corporations, and click on the link for Large and Mid-Size Corporations and it will take you to e-file for Large and Mid-Size Corporations. Under the table on contents, there will be a link to the Known e-file Issues and Solutions web-page.

  2. Currently, there are links to TY 2010, TY 2011 and TY 2012. 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 1120 and Form 1065 MeF returns.

  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. See IRM 3.42.7.1.1, Hours of Operation.

21.7.4.4.4.16  (07-11-2013)
Failure to File Form 1120, with a Form 5471 or a Form 5472 Penalty

  1. Beginning January 2009, master file systemically assesses IRC 6038 penalties on Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, that are attached to a late filed Form 1120. Beginning in 2013, master file also systemically assesses IRC sections 6038 penalties on Form 5472, Information Return of a Foreign Owned Corporation, returns that are attached to late filed Form 1120 returns. The penalty is $10,000 per Form 5471 or Form 5472 attached to the late filed Form 1120.

  2. The systemically assessed Form 5471 penalty appears on MFT 13 as a TC 240 with Penalty Reference Number (PRN) 623 for 2009 and as PRN 599 for 2010 and subsequent years. The systemically assessed Form 5472 penalty also posts to MFT 13 as a TC 240 but with PRN 711. Both penalties carry doc code 54, and 00 as the first two digits of the blocking series.

  3. Penalties that are manually assessed by Exam, generally post as a TC 300, doc code 47, with the above penalty reference numbers. However, some manually assessed penalties may be assessed with a TC 240, doc code 54, and with 00 in the first two digits of the blocking series. Accounts Management (AM) does not consider penalty abatement requests for the penalties assessed by Exam. Exam will consider all penalty abatement requests for Exam (manually) assessed Form 5471 and/or Form 5472 Failure to File (FTF) penalties.

  4. A CP 215 Notice, Civil Penalty - 500 and 600 Series, generates as a result of the TC 240 penalty assessment on the MFT 13 module. The CP 215 notice instructs the taxpayer to send penalty abatement requests to Accounts Management’s International Unit in the Ogden campus. Ogden works the requests using instructions in IRM 21.8.2.19.2, Form 5471 Penalties Systemically Assessed from Late-Filed Form 1120 series or Form 1065 and in IRM 21.8.2.20.2, Form 5472 Penalties Systemically Assessed from Late-Filed Form 1120 series.

  5. Chief Counsel has determined that the same reasonable cause criteria can be used for the systemically assessed Form 5471 and Form 5472 penalties and the FTF penalties assessed on late filed Form 1120. Since the late filed Form 1120 penalties generate a CP notice from MFT 02, requests for abatement will instruct the taxpayer to reply to either the Cincinnati or Ogden campus. Cincinnati and Ogden work cases where the taxpayer is only requesting that the Form 1120 FTF penalty be abated. Abatement requests for the Form 1120 FTF penalty and a Form 5471 or Form 5472 FTF penalty may be received in either campus. Follow the table below.

    If And Then
    Taxpayer is only requesting abatement of a late filed Form 1120 penalty (Research to determine if all required Form 1120 have been filed (or have a valid extension) for all years not on retention.). Not all required returns are posted at Master File (BMFOL). Contact the corporation regarding the status of the missing returns:
    1. If the taxpayer states that they have not filed the required forms, advise the corporation that the abatement request cannot be considered until the missing return(s) have been filed, and to submit a request at that time.

    2. If the corporation states that they have filed the missing returns, suspend the request for 40 days until all returns have posted. If the missing returns do not post in the time frame given, follow (a) above.

      All required returns are posted at Master File Consider abatement based on “normal” reasonable cause criteria in IRM 20.1.1.3, Criteria for Relief from Penalties, for the failure to file penalty. Do not consider First Time Abatement unless only a single year is involved and there is no prior penalty history. Penalty relief for all subsequent tax periods will be based on the showing of reasonable cause. See IRM 20.1.1.3.6.1, First Time Abate (FTA).
    Taxpayer requests abatement of both penalties   Consider the request for the late filed Form 1120 penalty only. Follow the instructions in the two rows directly above. If all returns have posted, process the FTF penalty abatement request. Afterwards, route the Form 5471 penalty abatement request to:
    Internal Revenue Service
    Ogden Campus
    MS 6552
    1973 N. Rulon White Blvd.
    Ogden, UT 84404
  6. If you determine that you need to reprocess a TC 150 return where a Form 1120 FTF penalty and either a Form 5471 or a Form 5472 FTF penalty have been assessed, take the following action:

    • Abate the tax. If the account is not restricted the FTF penalty and any FTP penalty will be systemically abated. Any interest charged on the unpaid tax and any interest assessed on the FTF and/or FTP penalties will also be systemically abated. Manually abate any penalties (See IRM 20.1.2.1.5, Manual Penalty Adjustments) and/or interest (see IRM 20.2.8.1, Restricted Interest Overview) that has been systemically restricted from re-computing by a restricting (manual) transaction code. Use the appropriate hold code to hold any money/credit and to prevent a CP 210 Notice or a CP 220 Notice from generating.

    • Send a request to the address in the "then" box in the second row of paragraph (4) directly above, and request that they remove the Form 5471 penalty. Explain that you have reprocessed the return.

    • Reprocess the return to the correct EIN/tax period following normal procedures (see IRM 21.7.9, Duplicate Filing Conditions). Master file will determine whether the penalties will be assessed when the return posts.

21.7.4.4.4.17  (01-31-2012)
Form 1120 and Reinstated Exempt Organization Determination

  1. Per the Pension Protection Act of 2006 (PPA), if an organization fails to submit the annual electronic notice (Form 990-N) or fails to file Form 990, Form 990-EZ, or Form 990-PF as required, for three consecutive years, its tax-exempt status is revoked as of the submission/filing due date of the third year. The system will put the organization in status 97 if there has been no TC 150 (or other satisfying transaction) posting for three years and one month, and the filing requirements are updated to Form 1120-01.

  2. Many of these taxpayers will seek reinstatement. It is also possible that some taxpayers may file Form 1120 while they seek a retroactive reinstatement. If you receive an inquiry from a taxpayer who filed Form 1120 while awaiting reinstatement and has subsequently been reinstated, advise them that if the reinstated exemption covers the period for which they filed the Form 1120, then they must file an amended return (Form 1120X), an explanation or cover letter of the situation, and a copy of the determination letter stating the exemption has been reinstated and the effective date of the exemption.

  3. If the taxpayer submits the proper documentation, process the amended return that covers the period that the taxpayer filed the Form 1120 for and adjust the account. For example; a calendar year taxpayer's exempt status is revoked effective May 15, 2010. Taxpayer files a 201012 Form 1120 to cover the short year return for the remainder of 2010. If the proper documentation is submitted, abate the tax. Manually abate any penalty and/or interest that is restricted from re-computing by a manual penalty (see IRM 20.1.2.1.5, Manual Penalty Adjustments) or restricting interest (see IRM 20.2.8.1, Restricted Interest Overview) transaction code. Also, see IRM 20.2.8.3, Manual Computations. Unrestricted penalties and interest will systemically re-compute when the tax is abated. If the proper documentation is not submitted, send a Letter 916C,, No Consideration Letter and advise them of what is needed.

21.7.4.4.5  (12-01-2010)
Estimated Tax Overpayment, Credit Elect - General

  1. TCs 830/710 are used to manually make a credit elect transfer (TC 836/716 if computer generated).

  2. Credit elects can only be transferred to the immediately succeeding tax period. That is, a credit elect on a Form 1120 for tax period ending 201112 cannot be transferred to Form 1120 for period ending 201312.

  3. Pursuant to Treas. Reg. 301.6402-3(a)(5) and Treas. Reg. 301.6611-1(h)(2)(vii), credit interest is not allowed on an overpayment applied as a credit elect.

  4. Once the taxpayer makes the election to have the overpayment applied to his next year's estimated taxes (credit elect), it cannot be revoked.

  5. Balance due accounts are offset before credit elect.

  6. Offsets to any DMF balance due occurs after BMF offset, but before credit elect.

  7. Generally, the TC 830/710 date will be the first quarter due date of the immediately succeeding tax period. For 201212 to 201312 the date will be 4/15/2013.

  8. See IRM 21.7.4.4.5.1 below for special computer capabilities on certain income tax and EO returns.

21.7.4.4.5.1  (01-01-2005)
Credit Elect Computer Programming on Certain Income Tax/EO Returns

  1. The computer automatically generates credit elect for subsequent overpayments on accounts where the amount of credit elect posted is less than indicated on the original forms below:

    • Form 1120

    • Form 1041

    • Form 990-C/1120C

    • Form 990-T

    • Form 990-PF

  2. This capability only exists until the end of the year from which the credit elect originated. For instance, the computer generated credit elect capability:

    • For a 201212 return, ends on December 31, 2013

    • For a 201303 return, ends on March 31, 2014

      Example:

      A taxpayer files Form 1120 for 201212 on March 15, 2013.

    • The return reflects a credit elect amount of $1,500 to be applied to 201312.

    • However, for some reason, the amount available for credit elect is only $1,000.

    • The computer stores a figure of $500 as a reference for any subsequent credit which becomes available on the 201212 account.

    • The taxpayer files a claim for a $600 decrease on June 15, 2013.

    • The only action required is input of the appropriate TC(s) to allow the credit.

    • The computer generates a refund of $100 from the 201212 account and credit elect of $500 to 201312.

  3. Hold codes do not prevent computer generated credit elect offsets during the year.

  4. Exercise care at the end of the year when adjusting an account. If an additional amount should go to credit elect and the adjustment may not post until after the automatic offset expiration, use the appropriate HC and manually transfer the credit elect using TC 830/710. The credit elect must also be manually transferred if the taxpayer files an amended return or claim (requesting the overpayment be transferred as credit elect) after the computer generated credit elect capability expires.

  5. The computer does not generate a secondary TC 836 if a TC 832 has been input and the mathematical/clerical error indicator is present in the module.

21.7.4.4.6  (10-01-2007)
Form 8716, Election to Have a Tax Year Other Than a Required Tax Year

  1. Eligible partnerships, subchapter S corporations, and personal service corporations (PSC) that do not qualify to adopt or retain a fiscal year based on business purposes (See Rev. Proc. 2002-39 and Rev. Proc. 2006-46) can file Form 8716 to use a tax year other than the required tax year. Generally, the tax year must be a fiscal year month (FYM on ENMOD) ending in September, October, or November.

  2. Under the election, the required payment is reported on Form 8752, Required Payment or Refund Under Section 7519.

  3. The following transaction codes (TC) are used to post the election:

    • 052 - Reversal of posted TC 053, TC 054, or TC 055

    • 053 - Change in accounting period Form 1128

    • 054 - Retain FY (Rev. Proc. 2002-38)

    • 055 - Adopt or change FY per IRC 444 election

    • 057 - Reversal of IRC 444 election

    • 058 - Rejection of Form 8716

    • 059 - Rejection of Form 1128

  4. The TCs are displayed on CC ENMOD with the effective date of the election. TC 057 indicates a computer generated termination of a Section 444 election when a calendar year return is filed.

  5. Forward any unprocessed Forms 8716 or requests for accounting period changes to Entity Control. Follow normal procedures for any adjustment requests received.

  6. The Internal Revenue Service no longer mails out blank Forms 8752. Taxpayers are instructed to download the form from the IRS Web site @ www.irs.gov, or by calling the forms number at 1-800-829-3676.

21.7.4.4.7  (07-11-2013)
Form 8752, Required Payment or Refund Under Section 7519

  1. Form 8752 is filed by partnerships and S corporations who made the Section 444 election to file their income tax return on a fiscal year rather than a calendar year basis. The Form 8752 is used to remit the required payment. The required payment is intended to represent the value of the tax deferral by the owners of those entities through the use of a taxable year other than the required year. Generally, the tax year must be a FY ending in September, October, or November. The required payment is considered a deposit.

  2. The deferral period cannot exceed three months and cannot increase the deferral period of the taxable year that is being changed. Therefore, a taxpayer with a required taxable year ending December 31, can only adopt a FY ending in September, October, or November. Taxpayers electing Section 444 are not required to remit a payment until a liability in excess of $500 has been incurred. Thereafter, the taxpayer must continue to make the required payment even when the amount due is below the $500 threshold.

  3. Forms 8752 are MFT 15, document code 23, and tax class 2. See the General Instructions for Form 8752 for line by line computation instructions. They are annual returns due by May 15 of each year in which the election is in effect.

  4. Personal service corporations do not file Form 8752 even though they are subject to Section 444 and must file Form 8716.

  5. The required payment module has some of the same characteristics as other tax modules, but caution must be used when adjusting the accounts and performing credit transfers. It is recommended that the campuses train a select group of tax examiners (TE) to specialize in resolving Form 8752 accounts.

  6. Form 8752 accounts are very complex. Although these accounts have some of the same characteristics as other tax modules, extreme caution must be used when adjusting the accounts and performing credit transfers. The TC 150 amount is not a tax, it is considered a deposit and is referred to as the "required payment." The moving of payments, and the abatements and additions to the required payment have a rolling affect on multiple modules. Payments roll forward from one tax period to the next as a TC 766 credit. Adjustments to one tax period can effect the TC 766 on multiple periods. These cases are worked by specialists in the Cincinnati campus and by the Restricted Interest Team in Ogden Accounts Management.

  7. Correspondex Letter 4501C, Form 8752, Required Payment or Refund Under Section 7519, should be used to respond to all taxpayer inquiries and IRS initiated action involving Form 8752.

21.7.4.4.7.1  (01-01-2005)
Election Year, Base Year, Required Tax Year (Form 8752)

  1. The election year is the taxable year of a partnership or S corporation with respect to which an election is in effect under Section 444.

  2. The base year is the taxable year (the taxable year is not the same thing as the required tax year mentioned in (3) below) of the partnership or S corporation preceding the applicable election year.

  3. The required tax year is a calendar year.

    Example:

    If the taxpayer has decided to continue with a FY ending of October (201310) and previously filed and received approval via the Form 8716 election, the taxpayer’s current election year is November 1, 2012 - October 31, 2013. The base year is November 1, 2011 - October 31, 2012. The required tax year still remains the calendar year (201212, 201312, etc.).

21.7.4.4.7.2  (11-13-2012)
Penalties (Form 8752)

  1. IRC 7519(f)(4)(a) provides for a 10 percent underpayment penalty on payments made after the payment due date of May 15. They are identified by TC 246, reference code 684. For tax years beginning prior to August 5, 1997, the penalty is not subject to reasonable cause. However, for tax years beginning after August 5, 1997, the TPRA of 1997 provided reasonable cause exception to this penalty. See IRM 20.1.10.17, IRC 7519, Required Payment for Entities Electing Not to Have Required Taxable Year, for more information.

  2. Failure to File (TC 16X) and Failure to Pay (TC 27X) penalties under IRC 6651 do not apply to Section 7519 underpayments. If either penalty has been manually assessed on a Form 8752 account, abate the penalties.

  3. First-time abatement does not apply to the 10 percent underpayment penalty. Also, lack of funds is never grounds for abating the penalty. If the taxpayer is experiencing a lack of funds they should consider terminating the election and adopting the required calendar year. In addition, the fact that the taxpayer would have received a refund in the year following the year they owed the deposit, does not establish reasonable cause for the abatement of the penalty. For example, taxpayer filed Form 8752 for MFT 15 tax period 201012 for $10,000 and did not make the payment. On the 201112 Form 8752 return the taxpayer had zero liability. The fact that the taxpayer would have received a refund of the $10,000 on the 201112 return does not establish reasonable cause for the abatement of the penalty on 201012. See IRM 20.1.1.3, Criteria for Relief from Penalties, for reasonable cause criteria for penalty abatement.

21.7.4.4.7.3  (01-01-2005)
Posting of the Payment (Form 8752)

  1. The required payment (line 9a) posts as the TC 150 amount. The system credits the payment and automatically rolls that amount forward to the following year’s account. It posts on the following year’s account as a TC 766. (There will not be a corresponding debit for that amount.) When the following year’s return posts, one of three situations occur. See the examples below.

    Example:

    Excess credit:

    1. TC 150 is $5,000.

    2. TC 766 is $8,000.

    3. The system rolls over $5,000 to the following year and issues a refund of $3,000.

    Example:

    Balance due:

    1. TC 150 is $8,000.

    2. TC 766 is $5,000.

    If Then
    Balance due is paid with the return (TC 610 for $3,000) The system rolls over credit of $8,000.
    Balance due is not paid with the return A balance due notice is issued for $3,000 plus penalty and interest. The system rolls over the credit of $5,000 and, when paid, an additional credit of $3,000 rolls over.

    Example:

    Zero balance:

    1. TC 150 is $5,000.

    2. TC 766 is $5,000.

    3. The system rolls over $5,000.


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