21.7.4  Income Taxes/Information Returns

Manual Transmittal

September 09, 2014

Purpose

(1) This transmits revised IRM 21.7.4 Business Tax Returns and Non-Master File Accounts, Income Taxes/Information Returns.

Material Changes

(1) This IRM was revised to reflect the following changes:

IRM section ... Description ...
IRM 21.7.4 - (10-01-2014) Editorial changes have been made throughout this IRM.
IRM 21.7.4.4.1.1.1(2) - IPU 14U0497 issued 03-14-2014 Added 2013 to the threshold table for filing Form 1041 Bankruptcy Estates.
IRM 21.7.4.4.1.7(2) - IPU 14U0497 issued 03-14-2014 Added 2014 to the Form 1041 Tax Rate Schedule Table.
IRM 21.7.4.4.1.7.1 - IPU 13U1669 issued 11-20-2013 Added new subsection titled: Form 8960, Net Investment Income Tax - Individuals, Estates, and Trusts.
IRM 21.7.4.4.1.7.4(1) - IPU 14U0497 issued 03-14-2014 Added 2013 to the Form 1041 Exemption Table.
IRM 21.7.4.4.1.9(5), (6) (14) and (18) - IPU 14U0497 issued 03-14-2014 Added that the Multiple Tax Return Listing process used to sign electronically filed Form 1041 Form 8879-F, can only be associated with a single 1041 return. Updated dates for filing Form 1041 electronically. Added that beginning in Processing Year (PY) 2014, Modernized e-File (MeF) will be implemented for Form 1041, Income Tax Return for Estates and Trust.
IRM 21.7.4.4.1.9 - (10-01-2014) Updated the subsection with information on filing Form 1041 electronically via MeF system for TY 2013.
IRM 21.7.4.4.1.11.1(3) - IPU 14U0497 issued 03-14-2014 Added 2013 to the threshold table for wages subject to social security and Medicare Taxes.
IRM 21.7.4.4.2.8(3), (5) and (6) - IPU 14U0497 issued 03-14-2014 Updated dates for filing Form 1065 electronically.
IRM 21.7.4.4.2.8.1.1(3) - IPU 14U0922 issued 05-28-2014 Updated the employee number (0430455460) to route case to.
IRM 21.7.4.4.2.9(7) - IPU 14U0497 issued 03-14-2014 Updated the criteria for sending Form 1065X, Amended Return or Administrative Adjustment Request (AAR), to Exam.
IRM 21.7.4.4.2.9(7) - IPU 14U0621 issued 04-03-2014 Updated the Cat-A criteria for sending Form 1065X, Amended Return or Administrative Adjustment Request (AAR), to Exam.
IRM 21.7.4.4.2.11 - 10-01-2014 Updated the title of the subsection to, CP 282 Notice, Notification of Possible Additional Partnership Filing Requirements (Withholding Tax on Foreign Partners).
IRM 21.7.4.4.3.4 - IPU 13U1793 issued 12-23-2013 Updated the instructions for working Foreclosure Property Extension Requests on Form 1066.
IRM 21.7.4.4.4.11.2(2) - IPU 14U1039 issued 06-23-2014 Updated the Cat-A Criteria on S Corporation Amended Returns.
IRM 21.7.4.4.4.11.2.1 - 10-01-2014 Added information on Revenue Procedure 2013-30 to the subsection on relief for late S corporation election.
IRM 21.7.4.4.4.11.12 - U 13U1793 issued 12-23-2013 Updated the instructions for working Foreclosure Property Extension Requests on Form 1120-REIT.
IRM 21.7.4.4.4.12 - IPU 14U0497 issued 03-14-2014 Changed the title of the subsection to: Adjusting Tax and Item Reference Number (IRN) 886. Added information on adjusting tax.
IRM 21.7.4.4.8.1.4(2) - IPU 14U1039 issued 06-23-2014 Added that general business credits can be carried back the full 5 years under the Small Business Job Act regardless of when the credit was implemented.
IRM 21.7.4.4.8.3.8(5) & (9) - IPU 14U1039 issued 06-23-2014 Corrected the 2012 rate per kilowatt hour, the 2014 rate per kilowatt-hour, and the 2014 rate for refined coal to the chart for Form 8835, Renewable Electricity, Refined Coal, and Indian Coal Production Credit.
IRM 21.7.4.4.8.3.10(3) and (4) - IPU 14U0501 issued 03-17-2014 Updated the information regarding Form 8827. Added a link to new subsection 21.7.4.4.9, Sequestration of Form 8827 Credit - General Information.
IRM 21.7.4.4.8.3.40(3) - U 13U1747 issued 12-16-2013 Corrected the link to the Instructions for Form 8941.
IRM 21.7.4.4.8.3.40 - 10-01-2014 Updated the subsection on the credit for small employer health insurance premium with changes for TY 2014 and subsequent.
IRM 21.7.4.4.9.3 - IPU 14U0501 issued 03-17-2014 Added new subsection titled: Sequestration of Form 8827 Credit - General Information.
IRM 21.7.4.4.9.3.1 - IPU 14U0501 issued 03-17-2014 Added new subsection titled: Original Return Processing (SP) Procedures.
IRM 21.7.4.4.9.3.2 - IPU 14U0501 issued 03-17-2014 Added new subsection titled: Determining if Form 8827 Credit is subject to Sequestration.
IRM 21.7.4.4.9.3.3. - IPU 14U0501 issued 03-17-2014 Added new subsection titled: Determining the Sequestration Amount and Inputting Adjustments on the Originally filed return. (Is now IRM subsection 21.7.4.4.9.3.4.)
IRM 21.7.4.4.9.3.3 - IPU 14U1132 issued 07-11-2014 Added new subsection titled: The Sequestration Rate and the Obligation Date.
IRM 21.7.4.4.9.3.4 - IPU 14U0501 issued 03-17-2014 Added new subsection titled: Processing Amended Returns with Form 8827. (Is now IRM subsection 21.7.4.4.9.3.5.)
IRM 21.7.4.4.9.3.4(1) - IPU 14U1132 issued 07-11-2014 Removed the information in the paragraph and stated to see the previous subsection for determining the proper obligation date and the correct sequestration rate.
IRM 21.7.4.4.9.3.5 - IPU 14U0501 issued 03-17-2014 Added new subsection titled: Responding to Taxpayers Concerning Sequestration of Form 8827 Credits. (Is now IRM subsection 21.7.4.4.9.3.6.)
IRM 21.7.4.4.10(3)(4) and (6) - IPU 13U1747 issued 12-16-2013 Corrected the IRM to state that Schedule K-1 should be attached to claim BUWH, not Form 1099.
IRM 21.7.4.4.21(8) - IPU 13U1747 issued 12-16-2013 Updated the CIS number of the employee case is routed too and the stop number.
IRM 21.7.4.4.21(8) - IPU 13U1793 issued 12-23-2013 Updated the CIS number of the employee case is routed too and the stop number.
IRM 21.7.4.4.23.1 through IRM 21.7.4.4.23.6 - IPU 14U0922 issued 05-28-2014 Removed the subsection dealing with the Telephone Excise Tax Refund (TETR). See the October 1, 2013 revision of IRM 21.7.4 for information on working TETR cases.
IRM 21.7.4.4.24(9) thru (14) IPU 13U1747 issued 12-16-2013 Updated the information on Form 1099-K, Payment Card and Third-Party Network Transactions.
IRM 21.7.4.4.24(12) - IPU 14U0922 issued 05-28-2014 Added a link to IRM 21.7.4.4.10, Backup Withholding (BUWH) on Income Tax Returns.

Effect on Other Documents

IRM 21.7.4 Income Taxes/Information Returns dated September 6, 2013 (effective October 1, 2013), is superseded. This IRM incorporates IPU 13U1669 dated 11/20/2013, IPU 13U1747 12/16/2013, IPU 13U1793 dated 12/23/2013, dated IPU 14U0497 dated 3/14/2014, IPU 14U0501 dated 3/17/2014, IPU 14U0621 dated 4/3/2014, IPU 14U0922 dated 5/28/2014, IPU 14U0978 dated 6/9/2014, IPU 14U1039 dated 06-23-2014 and IPU 14U1132 dated 7/10/2014.

Audience

This IRM is intended for Customer Account Service issues involving Business Master File (BMF) Income Tax Returns and Information Returns.

Effective Date

(10-01-2014)

James A. Clifford
Director, Accounts Management
Wage and Investment Division

21.7.4.1  (01-01-2005)
Income Taxes/Information Returns Overview

  1. This section contains information and adjustment procedures for Business Master File (BMF) income tax and information returns. It also contains information on refundable and non-refundable credits and backup withholding on income tax returns.

21.7.4.2  (01-01-2005)
What Are the BMF Income Taxes/Information Returns Covered in This Section?

  1. The forms covered in this section are:

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

    • Form 1065, U.S. Return of Partnership Income

    • Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return

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

    • Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns

    • Form 8697, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts

    • Form 8716, Election to Have a Tax Year Other Than a Required Tax Year

    • Form 8752, Required Payment or Refund Under Section 7519

    • Form 8913, Credit for Federal Telephone Excise Tax Paid

    • BMF Schedule H (Form 1040), Household Employment Taxes

21.7.4.3  (01-31-2012)
Income/Information Returns Research

  1. Besides the information in this section, the specific form and corresponding instructions for that form are good sources for additional information.

  2. For Form 1041, Form 1065, Form 1066, and Form 1120 series returns, the publications listed below can be used by taxpayers or Service employees to obtain additional information.

    • Publication 535,Business Expenses

    • Publication 538,Accounting Periods and Methods

    • Publication 544,Sales and Other Disposition of Assets

    • Publication 550,Investment Income and Expenses

    • Publication 583,Starting a Business and Keeping Records

    • Publication 908,Bankruptcy Tax Guide

    • Publication 925,Passive Activity and At-Risk Rules

    • Publication 1066-C, A Virtual Small Business Tax Workshop DVD

  3. Small business or self-employed individual who needs answers to tax questions, educational materials or tools to help them run their business, should check out the IRS Small Business and Self-Employed Tax Center @ www.irs.gov, under the business tab. This one-stop shop offers extensive resources and online tools to help small businesses and self-employed persons by providing resources such as:

    • Small business forms and publications

    • Online applications for an Employer Identification Number

    • Employment tax information – federal income tax, Social Security and Medicare taxes, Federal Unemployment Tax Act (FUTA) and self-employment tax

    • Tax-related news that could affect your business

    • Small business educational events

    • IRS videos for small businesses

    • A-Z Index for Business, a fast way to find information

21.7.4.3.1  (05-30-2008)
Additional Form 1041 Research Material

  1. Besides the publications listed in IRM 21.7.4.3(2) above, the publications below can be sources for additional information for Form 1041 filers.

    • Publication 559, Survivors, Executors, and Administrators

    • Publication 1437, Procedures for the Form 1041 e-file Program, U.S. Income Tax Return for Estates and Trusts for TY 2013

    • Publication 1438, File Specifications, Validation Criteria, and Record Layouts for the Form 1041 E-File Program - U.S. Income Tax Return for Estates and Trusts for Tax Year 2012

    • Publication 926, Household Employer's Tax Guide, for Form 1041 domestic (household) employers who must file Schedule H.

  2. There are various methods to obtain IRS Publications:

    • Access the IRS Internet Web site @ www.irs.gov

    • Call the Forms Line toll-free at 1-800-829-3676 (24-hour availability)

    • Call the e-Help Desk toll-free at 1-866-255-0654 (See IRM 3.42.7.1.1, Hours of Operation.)

    • Write to IRS at the following address:
      Ogden Submission Processing Campus
      Stop 6052
      1160 West 1200 South
      Ogden, UT 84201

21.7.4.3.2  (10-01-2009)
Additional Form 1065 Research Material

  1. Besides the publications listed in IRM 21.7.4.3(2) above, the publications below can be sources for additional information for Form 1065 filers:

    • Publication 515Withholding of Tax on Nonresident Aliens and Foreign Entities

    • Publication 541, Partnerships

    • Publication 4163, Modernized e-file (MeF) Information for Authorized IRS e-file Providers for Business Returns - Tax Returns Processed in 2014

    • Publication 4164, Modernized e-file (MeF) Guide for Software Developers and Transmitters - Tax Year Processing Year 2014

  2. The publications listed above can be obtained on the IRS Internet Web site @ www.irs.gov or by calling the Forms line at 1-800-829-3676.

21.7.4.3.3  (05-30-2008)
Additional Form 1066 Research Material

  1. Besides the publications listed in IRM 21.7.4.3(2) above, the publications below can be sources for additional information for Form 1066 filers.

    • Publication 564, Mutual Fund Distributions, Publication 564 is obsolete and no longer available. See Pub 550, Investment Income and Expenses, for more information on Mutual Fund Distribution.

    • Publication 938, Real Estate Mortgage Investment Conduits Reporting Information (And Other Collateralized Debt Obligations (CDOs)) (This publication contains a directory of REMICs. It is not printed, but is available on CD-ROM or the Internet.)

21.7.4.3.4  (01-01-2005)
Additional Form 1120 Series Research Material

  1. Besides the publications listed in IRM 21.7.4.3(2) above, Publication 542, Corporations, can be used as an additional source of information for Form 1120 filers.

  2. Also, see the instructions for each specific type of Form 1120 series return for additional information.

21.7.4.3.5  (10-01-2011)
Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns

  1. Beginning January 1, 2006, IRS consolidated Form 7004 and the forms below and issued revised Form 7004, Application for Automatic 6-Month Extension of Time To File Certain Business Income Tax, Information, and Other Returns.

    • Form 2758, Application for Extension of Time to File Certain Excise, Income, Information, and Other Returns

    • Form 8736, Application for Automatic Extension of Time to File US Return for a Partnership, REMIC, or for Certain Trusts

    • Form 8800, Application for Additional Extension of Time to File US Return for a Partnership, REMIC, or for Certain Trusts

  2. However, beginning January 1, 2009, to reduce the burden on recipients of Schedules K-1, the extension of time to file partnership returns (Form 1065 and Form 8804), and estate and trust returns (Form 1041) has been shortened from six months to five months. The title of the form is now Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. This change is effective for extension requests due on or after 1/1/2009. Therefore, it applies to entities that have a tax year ending on or after September 30, 2008 (200809).

  3. See the table below for the forms that qualify for an automatic five month extension request and the table for automatic six month extension requests.

    Form 7004, Automatic Five Month Extension
    Extension is For Form MFT Form Code Extension is for Form MFT Form Code
    1065 06 09 1041 (Estate) 05 04
    8804 08 31 1041 (Trust) 05 05
    Form 7004, Automatic Six Month Extension
    Extension is For Form MFT Form Code Extension is For Form MFT Form Code
    706-GS(D) 78 01 1120-ND (IRC 4951 Taxes) 02 20
    706-GS(T) 77 02 1120-PC 02 21
    1041 (Bankruptcy Estate Only) 05 03 1120-POL 02 22
    1041-N 05 06 1120-REIT 02 23
    1041-QFT 05 07 1120-RIC 02 24
    1042 12 08 1120-S 02 25
    1065-B 06 10 1120-SF 02 26
    1066 07 11 3520-A 42 27
    1120 02 12 8612 89 NMF 28
    1120-C 02 34 8613 14 NMF 29
    1120-F 02 15 8725 27 NMF 30
    1120-FSC 02 16 8831 89 NMF 32
    1120-H 02 17 8876 27 NMF 33
    1120-L 02 18 8924 08 35
    1120-ND 02 19 8928 89 NMF 36

    Note:

    Effective 6/24/2011 under REG-115457-08, TD 9581, the automatic filing extension period for bankruptcy estates (Form 1041) of individuals filing bankruptcy petitions under chapter seven or 11 of the Bankruptcy Code will be six months.

  4. Form 7004 can be filed on paper or can be filed electronically (see paragraph (3) directly above for those forms for which Form 7004 is valid). For details, see the Instructions for Form 7004. Also, visit the IRS Web site @ www.irs.gov, and click on Tax Professionals for more information on filing Form 7004 electronically.

  5. Form 7004 is processed to BMF as Transaction Code (TC) 620 with Document Code 04. Form 7004 received without remittance, posts as $.00. In addition, when the TC 620 posts to the account, Integrated Data Retrieval System (IDRS) generates TC 460 on the module and reflects the extended due date.

  6. Computer Condition Code (CCC) "L" indicates a rejected or denied extension of time to file.

  7. See IRM 3.11.212, Application for Extension of Time To File Tax Returns, for additional information. Also, follow the procedures in IRM 20.1.2.1.3, Extensions of Time to File and Pay, when the taxpayer requests penalty abatement and claims they filed a timely extension.

  8. Universal Location Code (ULC 98) must be entered to allow a date more than 6 months in the future. See IRM 20.1.2.1.3.3, Taxpayers Abroad, for more information.

21.7.4.4  (01-01-2005)
Income and Information Returns Procedures

  1. Use the following information and procedures for the designated forms.

21.7.4.4.1  (09-24-2009)
Form 1041, U.S. Income Tax Return for Estates and Trusts

  1. Form 1041 is filed to report the income of an estate or trust as reported by a fiduciary. The Master File Tax (MFT) code is 05 and the tax class is "2." It covers a calendar or fiscal year not exceeding 12 months. The return is due on or before the 15 day of the fourth month following the close of the taxable year. Every Form 1041 is edited with a Fiduciary Code and may have a Trust Code. However, amended returns are not transcribed. See IRM 3.11.14.12.3, Fiduciary and Trust Code Editing, for more information on fiduciary and trust codes.

21.7.4.4.1.1  (01-01-2005)
Filing Requirements, Form 1041

  1. The fiduciaries for certain domestic decedent and bankruptcy estates and certain domestic trusts are required to file Form 1041.

21.7.4.4.1.1.1  (03-14-2014)
Domestic Decedent and Bankruptcy Estates

  1. A domestic decedent’s estate is a taxable entity separate from the decedent and comes into being with the death of the individual. It exists until the final distribution of its assets to the heirs and other beneficiaries. The income earned by the assets during this period must be reported by the estate under the conditions described in Publication 559, Survivors, Executors, and Administrators. The personal representative of a domestic decedent’s estate which meets either of the criteria below, must file Form 1041:

    • Gross income of $600 or more for the taxable year.

    • Any beneficiary who is a non-resident alien.

  2. A bankruptcy estate is a separate and distinct taxable entity from the debtor, if the debtor is an individual in a Chapter 7 or Chapter 11. For more information, refer to Publication 908, Bankruptcy Tax Guide. If the bankruptcy estate is a separate taxable entity, the bankruptcy trustee or debtor-in-possession must file Form 1041 if the estate has:

    For tax years beginning in Gross income of
    2009 - 2010 $9,350
    2011 $9,500
    2012 $9,750
    2013 $10,000
    2014 $10,150
  3. Effective 6/24/2011 under REG-115457-08, TD 9581, the automatic filing extension period for bankruptcy estates of individuals filing bankruptcy petitions under Chapter 7 or Chapter 11 of the Bankruptcy Code will be 6 months.

21.7.4.4.1.1.2  (01-01-2005)
Domestic Trusts

  1. A trust is an arrangement in which one party (the trustee) takes title to property for the benefit of another party or parties (beneficiaries). Trustees manage and control the property, but are under a duty to administer the trust according to the trust agreement or local law for the benefit of the beneficiaries.

  2. A trust may be created during an individual's life (inter vivos), or at the time of their death under a will (testamentary).

  3. Domestic trusts which meet any of the criteria below must file Form 1041:

    • Any taxable income for the taxable year.

    • Gross income of $600 or more, regardless of the amount of taxable income.

    • Any beneficiary who is a non-resident alien.

21.7.4.4.1.1.3  (07-17-2007)
Types of Trusts

  1. A simple trust is created by a written document. This type of trust requires all income to be distributed currently, has no authority to make charitable contributions and (during the taxable year in question) does not distribute any amount allocated to the corpus of the trust.

  2. A complex trust is created by a written document. It is for the taxable year and does not qualify as a simple trust. It may or may not distribute current income, principal, or make charitable contributions depending upon its terms.

  3. A grantor trust can be set up by a person, an organization, or, in certain cases, created by a will. The grantor retains sufficient control over the assets of the trust. The income from the trust is taxable to the grantor or other person treated as the owner of the trust. The income, deductions, and credits are not reported on the Form 1041. They are shown on a separate statement which is attached to the 1041. Grantor trusts have many unique characteristics. Among them:

    1. Grantor trusts ordinarily file Form 1099, reporting all items of income paid by the trust and identifying the grantor or other payee. Treas. Reg. section 1.671-4(b), details methods by which the trustee may notify the grantor or other persons treated as the owner of the trust of all items of income, deductions, and credit for the taxable year. The trustee of certain grantor trusts may elect an alternative reporting method under Regulation 1.671-4. Generally, these trusts report by issuing a Form 1099 reporting the trust income and showing the grantor or other person treated as owner of the trust as payee.

    2. A trust may be a partial grantor trust if the power which would make the trust a grantor trust only applies to a portion of the trust assets. The grantor trust portion must report under the general grantor trust rules, and the non-grantor trust portion should report as a simple or complex trust depending on its provisions.

  4. A pooled income fund is a split interest trust that is established by a public charity. The donor or other beneficiary retains a life income interest and the charity receives the remaining interest. It is not exempt from tax under IRC 501(a). A Form 5227, Split Interest Trust Information Return, must also be filed by the fiduciary in addition to Form 1041.

  5. A Qualified Revocable Trust is any trust (or part of a trust) that, on the day the decedent died, was treated as owned by the decedent under IRC 676. The grantor of the trust pays taxes on the trust on their Form 1040 return. The trustee files Form 1041 for "informational purposes" only. The trustees of each qualified revocable trust and the executor of the related estate (if one exists), use Form 8855, Election to Treat a Qualified Revocable Trust as Part of an Estate, to make a IRC 645 election. This election allows a qualified revocable trust to be treated and taxed (for income tax purposes) as part of its related estate (Form 706) during the election period and cannot be revoked once the election is made. See the General Instructions for Form 8855 for more information.

  6. Qualified Funeral Trust - See IRM 21.7.4.4.1.1.4.

  7. Alaskan Settlement Trust - See IRM 21.7.4.4.1.1.5.

  8. Electing Small Business Trusts (ESBTs) are treated as two separate trusts for purposes of determining income tax. The portion of an ESBT that consists of stock in one or more S corporations (the S portion) is treated as one trust. The portion that consists of all other assets in the trust is treated as a separate trust. The grantor or another person may be treated as the owner of all, or a portion of either or both trusts, in which case the grantor portion would be subject under subpart E (grantor portion).

  9. Qualified Disability Trust - See IRM 21.7.4.4.1.1.6.

  10. See IRM 3.11.14.1.3, Definitions, for more general definitions relating to trusts and estates.

21.7.4.4.1.1.4  (10-14-2008)
Form 1041-QFT, U.S. Income Tax Return for Qualified Funeral Trusts

  1. The Taxpayer Relief Act of 1997 (TRRA) resulted in the establishment of Form 1041-QFT. These trusts are created by a contract with a trade or business providing funeral or burial services.

  2. The sole purpose of the trust is to hold, invest, and reinvest funds in the trust and to use those funds to make payments for funeral or burial services for the beneficiaries of the trust. No exemptions are allowed.

  3. Prior to August 28, 2008, a threshold for aggregate contributions was adjusted each year based on cost of living adjustments. Section 9 of the Hubbard Act of 2008 repealed the dollar limitation contribution amount allowed for qualified funeral trusts for tax years beginning after August 29, 2008. Use the table below to determine the contribution limitations:

    For contracts entered in Your contribution limit amount is
    2007 $8,800
    2008 $9,000
    2009 and subsequent No limit -repealed
  4. Domestic Forms 1041-QFT are processed at the Cincinnati Submission Processing Campus and all International Forms 1041-QFT are processed at the Ogden Submission Processing Campus. The MFT is 05, Document Code 39, and the Filing Requirement Code (FRC) is 9.

  5. Form 1041-QFT Estimated Tax (ES) payments are determined individually for each trust reported on a composite (more than one trust involved) Form 1041-QFT. The ES payments are not based on the total taxable income for all trusts reported on the form. Therefore, some taxpayers may be assessed incorrect ES penalties since the computer bases the computation on the total taxable income. If a phone call or correspondence is received from a taxpayer stating an incorrect ES penalty was assessed:

    1. Abate the entire penalty if the taxpayer states they are not required to make ES payments, since the individual trusts were under the current $1,000 threshold for making payments.

    2. If the taxpayer states they are liable for a penalty, but not for the amount assessed, reduce the penalty to the amount calculated by the taxpayer if they provide the calculation on paper.

    3. If the calculation in (b) directly above is not provided, ask the taxpayer to fax/mail it to you.

    4. Upon receipt, verify the computation and adjust the penalty to the taxpayer's figures.

    5. Use reason code 045 in the fourth position and apologize to the taxpayer by phone or via Letter 544C.

21.7.4.4.1.1.5  (07-11-2013)
Form 1041-N, U.S. Income Tax Return for Alaska Native Settlement Trusts

  1. Section 671 of the Economic Growth and Tax Relief Reconciliation Act of 2001, P.L. 107-16, resulted in the creation of Form 1041-N and IRC 646. The provision is effective for tax years ending after June 7, 2001 and tax years beginning on or before December 31, 2010. Section 101(a)(1) of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, extended the provision for two additional years, and is effective for tax years beginning on or before December 31, 2012.

  2. The provision allows Alaska Native Settlement Trusts (currently numbering approximately 20) to elect special tax treatment for the trust and its beneficiaries. The trust pays the income tax, therefore, distributions of income are generally tax-exempt for the beneficiaries. In certain cases, trust distributions are treated as taxable dividends for the sponsoring Native Corporation. See the table below for the tax rates on ordinary income and capital gains. These trusts are not subject to alternative minimum tax. It is believed all these trusts are calendar year filers.

    Tax year Ordinary income Capital gains
    2004 - 2007 10% 5%
    2008 - 2014 10% 0%
  3. All Forms 1041-N are processed at the Ogden Submission Processing Campus. The volume is minimal. Forms 1041-N are processed as a Form 1041-QFT (Document Code "39," MFT "05," Tax Class "2" ). The only unique identifying field that differentiates the two returns is audit code "8" on the 1041-N account.

  4. See the Instructions for Form 1041N, for more information.

21.7.4.4.1.1.6  (01-01-2005)
Qualified Disability Trust

  1. A Qualified Disability Trust is any trust:

    • Described in 42 U.S.C. 1396p(c)(2)(B)(iv) and established solely for the benefit of an individual under 65 years of age who is disabled, and

    • All of the beneficiaries of which are determined by the Commissioner of Social Security, to have been disabled for some part of the tax year within the meaning of 42 U.S.C. 1382(c)(a)(3).

  2. The Victims of Terrorism Tax Relief Act of 2001, provides that certain disability trusts may claim a personal exemption in an amount that is based upon the personal exemption provided for individuals under IRC 151(d), rather than the $100 or $300 personal exemption provided under current law.

  3. See IRM 21.7.4.4.1.7.4, Form 1041 Exemptions, for the exemption amount and phaseout thresholds for Qualified Disability Trusts.

21.7.4.4.1.2  (01-01-2005)
Schedules Associated with Form 1041

  1. The schedules listed below are associated with Form 1041.

    • Schedule A - Charitable Deductions

    • Schedule B - Income Distribution Deduction

    • Schedule D - Capital Gains and Losses (This schedule must be attached if the alternative tax computation is used.)

    • Schedule G - Tax Computation

    • Schedule H, Form 1040 - Household Employment Taxes (1995 and subsequent)

    • Schedule I - Alternative Minimum Tax.

    • Schedule J - Accumulation Distribution for a Complex Trust

    • Schedule K-1 - Beneficiary’s Share of Income, Deductions, Credits, etc. (Trusts and estates are required to file Schedules K-1 for each beneficiary named on Form 1041.)

21.7.4.4.1.3  (08-28-2008)
General Definitions

  1. The following list contains and defines common terms used with Form 1041 (See IRM 3.11.14.1.3, Definitions, for more definitions.)

    • Administrator - The person in charge of administering an estate who has been named by the courts when there is no will, or if no executor was named in the will, or if the named executor cannot or will not serve.

    • Beneficiary - A person designated as the recipient of funds or other property under a trust or an estate.

    • Conservatory - An arrangement to hold property, usually for an incompetent person, which may or may not be a trust for federal purposes.

    • Estate - A legal entity created as a result of a person's death. The estate consists of the real and/or personal property of the deceased person.

    • Fiduciary - Trustee of a trust or executor, executrix, administrator, administratrix, personal representative, or person in possession of property of a decedent's estate.

    • Guardianship/Custodianship - An arrangement to hold property for a minor, which may or may not be a trust for federal purposes.

    • Maker/grantor/etc - The person/organization which originated the trust or which has control over the trust.

    • Trust - A legal entity created under state law and taxed under federal law. The trust can be created to do one act or a series of acts.

21.7.4.4.1.4  (01-01-2005)
Entity Perfection of Form 1041

  1. A single individual or group may set up several trusts. These trusts may have almost identical names or structures.

    Example:

    John Smith Trust #1 and John Smith Trust #2 are separate trusts.

  2. Mix-ups between these entities frequently occur since a single individual or firm usually administers both trusts. To resolve these cases:

    1. Determine the correct entities from information available.

    2. If the correct entity cannot be determined, forward a photocopy of the front page (entity portion) including available research, and a photocopy of any other document in the case file that may help determine the correct entity, to Entity Control.

    3. Maintain an open control base until the case is returned and proper adjustment is completed.

21.7.4.4.1.5  (10-01-2011)
Permissible Tax Years, Form 1041

  1. Most trusts are required to file a calendar year return.

  2. The only Form 1041 filers permitted to retain or adopt a fiscal year are:

    • Decedent’s estates

    • Bankruptcy estates

    • Charitable trusts under IRC 4947(a)(1)

    • Trusts under IRC 501(a)

    • Trusts treated as wholly owned by a grantor under rules of IRC 671 - 679 (which use the tax year of their owner)

  3. To change the accounting period of an estate, a Form 1128, Application to Adopt, Change or Retain a Tax Year, must be filed and approved.

  4. The bankruptcy estate of an individual in a Chapter 7 or Chapter 11 case may change its accounting period one time without approval.

21.7.4.4.1.6  (08-01-2008)
Extensions to File, Form 1041

  1. An extension of time to file Form 1041 must be filed on or before the due date of the Form 1041. The extension of time to file a return does not extend the time for payment of tax. Therefore, to avoid interest charges and a late payment penalty, the total tax due must be paid when the extension request is filed.

  2. Prior to January 1, 2006, the forms used to file for an extension of time to file on Form 1041 were:

    • Estates - Form 2758, Application for Extension of Time To File Certain Excise, Income, Information, and Other Returns

    • Trusts - Form 8736, Application for Automatic Extension of Time to File U.S. Return for a Partnership, REMIC, or for Certain Trusts

    • Trusts which needed an additional extension of up to three months - Form 8800, Application for Additional Extension of Time To File U.S. Return for a Partnership, REMIC, or for Certain Trusts (Form 8800 must be filed by the extended due date of Form 1041)

  3. Beginning January 1, 2006, IRS consolidated Form 2758, Form 7004, Form 8736 and Form 8800. Form 7004, Application for Automatic 6-Month Extension of Time To File Certain Business Income Tax, Information, and Other Returns, is used to file for an extension on Form 1041, however, extension requests for Form 1041, Form 1065, and Form 8804 are shortened from six months to five months beginning with extension requests that are due on or after January 1, 2009 (200809 and subsequent). The title of Form 7004 is now Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. See IRM 21.7.4.3.5, Form 7004, Revised December 2008 Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns, for additional information.

21.7.4.4.1.7  (03-14-2014)
Tax Computation, Form 1041

  1. The method of calculating the liability using Form 1041 varies depending on the type of taxpayer involved.

  2. Decedent’s estates and trusts compute their income tax liability using the rates in the table below. The taxpayer enters the computed tax liability on line 1a of Schedule G. Follow the Schedule G submitted by the taxpayer as there can be other credits or taxes applicable. The total from line 7, Schedule G is the amount entered on the "Total tax" line (line 23 for 2013) on Form 1041.

    2014 Tax Rate Schedule
    If the taxable income on Page 1, Line 22 is over: But not over: The tax is: Of the amount over:
    $0 $2,500 15% $0
    $2,500 $ 5,800 $ 375 + 25% $ 2,500
    $5,800 $ 8,900 $1,200 + 28% $ 5,800
    $8,900 $12,150 $1,905.50 + 33% $ 8,900
    $12,150 ------- $ 3,140.50 + 35% $12,150
    TAX RATE SCHEDULES
    2013 Tax Rate Schedule
    If the taxable income on Page 1, Line 22 is over: But not over: The tax is: Of the amount over:
    $0 $2,450 15% $0
    $ 2,450 $ 5,700 $367.50 + 25% $ 2,450
    $ 5,700 $ 8,750 $1,180 + 28% $ 5,700
    $ 8,750 $11,950 $2,034 + 33% $ 8,750
    $11,950 ------- $3,090 + 39.6% $11,950
    2012 Tax Rate Schedule
    If the taxable income on Page 1, Line 22 is over: But not over: The tax is: Of the amount over:
    $0 $2,400 15% $0
    $2,400 $5,600 $360 + 25% $2,400
    $5,600 $8,500 $1,160 + 28% $5,600
    $8,500 $11,650 $1,972 + 33% $8,500
    $11,650 ............ $3,011.50 + 35% $11,650
    2011 Tax Rate Schedule
    If the taxable income on Page 1, Line 22 is over: But not over: The tax is: Of the amount over:
    $0 $2,300 15% $0
    $2,300 $ 5,450 $ 345 + 25% $ 2,300
    $5,450 $ 8,300 $1,132.50 + 28% $ 5,450
    $8,300 $11,350 $1,930.50 + 33% $ 8,300
    $11,350 ------- $2,937.00 + 35% $11,350
    2010 Tax Rate Schedule
    If the taxable income on Page 1, Line 22 is over: But not over: The tax is: Of the amount over:
    $0 $2,300 15% $0
    $ 2,300 $ 5,350 $345 + 25% $ 2,300
    $ 5,350 $ 8,200 $1,107.50 + 28% $ 5,350
    $ 8,200 $11,200 $1,905.50 + 33% $ 8,200
    $11,200 ------- $2,895.50 + 35% $11,200
  3. If the decedent’s estate or trust used Schedule D and the alternative tax computation, follow the computation using the appropriate form line-by-line instructions.

  4. If the bankruptcy estate must file a return, the trustee (or debtor-in-possession) completes the identification area at the top of the Form 1041 and lines 22 - 29 and signs and dates it. The trustee uses the Form 1041 as a transmittal for Form 1040, U.S. Individual Income Tax Return.

    1. The trustee completes Form 1040 and figures the tax using the tax rate schedule for a married person filing separately.

    2. In the top margin of Form 1040, the trustee writes "Attachment to Form 1041. DO NOT DETACH."

    3. The trustee attaches Form 1040 to Form 1041.

    4. The bankruptcy estate computes its liability in the same manner as an individual, claims the same exemption as an individual, and, if it does not itemize, uses the same standard deduction as an individual.

21.7.4.4.1.7.1  (11-20-2013)
Form 8960, Net Investment Income Tax - Individuals, Estates, and Trusts

  1. The Health Care and Education Reconciliation Act of 2010 added a Net Investment Income Tax (NIIT) under section 1411 of the Internal Revenue Code for tax years 2013 and subsequent. The NIIT applies at a rate of 3.8 percent to certain Net Investment Income (NII) of individuals, estates and trusts. Although section 1411 falls within Chapter 2A of the Code, entitled "Unearned Income Medicare Contribution" , the tax is not a payroll tax. Generally, the NIIT cannot be offset by most tax credits (such as foreign tax credit or general business credit).

  2. The 3.8 percent net investment income tax is generally levied on non-business income from interest, dividends, non-qualified annuities, royalties, rents, and capital gains.

  3. Information concerning individual taxpayers can be found in IRM 21.6.4.4.20, Net Investment Income Tax.

  4. In the case of an estate or trust, section 1411(a)(2) imposes a tax (in addition to any other tax imposed by subtitle A) for each taxable year equal to 3.8 percent of the lesser of the taxpayers:

    1. Undistributed NII for such taxable year, or

    2. excess (if any) of-(i) the adjusted gross income (as defined in Code section 67(e)) for such taxable year, over (ii) the dollar amount at which the highest tax bracket in Code section 1(e) begins for such taxable year.

  5. The tax does not apply to the following estate and trusts listed below:

    • Trusts that are exempt from income taxes imposed by Subtitle A of the Internal Revenue Code (e.g., charitable trusts and qualified retirement plan trusts exempt from tax under IRC 501, and Charitable Remainder Trusts exempt from tax under IRC 664).

    • A trust in which all of the unexpired interests are devoted to one or more of the purposes described in IRC 170(c)(2)(B).

    • Trusts that are classified as “grantor trusts” under IRC 671 through IRC 679.

    • Trusts that are not classified as “trusts” for federal income tax purposes (e.g., Real Estate Investment Trusts and Common Trust Funds).

    • Alaskan Native Settlement Trusts (Form 1041-N) or Perpetual Care (Cemetery) Trusts.

    • A trust or decedent’s estate in which all of the unexpired interests in which are devoted to one or more of the purposes described in IRC 170(c)(2)(B).

    • Foreign estates or foreign trusts (but the U.S. beneficiaries may be subject to the tax on the NII distributed by these entities)

  6. The 3.8 percent net investment income tax is reported on Form 8960, Net Investment Income Tax – Individuals, Estates and Trusts. Form 8960 will be attached to either Form 1041 or Form 1041-QFT. For Form 1041, the NIIT will be included in the amount on line 23, and for Form 1041-QFT, the NIIT will be included in the amount on line 17.

  7. For Form 8960, the amount of income which is subject to the NIIT is captured on line 20 and the NIIT is captured on line 21.

  8. Beginning in January 2014, Net Investment Income will be transcribed and post to command codes TXMOD and BMFOLR under the field "NI Income" and the Net Investment Income Tax will post as "NI Income Tax." To adjust an account, input:

    • Item Reference Number 861 to update the Net Investment Income

    • Item Reference Number 862 to update the Net Investment Income Tax

    • TC 29X to decrease/increase the Tax

  9. More information can be found on irs.gov under Net Investment Income Taxes,frequently asked questions .

21.7.4.4.1.7.2  (01-01-2005)
Short Period Returns, Form 1041

  1. Trusts and estates are required to file a short period return under any of the conditions below:

    1. It is a final return.

    2. It is an initial estate return (except fiscal year ending on date of death).

    3. It is an initial trust with year ended "12" .

    4. It changes its accounting period.

21.7.4.4.1.7.3  (01-01-2005)
Annualized Tax, Form 1041

  1. To annualize tax and exemptions on short period returns, use the instructions in Publication 538, Accounting Periods and Methods.

  2. Do not annualize tax on short period initial or final returns.

  3. See the second chart in Exhibit 20.1.3-1, Installment Due Dates for Individuals, Estates and Trusts Subject to IRC 6654, for the due date of estimated tax payments on short period returns.

21.7.4.4.1.7.4  (03-14-2014)
Form 1041 Exemptions

  1. Allowable exemptions are:

    • $600 for a decedent estate.

    • $300 for a trust, which under its instrument, is required to distribute all of its income for the taxable year (This deduction is allowed regardless of whether the trust is simple or complex).

    • $100 for a trust which is not required to distribute all of its income for the taxable year (Generally, complex trusts are entitled to this exemption).

    • Same exemption as an individual under IRC 151 for a bankruptcy estate.

      Note:

      Grantor trusts are not entitled to an exemption, except for a partial grantor trust, which is entitled to the appropriate exemption for its non-grantor trust portion.

    • A Qualified Disability Trust (as defined in IRM 21.7.4.4.1.1.6) is entitled to the same personal exemption amount as an unmarried individual and is effective for tax years ending after September 10, 2001. A Qualified Disability Trust is also subject to the same phaseout as the personal exemption if the trust's modified Adjusted Gross Income exceeds certain limits. Taxpayers must complete the Exemption Worksheet for Qualified Disability Trusts to figure the amount of the trust's exemption when their modified AGI exceeds the limits shown in the chart below.

      Tax Year Exemption Amount Phaseout Threshold
      2009 $3,650 $166,800
      2010 $3,650 Eliminated for 2010 through 2012
      2011 $3,700
      2012 $3,800
      2013 $3,900 $250,000
      2014 $3,950 $254,200

      Note:

      This provision does not apply to any portion of a disability trust that is treated as a grantor trust.

  2. Exemptions are allowed on final returns.

21.7.4.4.1.7.5  (01-01-2005)
Allowable Credits (Form 1041)

  1. Certain non-refundable and refundable credits are allowed on Form 1041.

  2. The following subsections address the processing of these credits

21.7.4.4.1.7.5.1  (10-01-2009)
Non-Refundable Credits (Form 1041)

  1. The General Business Credits reported on Form 3800 are treated as used on a first-in, first-out basis by offsetting the earliest-earned credits first. Therefore, the order in which the credits are used in any tax year is;

    1. Carryforwards to that year, the earliest ones first, as of the close of the tax year in which the credit is used:

    2. The general business credit earned in that year, and

    3. The carryback to that year.

  2. See IRM 21.7.4.4.8, Non-refundable Credits, Income Tax Returns, for more information on non-refundable credits and IRM 21.7.4.4.8.1.1, Priority of Credits, for the components of the general business credits reported on Form 3800 and the order in which they are used.

21.7.4.4.1.7.5.2  (07-09-2009)
Refundable Credits (Form 1041)

  1. The allowable refundable credits are:

    • Credit for Federal Tax Paid on Fuels - Form 4136

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

    • All prepayment credits

  2. See IRM 21.7.4.4.9, Refundable Credits, Income Tax Returns, for more information on refundable credits.

21.7.4.4.1.8  (10-07-2010)
Estimated Tax Payments (Form 1041)

  1. Per IRC 6654(I), new and existing trusts and estates must make quarterly estimated tax payments in the same manner as individuals, except an estate and certain grantor trusts are exempt from making such payments during their first two taxable years.

  2. There are exceptions for some entities from making estimated tax payments:

    • An estate of a domestic decedent or a domestic trust that had no tax liability for the full 12 month tax year.

    • A decedent's estate for any tax year ending before the date that is two years after the decedent's death.

    • A trust that was treated as owned by the decedent if the trust will receive the residue of the decedent's estate under the will (or if no will is admitted to probate, the trust primarily responsible for paying debts, taxes, and expenses of administration) for any tax year ending before the date that is two years after the decedent's death.

  3. See the Disaster Assistance Information, on SERP regarding the postponement of certain estimated tax payments due to various disasters and prior revisions of this IRM for more information on these postponements.

  4. The due dates for estimated tax payments for calendar year filers are:

    • April 15

    • June 15

    • September 15

    • January 15 (of the following year)

  5. Generally, the estate or trust must make an estimated payment if it expects to owe at least $1,000 in tax during the taxable year

  6. Charitable trusts (Form 1041 with Fiduciary Code 9) and private foundations are subject to corporate estimated tax provisions under IRC 6655.

  7. Form 1041-ES, Estimated Income Tax for Estates and Trusts, payment vouchers should be mailed along with quarterly estimated payments to:
    Internal Revenue Service
    P.O. Box 804526
    Cincinnati, OH 45280-4526

21.7.4.4.1.8.1  (01-01-2005)
Short Taxable Years (Form 1041)

  1. For a short taxable year in which a trust or estate subject to IRC 6654 terminates, installments of estimated tax must be paid for any installment due before the last day of the short taxable year. A final installment must be paid by the 15 day of the first month following the month in which the short taxable year ends.

  2. Per Notice 87-32, when a trust or estate makes payments with respect to a short taxable year, the percent of the required annual payment which must be paid at each installment varies depending on the number of required installments. See IRM Exhibit 20.1.3-1, Installment Due Dates for Individuals, Estates and Trusts Subject to IRC 6654, to determine the payment dates and the applicable percentage for short period returns.

  3. Schedule H, Household Employment Taxes, is subject to estimated tax payments.

21.7.4.4.1.8.2  (10-14-2009)
Electronic Payment Options for e-file Users; Payment by Electronic Funds Withdrawal (Direct Debit) and Payment by Credit or Debit Card (Pay by Phone or Internet)

  1. Form 1041 and Form 1065 filers may pay their taxes via electronic funds withdrawal (Direct Debit), or by phone or internet using a credit or debit card. Payments can be made using an American Express Card, Discover Card, MasterCard or VISA Card. The IRS does not determine which credit cards the service providers accept.

  2. Taxpayers have the option to either use an IRS e-pay service provider or an integrated IRS e-file and e-pay service provider. The service providers offer these options to taxpayers who file on paper or electronically. The payment options are available 24 hours a day, 7 days a week. The service providers charge convenience fees for the services. See IRM 21.2.1.48, Electronic Payment Options for Individuals and e-file Users, for specific information on the Electronic Funds Withdrawal option, and for Credit or Debit Card Payments (Pay by Phone or Internet), for more specific information.

21.7.4.4.1.8.3  (10-01-2011)
Form 1041-V, Payment Voucher

  1. Form 1041 filers have Form 1041-V, Payment Voucher, to remit payment. Form 1041-V allows the IRS to process payments more accurately and efficiently. Taxpayers are strongly encouraged to use Form 1041-V, however, there is no penalty if it is not used. See Line 27 of the estate's or trust's 2012, Form 1041.

21.7.4.4.1.9  (10-01-2014)
Electronic Filing of Form 1041 Returns

  1. Electronic Forms 1041 are filed using either of the following two methods (ISDN dial-up is no longer available):

    • Via the internet, or

    • By obtaining a dedicated leased line with an encrypted router located at the IRS Enterprise Computing Center in Memphis, Tennessee. The transmitter must pay the costs of both the dedicated leased line and the router. Both methods, i.e., Internet or dedicated leased line, use the IRS’s Electronic Management System (EMS). Electronic filing of Form 1041 is voluntary.

  2. IRS requires encryption of information transmitted via modems to EMS. Therefore, transmissions of returns must be either over the internet using Secure Socket Layer (SSL) with a TELNET/S protocol via Dedicated Leased Lines using FIPS - compliant method. If the filer wants to use dedicated lease lines, they must apply to do so and must provide their own equipment, i.e., a dedicated leased line or router. There have also been changes to the EMS Interface Menu and the State Retrieval Systems. Questions or problems related to these issues should be directed to the e-file help desk at 1-866-255-0654.

  3. In order to file Form 1041 electronically, filers, transmitters, and software developers (participants) MUST successfully pass Business Acceptance Testing System (BATS). The BATS process tests hypothetical scenarios to ensure the participants computer program has the correct file specifications to file returns electronically. Participants are required to develop and submit their own test scenarios. Generally, BATS begins the first week of December and continues through the 15 of the following October. For 2013, the e-file testing period is December 2, 2013 - September 30, 2014. See Section 8 of Publication 1437, Procedures for the 1041 e-file Program U.S. Income Tax Returns for Estates and Trusts for TY 2013, and IRM 3.42.4.9, Receiving and Controlling e-file and MeF Test Transmissions, for more information on the testing process.

  4. Beginning in processing year 2014, Modernized e-File (MeF) was implemented for Form 1041, Income Tax Return for Estates and Trust. Effective January 31, 2014, the Internal Revenue Service began to accept and process Tax Year 2013 Form 1041, Income Tax Return for Estates and Trust, through the MeF platform. October 15, 2014 is the last day the IRS will accept initial 1041 e-file returns for Tax Year 2013. October 20, 2014 is the last day the IRS will accept retransmissions of corrected fiscal year Form 1041 returns that were previously transmitted but were rejected. NOTE: If the last day to file falls on a Saturday, Sunday or holiday, this will be the due date of the return, and not the next business day.

  5. The Form 1041 Electronic Filing System does not operate between October 22 through the following January 22 of any year. Effective January 31, 2014 through October 20, 2014, the IRS accepts and processes tax year 2013 Form 1041. The Electronic Filing System accepts:

    • Calendar year returns for the current processing year. For example, for January 31, 2014 - October 20, 2014, the system only accepts tax year 2013 returns.

    • Fiscal year returns ending January through June of the current processing year. If a return has a Fiscal Year ending after June 30, 2014, it cannot be filed electronically.

  6. Taxpayers must supply their name control when filing electronically. See IRM 21.7.13.5.6, EIN Assignment: Estates, for information on the name control assigned to estates and IRM 21.7.13.5.8, EIN Assignments: Trusts, for information on the name control assigned to trusts. Also, see Document 7071-A, BMF Name Control Job Aid, for additional information.

  7. Electronic returns that have been accepted with errors are (errors/fallout) worked at the Ogden Submission Processing Center. For assistance, call e-Help Desk toll-free at 1-866-255-0654. See IRM 3.42.7.1.1, Hours of Operation. Follow the prompts to reach the Help Desk at Ogden. Filers may also write to the IRS at the following address:

    Ogden Submission Processing Center
    Mail Stop 6052
    1160 West 1200 South
    Ogden, UT 84201

  8. Questions or problems related to the following issues should be directed to the e-help desk at 1-866-255-0654:

    • Transmission problems

    • Reject codes

    • Status of processing

    • Needing another Test ETIN while filing production returns

    • Needing their Acknowledgment (ACK) File “re-hung” because it appears that they did not receive it. (Taxpayers should contact their software developer to make sure that the software is looking for and capable of parsing out each ACK File for a transmission when multiple ACK Files are picked up).

  9. Questions or problems related to the following issues should be directed as follows:

    Issue Telephone Number E-mail Address
    Encryption Documentation   efile.transmission.encryption @irs.gov
    Encryption/EMS Design Yudeckia Brothers @ 202-283-0245 yudeckia.l.brothers@irs.gov
    Dedicated Leased Line Application Yudeckia Brothers @ 202-283-0245 yudeckia.l.brothers@irs.gov
  10. Pub 1437, Procedures for the 1041 e-File Program U.S. Income Tax Returns for Estates and Trusts for Tax Year 2013, is designed to provide the general requirements and procedures for Form 1041 e-file Program, U.S. Income Tax Return for Estates and Trusts. This publication should be used in conjunction with the following publications for Tax Year 2013 processing:

    • Pub 1438, File Specifications, Validation Criteria and Record Layouts for The 1041 e-file Program, U.S Income Tax Return for Estates and Trusts

    • Pub 3112, IRS e-file Application and Participation

  11. Pub 1437 and Pub 1438 will become obsolete for TY 2014. The following MeF publications are available for the 1041 MeF program and will be found on the MeF User Guides and Publications page on IRS.gov:

    • Pub 4163, MeF Information for Authorized e-Filed Providers for Business Returns,

    • Pub 4164, MeF Guide for Software Developers and Transmitter,

    • Pub 5078, MeF Test Package and the MeF Submission Composition Guide for Tax Year 2013, Processing Year (PY) 2014.

  12. Electronic returns are distinguishable by a unique Document Locator Number (DLN) and the words "Electronic Return -- Do Not Process" at the bottom of the return.

  13. The file location code/tax class/document code for returns that were previously processed in Philadelphia are:

    1. 52/2/36 - Form 1041

    2. 98/2/36 - Form 1041 (Foreign Address)

    3. 66/2/36 - Form 1041 (PR)

  14. The location code/tax class/ document code for returns processed in Ogden are:

    1. 88/2/36 Ogden Submission Processing Center (MeF System)

    2. 93/2/36 Ogden Submission Processing Center (Legacy System)

    3. 92/2/36 Ogden Overflow Number

  15. See IRM 3.42.4.4.2.1, Researching e-file BMF Identification Codes, for more information on these codes.

  16. 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.

  17. Electronic filing consists of two parts:

    1. The electronic return, and

    2. Form 8453F, U.S. Estate and Trust Income Tax Declaration and Signature for Electronic Filing, is the signature form and may have other forms attached which require a signature.

  18. The IRS has determined that the Multiple Tax Return Listing process used to sign electronically filed Form 1041, U.S. Income Tax Return for Estates and Trusts must be modified. Beginning January 1, 2014, the IRS e-file Signature Authorization document, Form 8879-F, can only be associated with a single 1041 return, not multiple forms used today.

  19. Taxpayers who filed their original TY 2013 Form 1041 electronically via MeF may file an TY 2013 amended return through MeF. Other taxpayers must complete an amended return on paper and file it at the campus where they would normally file a paper return.

  20. Use Corporate File On-Line (CFOL) command codes (CC) to research the account. Request the original return only when absolutely necessary. If it is necessary to secure the signature, use CC ESTAB and notate "Provide Form 8453" in the remarks section.

    1. For tax years prior to 1998, if the original return is requested via CC ESTAB, the Form 4251 is routed to the Electronic Filing Unit (EFU) which provides a print (GEL) of the return. For tax years 1998 and subsequent, CC TRPRT can be used. See IRM 21.2.2.4.4.6, TRDB CC TRPRT (Tax Return Print) Input, for information on CC TRPRT.

    2. If the case is closed in blocking series 00, the original Form 4251 must be routed back to EFU. Note that a refile DLN will be assigned.

    3. If an adjustment is not made to an account, the GEL provided by EFU must be returned noting no changes made to the account.

  21. Section 17 of the Worker, Homeownership, and Business Assistance Act of 2009, P.L. 111-92, amends IRC 6011(e), effective for returns filed after December 31, 2010, by adding at the end new paragraph (3): "SPECIAL RULE FOR TAX RETURN PREPARERS." In general, under new paragraph (3)(A), the Secretary shall require that any individual income tax return (includes estates and trusts) prepared by a tax return preparer be filed on magnetic media (electronically) if; such return is filed by such tax return preparer, and such tax return preparer is a specified tax return preparer for the calendar year during which such return is filed.

    1. For purpose of IRC 6011(e)(3), the term "specified tax return preparer " means, with respect to any calendar year, any tax return preparer unless such preparer reasonably expects to file 10 or fewer individual income tax returns during such calendar year IRC 6011(e)(3)(B).

    2. For purposes of IRC 6011(e)(3), the term "individual income tax return" means any return of the tax imposed by subtitle A of the Code on individuals, estates, or trusts, IRC 6011(e)(3)(C).

21.7.4.4.1.10  (01-27-2010)
Form 1041 Claims and Requests for Adjustments

  1. Various Form 1041 adjustment requests are processed by Accounts Management. All prior adjustments to the account must be considered before making the requested adjustment.

  2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ (See IRM Exhibit 21.5.3-2.)

  3. Form 1041 claims and/or amended returns involving Ponzi Scheme issues (including language discussing removal of phantom or fraudulent income), may be Examination criteria. Route to Examination as CAT-A ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General, for more information.

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

  5. Action required on tax adjustments:

    1. Input TC 290/291 for the appropriate amount using blocking series 00 with the original return and 17 without the original return.

    2. Input Item Reference Number (IRN) 886 for the appropriate amount if taxable income is also being adjusted. 21.7.4.4.4.12 for more information on IRN 886.

  6. Action required on credit adjustments:

    1. Input TC 290 $.00 using blocking series 00 with the original return and 17 without the original return.

    2. Input the appropriate Credit Reference Number (CRN) for the amount of the credit adjustment.

  7. The Form 1041 CRNs are:

    • Credit for federal tax paid on fuel (Form 4136). See IRM 21.7.4.4.9.1, Form 4136, Credit for Federal Tax Paid on Fuel, for more information.

    • Substantiated payment credits - CRN 766 increases the credit; CRN 767 decreases the credit.

    • Fuel From a Nonconventional Source Credit - CRN 883.

    • Credit for Alcohol Used as Fuel (Form 6478) - CRN 884.

    • Withholding tax - CRN 806 increases the credit; CRN 807 decreases the credit.

21.7.4.4.1.11  (12-11-2009)
Social Security Domestic Employment Reform Act and BMF Schedules H

  1. As a result of the Social Security Domestic Employment Reform Act (SSDERA), taxpayers must file Schedule H (Form 1040), Household Employment Taxes. to report household wages and employment taxes paid to domestic household workers such as a gardener, nanny, cook or butler.

  2. SSDERA mandates Schedule H to be filed on a calendar year basis. Therefore, FY filers must attach a Schedule H for a calendar year.

    Example:

    John Smith Trust has a FY of 06. When the trust filed Form 1041 for the period ending 201306, Schedule H should have been attached covering the period January 1, 2012 - December 31, 2012. For 201406, the Schedule H should contain information covering the period January 1, 2013 - December 31, 2013.

  3. Individuals that hire a domestic employee (as defined in Pub 926), such as a gardener or a nanny must file Schedule H. See IRM 21.6.4.4.8, Schedule H, Household Employment Taxes for more information on individuals reporting employment taxes.

  4. The information contained in the following subsections of this section pertain to Schedules H processed on MFT 05. Besides trusts (a trust can be a domestic employer) with domestic employees, certain tax-exempt entities not required to file income tax returns may have domestic employees. These groups can file loose Schedules H rather than filing an income tax return and attaching Schedule H or including these domestic employees on their Form 941. Processing information can be found later in IRM 21.7.4.4.1.11.2.1, Loose Schedule H (BMF).

    Example:

    A tax-exempt group home which hires domestic employees to clean the group home (where the employer is the group home and not an individual resident of the home) can file a loose Schedule H.

    Example:

    A church (tax-exempt) which pays a housekeeper to clean the minister's home can file a loose Schedule H.

  5. For information on related subjects, see the subsections indicated below:

    1. For information on filing requirements and procedures for other entities such as partnerships, corporations, and state and local government health and welfare agencies, see IRM 21.7.2.4.11.1, Forms Used in Reporting Employment Taxes for Household Employees.

    2. For information on individuals with domestic employees, see IRM 21.6.4.4.8, Schedule H, Household Employment Taxes.

    3. For information on Federal Unemployment Tax Act (FUTA) taxes reported on the incorrect form or multiple forms, see IRM 21.7.3.4.13, Schedule H FUTA Erroneously Reported.

    4. For information when both Form 940 and Form 941 have been filed erroneously (instead of Schedule H), see IRM 21.6.4.4.8.12, BMF Form 941, Employer's Quarterly Federal Tax Return, Filed Instead of IMF Schedule H, Household Employment Taxes.

  6. It is strongly recommended that only a small group of employees work cases involving BMF Schedules H.

21.7.4.4.1.11.1  (03-14-2014)
Provisions of SSDERA, General Information

  1. SSDERA mandates the collection of domestic service employment taxes be coordinated with the collection of income taxes. However, they are still considered employment taxes.

  2. Domestic employees under the age of 18 are excluded from coverage if domestic service is not the principal occupation of the employee, see IRC 3121(b)(21).

    1. Student is considered an occupation.

    2. This provision is effective regardless of the amount of wages paid to the employee under 18.

  3. Wages less than the applicable dollar threshold are not subject to social security or Medicare taxes. This threshold may be updated yearly. See the chart below for the applicable thresholds.

    Year Wages Paid Threshold Tax Period(s)
    2006 - 2007 $1,500 200612 - 200811
    2008 $1,600 200812 - 200911
    2009 - 2011 $1,700 200912 - 201211
    2012 - 2013 $1,800 201212 - 201411
    2014 $1,900 201412 - 201511
  4. Taxpayers are subject to FUTA tax if they paid total cash wages of $1,000 or more to household employees in any calendar quarter in TY 2013 or TY 2014. The first $7,000 of cash wages paid to each household employee is "FUTA wages."

  5. The law contains no provision for employees in (2) or (3) above to opt to make payments in order to obtain social security or medicare coverage.

  6. Trusts must make estimated tax payments if either of the situations below apply:

    1. It will have federal income tax withheld from any income.

    2. It would be required to make estimated tax payments (to avoid a penalty) even if it did not include household employment taxes when figuring its estimated tax.

21.7.4.4.1.11.1.1  (04-15-2011)
SSDERA interest-free Provisions

  1. Employers who discover (ascertain) they have reported and paid less FICA tax or income tax withholding tax (FITW) than was due on an original Form 1041 tax return, may qualify for an interest-free tax adjustment under IRC 6205 and Regulation 26 CFR 31.6205-1 provisions. Schedule H adjustments carry the same interest-free provisions as employment tax returns. The provisions are detailed in IRM 21.7.2.4.6.2 , Interest Free Adjustments (Employment Tax Returns).

  2. To qualify for an interest-free tax adjustment, the employer must file the appropriate forms reporting the correction by the due date of the tax return for the tax period in which the error was ascertained. A Form 1041 taxpayer has until the due date of the Form 1041 to which the Schedule H relates, to file an amended return.

    Example:

    If the taxpayer’s fiscal year month (FYM) is 12, and the error is found and reported on October 13th, the ascertained date is April 15 of the following year. Therefore, the last day to file an adjusted return is April 15. If the taxpayer’s FYM is 04, and the error is found and reported on October 13th, the ascertained date is August 15 of the following year. Therefore, the last day to file an adjusted return carrying this date is August 15.

  3. Employment tax regulations effective January 1, 2009, require payment of employment tax increases (including Schedule H) for income tax withheld, and social security and Medicare taxes to be made on or before the date the amended return/Schedule H is filed. (FUTA taxes are not affected.)

  4. As with Form 940 unemployment tax, the FUTA portion (Part II) of Schedule H does not carry an interest-free provision. As a result, when adjusting Schedule H taxes, it is sometimes necessary to use both TC 298 (for interest-free income tax and FICA adjustments, Part I, Schedule H) and TC 290 (FUTA portion, Part II, Schedule H).

  5. If the return is filed timely and payment is made in the time subscribed; when inputting a TC 298, the interest computation date is the IRS received date of the corrected return ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ See IRM 21.7.2.4.6.2, Interest Free Adjustments (Employment Tax Returns), for more information.

21.7.4.4.1.11.2  (10-01-2013)
BMF Schedules H Processing

  1. All BMF Schedules H are processed on MFT 05 as an attachment to Form 1041. All transactions codes (TCs) and reference codes applicable to Form 940 (MFT 10) are valid on MFT 05, except for TC 186. In addition, IRNs which are valid on Form 94X can be used on Schedule H adjustments. However, see paragraph (2) below. Use these transaction codes and reference codes when adjusting Schedules H on MFT 05.

    Note:

    See the October 1, 2007 and prior editions of this IRM for information on BMF Schedule H processed prior to 1998.

  2. Do Not use TC 766 when adjusting Advanced Earned Income Tax Credit (AEITC) on Schedule H. This would cause confusion with the 766 applicable to substantiated payment credits on Form 1041. When adjusting AEITC, simply include the increase/decrease as part of the TC 29X. No reference code is needed.

  3. On August 10, 2010, Public Law 111-226, Education Jobs and Medicaid Assistance Act of 2010, was enacted. Section 219 of the Act repealed the AEITC for tax years beginning after December 31, 2010. Therefore, AEITC is not valid for tax periods ending after 201111.

  4. Section 9015, Additional Hospital Insurance Tax On High-Income Taxpayers, of the Patient Protection and Affordable Care Act, added section 3101(b)(2) and section 3102(f) to the Internal Revenue Code. Section 3101(b)(2) increases the employee portion of Medicare (Hospital Insurance) tax for tax years beginning after December 31, 2012, by an additional .09 percent of wages, as defined in section 3121(a). The additional medicare tax is not imposed until wages exceed the statutory threshold amounts below:

    • $250,000 for a married couple filing a joint return,

    • $125,000 for married couples filing separate returns, and

    • $200,000 for single individuals.

    Note:

    The threshold amounts are not indexed for inflation.

  5. The Patient Protection and Affordable Care Act also increased the Medicare tax on self-employment income for any tax year beginning after December 31, 2012, by an additional 0.9 percent of self employment income which is in excess of certain threshold amounts listed above. See various subsections of IRM 21.7.2 , Employment and Railroad Tax Returns, for additional information

  6. When inputting an adjustment, the reference codes used do not have to equal the amount of the TC 29X. This check was not put in place because regular Form 1041 tax may also need to be adjusted. In this instance, it is not possible to match the reference code amounts to the TC 29X.

    Note:

    This does not eliminate the procedures to input the appropriate reference codes with the Schedule H portion of the adjustment.

21.7.4.4.1.11.2.1  (01-01-2005)
Loose Schedules H (BMF)

  1. Receipt and Control (R&C) may receive loose Schedules H with "trust" or "estate" in the name line, or from taxpayers not required to file an income tax return (for example, group homes). R&C:

    1. Posts any payment to MFT 05

    2. Forwards the loose Schedule H to Code and Edit (C&E) for preparation of a dummy Form 1041

  2. Follow the same procedures for making adjustments to BMF Schedule H returns in IRM 21.7.4.4.1.11.2.3, below.

21.7.4.4.1.11.2.2  (01-01-2006)
≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

21.7.4.4.1.11.2.3  (10-24-2012)
Adjustments (Amended Returns, TRNS 193s, etc.) Involving Form 1041 With Schedule H

  1. The procedures for adjusting Schedules H depend on several factors, such as:

    1. Whether the adjustment is an increase or decrease.

    2. The period on which the previous assessment was input.

    3. The MFT(s) on which the previous assessment was input.

  2. Use procedures in IRM 21.7.4.4.1.11.2.4 through IRM 21.7.4.4.1.11.2.12 below to make the adjustments involving Form 1041 with Schedule H.

  3. When a state receives a loan (advance) from the Federal Unemployment Account in order to pay unemployment benefits, and fails to repay the loan on time, the credit allowable against the tax is reduced. These states are referred to credit reduction states. Employers that pay their state unemployment tax timely and in full receive a 5.4% credit against their Federal tax. However, the credit is reduced when a state has taken loans from the federal government to meet its state unemployment benefits liabilities and has not repaid these loans within the allowable time frame.

  4. The U.S. Department of Labor declares which states are credit reduction states. See IRM 21.7.3.4.10, Credit Reduction States, for more information on credit reduction states and for a listing of the states for TY 2009 and subsequent that have been declared credit reduction states.

  5. Do not make adjustments to BMF Schedule H accounts due to telephone calls from taxpayers, other than abating duplicate assessments. If the taxpayer reported the incorrect amount of tax, advise them to file an amended return. However, if the taxpayer reported employment taxes on Form 94X and/or FUTA tax on Form 940, and reported the same amounts on Form 1041, remove the tax from the incorrect form (Form 940 and/or Form 94X) and ensure payment is on the correct account. Delete the Form 94X and/or Form 940 filing requirements if necessary.

21.7.4.4.1.11.2.4  (01-01-2005)
Net Decrease, Original Assessment on MFT 05

  1. When the adjustment is a net decrease and the original assessment of the Schedule H amount was made on MFT 05, normal adjustment procedures can be used. The adjustment is made on MFT 05.

  2. Action required:

    1. Input TC 291 using appropriate reference codes.

    2. If taxpayer is also adjusting "normal" Form 1041 liability, input TC 291 for the net amount.

21.7.4.4.1.11.2.5  (01-01-2005)
Net Decrease, Schedule H Only Adjusted, Original Assessment on MFT 10

  1. On the MFT 10 module(s):

    1. Input TC 291 in blocking series 40 with the appropriate reference codes.

    2. Use ADD24/ADC24 to transfer the credit created to MFT 05, using TC 570 on the credit side.

  2. On the MFT 05 module input TC 290 $.00 with a posting delay code (PDC) of 1.

21.7.4.4.1.11.2.6  (01-01-2005)
Net Decrease, Both Form 1041 and Schedule H Require Decreases, Original Assessment on MFT 10

  1. On the MFT 10 module(s):

    1. Input TC 291 in blocking series 40 with the appropriate reference codes.

    2. Use ADD24/ADC 24 to transfer the credit created to MFT 05, using TC 570 on the credit side.

  2. On the MFT 05 module:

    1. Input TC 291 for the Form 1041 portion only.

    2. Use HC 3 and posting delay code of 1.

21.7.4.4.1.11.2.7  (01-01-2005)
Net Decrease, Schedule H Is Increase, Form 1041 Portion Is Decrease, Original Assessment on MFT 10

  1. On the MFT 10 module(s), no adjustment is necessary.

  2. On the MFT 05 module:

    1. Input TC 291 for the net adjustment amount.

    2. Use the appropriate reference codes for the Schedule H amount and the Form 1041 portion.

21.7.4.4.1.11.2.8  (01-01-2005)
Net Decrease, Schedule H Is Decrease, Form 1041 Portion Is Increase, Original Assessment on MFT 10

  1. On the MFT 10 module(s):

    1. Input TC 291 in blocking series 40 with the appropriate reference codes.

    2. Use ADD24/ADC24 to transfer the credit created to MFT 05, using TC 570 on the credit side.

  2. On the MFT 05 module:

    1. Input TC 290 for the Form 1041 portion only.

21.7.4.4.1.11.2.9  (01-01-2005)
Net Increase, Original Assessment on MFT 05

  1. When the adjustment is a net increase and the original assessment of the Schedule H amount was made on MFT 05, normal adjustment procedures can be used. The adjustment is made on MFT 05.

  2. Action required:

    1. Input TC 290/298 for the amount of the increase using the table and examples below (The table assumes there is a valid ascertained date).

    2. Use the appropriate reference codes for both the Form 1041 portion and the Schedule H portion.

    If Then
    The net of the FUTA portion (Part II) of Schedule H and the Form 1041 portion is zero or an increase Input TC 298 for the total net adjustment of the entire Schedule H and Form 1041. See Example 1.
    The net of Part II, Schedule H and the Form 1041 portion is an increase greater than the decrease on Part I, Schedule H Input TC 290 for the total net adjustment of the entire Schedule H and Form 1041. See Example 2.
    The net of Part II, Schedule H and the Form 1041 portion is an increase and Part I, Schedule H is also an increase 1. Input TC 290 for the net of Part II, Schedule H and the Form 1041 portion.
    2. Input TC 298 for the Part I, Schedule H portion. See Example 3.
    Examples
    Example 1 Form 1041 portion
    Schedule H, Part II
    Schedule H, Part I
    Total
    $100 decrease
    60 increase
    50 increase
    10 increase — Input TC 298 for $10.
    Example 2 Form 1041 portion
    Schedule H, Part II
    Schedule H, Part I
    Total
    $150 increase
    50 decrease
    70 decrease
    30 increase — Input TC 290 for $30.
    Example 3 Form 1041 portion
    Schedule H, Part II
    Schedule H, Part I
    Total
    $100 increase
    40 decrease
    30 increase
    90 increase — Input TC 290 for $60.
    Input TC 298 for $30.

21.7.4.4.1.11.2.10  (01-01-2005)
Net Increase, Both Form 1041 Portion and Schedule H Portion Are Increases

  1. If both the Form 1041 and Schedule H reflect an increase, the adjustment can be input on MFT 05, regardless of which MFT(s) the tax was originally assessed on.

  2. On the MFT 05 module:

    1. Input TC 290 for the Schedule H, Part II and Form 1041 portion.

    2. Input TC 298 for the Schedule H, Part I portion if the taxpayer meets the ascertained date requirements.

21.7.4.4.1.11.2.11  (01-01-2005)
Net Increase, Original Assessment on MFT 10 Is Decrease, Form 1041 Portion Is Increase

  1. On the MFT 10 module(s):

    1. Input TC 291 in blocking series 40 with the appropriate reference codes.

    2. Use ADD24/ADC24 to transfer the credit created to MFT 05, using TC 570 on the credit side.

  2. On the MFT 05 module:

    1. Input TC 290 for the amount of the entire net increase (including the decrease(s) on MFT(s) 04 and 10).

    2. Use HC 3 and posting delay code of 1.

21.7.4.4.1.11.2.12  (01-01-2005)
Net Increase Original Assessment on MFT 10 Is Increase, Form 1041 Portion Is Decrease

  1. In this scenario, there is no need to adjust the MFT 10 modules.

  2. On the MFT 05 module:

    1. Input TC 29X with all appropriate reference codes.

    2. Use the table below. It assumes there is a valid ascertained date.

    If Then
    The Schedule H, Part I increase is equal to or greater than the entire net increase Input TC 298.
    The Schedule H, Part I increase is less than the entire net increase 1. Input TC 298 for the Schedule H, Part I amount.
    2. Input TC 290 for the remaining amount of the increase. See the Example below.
    Example: Form 1041 portion
    Schedule H, Part II
    Schedule H, Part I
    Total
    $175 decrease
    200 increase
    50 increase
    75 increase — Input TC 298 for $50.
    Input TC 290 for $25.

More Internal Revenue Manual