21.7.11  Additional Computer Paragraph Notices and Transcripts

Manual Transmittal

August 26, 2014

Purpose

(1) This transmits revised IRM 21.7.11, Business Tax Returns and Non-Master File Accounts, Additional Computer Paragraph Notices and Transcripts.

Material Changes

(1)

IRM 21.7.11 Various editorial changes were made throughout the IRM.
IRM 21.7.11.4.1 - IPU 13U1800 issued 12-24-2013 Corrected the title of the subsection to CP 108 - Problem With Your Federal Tax Deposit (FTD).
IRM 21.7.11.4.2(6)3)Note - IPU 13U1800 issued 12-24-2013 Added a link to IRM 5.19.2.5.5.4.16 and not to delete the filing requirements until after the refund posts.
IRM 21.7.11.4.4(3) - IPU 13U1800 issued 12-24-2013 Added information that it is not necessary to input a TC 570 on the credit side if a TC 150 has not posted to the module.
IRM 21.7.11.4.7 - IPU 13U1800 issued 12-24-2013 Changed the name of the Agency from Financial Management Service (FMS) to The Bureau of Fiscal Services (BFS).
IRM 21.7.11.4.8.3(4) - IPU 13U1800 issued 12-24-2013 Removed the requirement to research IDRS to verify that the taxpayer accurately checked the box indicating they qualify for the Large Corporation method of computing the penalty.
IPU 13U1800 issued 12-24-2013 IRM 21.7.11.4.9(6) Added information that the response to a CP 267 Notice should be addressed to the taxpayer that received the CP 267 Notice.

Effect on Other Documents

IRM 21.7.11, Additional Computer Paragraph Notices and Transcripts, dated September 6, 2013 (effective October 1, 2013), is superseded. This IRM incorporates IPU 13U1800 dated December 24, 2013.

Audience

The primary users of this IRM are Accounts Management employees. The IRM is intended for Customer Account Services issues involving BMF returns.

Effective Date

(10-01-2014)

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

21.7.11.1  (01-01-2005)
Additional Computer Paragraph Notices and Transcripts Overview

  1. This section contains information on working:

    • Internally generated computer paragraph (CP) notices/transcripts

    • Responses to CP notices issued to taxpayers

21.7.11.2  (01-01-2005)
What are Additional Computer Paragraph Notices and Transcripts?

  1. Additional computer paragraph notices are those which are computer-generated and sent to the taxpayer or worked internally. Often, these notices and transcripts raise questions and may require further action by the employee to settle an issue.

21.7.11.3  (10-01-2010)
Additional Computer Paragraph Notices and Transcripts Research

  1. Actions on additional computer paragraph notices and proper responses to the taxpayer inquiries require employees to access the Business Master File (BMF) and Non Master File (NMF). Select the appropriate notice below and follow the procedures.

  2. Employees may be required to carry out procedures concerning any of the following:

    • CP 108, Error on FTD (Federal Tax Deposit) Coupon/EFTPS (Electronic Federal Tax Payment System) Payment

    • EFTPS CP 108 inquiries received by telephone

    • Discrepancies between tax type indicated on FTD Coupon and established filing requirements

    • CP 108 reply indicating an irate taxpayer

    • An unnecessary reply to CP 108

    • CP 172, CP 192 - Form 3465, Request for Adjustment

    • CP 180, CP 181, CP 182, Missing Form or Schedule

    • CP 185 - TC 690, Penalty Payment, Module in Credit Balance

    • CP 186, Notice of Potential Manual Interest/Penalty Adjustment

    • 120% interest computation

    • Routing of CP 186 with U–, –V, –W, or TC 521 with closing codes 81 or 85 - 89

    • CP 186 involving estate tax return

    • CP 186 involving Form 5668

    • TC 342

    • TC 272

    • Computer Code Condition M

    • TC 240 Civil Penalty Module

    • CP 195, Unresolved Refund Freeze

    • CP 234, Processing Potential ES Penalty Notices

    • CP 267CP 268, Notice of Excess Credit

    • Undeliverable CPs 267/268

    • CP 270, Hold Code, Module in Debit Balance

    • POSSDELPEN (Possible Delinquency Penalty) Transcripts

  3. Cases meeting Taxpayer Advocate Service (TAS) criteria will be referred as outlined in IRM 21.7.1.3.1, Taxpayer Advocate Service (TAS).

  4. It is the responsibility of all IRS employees to report a significant volume of erroneous taxpayer correspondence being issued to taxpayers, or when there is a risk of issuing considerable volumes of erroneous correspondence. When this happens, follow procedures in IRM 25.13.1.3, Erroneous Correspondence Procedures-Red Button Process.

21.7.11.4  (01-01-2005)
CP Notices and Transcripts Procedures

  1. The following are procedures for the various CP notices in this section.

21.7.11.4.1  (12-24-2013)
CP 108 - Problem With Your Federal Tax Deposit (FTD)

  1. CP 108 generates when the type of tax and/or tax period cannot be determined on an EFTPS payment. This notice advises the taxpayer where the credit was posted and provides a tear-off portion to return if the payment was posted incorrectly. A toll-free number is also provided if the taxpayer prefers to call rather than write. See IRM 21.7.11.4.1.1, CSRs - EFTPS CP 108 Inquiries Received by Phone for more information.

  2. CP 108 notices generated after December 31, 2009 contain the return address code for Submission Processing (SP) and any replies to this notice are worked by SP (see IRM 3.10.72-3, Computer Paragraph (CP) Notices – Routing Guide). However, any replies received in Accounts Management (AM) will remain in AM and will be resolved using existing procedures.

  3. Action required:

    If Then
    Affected module has an immediate return due date (within two weeks of return posting) Suspend credit transfer action from the memo account (an account where the Transaction Code (TC) 150 has not yet posted) until the return posts and the module settles.
    Credits need to be transferred from an account other than a memo account Input any necessary credit transfers, per the taxpayer’s response. Note: If the credit transfer is to a full paid account, or will result in an overpayment, on command code (CC) ADC 34, overlay the bypass indicator with a 1 to bypass unpostable code 305.
    Taxpayer’s response indicates he/she is not required to file a form for the type of tax to which the payment was applied Transfer the payment and delete the Filing Requirements using CC BNCHG.
    Payment is an EFTPS payment and the taxpayer states he/she has no knowledge of correct application because his/her financial institution made payment Instruct the taxpayer to contact financial institution to determine correct application and have the taxpayer reply back to us as soon as possible.

21.7.11.4.1.1  (01-01-2006)
CSRs - EFTPS CP 108 Inquiries Received by Phone

  1. When the taxpayer calls regarding a CP 108 and the payment in question is an EFTPS payment:

    1. Determine account where the payment belongs.

    2. Try to determine if the taxpayer made an error when initiating EFTPS payment (helps prevent same error in the future).

      Note:

      See IRM 21.7.1.4.8.1.1,EFTPS Enrollment, for more information on Treasury Financial Agent (TFA), including phone numbers.

    3. If the taxpayer knows why error occurred, input necessary credit transfer(s). (If payment posted to correct EIN, tax period, and MFT, no credit transfer necessary.)

    4. If the taxpayer does not know why error occurred, ask if the payment was an Automated Clearing House (ACH) debit the taxpayer initiated by voice response unit (VRU).

      Note:

      VRUs are used to make an ACH debit. ACH debit is also known as EFTPS Direct.

    5. If payment was not initiated by VRU, ask the taxpayer where to apply payment. Follow table:

      If Then
      Taxpayer knows where to apply payment Make the necessary credit transfer.
      Taxpayer does not know where to apply payment Instruct the taxpayer to contact his/her financial institution or authorized agent and reply back to us as soon as possible.
    6. If the payment was initiated by VRU, ask the taxpayer the date entered for "tax period end date."

      Note:

      Bank of America's VRU asks the taxpayer to enter the four-digit tax filing period (e.g., third quarter 2014 payment entered as 1409). For an annual return (Form 1120, Form 1041, etc.) with a FY of 08, the taxpayer enters 1408 if making payment for a return for period ending August 31, 2014.

      If Then
      Date is not equal to a valid tax period end date for the type of tax or date is not in correct YYMM format (e.g., the taxpayer making a payment for his second quarter 2014 Form 941 would enter YYMM format as 1406) Instruct the taxpayer how to determine correct tax period end date (e.g., for quarterly returns, Forms 720, Forms 941, etc., March 31, June 30, September 30, December 31). Enter as the MM in the YYMM format as:
      1st qtr. March 31-03
      2nd qtr. June 30-06
      3rd qtr. September 30-09
      4th qtr. December 31-12
      Taxpayer does not know what he/she entered Inform the taxpayer the tax period end date may have been entered incorrectly and provide instructions on the correct format and date to enter for future payments.
    7. If the taxpayer entered a valid tax period end date, he/she may have entered an invalid tax form code. Direct the taxpayer to Appendix A of the EFTPS Payment Instruction Booklet to determine if the tax form code used is valid for type of tax. If the taxpayer does not know what he/she entered, inform the taxpayer that the tax form code may have been entered incorrectly.

    8. If the taxpayer does not understand the questions above and cannot identify the correct account to apply the payment, instruct the taxpayer to call his/her financial institution for resolution and to reply back to us as soon as possible. (Taxpayers using ACH credit method for initiating payments may be using software provided by their financial institutions. Financial institutions also create ACH credit transaction records.)

    9. Always make any necessary credit transfers to move any incorrectly posted payments to the correct EIN, tax period, and MFT. Even if the taxpayer does not know what error he/she made, make the necessary credit transfer, if the taxpayer can identify the account to which the payment belongs.

21.7.11.4.1.2  (01-01-2006)
Discrepancy Between Tax Type Indicated on FTD Coupon and Established Filing Requirements

  1. Forms 8109 and Form 8109-B, FTD Coupons are no longer used to make Federal Tax Deposits. A regulatory change took effect January 1, 2011, that eliminated FTD coupons.

  2. When a discrepancy between the tax type indicated on FTD coupon and established filing requirements occurs, and the correct tax type cannot be determined from in-house research, the FTD unit in Accounting Function attempts to:

    1. Contact the taxpayer for verification of tax type

    2. Correct the FTD record

  3. If unable to contact the taxpayer or to resolve the discrepancy:

    1. Letter 3064C (or other appropriate letter) is sent stating where the FTD payment was applied.

    2. Reply requested only if the payment needs to be applied to a different type tax and/or tax period.

    3. Taxpayer replies are routed to the initiator. If a credit transfer is required, the reply is forwarded to the functional area which works CP 108 replies.

    4. Process these cases using the chart in IRM 21.7.11.4.1, CP 108 - Problem With Your Federal Tax Deposit (FTD).

21.7.11.4.1.3  (10-01-2007)
CP 108 Reply Indicates Irate Taxpayer

  1. These CP 108 replies must be answered with a phone call or letter, including:

    1. An apology

    2. An explanation of the error

    3. Advice to prevent the error in the future

      Caution:

      Ensure you are talking to the taxpayer or an authorized representative. See IRM 21.1.3, Operational Guidelines Overview, for authentication guidelines.

21.7.11.4.1.4  (01-01-2005)
Unnecessary Reply to CP 108

  1. There is no need to reply to the taxpayer when the taxpayer unnecessarily replies to a CP 108.

    Example:

    A taxpayer’s CP 108 indicates payment was applied to 01-201403 and the taxpayer’s reply confirms payment should be applied to 01-201403.

21.7.11.4.2  (12-24-2013)
CP 172/192 - Form 3465, Request for Adjustment

  1. CP 172 and CP 192 are internal (campus) notices issued through the Accounts Management System to Exempt Organization Entity for processing.

  2. CP 172 is issued to verify the status of an entity established as a nonprofit organization exempt from filing Form 940 (Employment Code (EC) "W" ), but required to file Form 941 or 944 (FR 01). For more information, see IRM 3.13.12.20.2, CP 172.

  3. If money has posted to Form 940 and the organization is not liable, Entity will prepare a Form 3465 to request a manual refund and forward to Accounts Management (AM) for processing.

  4. CP 192 is issued when:

    1. State or local government subject to withholding tax only (EC"G" ), files Form 941 or Form 944 reporting Federal Insurance Contribution Act (FICA) wages; or

    2. Entity not subject to Federal Unemployment Tax Act (FUTA), files Form 940. For more information, see IRM 3.13.12.20.3, CP 192.

  5. For a CP 192 involving Form 941, Entity verifies whether the taxpayer entered into a Section 218 agreement electing social security coverage.

    1. If Section 218 was not elected, the case file is forwarded to Accounts Management on Form 3465.

    2. Accounts Management calls or corresponds with the taxpayer to resolve the Form 941 issue before abating any FICA tax.

  6. For CP 192s involving Form 940, Entity verifies whether the taxpayer is subject to FUTA tax. If the taxpayer is not subject to FUTA tax and Form 940 reflects a taxable wage amount, the case is forwarded to Accounts Management on Form 3465. Upon receipt, Accounts Management:

    1. Abates assessed FUTA tax and FUTA wages

      Reminder:

      Use Priority Code (PC) 3 for IRS initiated adjustments. See IRM 20.2.4.7.5.5, 45-Day Rule and IRS Initiated Adjustments.

      Caution:

      Some Federal Agencies with Employment Codes "A" or "F" , are required to file Form 940. Therefore, prior to preparing Form 3465, Entity is required to contact the Federal Agency Delinquency (FAD) Unit and notate the word "FAD" on Form 3465 if the tax should be refunded. If Form 3465 is not notated, contact the FAD Unit. See the Who/Where Tab on SERP for the phone number of the Federal Agency Delinquency (FAD) Campus Contacts. Also, see IRM 3.13.12.20.2, CP 192, for additional information.

    2. Issues Letter 858C to notify the taxpayer he/she is not liable for filing Form 940.

    3. If Form 3465 is requesting a manual refund for any payments made on other periods, process accordingly.

      Note:

      Delete Form 940 filing requirements, see IRM 5.19.2.5.5.4.16, BMF Responses Employment Tax Returns Overview, unless already corrected by Entity. Do not delete the filing requirements until after the refund posts.

21.7.11.4.3  (01-01-2006)
CPs 180, 181, and 182 - Missing Form or Schedule

  1. CPs generate to the taxpayers when a Form 1120-C, Form 990-T, Form 1041, or Form 1120 series is input to the BMF without appropriate form or schedule attached.

    • CP 180 - issued when the taxpayer fails to submit Schedule 1120-PH, Schedule D, or Form 4255, Form 4626, Form 4797, Form 8611, Form 8826, Form 8830, Form 8844, Form 8845, Form 8846, or Form 8847

    • CP 181 - issued when the taxpayer fails to submit Form 1116, Form 1118, Form 3800, Form 5735, Form 5884, Form 6478, Form 6765, Form 8007, Form 8586, Form 8609, Document 8801, Form 8834, or Form 8835

    • CP 182 - issued when the taxpayer fails to submit required Form 3468, Computation of Investment Credit

  2. To resolve CPs 180, 181, and 182:

    1. Use Corporate File On Line (CFOL) CCs. (Secure original return only when absolutely necessary.)

    2. Determine the correct tax and/or credits by reviewing information from the taxpayer.

    3. Adjust tax, penalties, interest and/or credits, as necessary.

    4. Disallow any credit claimed if the taxpayer did not provide supportive form and no reply is received. (See procedures in IRM 21.5.3.4General Claims Procedures, for no consideration/disallowance claims.)

    5. Re-file "no replies" with TC 290 $.00 if all taxes have been assessed.

    6. Notify the taxpayer of any adjustments made.

21.7.11.4.4  (12-24-2013)
CP 185 - TC 690 Penalty Payment, Module in Credit Balance

  1. A CP 185 is generated when all of the following conditions occur:

    • TC 690 (designated payment of penalty) posts to a module

    • There is no posted unreversed penalty in the module

    • The payment puts the module in credit balance

  2. A freeze from refund and offset is set in the same cycle the CP 185 is generated. The H freeze is systemically released eight cycles later, if other actions which release the freeze do not occur. See IRM 21.5.6.4.15, H- freeze, for more information. The freeze is released when one of the following conditions occur:

    1. Reversal of the credit

    2. Posting of a penalty

    3. Input of TC 290 or TC 300 with a penalty

    4. Automatic 8 cycle release

  3. Resolve the CP 185 by researching the Integrated Data Retrieval System (IDRS) to determine if there is a pending or unpostable penalty transaction. Follow the table below:

    If Then
    A penalty transaction is pending 1. Hold CP 185 for two cycles.
    2. Destroy CP 185 when the penalty posts.
    A penalty transaction is unpostable 1. Use CC UPCAS with definer Z to advise Unpostables how to correct the transaction.
    2. Destroy CP 185.
    A penalty transaction has posted Destroy CP 185.
    A TC 180 $.00 in Blocking Series (BS) 14 has posted and the taxpayer has been notified that no penalty was assessed Destroy CP 185.
    There is no pending or unpostable transaction

    Caution:

    If a payment is remitted in response to a CP 276A or CP 276B notice, follow the procedures in IRM 20.1.4.19(2), CP 276A and CP 276B Notices (FTD Penalty Waiver).

    1. Request the TC 690 document (does not apply to EFTPS).
    2. Input TC 570 to prevent the payment from refunding because of the automatic eight cycle release.
    3. Assess penalty and attach CP 185 if the posting document indicates penalty should have been assessed; or
    4. If the posting document does not show a penalty transaction, forward the posting document to the organization responsible for having secured the payment.
    5. Destroy the CP 185, and transfer payment to the correct module if research indicates it belongs elsewhere.
    After following the above procedures, if the payment was made via EFTPS and research indicates the payment was not intended to pay a penalty
    NOTE: Some taxpayers using EFTPS have been inadvertently inputting the payment in a manner which causes it to post as a TC 690 when it was intended to be a TC 650/660 (payment of tax). By changing TC 690 to TC 650 in a module subject to FTD penalty, this allows the computer to include the payment in its penalty computation, whereas a TC 690 is disregarded.
    Input a credit transfer to change the TC 690 payment to a TC 650 (or TC 660 if appropriate).
    1. Use CC ADD24.
    2. Input electronic payment indicator of '1'.
    3. Input TC 570 on both sides of the credit transfer. It is not necessary to input a TC 570 on the credit side if a TC 150 has not posted to the module.
    4. Input TC 571 with a posting delay code (PDC) 1 to release the TC 570 if a return has posted and the taxpayer should receive a refund.

21.7.11.4.5  (10-01-2013)
CP 186 - Notice of Potential Manual Interest/Penalty Adjustment

  1. A CP 186 generates two cycles after a payment or credit creates a credit balance in a module that is restricted from generating interest and/or FTP (Failure to Pay) penalty. A module restricted from computing interest or FTP penalty has one or more of the following conditions present:

    • - I freeze (interest is restricted by TC 340 or TC 341)

    • G- freeze (FTP penalty is restricted by TC 270 or TC 271)

    • Doc code 52 transaction posted in module (restricts interest and FTP penalty, but does not set freeze codes)

    • Doc code 51 transaction posted prior to cycle 197303 (restricts interest and FTP penalty, but does not set freeze codes)

    • TC 150 has doc code 51 and blocking series other than 100 - 199 (restricts interest and FTP penalty, but does not set freeze codes)

  2. Changes to FTP penalty and interest must be manually computed when the module is restricted and the computer cannot recompute the correct amounts.

    1. Use CCs COMPA, COMPA4, or COMPAP for debit interest computations. In addition to these command codes, the Automated Computation Tool (DMI/ACT) can be used for most interest computations and is recommended for more complex interest computations. See IRM 20.2.6.4,Interest Computation Tools, for a complete listing of interest computation methods.

      Note:

      Although the Service approves and supports the use of CC COMPA and ACT/DMI to perform interest computations, ACT/DMI is the preferred interest computation tool.

    2. Use CC COMPAF for FTP computations.

      Note:

      Refer to IRM 20.2, Interest, and IRM 20.1.2, Failure To File/Failure To Pay Penalties.

  3. Request the source document, if necessary, to determine the reason for the restriction.

  4. Review the penalty on the original assessment to verify if correct assessments were made.

    1. If the original assessment was incorrect, use the correct figures when resolving the CP 186.

    2. Do not reassess any amounts associated with a previous FTP abatement for reasonable cause (RC) or general penalty relief.

    3. If the maximum FTP penalty has been reached and a TC 971 action code 262 has not generated, input TC 971 action code 262.

    4. For disaster assistance and emergency relief information, see IRM 25.16.1, Program Guidelines.

  5. Verify the interest assessed on the account.

    1. Do not correct the interest assessment, unless it can be determined the previous computation was in error.

    2. If the method of computation can be determined to be in error, then it is not necessary to order the previous adjustment document(s).

      Note:

      See IRM 20.2, Interest, for further information.

  6. If additional penalty and/or interest is due, input an adjustment to assess the additional amount. Follow the table below:

    If Then
    The available credit is less than the total additional penalty/interest due Assess the total additional penalty/interest.
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    The available credit is more than the additional penalty/interest Assess only the total additional penalty/interest due and let the balance refund.
    No other adjustment action is necessary PC 5 can be used to force the computer assessment of unrestricted interest or FTP penalty and issue a balance due notice to the taxpayer. (See IRM 21.5.2.4.8.3,Clearance Tolerances, for more information on use of PC 5.)
  7. If no additional penalty/interest is due, treat the CP 186 as classified waste and, if a credit is present, transfer it to the correct period or input TC 290 $.00 to release the J- freeze if it is in credit balance.

21.7.11.4.5.1  (10-01-2013)
Routing of CP 186s With U-, -V, -W, -Y, or TC 521 With Closing Code 81

  1. Route CP 186 cases with any of the conditions listed below to:
    Internal Revenue Service
    Mail BLN 4–N31.142
    2970 Market St.
    Philadelphia, PA 19104

    • U-, current or immediate prior status 6X

    • -V, TC 520 bankruptcy

      Note:

      CP 186 transcripts should no longer generate for bankruptcy. Bankruptcy AIS (Automated Insolvency System) automation accomplishes the same objective.

    • -W, TC 520 litigation pending

    • -Y, TC 480, 780, 782 Offer in Compromise (OIC)

      Note:

      CP 186 transcripts should no longer generate for OIC. OIC transcripts generate on these accounts and accomplish the same objective.

    • TC 521 with cc 81, and -W freeze on another module

  2. If the CP 186 has been scanned into CIS, refer the case through CIS to mail stop 4-N31.142.

21.7.11.4.5.2  (01-01-2006)
CP 186 Involving Estate Tax Return (Form 706)

  1. Route any CP 186s involving an estate tax return to:

    Cincinnati Compliance Campus
    Estate & Gift Tax Division
    Mail Stop 824G
    201 W. Rivercenter Blvd.
    Covington, KY 41011

21.7.11.4.5.3  (01-01-2006)
CP 186 Involving Form 4668

  1. CP 186 notices generated on Form 4668 cases can usually be identified by one of the conditions below:

    • Form 941 with TC 300 and TC 336 (may be TC 308 or TC 340)

    • Partial abatement of exam assessment with a manual interest abatement, TC 341

  2. See IRM 21.7.2.5.8.1, Processing Procedures for Forms 4669 and 4670, to determine if interest needs to be adjusted.

  3. If it cannot be determined how interest was computed, request the adjustment document and/or Form 4668.

21.7.11.4.5.4  (10-01-2010)
TC 342

  1. Manual restrictions on interest should not be automatically input to an account.

  2. TC 342 removes the restriction on computer computation of interest set by a previously posted TC 340 or TC 341, and allows the computer to recompute normal interest. Follow the guidelines below when inputting TC 342:

    1. TC 342 cannot be input without first securing the source document(s) for the TC 340/TC 341.

    2. TC 342 can only be input when it is determined from the source document(s), the interest restriction was unnecessary.

    3. BS 00 must be used with TC 342. See IRM 20.2.8.3, Manual Computations, for additional information.

      Reminder:

      The original return must be attached when using BS 00.

    4. A copy of the TC 340/TC 341 source document(s) must be attached to the TC 342 adjustment document.

  3. If an account must be recomputed using interest netting procedures, see IRM 20.2.14, Netting of Overpayment and Underpayment Interest.

21.7.11.4.5.5  (01-01-2006)
TC 272

  1. Do not restrict FTP penalty, unless absolutely necessary.

  2. TC 272 removes the restriction on computer computation of FTP penalty set by a previously posted TC 270 or TC 271 (without RC 62) and allows the computer to recompute normal FTP penalty. Follow the guidelines below when inputting TC 272:

    • TC 272 can only be input when it is determined from the source document(s), the FTP penalty restriction was unnecessary.

    • BS "00" must be used with TC 272.

      Reminder:

      The original return must be attached when using BS 00.

21.7.11.4.5.6  (10-01-2009)
Computer Condition Code "M"

  1. For tax periods prior to January 1, 2009, computer condition code (CCC) "M" was input during pipeline processing on employment returns with mis-classified employees. Input of CCC "M" generates a TC 340 $.00 and restricts interest.

21.7.11.4.6  (01-01-2006)
TC 240 Civil Penalty Module

  1. These penalties are assessed at MF with TC 240 and a three-digit reference number which identifies the specific type of penalty. (See IRM 20.1.1, Introduction and Penalty Relief, Exhibit 20.1.1-4, Penalty Reference Numbers (500 Series), for the specific reference numbers, IRC sections and an explanation of the penalties.)

21.7.11.4.7  (12-24-2013)
CP 195 - Unresolved Manual Refund Freeze

  1. A CP 195 generates when an unresolved manual refund freeze (-X) is present for more than seven cycles. These notices indicate the manual refund created a balance due condition and a Taxpayer Delinquent Account (TDA) notice is scheduled to be issued.

    1. The notice is forwarded to Files to pull the manual refund document.

    2. Files forwards the CP 195 to the manual refund originator.

    3. Area Office input is forwarded to campus Accounts Management.

  2. The manual refund freeze is created by one of the conditions below:

    1. A manual refund is input and TC 840 posts to the account. A corresponding adjustment is input without the appropriate hold code (HC), causing a duplicate refund to generate.

    2. A TC 840 posts without a TC 150 on the account.

    3. A TC 150 with CCC 0 posts to the account without a TC 840.

    4. A TC 840 posts to an account in debit balance.

  3. Take the initial steps described below:

    1. Examine the transcript and tax module for any pending action.

    2. Request the return, if necessary, and the TC 840 document if not included with the case file.

    3. Research the taxpayer's account for unpostable or rejected credits on the module and contact the appropriate areas to resolve the debit condition.

    4. Research for any missing credits and make the necessary credit transfers.

    5. Take all necessary actions to resolve the debit balance before releasing the freeze and resuming notice issuance.

  4. After taking the steps in (3) above, use the table below to complete resolution of the CP 195.

    If And Then
    A TC 840 posts creating a debit balance without the offsetting credit received from The Bureau of Fiscal Services (BFS) (TC 841) after the 7 cycles IDRS shows an open control and the activity code is "841 to post" and the TC 841 will create a zero balance on the account Close the case as "no action" and refile the document.
    IDRS shows an opened or closed control base from a prior refund inquiry (activity code is either "3911TORDCC " , "1184TORFC" , or "3859messag" )   1. Forward the CP 195 to the respective function for association with their case.
    2. Refile the TC 840 document.
    3. DO NOT release the freeze.
    4. DO NOT allow the TDA notice to generate.
    There was an erroneous refund   Follow erroneous refund procedures in IRM 21.4.5, Erroneous Refunds.
    Adjustment action is necessary   Input TC 29X with PC 8 to release the freeze.
    TC 840 posted to the correct module TC 150 posted to the incorrect module Reprocess the return per IRM 21.5.2.4.23, Reprocessing Returns/Documents, and make any necessary adjustments.
    TC 840 posted to the incorrect account TC 150 posted to the correct account Follow instructions in IRM 21.4, Refund Inquiries, and IRM 3.17.79, Accounting Refund Transactions.
    TC 840 posted to the correct account The credits are not in the account Transfer the credits to resolve the -X freeze.
    Taxpayer is not liable for a return   Input TC 590 closing code 20.
    Case cannot be closed prior to issuance of a TDA An erroneous refund was issued Notify Collection to destroy the TDA.
    TDA was issued There is still a balance due on the account Notify Collection of the action taken.

21.7.11.4.8  (10-01-2014)
CP 234 - Processing Potential ES Penalty Notices

  1. Beginning January 1, 2009, CP 234s were moved to the Alternative Delivery System (ADS). The CP 234 notice is no longer printed. An inventory record (CHRGOUT234) is now electronically generated through Correspondence Imaging System (CIS)/AMS with the basic information to identify the account.

  2. A CP 234 generates when the computer computation of the Estimated Tax (ES) penalty differs from the amount computed by the taxpayer (TC 170) by ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

  3. A CP 234 generates when there is no TC 170 posted and the ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and one of the conditions below is present:

    1. CCC A is present (indicates a non-penalty Form 2220 was submitted).

    2. Form 1120 is a consolidated return.

    3. Form 1120-F was filed with tax which included effectively and non-effectively connected income.

  4. In addition to the criteria above, a CP 234 also generates on Form 1041 if the Fiduciary Code is other than 9 and the computer computation of the ES Penalty is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and either of the following apply:

    1. Immediately prior tax year is not present.

    2. Immediately prior tax year is present and:
      TC 150 is not present and Status is other than 2 or 3, or,
      TC 150 is present but the prior year ES Tax Base is zero and the return is for a full 12 month period; or,
      TC 150 has document code 51 or 52 and Total Tax Settlement is zero.

  5. CP 234s are received with the original return. The computer computation of the ES penalty is shown as "CP 234" in the "Notice History Section" of CC TXMODA. The TC 170 is the penalty amount computed by the taxpayer.

    Caution:

    Do not use the computer computation of the ES penalty to adjust the ES penalty, except for situations described in IRM 21.7.11.4.8.1, Form 2210/Form 2220 Not Received With Return. See IRM 21.7.11.4.8.2, Original Return Not Received With CP 234. Manual computation of the penalty amount is required in all other situations.

  6. See IRM 20.1.3, Estimated Tax Penalties, for information on the penalty computation, exceptions to the penalty, and the application of payments when recomputing the penalty. See IRM 3.11.14.7.14, CCC "Y" – Short Period Return for Change of Accounting Period, IRM 3.11.16.6.3, Short Period – Editing Proof of Entitlement, andIRM 3.11.16.6, Tax Period, to determine if the prior year is a Short Period Return.

  7. If a CP 234 generates on a Form 1041 or Form 1120 account, and the adjusted seasonal or annualized income installment method is used, and the worksheet is attached to the return, do not math verify the Form 2210/Form 2220 or Form 8804, Schedule A.

    Exception:

    If a significant discrepancy is identified, see IRM 20.1.3.2.1.7.1.2, Form 2210 or Form 2210-F Discrepancies, and IRM 20.1.3.3.1.7.4,Significant Discrepancies.

    If no significant discrepancies are identified input TC 170 $.00 and put the following remarks in the source document field, "CP 234 generated in error, annualized income installment method utilized."

    Note:

    The above procedure applies only to the original filed Form 2210/2220. You must verify the annualization computation on a subsequent filed Form 2210/2220.

  8. If the adjusted seasonal or annualized income installment method is not used, verify the accuracy of the taxpayer's distribution of the tax liability: e.g., did the taxpayer follow Large Corp. rules, etc. If the taxpayer's distribution of the tax liability is correct, and the penalty result differs from the Services computation, verify whether the credits claimed by the taxpayer match those posted on the account. If they do not match, attempt to locate any missing payments. Follow table below:

    Note:

    Be sure to consider the information in (9) below, when computing the ES penalty. See IRM 20.1.3.2.1.7, Determining the Penalty Amount, for specific examples for adjusting accounts per the chart below

    If Then
    Math verification results in an increase ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ 1. Input TC 170 for the amount of the increase using the appropriate BS.
    2. Send Letter 369C or Letter 1320C to the taxpayer with a copy of the Form 2210/Form2220 penalty recomputation.
    3. Attach penalty computation for documentation.
    Math verification results in a decrease ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ 1. Input TC 171 for the amount of the decrease using the appropriate BS.
    2. Use penalty reason code (PRC) 016.
    3. Use PC 3 when inputting an adjustment which is IRS initiated for the 45 day interest-free period.
    4. Send Letter 369C/Letter 1320C to the taxpayer explaining the decrease.
    5. Attach penalty computation for documentation.
    NOTE: A copy of the Form 2210/Form 2220 penalty computation can be sent, but is not mandatory.
    Math verification results in an increase/decrease of less than ≡ ≡ 1. Input TC 170 $.00 using the appropriate BS.
    2. Close case as "no change" .
  9. The IRS has extended the due dates on certain estimated tax payments for business entities due to Statutory Exceptions and Administrative Waiver. Also, see the IRS Disaster Assistance Program website, for other payment dates that have been postponed due to various Presidentially declared disasters. See the October 1, 2008 revision of this IRM when calculating the ES penalty for the following relief:

    • September 11, 2001, Terrorist Attack

    • Section 801 of the Economic Growth and Tax Relief Reconciliation Act of 2001

    • The Tax Relief Extension Act of 1999, "Penalty Relief Under Notice 2000–5"

    • Section 501 of H. R. 2, the Jobs and Growth Tax Relief Reconciliation Act of 2003

    • Hurricanes Katrina and Rita

  10. The ‘‘Tax Increase Prevention and Reconciliation Act of 2005’’ changed estimated tax payments as follows:

    • Increases corporate estimated tax payments due July 2006 through September 2006 for corporations with assets in excess of $1 billion to 105% of the otherwise required amount.

    • Delays the due date until October 1 for a percentage of corporate estimated taxes that are otherwise due on September 15 in certain years (20.5% in 2010 and 27.5% in 2011).

  11. Section 1212 of the American Recovery and Reinvestment Act (ARRA) of 2009, provides for a lower required annual payment for certain small business taxpayers. Qualified individuals are instructed to check box "F" in Part II, Form 2210. When box "F" is checked, Code and Edit will enter CCC "K" for Form(s) 1041 or special processing code (SPC) "Q" for Form(s) 1040. See IRM 20.1.3.2.1.1.1, Special Rule for Tax Periods Beginning in 2009, for additional information.

  12. When working a CP 234 for tax periods 200612 through 200711 that includes a Form 990–C/Form 1120–C account, use the prior year tax on the Form 990–C account to compute the ES penalty. Use CC BRTVU to verify the prior year tax and that the prior year tax was for a full 12 month period. In addition, verify that the payments have been properly applied to the account. Re-compute the penalty amount. See IRM 21.7.4.4.4.11.15, Form 1120-C, U.S. Income Tax Return for Cooperative Associations, for additional information.

21.7.11.4.8.1  (10-01-2009)
Form 2210/Form 2220 Not Received With Return

  1. If a Form 2210/2220 is not received with the return, take the following action:

    1. Increase or decrease the ES penalty when the computer and the taxpayer's computation differs ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

      Note:

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

      Reminder:

      Use PC 3 when inputting a decrease for the 45 day interest-free period. See IRM 20.2.4.7.5.5, 45-Day Rule and IRS Initiated Adjustments, for more information.

    2. Send Letter 369C/Letter 1320C to the taxpayer advising of the action taken. For example, we refigured the penalty based on either the prior year tax or current year tax. If penalty is being increased, request a Form 2210/Form 2220 be submitted if the taxpayer believes he/she qualifies for relief of the penalty per the form.

21.7.11.4.8.2  (10-01-2014)
Original Return Not Received With CP 234

  1. If the original return is not received with the CP 234, recompute the penalty based on the available information such as command code PIEST and command code COMPAE.

  2. If a determination cannot be made, initiate a "special search" .

  3. If still unable to secure after special search, contact the taxpayer to request a copy of Form 2210/ Form 2220.

  4. If no response is received:

    1. Increase the penalty to the proposed CP 234 penalty amount, found in the "Notice History Section" on TXMODA.

    2. Notify the taxpayer of the increase.

    3. Request another Form 2210/Form 2220 be submitted if the taxpayer believes he/she qualifies for relief of the penalty per the form.

21.7.11.4.8.3  (12-24-2013)
Large Corp. CP 234s

  1. Large corporations must utilize a special penalty calculation method. See IRM 20.1.3.3.1.1.7(3), Large Corporations, for the special penalty calculation method.

  2. A large corporation (for determining the estimated payments installment requirements) is defined as a corporation, or a member of a controlled group, that had, or whose predecessor had, taxable income of $1 million or more in any of the three years immediately preceding the current year, or if less than 3 years, the number of years the corporation has been in existence. See Regulation section 1.6655-4.

  3. Taxable income for this purpose, is modified to exclude net operating loss and capital loss carrybacks and carryovers. Members of a controlled group, as defined in section 1563, must divide the $1 million amount among themselves under rules similar to those in IRC section 1561.

    Note:

    For a list of controlled group types, see Form 1120 Schedule O.

  4. Research IDRS to determine if the corporation is a large corporation.

    Reminder:

    Taxable income of $1 million or more does not necessarily reflect the corporation is a true Large Corporation as defined in IRM 21.7.1.4.11, Large Corp Unit. Therefore, a taxpayer who must follow the large corporation installment requirements may not have their account marked as a Large Corp.

    Caution:

    Only contact the Large Corp./Technical Unit if the account has the Large Corporation Indicator as explained in IRM 21.7.1.4.11.4(3), Campus Contacts for Large Corp Cases.

  5. When a corporation identifies itself as a large corporation on Form 2220, Code and Edit enters a Reserve Code "4" , see IRM 3.11.16.9.4, Reserve Code. You can check CC BRTVU for Reserve Code "4" .

21.7.11.4.9  (12-24-2013)
CPs 267/268 - Notice of Excess Credit

  1. When a module contains more credits than claimed by the taxpayer, a Q- freeze is established and a CP 267 or CP 268 generated.

    1. CP 267 is a non-math error notice.

    2. CP 268 is a math error notice.

  2. These notices list up to 39 credits and request the taxpayer to explain if the credits should be applied to other accounts or refunded. A 15-cycle freeze releases when any of the conditions below are met:

    1. TC 652/TC 662 posts resolving the discrepancy between the credits claimed and the credits posted ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . (Reducing credits posted to less than credits claimed releases the Q- freeze.)

    2. The module balance becomes zero or debit.

    3. TC 290 $.00 with PC 4 (with no secondary TCs or reference numbers) posts. (See IRM 21.7.1.4.6.2, Q- Freeze/Offset.)

    4. The 15 week cycle hold expires.

  3. These notices must be worked on an expedite basis. Make every effort to correct other issues involving the taxpayer's account, rather than resolving only the notice tax period.

    Note:

    CP 267 notices generated after December 31, 2009 will contain the return address code for Submission Processing (SP) and any replies to this notice will be worked by SP (see IRM Exhibit 3.10.72–3, Computer Paragraph (CP) Notices – Routing Guide). However, any replies received in Accounts Management (AM) will remain in AM and will be resolved using existing procedures.

  4. If not previously controlled on lDRS, control using "LETERCP267" or "LETERCP268" as the activity code.

  5. If less than three weeks remain before the freeze expires, do not input any credit transfers. See table below:

    If Then
    The credit will refund before any action can be taken 1. Follow refund deletion procedures.
    2. Once refund has been deleted and TC 841 is posted, move credit(s) per the taxpayer's request.
    The credit(s) offsets to a module other than where the taxpayer requested 1. Reverse the offset and transfer to the correct account.
    2. Notify Output Review to delete the CP 138 (which will generate to notify the taxpayer the overpayment has been offset to another tax period with a balance due).
    3. If the CP 138 was mailed, advise the taxpayer to disregard the notice since we have applied the credit(s) as requested.
    A refund has already occurred 1. Notify the taxpayer we were unable to comply with the request on the CP 267/CP 268.
    2. Advise the taxpayer to return the refund check uncashed with information on where to apply the payment, and write "void" on the back of the refund check.
    3. Advise the taxpayer if refund is not due to an IRS error, i.e., misapplied payment, that an FTD penalty may be assessed if the deposit should have been made using EFTPS.
    4. Also advise the taxpayer, if the refund was cashed, a check must be submitted for payment.

    Note:

    Also see paragraph (7) below if the taxpayer states that credit/payment does not belong to him/her.

  6. If three weeks or more remain before freeze expires, follow table below:

    If taxpayer … And Then
    Requests a credit transfer   1. Input the credit transfer, per the taxpayer's request.
    2. Notify the taxpayer who received the CP 267 Notice of the action taken by phone, letter or notice.

    Reminder:

    If the taxpayer requests the overpayment be applied to the immediately succeeding tax period, move the overpayment using TC 830/TC 710. If the taxpayer requests that the actual payment be moved, use the appropriate transaction codes, e.g., TC 652/TC 650.

    Indicates no credit transfer is needed There are no balance due on other modules 1. Input TC 290 $.00 with PC 4.
    2. Use HC 3 if the refund will be for the amount expected by the taxpayer.
    Indicates he/she will send an amended return or 94X-X There is 3 or more weeks remaining before the freeze expires Input TC 570 on the account to prevent the overpayment from refunding.
    Indicates no credit transfer is necessary There are balances due on other modules 1. Input TC 290 $.00 with PC 4.
    2. Inform the taxpayer a refund will be issued if no other taxes are owed.
    NOTE: Do not offset the overpayment to a balance due, unless the taxpayer requests you to do so. Let the computer perform the offset, unless there is an –E freeze on another module. The –E freeze prevents an offset for 10 weeks. You must manually transfer the payment to the balance due account using the appropriate transaction codes, if the credit transfer will post before the release of the –E freeze.
    EXCEPTION: If there is a balance due on another module with an open control, coordinate with that area (if possible) to determine if a credit transfer is appropriate.
    Payment(s) posted to the account after CP 267CP /268 was generated Proper credit disposition cannot be determined from a review of the account 1. Contact the taxpayer by phone to resolve the discrepancy.
    2. If unable to contact by phone, pull payment document to determine if payment(s) is correctly posted.
    Taxpayer provides an insufficient response   1. Contact the taxpayer by phone to resolve the discrepancy.
    2. If unable to contact by phone, and you cannot determine what the taxpayer is requesting, take no action to release the freeze.
  7. If the taxpayer states that the excess payment/credit does not belong to them:

    1. If the payment was not made through the EFTPS system, request the payment document to determine where the payment belongs. Research account and:

      If Then
      The payment belongs to the taxpayer Contact the taxpayer for the proper disposition.
      The payment belongs to another taxpayer Transfer to the proper account.
      You cannot determine where the payment belongs If the credit is less than one year old, prepare Form 2424 for Unidentified Remittance File. If payment is more than one year old, prepare Form 8758 for Excess Collection File. (See IRM 21.2.4.3.10.1, Excess Collection File (XSF) for AMRH.)

      Note:

      "If three weeks or more remain before the freeze expires, input a TC 570 to ensure an erroneous refund is not issued. Otherwise, follow refund deletion procedures before routing the Form 2424 or Form 8758 to Accounting. "

    2. If the payment was made through the EFTPS system, research the account and contact the taxpayer (by telephone, if possible) and ask him/her to check his/her records, bank statements, subsidiaries records, etc. If the taxpayer still insists that the credit is not theirs, follow instructions in the Then box immediately above.

21.7.11.4.9.1  (10-02-2008)
Undeliverable CPs 267/268

  1. If CP 267/268 is returned undeliverable:

    1. Analyze the account to verify the notice is still valid.

    2. Use IDRS/CFOL command codes to research for a better address and/or telephone number.

    3. Contact the taxpayer by telephone if a telephone number is secured.

    4. If a more current address is found, re-mail notice.

      Caution:

      Extreme care must be taken to ensure that only the material relative to the taxpayer(s) to which the correspondence is addressed is enclosed in the envelope. See IRM 21.3.3.4.26, Breaches of Personally Identifiable Information (PII) Caused by Manual Stuffing Errors.

    5. If a more current address is not found, associate the notice with the original return using local procedures.

    6. Do not release the Q- freeze.

      Note:

      For more information regarding undeliverables, refer to IRM 21.3.3, Incoming and Outgoing Correspondence/Letters.

21.7.11.4.10  (07-15-2013)
CP 270 - Hold Code, Module in Debit Balance

  1. A CP 270 generates when both the criteria below are met:

    1. An Examination or DP adjustment with HC 2 or 4 posts to a debit balance module.

    2. The condition has been on MF for more than seven cycles.

  2. To resolve the CP 270:

    1. Determine the cause for delay in posting the appropriate transactions, or release of the HC, by reviewing the transactions on the CP 270.

    2. Research available IDRS information.

    3. Expedite posting of the transaction, or release the freeze created by HC 2 or 4.

  3. Input TC 290 $.00 to release the freeze if all of the following conditions are met:

    1. The balance due is correct.

    2. The account will update to TDA status.

    3. A notice has not been sent.

  4. Prevent status update if the balance due is not correct by inputting the proper transactions to eliminate the balance due amount.

  5. A CP 270 containing a TC 30X with HC 2 or HC 4 does not require a TC 290. Notices are generated at their normal cycle.

21.7.11.4.11  (10-01-2009)
POSSDELPEN (Possible Delinquency Penalty) Transcript

  1. POSSDELPEN transcripts are used to verify the correct penalty amounts and generate when:

    1. A TC 460 posts to a module containing a manual delinquency penalty transaction (TC 160).

    2. A disaster due date posts or updates in the module, and the module is restricted by TC 160/TC 161.

  2. Use table below to resolve these transcripts:

    If Then
    Only a TC 160 $.00 is present, or the net of the TC 16X transactions is zero Destroy the transcript and close your control base.
    The sum of the TC 16X transactions is greater than zero Refer to IRM 20.1.2, Failure to File/Failure to Pay Penalties, for penalty computation and abatement procedures.

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