21.7.12  Non-Master File (NMF) Adjustments

Manual Transmittal

September 03, 2014

Purpose

(1) This transmits revised IRM 21.7.12, Business Tax Returns and Non-Master File Accounts, Non-Master File (NMF) Adjustments.

Material Changes

(1) Various changes were made throughout the IRM. Also, cross references and hyperlinks were added, removed, or revised, as appropriate.

(2) In this revision of IRM 21.7.12, the content was significantly rearranged in order to better present guidance for processing Non-Master File guidance.

Subsection Change
IRM 21.7.12.2
(2) Added IRC 663(b) elections are routed to the Cincinnati BMF NMF team for processing. IPU 14U0643 issued 04-17-2014
IRM 21.7.12.5.7
Guidance for processing Form 8697 rewritten. Moved guidance for Form 8866 to new section. IPU 14U0643 issued 04-17-2014 Previously IRM 21.7.12.4.7
IRM 21.7.12.5.7.1
New section added for determining when Form 8697 is processing on Non-Master File (NMF). IPU 14U0643 issued 04-17-2014 Previously IRM 21.7.12.4.7.1
IRM 21.7.12.5.7.2
Added New section providing guidance for processing Form 8697 when no TC 150 is posted on Master File. IPU 14U0643 issued 04-17-2014 Previously IRM 21.7.12.4.7.2
IRM 21.7.12.7.2
Updated verbiage in (3) to state that calls received concerning Form 4876-A are to be resolved based on the chart included in this section
IRM 21.7.12.7.2.4
(5) Added guidance to ensure to only offset enough credit to fully pay any account with an outstanding balance due.
IRM 21.7.12.5.8
Guidance for processing Form 8866 rewritten. Moved all guidance for processing Form 8697 to new section. IPU 14U0643 issued 04-17-2014 Previously IRM 21.7.12.4.8
IRM 21.7.12.5.8.1
New section providing guidance for processing Form 8866 when no TC 150 has posted to Master File. IPU 14U0643 issued 04-17-2014 Previously IRM 21.7.12.4.8.1
IRM 21.7.12.8.3
Added two new paragraphs providing guidance for processing Form 8725. IPU 14U0643 issued 04-17-2014 Previously IRM 21.7.12.4.12
IRM 21.7.12.8.4
Added two new paragraphs providing guidance for processing Form 8831. IPU 14U0643 issued 04-17-2014 Previously IRM 21.7.12.4.13
IRM 21.7.12.8.5
Added three new paragraphs providing guidance for processing Form 8924. IPU 14U0643 issued 04-17-2014 Previously IRM 21.7.12.4.14
IRM 21.7.12.8.6
Added two new paragraphs providing guidance for processing Form 8928. IPU 14U0643 issued 04-17-2014 Previously IRM 21.7.12.4.15
IRM 21.7.12.8.7
Added three new paragraphs providing guidance for processing Form 8876. IPU 14U0643 issued 04-17-2014 Previoously IRM 21.7.12.4.16
Added guidance to forward any questions or issues involving Form 8928 to the HQ Analyst for research. IPU 14U0041 issued 01-06-2014 Previously IRM 21.7.12.4.16(5)

Effect on Other Documents



This material supersedes IRM 21.7.12, dated September 6, 2013 (effective October 1, 2013). This IRM also incorporates the following IRM Procedural Updates (IPUs) -14U0041 dated 1/3/2014 and .14U0643 dated 4/4/2014

Audience

The primary users of this IRM are Wage and Investment (W & I) Customer Account Services Employees.

Effective Date

(10-01-2014)


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

21.7.12.1  (10-01-2013)
Non-Master File (NMF) Overview

  1. Certain returns are not processed using a pipeline system for entry on the Master File (MF) and these accounts must be recorded on a separate system called Non-Master File (NMF). Non-Master File (NMF) accounts are a collection of revenue accounting transactions whose sole purpose is to provide a means for the assessment of taxes and collection of revenue.

    1. Non-Master File is a system of accounting which provides for not only outstanding liabilities but for all types of return and tax adjustment processing that can not be processed on Master File. See IRM 3.17.46.1.1, General, for additional information.

  2. Non-Master File Assessments are made as remainder assessments per IRC 6201.

    1. Remainder assessments are any credits previously assessed such as Withholding (previously assessed on the Form 941), estimated tax credits (previously assessed on the Declaration of Estimated Tax), gasoline tax credits (previously assessed on the Form 720), etc., are used to reduce the liability prior to assessment. the remainder amount is then the assessment amount. See IRM 3.17.46.1.3, Non-Master File Theory, for additional information.

  3. Non-Master File assessments are input on the Automated Non-Master File (ANMF). This is an independent research database which does not interface with Integrated Data Retrieval System (IDRS). ANMF was introduced in 1991 and contains all open, closed and archived Non-Master File (NMF) accounts processed.

  4. Many forms that were previously processed to NMF have been moved to Master File (MF). See prior revisions of this IRM for more information.

  5. As of September 22, 2006, all Non-Master File (NMF) processing has been centralized in the Cincinnati Submission Processing Center (CSPC). For more information regarding the types of accounts established on ANMF, see IRM 21.2.1.5, Non-Master File.

  6. Forward all new assessments and/or documents to establish accounts on NMF to:
    Cincinnati SPC
    P.O. Box 12267
    Covington, KY 41012

  7. NMF notices are generated in CSPC and mailed to the taxpayer. These notices contain an "N " after the taxpayer identification number (TIN). They can also be identified by a tax class (third digit) of 6 in the document locator number (DLN). There are three different ANMF/NMF notices. They are not computer paragraph (CP) notices, but rather are identified by a form number in the bottom right hand corner. The three notices are listed below.

    1. First notice - Form 6335, First Notice issued on Automated Non Master File.

    2. Fourth notice - Form 4840, Final Notice - Delinquent Account. (There are no second or third notices.)

    3. Annual reminder notice - Form 9774, Annual NMF Accrual Reminder Notice.

  8. A toll-free number (1-888-829-7434) appears on all NMF notices. Calls are routed based on the type of call (individual/international/business). Individual calls are routed to Philadelphia Accounts Management for resolution. As of March 2013 business calls and calls regarding the Foreign Investment of Real Property Tax Act, Form 8288, Form 8288-A, Form 8804, Form 8805, Form 8813, and other international issues are routed to Cincinnati Accounts Management for resolution.

    Note:

    NMF notices for Employee Plans (EP) reference has it own toll-free number, 1-877-829-5500.

  9. If calls relating to NMF notices are received on a number other than 1-888-829-7434, questions can be answered if the employee has the ability and expertise to do so. If not, ask the taxpayer to please call 1-888-829-7434 where a specialist will be available to help. DO NOT REFER CALLS ON OTHER ISSUES TO THIS NUMBER. ALSO, THIS TOLL- FREE NUMBER IS FOR CALLS FROM TAXPAYERS OR TAXPAYER REPRESENTATIVES ONLY.

  10. This section provides instructions for employees in Accounts Management who answer the NMF toll free line and also request adjustments to accounts on NMF requiring a correction, abatement, or assessment for:

    • Tax, penalty, or interest

    • Withholding or other refundable credits

    • Miscellaneous taxes not requiring the filing of a regular return

21.7.12.2  (10-01-2014)
What are NMF Adjustments/Correspondence Cases?

  1. NMF Adjustment/Correspondence cases consist of responses or inquiries received from taxpayers concerning accounts housed on the Automated Non-Master File system. Taxpayer inquiries can be for issues related to IMF, BMF or International issues.

  2. NMF correspondence is routed to NMF teams in Accounts Management as follows:

    IF The Issues Are: The Route to:
    BMF and BMF International Issues which include:
    • Form 1120-IC-DISC

    • Form 8697

    • Form 8866

    • Forms 8697/8866

    • BMF NMF Civil Penalty Assessment

    • Forms 8612 and 8613

    • Form 8725

    • Form 8831

    • Form 8924

    • Form 8928

    • Form 8876

    • FIRPTA Issues on accounts prior to January 1, 2006

    • Form 1040NR Fiduciary

    • Form 8404

    • Form 926

    • Issues concerning IRC 1161 of the Taxpayer Relief Act of 1997

    • IRC 663(b) elections


    Cincinnati Campus, CAMC
    201 W. Rivercenter Blvd Stop 6111G, Team C103
    Covington, Ky 41011
    Individual Master File (IMF) and IMF International Issues which include:
    • Individual Taxpayer Accounts of $1 billion or more

    • Form 1040NR prior to January 1, 2006

    • Child Support Obligation

    • Split Spousal Assessments prior to January 1, 2006

    • IMF NMF Civil Penalty Assessment


    Philadelphia Campus, PAMC
    2970 Market St,, Mail Stop BLN 3-L08.151, Team 503
    Philadelphia, Pa 19104
  3. When an adjustment is required, the adjustment document is prepared and forwarded to the ANMF team in CSPC Accounting for input to NMF.

  4. All adjustment documents and forms sent to Non-Master File (NMF) Accounting for processing must have a copy of a current NMF transcript or computer display copy attached. Any document received without a transcript attached is returned to the originator. The transcript identifies whether it is a Non-Master File (NMF) account. Transcripts attached to the documents ensure timely processing of refunds, credits and abatements to the ANMF database.

    Note:

    Adjustments are sent to the address on the User Friendly NMF transcript, which should show Cincinnati campus. A User Friendly NMF transcript can be requested on ANMF.

21.7.12.3  (03-13-2013)
NMF Adjustments Research

  1. Use ANMF to research cases. In addition, check MF using IDRS command codes (CCs) SUMRY and/or TXMOD with definer "N" to show when a case has been assigned to the field or correspondence/call is received by an employee. NMF tax account codes can be found in Section 7 of Document 6209, IRS Processing Codes and Information.

  2. Transaction Code (TC) 130 or a V- freeze can indicate a NMF account is present. (CCs) IMFOLE, BMFOLE or ENMOD display this TC.) A TC 130 in Blocking Series (BS) 200-299 indicates a NMF account.

    1. TC 130 is applied to MF accounts to prevent refunds when there are other balance due accounts present.

    2. TC 130 is generally input by the campus Collection Function and creates a V- Freeze.

    3. TC 130 is followed by a designation number of the campus which input the TC 130.

  3. Employees must be alert for inquiries when the taxpayer has received a notice with an "N" after the Taxpayer Identification Number (TIN) or a Document Locator Number (DLN) with a tax class (third digit of DLN) of 6. If so, research NMF. If additional research is needed, the employee prepares Form 4442 and routes via fax to the following campus per case type:

    Case Type Campus Fax Number
    (Internal Use Only)
    Business and Business International Non-Master File Cincinnati ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    Individual and Individual International Non-Master File Philadelphia ≡ ≡ ≡ ≡ ≡ ≡
  4. A TC 300 for .00 posted to a zero balance MF account does not necessarily mean no tax is due. Perform NMF research before providing the taxpayer a complete response.

    1. A zero balance MF account with a TC 400 and an M- freeze could indicate the account was transferred to NMF.

    2. TC 400 can indicate a "false credit" posted to the account to zero out the liability and move the balance to another MF or NMF account.

    3. Perform further research on the BS (9th and 10th digit of DLN). See the table below for possible scenarios.

    TC 400 with a BS of Indicates
    00 A transfer from MF to NMF.
    05 An Offer in Compromise, MF to NMF.
    09 A transfer from MF to NMF, but is a special project.
    99 An overflow account necessitating a move to NMF. See IRM 3.17.46, Automated Non-Master file Accounting, for additional information on overflow accounts.
  5. Complete Form 12810, Accounts Transfer Request Checklist, to request an assessment be moved from MF to NMF, or NMF to MF. Route to CSPC, Stop 21, Attn: Credit & Account Transfer Unit. See IRM 21.5.2.4.23.9, Moving Assessments, for further instructions.

21.7.12.4  (10-01-2014)
Taxpayer Advocate Service

  1. The Taxpayer Advocate Service (TAS) provides assistance to taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that the IRS has not resolved through normal channels or believe that an IRS system or procedure is not working as it should.

  2. Refer taxpayers to the Taxpayer Advocate Service (TAS) (see IRM Part 13, Taxpayer Advocate Service) when the contact meets TAS criteria (see IRM 13.1.7.2, Taxpayer Advocate Service (TAS) Case Criteria), and you cannot resolve the taxpayer’s issue the same day. The definition of "same day" is within 24 hours. "Same day" cases include cases you can completely resolve in 24 hours, as well as cases in which you have taken steps within 24 hours to begin resolving the taxpayer's issue. Do not refer these cases to TAS, unless they meet TAS criteria and the taxpayer asks to be transferred to TAS. Refer to IRM 13.1.7.4, Same-Day Resolution by Operations. When referring cases to TAS, use Form 911, Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order), and forward to TAS in accordance with your local procedures.

  3. For additional information on TAS see IRM 21.1.3.18

21.7.12.4.1  (10-01-2014)
Taxpayer Advocate Service (TAS) Cases Operations Assistance Request (OAR)

  1. TAS will forward an OAR requesting action to be taken on an account. The OAR should be complete and the issue ready for processing when received in the NMF team. For additional information on Accounts Management Guidelines for OARs see IRM 21.1.3.18.1, Operation Assistance Requests (OAR's) Accounts Management Guidelines.

  2. The following action is to be taken when on an OAR is received from TAS:

    1. Date stamp OAR.

    2. Log in request for TAS database and High Profile Taxpayer data file.

    3. Review for issues.

    4. Adjust account/phone taxpayer or POA, etc.

    5. Open control base on CC ENMOD under 0531720020.

    6. Check for payments or balance dues under MF and ANMF.

    7. Check for TC 594 closing code (CC) 84 on spousal SSN.

    8. Check for TC 971 action code (AC) 502 on CC ENMOD.

    9. Return OAR to TAS.

    10. Prepare Form 4442, Inquiry Referral, to Cincinnati ANMF, if needed, and log out of TAS database when completed.

      Note:

      If sending Form 4442 to Cincinnati ANMF, inform TAS on the OAR of action taken.

21.7.12.5  (10-01-2014)
General NMF Procedures

  1. The following subsections contain information for designated employees in Accounts Management who prepare documents for input to ANMF and who answer calls on the toll-free line.

21.7.12.5.1  (10-01-2014)
NMF Toll- Free Number

  1. The following procedures are for employees receiving inquiries on the NMF toll-free number, 1-888-829-7434. Calls to this number are routed based on the type of call (individual/international/business) and are answered during normal day shift hours at each campus. If a call is received during non business hours, taxpayers are instructed to leave a message and someone will return their call within (3) three business days.

  2. Employees must answer all questions for which they have the expertise and/or access to the necessary ANMF database. If the employee does not have the expertise to answer NMF questions for the specific case type, or does not have the necessary access to the ANMF database, prepare Form 4442, Inquiry Referral, with all necessary information and FAX it to the appropriate campus. See IRM 21.7.12.3 , NMF Adjustments Research, for a list of campuses per type of case.

    • Apologize for not being able to answer the inquiry immediately.

    • Inform the caller he/she will receive a call from an expert as soon as possible, but no later than 3 business days for all forms except EP forms (within 10 business days for EP forms).

    • For inquiries relating to the Foreign Investment in Real Property Act (FIRPTA) for tax years prior to January 1, 2006, notate at the top of Form 4442"Expedite-NMF-FIRPTA" for international form referrals. For NMF EP Referrals notate "Expedite-NMF-EP" . For other NMF referrals notate "Expedite-NMF" . (Be sure to include the phone number or phone numbers where the taxpayer can be reached during business hours and the date the call was received.)

      Note:

      If the campus which receives the Form 4442 referral cannot answer the inquiry within the prescribed time frame, a call must be placed to the taxpayer within that time frame informing him/her of the expected response date.

  3. If any of the situations below are indicated, follow procedures in IRM 5.19.1.4.1.1, NMF Notice Responses.

    1. Inability to pay

    2. Additional time to pay is needed

    3. Installment agreement requested

    4. Bankruptcy

    5. Taxpayer is deceased or incarcerated

  4. Whenever an adjustment to an account is required, prepare the proper form and route to the Cincinnati SP campus at:
    201 Rivercenter Blvd Stop 21
    Covington KY 41011.

  5. For specific case information see the following sections of this IRM.

21.7.12.5.2  (10-01-2014)
NMF Overassessments

  1. An overassessment (OA) is the portion of the assessment in excess of the correct tax liability. The method of adjusting OAs varies, depending on whether the amount has been paid, or whether the taxpayer is indebted for other accounts.

    Note:

    The amount to be abated is not limited to the outstanding balance on the account, but before issuing a refund or allowing a credit, check to ensure all penalty and interest accruals are up to date and the Refund Statute Expiration Date (RSED) has not expired.

  2. Adjust OAs by:

    1. Abating the OA if the liability is paid or unpaid

    2. Crediting the OA if the liability has been paid, but should be applied to another liability of the same taxpayer for some other tax period or type of tax

    3. Refunding the OA if the liability has been paid and should not be applied as a credit to another liability

  3. When an overassessment is determined, priority for application of the credit is as follows:

    1. Abatement of the outstanding amounts created from the assessment document.

    2. Credit to any other outstanding liabilities for the same taxpayer for any taxable periods. The credit must be applied by the collection statute expiration date. The oldest 23C date must be paid first. If the 23C dates are identical apply to the oldest tax period first.

    3. Refund of any excess amount not needed for "a" or "b" in (2) above.

  4. Use Form 1331-B, Notice of Adjustment, to adjust the account based on a review of the research information received.

  5. See the Forms Job Aid and instructions for assistance in completing this form.

  6. Action required:

    • Prepare abatements for entire amounts of OAs.

    • Indicate the necessary TCs on the posting copy of Form 1331-B.

    • Insert principal and interest in the correct columns, if a payment has been made and a refund is in order.

    • Enter the appropriate refund line item number (Section I area on Form 1331-B).

    • Prepare Form 3753, Manual Refund Posting Voucher, or Form 5792, Request for IDRS Generated Refund (depending on the requirements of the Cincinnati Accounting Function), when the disposition of the OA results in a refund to the taxpayer.

      Reminder:

      All unpaid portions of assessed tax must be abated before any portion of the total OA can be credited or refunded.

      Note:

      Search outstanding MF accounts when an OA involves a refund ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ before completing the allowance document and scheduling the refund.

    • Route to the Cincinnati Accounting Function at:
      201 Rivercenter Blvd, Stop 21
      Covington KY, 41011.

21.7.12.5.3  (10-01-2014)
NMF Assessments

  1. Various types of NMF assessments are explained in the following subsections.

21.7.12.5.3.1  (10-01-2014)
Current Assessments

  1. These are assessments of paid or unpaid tax liability, except deficiency or additional assessments resulting from regular examination.

  2. Remittances received with the tax returns are assessed as current assessments, regardless of whether the return is:

    • Full paid

    • Overpaid

    • Part paid

    • Delinquent

    • Tentative

    • Subject to installment privileges

21.7.12.5.3.2  (10-01-2014)
Deficiency Assessments

  1. Deficiency Assessments are deficiencies in income, estate, gift taxes, and certain excise taxes (including assessable penalties and interest), assessed on the basis of determination made by:

    • Examination findings

    • Appeals findings

    • Tax Court decisions (IMF are being processed to MFT 31)

  2. This category also includes:

    • Transferee assessments

    • Assessments based on remittances received with signed waivers indicating agreement on Examination deficiencies

    • Assessments based on remittances tendered by taxpayers as payments on Examination deficiencies, as opposed to deposits made under IRC 6603

      Note:

      If an undesignated remittance is made in the full amount of a proposed liability, such as an amount proposed in a revenue agent's or examiner's report, the undesignated remittance will be treated as a payment of tax, a notice of deficiency will not be mailed, and the taxpayer will not have the right to petition the Tax Court for a redetermination of the deficiency (Rev. Proc. 2005-18 section 4.03).

21.7.12.5.3.3  (10-01-2014)
Additional Assessments

  1. These are additional taxes, penalties, and interest assessed on employment and excise tax cases. See IRM 21.7.12.5.3.2, Deficiency Assessments, for the description of determinations made by entities and the categories they include.

21.7.12.5.3.4  (10-01-2014)
Quick Assessments

  1. Quick assessments are made to assess:

    • Additional taxes and agreed deficiencies when the statutory period will expire before assessment procedure can be completed under normal processing

    • Deficiencies involving bankruptcy and receivership cases under IRC 6871

    • Additional and delinquent taxes in bankruptcy cases

    • Over $100,000 agreed deficiency that can not be assessed within 30 days from the agreement date under normal processing procedures

21.7.12.5.3.5  (10-01-2014)
Prompt Assessments

  1. Prompt assessments are made on the basis of an administrative determination that an assessment cannot be delayed, but the account does not qualify for a jeopardy or quick assessment.

  2. Notices sent for prompt assessments are not mailed to the taxpayer but instead are hand delivered. The same form and interest computation is used as with a quick assessment.

21.7.12.5.3.6  (10-01-2014)
Jeopardy Assessments

  1. These assessments are made under IRC 6851, IRC 6861, IRC 6862. They are made when it is determined collection will be endangered if normal procedures are followed. They include assessments on (this list is not all inclusive):

    • Current returns

    • Cases involving termination of taxable periods

    • Deficiencies

    • Additional or delinquent taxes

21.7.12.5.3.7  (10-01-2014)
Processing Additional NMF Assessments

  1. Additional assessment cases are generated from various sources, including Form 3870, Request for Adjustment, Form 3465, Adjustment Request, taxpayer letters, and remittances. Most NMF assessments worked in Accounts Management are additional assessments.

  2. Action required:

    1. Research all necessary Index Cards or request NMF transcripts, if necessary.

    2. Request the return, if filed (if necessary).

    3. Manually compute applicable tax, penalty, and interest.

    4. Prepare Form 5734, Non-Master File Assessment Voucher, listing the increase in tax, penalty, and interest.

    5. Attach Form 5734 to the front of the return or adjustment document.

21.7.12.5.4  (10-01-2014)
Taxpayer Inquiry Letters

  1. Analyze the letter to determine proper disposition. Use the table below.

    If Then
    Questions are of a general nature and can be answered by Accounts Management Correspond with or phone the taxpayer.
    Questions concerning the law surrounding a specific IRS assessment (including protest of the assessment) 1. Route to Exam.
    2. Send Letter 86C, Referring Taxpayer Inquiry/Forms to Another Office, to advise the taxpayer of the transfer, if routed to Area Office Exam.
    Questions concerning any Alcohol and Tobacco Tax and Trade Bureau (formerly AT&F) forms 1. Forward to:
    Alcohol and Tobacco Tax and Trade Bureau, (TTB)
    Room 8002 FOB
    550 Main Street
    Cincinnati, OH 45202
    ATTN: Chief, Technical Services
    2. Send Letter 86C to advise the taxpayer of the transfer.
    During a taxpayer contact, you determine the case meets TAS criteria, and you cannot resolve the issue the same day

    Note:

    The following two situations meet the definition of "Same Day Resolution:" The issue can be resolved within 24 hours or the IRS takes steps within 24 hours to resolve the taxpayer's issue.

    Complete Form 911, Request for Taxpayer Advocate Service Assistance, and refer the taxpayer to the Taxpayer Advocate Service (TAS). See IRM 13.1.7, Taxpayer Advocate Service (TAS) Case Criteria, or IRM 21.1.3.18, Taxpayer Advocate Service (TAS) Guidelines. (The TAS provides assistance to taxpayers who have problems that the IRS has not resolved through normal channels.)

21.7.12.5.5  (10-01-2014)
Substantiation of Unapplied Credits

  1. For cases where the taxpayer sends in Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax, Form 8288-A ,Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests, or Form 1042-SForeign Person's U.S. Source Income Subject to Withholding to substantiate unapplied credits:

    1. Access the INTL WEBAPPS database to verify the credit amounts claimed on Form 8805 and Form 8288-A.

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Allow credits that can be verified using CC IRPTR without further research. Do not allow a credit if the Form 8805 or Form 8288-A amounts cannot be verified. The taxpayer must submit the Form 8805 in order to receive the credit.

    3. Verify Form 1042-S, using the withholding agent's EIN to confirm that a Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, was filed under MFT 12 for the applicable year and that the amounts claimed on Form 1042-S were actually deposited. If you cannot verify that the related Form 1042 was filed, do not allow the credit. Notify the taxpayer their credit cannot be allowed.

    4. Once verified, prepare Form 3809 for the appropriate amount. The debit portion references the "6550 ACCOUNT" and no TC is needed. Credit the taxpayer's account using TC 800, and identify the source of credit in the "Remarks" section of the Form 3809 (i.e., Form 1042-S, Form 8805) and identify filing location code (FLC) 18, 20, 21, 28, 29, 60, 66, 78, or 98 as appropriate.

    5. If the credit transfer results in an overpayment, Form 3753 must be prepared for a manual refund, unless the taxpayer requests a credit elect to the next tax year or has an outstanding liability on another account (MF or NMF). See IRM 21.4.4.4.2, Preparation of Form 3753, Manual Refund Posting Voucher, for additional information.

  2. When the adjustment results in a refund that will include interest, manually compute interest using CC COMPAC for computing credit interest before January 1, 1999 and COMPA for interest beginning on or after January 1, 1999.

    Note:

    On January 1, 1999, the overpayment and underpayment interest rates for non-corporate taxpayers were equalized.

  3. For corporate overpayment interest rules, see IRM 20.2.4.9, Special Credit Interest Rules for Corporations. The currently supported interest software are Integrated Data Retrieval System (IDRS) CCs (e.g., COMPA) and Automated Computational Tool (ACT/DMI) InterestNet by Decision Modeling, Inc. See IRM 20.2.6.4,Interest Computation Tools.

    1. Determine the correct tax rate and amount of tax to be withheld per Internal Revenue Code - IRC 1441, or the applicable tax treaty rate in Publication 901, U.S. Tax Treaties, or Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.

    2. Prepare four-part Form 5205, Information About Your Income Tax Refund.

    3. Prepare Form 1042-S.

    4. Prepare two Form 3809 documents. The first Form 3809 must credit the taxpayer's Non-Master File (NMF) account for the amount of interest paid using a TC 770 and debit (TC not necessary) the 6520 account. The second Form 3809 must debit the taxpayer's NMF account for the amount of interest withheld using a TC 772 and credit the 4610 account using TC 700 transferring tax withheld on interest.

      Note:

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

    5. Follow the chart below for determining overpayment interest.

    If Computing Credit Interest Then Utilize
    Before 01/01/1999 for a Non-Corporate taxpayer COMPAC
    On or after 01/01/1999 for a Non-Corporate taxpayer COMPA
    Before 01/01/1995 for a Corporate taxpayer, regardless of the overpayment amount (see IRM 20.2.4.9, Special Credit Interest Rules for Corporations, for the definition of "Corporate" taxpayer.) COMPAC
    On or after 01/01/1995 for a Corporate taxpayer and the overpayment amount is less than or equal to $10,000

    Caution:

    If the GATT threshold has been met, the overpayment will be computed at the GATT interest rate (COMPAG), regardless of the overpayment amount. See IRM 20.2.4.9.2, Determining the GATT Threshold.)

    COMPAC
    Credit interest after 12/31/1994 for a Corporate taxpayer and the overpayment amount is greater than $10,000, or the GATT threshold has previously been met (See IRM 20.2.4.9.2, Determining the GATT threshold.) COMPAG (GATT)

    Note:

    Add the COMPAC (first $10,000) with the GATT interest (over $10,000) for the total interest allowed.

  4. Prepare the Form 3753, Manual Refund Posting Document.

    1. The overpayment amount must be the amount of the available credit.

    2. The TC 770 amount is the net interest (after the withholding is computed).

    3. The TC 840 is the total of these two amounts.

  5. Submit the refund document and related forms, along with the case itself, to the manager for review. After managerial review, forward Form 1331-B, Form 5205, Form 1042-S, the refund document, both Form 3809 documents, and a copy of (interest computation) COMPAC or COMPAD/COMPAG to Accounting.

    Caution:

    All adjustment work sent to Accounting must have a current ANMF transcript and the correct BOD code entered on the NMF documents.

21.7.12.5.6  (10-01-2014)
Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation

  1. Form 926 is a return that is filed to report certain transfers of tangible and intangible property to a foreign corporation when required by IRC 6038B. Form 926 is processed under MFT 81.

  2. In the past, taxpayers making a transfer to a foreign trust, estate, or partnership also used Form 926 to report the transfer. However, IRC 1491 was repealed with respect to transfers to foreign partnerships after August 4, 1997. New forms have been developed for transfers to foreign trusts or estates, and foreign partnerships.

  3. Taxpayers making a transfer to a foreign trust, or taxpayers receiving certain large gifts or bequests from certain foreign persons, must file Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts.

  4. Taxpayers making a transfer to a foreign partnership may be required to file Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships

  5. Due to their potential use in classifying Form 1040NR, route all Form 926 to:
    Philadelphia Service Center
    Examination CF&S Unit 4.E08.141
    2970 Market Street
    Philadelphia, PA 19104

21.7.12.5.7  (10-01-2014)
Form 8697, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts

  1. Form 8697 is filed by an individual, corporation, estate or trust. Additionally a pass through entity (partnership or S corporation) that is not closely held must also file Form 8697. A pass through entity is considered closely held if at any time during any tax year for which there is income under the contract, 50% or more (by value) of the beneficial interests in the entity is held either directly or indirectly by five or fewer persons. Form 8697 is used to figure interest due or to be refunded under the look-back method as outlined in IRC 460(b)(2) on certain long-term contracts that are accounted for under either the percentage of completion method or the percentage of completion-capitalized cost method. For additional information see IRM 21.7.4.4.21, Form 8697, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts, for BMF or IRM 21.6.6.3.27, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts, for IMF. See IRM 20.2.11.12, Look-Back Interest, for additional information on interest.

  2. Prior to January 1, 2005, all Forms 8697 were processed on NMF. Effective January 1, 2005, a Form 8697 received with no additional interest due or no interest to be refunded is worked on Master File. These forms can be filed in conjunction with or separately from the related individual income tax returns (Form 1040) or business income tax returns (Form 1120, Form 1120S, Form 1041 or Form 1065). A loose Form 8697 filed as a claim for refund is processed on Master File (MF) if the TC 150 has posted on the related account. If the TC 150 has not posted on the related account, the claim for refund must be processed on NMF.

21.7.12.5.7.1  (10-01-2014)
Determining if the Form 8697 Claim for Refund Is Processed on Non-Master File

  1. A Form 8697 requesting a refund may be filed prior to the due date of the related income tax return or in conjunction with an amended return.

  2. Research MF and NMF to determine if a refund was previously issued. If a refund has been previously issued, notify the taxpayer. If it is determined that a refund has not been previously issued and a TC 150 has not posted to the related income tax account, process the claim for refund on NMF. The related income tax return can be determined by the entry on Line 1 of Form 8697 below the heading of "filing year ."

  3. Verify the taxable income or loss and the income tax liabilities reported on Form 8697 against the income tax and liabilities as originally reported or adjusted on the related income tax accounts posted on MF. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. After comparing the liabilities as described in the previous paragraph, determine if discrepancies exist between the liabilities reported by the taxpayer on the overpaid or amended Form 8697 and the related income tax accounts.

    IF AND IF
    Discrepancies exist   Close to Examination using local routing procedures.
    NO discrepancies exist
    IMF - The claim is ≡ ≡ ≡ ≡ or more.
    BMF - The claim is ≡ ≡ ≡ ≡ ≡ ≡ or more.
    Refer to Examination as CAT A criteria.
    NO discrepancies exist
    IMF - The claim is less than ≡ ≡ ≡ ≡ .
    BMF - The claim is less than ≡ ≡ ≡ ≡ .
    Process following normal adjustment procedures.
  5. If no CAT A criteria are found, research MF and NMF for any outstanding balance due. If an outstanding balance due is found, prepare Form 2424, Account Adjustment Voucher, to offset to the balance due. Ensure that accrued penalties and interest have been taken into consideration when offsetting the credit.

  6. For estimated tax computation procedures, see IRM 20.1.3.1.5, Form 8697.

  7. Utilize the following procedures when processing a claim for refund on Form 8697 and no TC 150 has posted to Master File:

    1. Complete Form 1331-B, Notice of Adjustment, and attach the following:
      •Form 8697
      •Look-back Excel calculation of interest
      •Add-on interest computation (COMPA)
      •Copy of completed manual refund Form 3753, Manual Refund Posting Voucher

    2. Complete Form 3753 using normal manual refund procedures as outlined in IRM 21.4.4.4, Preparation of Manual Refund Forms, and attach the following:
      •Form 8697
      •Look-back Excel calculation of interest
      •Add-on interest computation (COMPA)
      •INOLE and BMFOLI/IMFOLI
      •First page of completed Form 1331-B

    3. Complete Form 10869, Returns or Other Documents Transmittal, and attach the following:
      •Form 3753 and attachments
      •Form 1331-B and attachments

    4. Route Form 10869 and attachments to Cincinnati Submission Processing, Manual Refund, Stop 2107.

  8. Documentation of CIS of the actions taken on the NMF account is required. Document the CIS case with the following history items:

    • Form 8697 NMF

    • Prepared Form 1331B

    • Prepared Form 3753

    • TC840xxxxx (Input the money amount in whole dollars)

    • TC770xxxxx (Input the money amount in whole dollars)

    • TC766xxxxx (Input the money amount in whole dollars)

  9. Monitoring of the manual refund must be completed as per IRM 21.4.4.5.1 , Monitoring Manual Refunds, until the TC 840 posts. Once posted, update and close the IDRS base per IRM 21.4.4.5.1(2), Monitoring Manual Refunds.

21.7.12.5.7.2  (10-01-2014)
Processing Form 8697 Claim for Refund, No TC 150 Posted on Master File (MF)

  1. A Form 8697 claim for refund with no TC 150 posted is processed on Non-Master File (NMF) on MFT 69.

  2. Research MF and NMF to determine if a refund was previously issued. If a refund has been previously issued, notify the taxpayer. If it is determined that a refund has not been previously issued and a TC 150 has not posted to the related income tax account, process the claim for refund on NMF. The related income tax return can be determined by the entry on Line 1 of Form 8697 below the heading of "filing year ."

  3. Verify the taxable income or loss and the income tax liabilities reported on Form 8697 against the income tax and liabilities as originally reported or adjusted on the related income tax accounts posted on MF. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. After comparing the liabilities as described in the previous paragraph, determine if discrepancies exist between the liabilities reported by the taxpayer on the overpaid or amended Form 8697 and the related income tax accounts.

    IF AND IF
    Discrepancies exist   Close to Examination using local routing procedures.
    NO discrepancies exist
    IMF - The claim is ≡ ≡ ≡ ≡ ≡ ≡ or more.
    BMF - The claim is ≡ ≡ ≡ ≡ ≡ ≡ or more.
    Refer to Examination as CAT A criteria.
    NO discrepancies exist
    IMF - The claim is less than ≡ ≡ ≡ ≡ ≡ ≡ .
    BMF - The claim is less than ≡ ≡ ≡ ≡ ≡ ≡ .
    Process following normal adjustment procedures.
  5. If no CAT A criteria are found, research MF and NMF for any outstanding balance due. If an outstanding balance due is found, prepare Form 2424, Account Adjustment Voucher, to offset to the balance due. Ensure that accrued penalties and interest have been taken into consideration when offsetting the credit. Only offset enough credit to full pay any account that shows an outstanding balance due. See IRM 20.2.4, Overpayment Interest, and IRM 20.2.5, Interest on Underpayments, for additional information regarding offsets and interest.

  6. For estimated tax computation procedures, see IRM 20.1.3.1.5, Form 8697.

  7. Utilize the following procedures when processing a claim for refund on Form 8697 and no TC 150 has posted to Master File:

    1. Complete Form 1331-B, Notice of Adjustment, and attach the following:
      •Form 8697
      •Look-back Excel calculation of interest
      •Add-on interest computation (COMPA)
      •Copy of completed manual refund Form 3753, Manual Refund Posting Voucher

    2. Complete Form 3753 using normal manual refund procedures as outlined in IRM 21.4.4.4, Preparation of Manual Refund Forms, and attach the following:
      •Form 8697
      •Look-back Excel calculation of interest
      •Add-on interest computation (COMPA)
      •INOLE and BMFOLI/IMFOLI
      •First page of completed Form 1331-B

    3. Complete Form 10869, Returns or Other Documents Transmittal, and attach the following:
      •Form 3753 and attachments
      •Form 1331-B and attachments

    4. Route Form 10869 and attachments to Cincinnati Submission Processing, Manual Refund, Stop 2107.

  8. Documentation of CIS of the actions taken on the NMF account is required. Document the CIS case with the following history items:

    • Form 8697 NMF

    • Prepared Form 1331B

    • Prepared Form 3753

    • TC840xxxxx (Input the money amount in whole dollars)

    • TC770xxxxx (Input the money amount in whole dollars)

    • TC766xxxxx (Input the money amount in whole dollars)

  9. Monitoring of the manual refund must be completed as per IRM 21.4.4.5.1 , Monitoring Manual Refunds, until the TC 840 posts. Once posted, update and close the IDRS base per IRM 21.4.4.5.1(2), Monitoring Manual Refunds.

21.7.12.5.8  (10-01-2014)
Form 8866, Interest Computation Under the Look-Back Method for Property Depreciated Under the Income Forecast Method

  1. Form 8866 is used to figure the interest due or to be refunded under the look-back method of IRC 167(g)(2) for property placed in service after September 13, 1995 that is depreciated under the income forecast method as described in IRC 167(g).

    Exception:

    The look-back method does not apply to any property with an unadjusted cost basis of $100,000 or less.

  2. The income forecast method is limited to depreciation of:

    • Motion Picture Film or Videotape

    • Video Tapes

    • Sound Recordings

    • Copyrights

    • Books

    • Patents

    • Theatrical Productions

  3. Form 8866, Interest Computation Under the Look-Back Method for Property Depreciated Under the Income Forecast Method, is a form similar to Form 8697. It is almost identical to the Part I, Regular Method, on Form 8697.

  4. The taxpayer is instructed to file Form 8866 with the appropriate income tax return if additional interest is owed. If the taxpayer is due a refund, Form 8866 is filed separately.

  5. Prior to January 1, 2005, a Form 8866 claiming look-back interest was processed under Non-Master File with the interest issued using "manual refund" procedures. Effective January 1, 2005, look-back interest adjustments are processed under Master File and posted to the applicable income tax return for the taxpayer required to file Form 8866.

    Exception:

    If the taxpayer is claiming a refund of interest, and a TC 150 has not posted to Master File, the refund must be processed to NMF. See IRM 21.7.12.6.1, Processing Form 8697 Claim for Refund, No TC 150 Posted on Master File (MF), for processing procedures. The procedures to process a Form 8697 claim for refund are the same as the procedures for processing a Form 8866 claim for refund.

  6. If interest is due to the IRS, the taxpayer is instructed to file Form 8866 with the related income tax return. The amount due should be included in the "total tax" (TC 150) line. Balance due Form 8866 are not filed separately unless the related income tax return has previously been filed and the balance amount on the Form 8697 was not included on the original return (TC150).

21.7.12.5.8.1  (10-01-2014)
Form 8866 Refund Request, No TC 150 Posted on Master file

  1. A claim for refund received on Form 8866, Interest Computation under the Look-Back Method for Property Depreciated under the Income Forecast Method, is processed in the same manner as a claim for refund received on Form 8697.

  2. Follow the procedures in IRM 21.7.12.6.1 for processing a refund request received on Form 8866.

  3. A Form 8866 claim for refund with no TC 150 posted is processed on Non-Master File (NMF) on MFT 69.

21.7.12.5.9  (10-01-2014)
MF Return Posted to NMF

  1. Occasionally, a MF return is erroneously posted as a NMF return. Input these returns to MF as original or amended returns, depending on the information available.

  2. Action required:

    1. Research all related Index Cards if the return was not a balance due.

    2. Request a transcript of the ANMF account.

    3. Prepare Form 1331-B, Notice of Adjustment, to abate the NMF assessment.

    4. Input a credit transfer using Form 3809, Miscellaneous Adjustment Voucher, to transfer any payment to MF.

    5. Prepare a corrected return and route to MF as non-remit. Staple the NMF return behind it.

21.7.12.5.10  (10-01-2014)
Stopping NMF Notices

  1. Follow the procedures below to stop NMF notices:

    1. Prepare Form 3177, Notice of Action for Entry on Master File, with TC 470 to notify Cincinnati Accounting to stop notices when an adjustment is pending on any NMF account.

    2. Include the reason to stop notices and the amount of adjustment using the "Other" line of Form 3177.

    3. Include your name and phone number. This information is included in the History section of the NMF account when NMF inputs the TC 470.

21.7.12.6  (10-01-2014)
IMF NMF Procedures

  1. The following subsections contain information for designated employees in Accounts Management who prepare documents for input to ANMF for adjustment to Individual accounts.

21.7.12.6.1  (10-01-2014)
NMF Husband Only/Wife Only Assessments — Claims Filed

  1. Husband only/Wife only is an assessment determined by Exam which is assessed for the full amount against each spouse. These are called split assessments. Effective January 1, 2000, split assessments are processed to IMF as MFT 31.

  2. For current procedures on spousal assessment cases, see IRM 21.6.8, Split Spousal Assessments (MFT 31).

21.7.12.6.1.1  (10-01-2014)
Spousal Assessment Transcripts

  1. Spousal Assessment transcripts are generated to Cincinnati Accounting when a credit transaction (TC 640, TC 670, or TC 700) posts to an ANMF account.

  2. Cincinnati NMF Accounting reviews the IMF transcripts before referral to Accounts Management using the conditions below. If all of these conditions are not met, return the transcript(s).

    • A debit balance remains on the other account not containing the credit

    • The amount of tax originally assessed is the same on both accounts

    • Both accounts are in notice status, tax delinquent account (TDA) status, or status 53

    • Either account is not in status 71, 89 or has a posted TC 914

  3. Action required:

    1. Examine the NMF transcripts to determine if the credits on one account, or the combination of credits on both accounts, fully pay the tax, penalty, and interest (including accruals) of the petitioning spouse account. Also, research the CC IMFOLI for any existing credits which may have been processed to MF in error.

      If Then
      The account is full paid and a credit is located on MF Determine if it was intended for the NMF account and transfer, if appropriate.
      The account is not full paid after combining all credits Take no action and close your control base.
    2. Once the liability has been full paid, abate the non-petitioning or unagreed spouse account using standard NMF abatement procedures. (A non-petitioning or unagreed spouse is one who has either not agreed to the assessment or has not petitioned the tax court.)

      Note:

      Be sure to check the cross reference section of the NMF transcript for any information which will help in resolving the issue. For example, a Form 870 waiver date (also may be available on CC IMFOLA), prior refund information, or penalty codes.

    3. If credits exist on the NMF account after all credit transfer and abatement procedures are completed, research for any other Outstanding Balance List (OBL).

      If Then
      Other OBLs exist Apply as necessary.
      No other OBLs exist Prepare Form 3753, Manual Refund Posting Voucher, to refund the credit to the taxpayer. (Be careful not to refund payments made by one to the other. If necessary, pull the payment voucher to determine whose credit it is.)
    4. It is not necessary to release the V- freeze, because Accounting sends a request to Collection to release the freeze once the NMF account becomes zero balance.

21.7.12.6.2  (10-01-2014)
Child Support Obligation

  1. IRC 6305 authorizes IRS to assess and collect child support payments ordered by state courts, but which have fallen into arrears. When certified by the Secretary of Health and Human Services, the arrearage is treated as taxes collectible.

  2. The assessment is processed to NMF on MFT 59.

  3. A first notice and Letter 753(C), Child Support Payments Assessed (NMF), are prepared to inform the taxpayer of the reason for the assessment. It advises the taxpayer to contact the State Child Support Collection Office if there are questions regarding the assessment.

  4. Any decrease to the original assessment must be initiated by the originating state office. IRM 3.17.46, Automated Non-Master File Accounting, contains detailed information and procedures.

21.7.12.6.3  (10-01-2014)
Joint Civil Penalty Assessment

  1. Joint civil penalty assessments must be processed on NMF since MF civil penalty modules (MFT 13 or 55) cannot accommodate joint liabilities. These modules appear as MFT 28 on NMF. The reason can be identified by the abstract number. See IRM 3.17.46, Automated Non-Master File Accounting, for more information and procedures.


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