Part 21. Customer Account Services

Chapter 8. International

Section 3. NMF International Adjustments

21.8.3  NMF International Adjustments

Manual Transmittal

August 21, 2012

Purpose

(1) This transmits revised IRM Section 21.8.3, NMF International Adjustments.

Material Changes

(1) Editorial changes were made throughout this IRM; no substantial changes were made to this IRM's content.

Subsection Change
IRM 21.8.3.1 Added a paragraph for referral to TAS

Effect on Other Documents

IRM 21.8.3, dated August 23, 2011 (effective 10-1-2011) is superceded. This IRM had no IRM Procedural Updates.

Audience

Employees in Wage and Investment, Accounts Management, Taxpayer Advocate Service, and all others who perform international adjustment work.

Effective Date

(10-01-2012)

Ivy S. McChesney
Director, Accounts Management
Wage and Investment Division

21.8.3.1  (10-01-2012)
Non-Master File (NMF)

  1. Certain returns are not processed using a pipeline system for entry on the Master File and these accounts must be recorded on a separate system called the Non-Master File (NMF).

  2. Non-Master File accounts are now centralized at the Cincinnati Submission Processing Campus. Forward all paper NMF requests to:

    Cincinnati SPC
    P.O. Box 12267
    Covington, KY 41012

  3. IRM 21.7.12, Non-Master File (NMF) Adjustments, contains information on NMF processing and the NMF transmission process.

  4. IRM 21.1.3.18, Taxpayer Advocate Service (TAS) Guidelines, contains information for TAS referrals.

21.8.3.1.1  (10-01-2008)
Form 1040NR (Fiduciary), U.S. Nonresident Alien Income Tax Return

  1. Every nonresident alien having fiduciary income, either effectively or not effectively connected with a trade or business in the United States, must file Form 1040NR.

    1. Form 1040NR Fiduciary is filed with an Employer Identification Number (EIN) and the box for Estate or Trust at the top of the Form is checked.

    2. These forms are handled as Business Master File (BMF)/NMF.

  2. Fiduciary Forms 1040NR are processed to Non-Master File under Master File Tax (MFT) 20.

    1. Returns reflecting only income that is not effectively connected with a U.S. trade or business are processed with Document Code 72.

    2. Returns reflecting income that is effectively connected with a U.S. trade or business are processed with Document Code 73.

21.8.3.1.1.1  (10-01-2008)
Adjusting Form 1040NR Fiduciary

  1. Process amended returns or claims filed for Form 1040NR Fiduciary as follows:

    1. Request the original return.

    2. Process adjustments involving the Form 1040NR Fiduciary in accordance with IRM 21.8.2.1.13, Examination Criteria.

    3. Prepare paper Form 3177 with Transaction Code (TC) 470 to notify Accounting to stop notices when an adjustment is pending. Refer to IRM 21.7.12.4.5, Stopping NMF Notices.

    4. For name and/or address changes, prepare Form 2363, Master File Entity Change. Attach current Integrated Data Retrieval System (IDRS) and Automated Non-Master File (ANMF) transcripts and route to Accounting.

21.8.3.1.1.2  (10-01-2008)
Claims for Abatement of Penalty and Interest

  1. Claims for abatement of penalty and/or interest are usually requested when the taxpayer's income was incorrectly classified and/or reported as effectively connected.

  2. Process cases where the taxpayer adequately substantiates this claim as follows:

    1. Request transcript of account from ANMF.

    2. Request original return.

    3. Verify the tax computation on page 4, Form 1040NR.

    4. Prepare Form 1331-B, Notice of Adjustment, to adjust penalties and interest as appropriate.

      Note:

      You must enter the Taxpayer Identification Number (TIN) on the Form 1331-B and the Business Operating Division (BOD) code from Command Code (CC) TXMOD on all NMF documents.

21.8.3.1.1.3  (10-01-2007)
Returns Incorrectly Processed to IMF

  1. If NMF Form 1040NR is processed incorrectly as an Individual Master File (IMF) 1040NR under an invalid Social Security Number (SSN), transfer the account from Master File (MF) to NMF using the following procedures:

    1. Request original return or have the taxpayer provide a copy.

    2. Abate the incorrect Master File tax, if necessary. Use Hold Code 4, Source Code 1, Reason Code 99 and the appropriate blocking series to freeze credits and notices.

    3. Code the return for reprocessing by lining through the Document Locator Number (DLN), entering the TIN followed by the letter "N" in brown pencil, and correcting the Entity portion. "X" out multiple stamped received dates, other than the original IRS received date.

      Reminder:

      Attach prints of the Master File adjustment.

    4. Route the return to the Cincinnati Submission Processing Center Receipt and Control area for batching and numbering. Indicate on the routing slip that the return was incorrectly processed as Master File, and process as NMF (MFT 20).

    5. Monitor for the posting of the NMF return if credits must be transferred from MF to NMF.

      Note:

      Do not transfer credits until the return posts on NMF. If the account shows payments or credits, transfer them using Form 2424, Account Adjustment Voucher.

  2. Process cases where payments were misapplied, and the taxpayer provided a copy of the front and back of the cancelled check or money order, using payment tracer procedures in IRM 21.5.7, Payment Tracers.

    If... Then...
    Payment is located on MF and it posted as TC 610, 640, 660/430, or 670 Prepare Form 2424 to debit MF and use corresponding credit transaction to credit NMF.
    Payment on MF posted as TC 700, 710, 716, or 706 Prepare Form 3809, MIscellaneous Adjustment Voucher, to debit MF and use TC 820 to credit NMF.

21.8.3.1.1.4  (10-01-2008)
Substantiation of Unapplied Credits

  1. 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 International National Standard Application (NSA) 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 File 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 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 Non-Master File 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:

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

  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.

21.8.3.1.2  (10-01-2007)
Forms 1120-IC-DISC, Interest Charge Domestic International Sales Corporation Return

  1. Form 1120-IC-DISC must be filed if the corporation elected, by filing Form 4876-A, Election To Be Treated as an Interest Charge DISC, to be treated as an IC-DISC, and such election is in effect for the tax year the corporation is a former IC-DISC, or the corporation is a former DISC.

  2. This return is due the 15th day of the ninth month after the tax year ends. The first Form 1120-IC-DISC filed by a corporation establishes the taxable year ending date.

    Note:

    No extensions of time to file are allowed.

  3. Form 1120-IC-DISC is processed on NMF (MFT 23). Accounts Management may need to:

    • Assess penalties under IRC § 6686

    • Assess interest under IRC § 992(c)(2)(B)

    • Resolve duplicate filing conditions

    • Process an amended Forms 8404

  4. For MFT 23 processing instructions, see IRM 21.7.12.4.6, Form 1120-IC-DISC, Interest Charge Domestic International Sales Corporation Return and Form 4876-A, Election to be Treated as an Interest Charge DISC.

21.8.3.1.3  (10-01-2007)
IRC § 1161 of the Taxpayer Relief Act of 1997

  1. Per IRC §1161 of the Taxpayer Relief Act (TRA) of 1997, a trust that was in existence on August 20, 1996, and was treated as a domestic trust (Form 1041 Filer) on August 19, 1996, may elect to continue treatment as a domestic trust by attaching a statement to the Form 1041 filed for either the 1997 or 1998 taxable years.

  2. It is unlikely that returns will any longer be filed that are subject to the instructions in IRC § 1161. However, it is important to acknowledge that certain trusts that do not meet the definition of a U.S. person under IRC § 7701(a)(30)(E) can still be treated as a domestic trust, if an election was properly made.

21.8.3.1.4  (10-01-2008)
Form 8404, Interest Charge on DISC-Related Deferred Tax Liability

  1. Form 8404 is filed by shareholders of Interest Charge Domestic International Sales Corporations to figure and report their interest owed on DISC-related deferred tax liability.

  2. The form is due by the due date of the federal income tax return for the tax year that ends with or includes the 1120-IC-DISC's tax year end. Form 8404 is processed under MFT 23.

  3. Form 8404 for individuals is filed with Austin Submission Processing while Form 8804 for corporations, trusts and decedent estates are filed with Cincinnati Submission Processing.

  4. A DISC shareholder may defer a portion of its income attributable to DISC activities. An interest charge is imposed on the shareholder of the DISC based on the amount of tax postponed. The assessment of the interest is made via NMF when Form 8404 is filed.

  5. If the shareholder underpays the interest as a result of an audit adjustment, amended return, carryback, etc., or because the original amount reported was based on an estimate, the shareholder must file an amended Form 8404 to increase the assessment.

  6. For additional information, see IRM 21.7.12.4.6.4, Additional Assessment or Claim on Form 8404, Interest Charge on DISC - Related Deferred Tax Liability.

21.8.3.1.5  (05-23-2011)
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 Forms 1040NR, route all Forms 926 to:
    Philadelphia Service Center
    Examination CF&S Unit 4.E08.141
    2970 Market Street
    Philadelphia, PA 19104


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