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Part 25. Special Topics

Chapter 6. Statute of Limitations

Section 1. Statute of Limitations Processes and Procedures (Cont. 3)

25.6.1  Statute of Limitations Processes and Procedures (Cont. 3)

25.6.1.10 
Claims, Abatements and Refunds

25.6.1.10.2 
Requests for Abatement

25.6.1.10.2.7 
Claims for Credit or Refund – General Time Period for Submitting a Claim

25.6.1.10.2.7.2 
Limitations on the Amount of a Claim

25.6.1.10.2.7.2.1  (09-09-2011)
Three-year Rule

  1. The amount to be credited or refunded is limited to the tax paid (which includes tax, penalties, and interest) during the three year period prior to the filing of the claim, plus the period of any extension of time to file.

  2. Here are a few examples on the limitations on the amount of a claim regarding the three-year rule.

    Example:

    (a). An original delinquent return claiming a refund is filed three years and one month after the Return Due Date. The return due date is the start date of the refund filing date limitation period. The amount of any refund is limited to payments made within the three year period before the filing of the delinquent return/claim. Withholding credits and estimated tax payments are deemed to be paid on the Return Due Date (without regard to any extension of time to file). Therefore, the withholding credits and estimated tax payments may not be refunded. If no other payment has been made within the 3 year time period describe above, no credit or refund should be allowed. See Rev. Rul. 76–511, 1976–2 C.B. 428.

    Example:

    (b). Same as Example (a) except the taxpayer had received an extension of time to file. You must determine the lookback period as it relates to the extension of time to file on the account to see if the withholding credits and estimated tax payments would be refunded based on the length of the extension period on the account.

    Example:

    (c). A 2008 individual income tax return is filed on April 15, 2009. A claim for refund filed on Tuesday, April 17, 2012, is treated as timely filed under the Saturday Sunday Legal Holiday (SSLH) rule. The claim is treated as if it is filed on the last day otherwise prescribed for filing, which is April 15, 2012; otherwise, the SSLH rule would give no benefit. See Rev. Rul. 66-118, 1966-1 C.B. 290.

25.6.1.10.2.7.2.2  (10-15-2009)
Two-year Rule

  1. If the claim for credit or refund is not filed within the three-year period for filing a claim, the amount is limited to the portion of tax paid (the payment of tax could be for tax, penalty, or interest) within the two year period prior to the filing of the claim.

  2. Here are few examples of the two year-rule regarding claims for credit or refund.

    Example:

    For tax year 2000, Taxpayer pays $5,500 of individual income tax on 4/15/2001. On 3/1/2004, Taxpayer pays $1,500 as a result of examination adjustments increasing rental income. The Assessment Statute Expiration Date (ASED) was not extended and passes on 4/15/2004. On 5/1/2004, Taxpayer files a refund claim for $2,000 to dispute the examination adjustment and to decrease rental income below the amount shown on the tax return. Taxpayer may receive only a $1,500 refund (which is the amount of your tax decrease) under the two-year rule.

  3. For the example above, the ADJ54 adjustment would be input as follows:

    • Input a tax decrease for the amount of the refundable payment(s).

    • Input the adjusted gross income (AGI) and taxable income (TXI) to equal the amount shown on the claim for refund.

    • Input the claim received date or timely post mark date in the RFSCDT field and use override code S.

    • Use a Hold Code (HC) 4 to hold the refund and notice and issue a manual refund to the taxpayer.

    • Send Letter 106C, Claim Partially Disallowed to the taxpayer.

    • Input a note on your source document or adjustment document explaining the partial tax decrease is due to the expired statute.

    • Input a history item on IDRS (for example: H,$500barred) or comments on AMS indicating the barred amount of the tax decrease .

  4. For the example below, the ADJ54 adjustment would be input as follows:

    • Input a tax decrease for the amount claimed.

    • Correct the adjusted gross income (AGI) and taxable income (TXI) as shown on the claim for refund.

    • Input the claim receive date or timely post mark date in the RFSCDT field and use override code S

    • Use Hold Code (HC) 1 and issue a manual refund to the taxpayer.

    Example:

    For tax year 2000, Taxpayer pays $5,500 of individual income tax on 4/15/2001. On 3/1/2004, Taxpayer pays $1,500 as a result of examination adjustments increasing rental income. On 4/15/2004, Taxpayer files a refund claim for $5,000 based on increased deductions for rental activities, which the Service allows. The ASED is not extended and passes on 4/15/2004. On 3/1/2006, Taxpayer files a refund claim of $1,000 reflecting an increase in charitable deductions. Taxpayer may receive a $1,000 refund (which is the amount of your tax decrease). Note that there is no ordering rule that would treat the $5,000 refund as first being made from the $1,500 payment rather than the $5,500 paid with the return. Also, the subject matter of the $1,000 claim does not have to relate to the subject matter of the $1,500 payment; the look-back rule is based only on dollar amounts.

25.6.1.10.2.7.3  (04-01-2007)
Extension of Time by Agreement

  1. The period of limitations for claiming a credit or refund may be extended by agreement only by the execution of a consent to extend the period of limitations on assessment (e.g., the Service and the taxpayer sign a Form 872, Consent to Extend the Time to Assess Tax) on or before the ASED.

  2. The period for claiming a credit or refund is extended until 6 months after the expiration of the consent. The limitation on the amount that may be claimed (the lookback rule) is applied by allowing the recovery of any amount paid after the execution of the consent (and before the filing of the claim or the making of the credit or refund), as well as the amount that could be claimed, looking back two years or three years as stated above, from the date of the execution of the consent. See IRC § 6511(c).

  3. The Service may execute the consent even though it has completed its examination and has no plans to make an assessment. The requirements for executing the consent are in IRM 25.6.22, Statute of Limitations - Extension of Assessment Statute of Limitations by Consent. The agreed upon period can be extended further by a consent signed on or before the ASED. The consent does not, however, shorten any special period of limitations on refund.

  4. Restricted consents. If the consent is restricted to certain items, the claim is similarly restricted for credit or refund. See IRM 25.6.22.8.12, Basic Restrictive Statement (08-01-2003) at (2), which states that the basic restrictive statement should include the following: "The provisions of Section 6511(c) of the Internal Revenue Code are limited to any refund or credit resulting from an adjustment for which the period for assessment is extended under this agreement."

25.6.1.10.2.8  (05-17-2004)
Claims for Credit or Refund - Special Items of Income, Deduction, Loss or Credit

  1. This section describes the procedures regarding a claim for credit or refund - special item of income, deduction, loss or credit.

25.6.1.10.2.8.1  (04-01-2007)
Net Operating Loss (NOL) Carryback or Capital Loss Carryback

  1. A claim for credit or refund based on the carryback of an NOL under IRC § 172 or a Capital Loss under IRC § 1212 may be filed within the three year period from the due date of the return ( for the taxable year of the NOL or Capital Loss which results in such carryback) plus the period granted for any extension of time to file for the year in which the NOL or Capital Loss is incurred. See IRC § 6511(d)(2).

    Note:

    The three year period runs from the extended return due date regardless of when the return is actually filed. The three year period may be extended through a consent to extend the period of limitations on assessment. See IRC § 6511(c).

    Note:

    For purposes of IRC § 6511(d)(2), the year of the NOL is the year in which the NOL is incurred, and not the carryback year.

  2. Limitation. The overpayment must be attributable to the carryback.

  3. The special period provided in IRC 6511(d) is an additional period, rather than a substitute period, for the general period provided in IRC 6511(a) for the carryback year. See Rev. Rul. 65-281, 1965-2 C.B. 444.

  4. "Quick Refunds" of a Carryback. An application for a tentative carryback adjustment under IRC 6411 made on Form 1045, Application for Tentative Refund, or Form 1139, Corporation Application for Tentative Refund, is not a claim for credit or refund for purposes of filing a claim within the period of limitations.

25.6.1.10.2.8.2  (05-17-2004)
Business Credit Carryback

  1. A claim for credit or refund based on the carryback of the Business Credit (IRC § 39) may be filed within the three year period from the due date of the return plus the period granted for any extension of time to file for the year of the unused Business Credit, which results in the carryback. See IRC § 6511(d)(4).

    Note:

    The three year period runs from the extended return due date regardless of when the return is actually filed. The three year period may be extended through a consent to extend the period of limitations on assessment. See IRC § 6511(c). See IRM 25.6.1.10.2.7.3 , Extension of Time by Agreement, regarding consents.

  2. Limitation. The overpayment must be attributable to the carryback.

  3. Effect of Certain Carrybacks from a Subsequent Year. Any portion of the business credit carryback attributable to a net operating loss carryback, capital loss carryback, or other credit carryback from a subsequent taxable year may be filed within the three year period from the due date of the return plus the period granted for any extension of time to file for that subsequent year.

25.6.1.10.2.8.3  (05-17-2004)
Bad Debts and Worthless Securities

  1. A claim for refund or credit based on a bad debt deduction under IRC § 166 or § 832(c) or a worthless security loss under IRC § 165(g) may be filed within seven years from the due date of the return for the year with respect to which the claim is made (determined without regard to any extension of time to file). See IRC § 6511(d)(1).

  2. If the deductibility of the bad debt or worthless security loss affects a Net Operating Loss (NOL) carryback, the period is the later of:

    1. Seven years from the due date of the return for the year in which the NOL arose (determined without regard to any extension of time to file), or

    2. See IRM 25.6.1.10.2.8.1, Net Operating Loss (NOL) Carryback or Capital Loss Carryback, the period for which the NOL arose .

  3. Limitation. The overpayment must be attributable to the deductibility of the bad debt or worthless security loss.

25.6.1.10.2.8.4  (05-17-2004)
Foreign Tax Credit

  1. A claim for credit or refund based on tax paid or accrued to any foreign country or a possession of the United States for which a credit is allowed either under IRC § 901 or by a treaty may be filed within ten years of the due date of the return (determined without regard to any extension of time to file) for the year in which the foreign taxes were actually paid or accrued and not the carryover year to which the taxes are carried and claimed as a credit. See IRC § 6511(d)(3).

  2. Limitation. The overpayment must be attributable to the allowance of the foreign tax credit.

  3. Change of Election. A taxpayer may deduct the foreign taxes under IRC § 164 or elect to credit the taxes against U.S. tax liability under IRC § 901. The election can be made or changed at any time on or before the RSED under section 6511(d)(3) for the year the foreign taxes are paid or accrued (including extensions of the RSED due to the execution of a consent to extend the ASED for that year).

25.6.1.10.2.9  (05-17-2004)
Claims for Credit or Refund – Taxpayers in Special Situations

  1. This section describes the procedures regarding claims for credit or refund from taxpayers that meets the special situations described in IRC § 6511(h).

25.6.1.10.2.9.1  (05-17-2004)
Financial Disability

  1. On July 22, 1998, IRC Section 6511(h) was added to the IRC, which provides that the general period of limitations on claims for credit or refund is suspended during the period that an individual is "financially disabled " .

    Note:

    A period for filing a claim for credit or refund extended by any consent to extend the period of limitations on assessment will also be suspended if the individual is financially disabled.

  2. Financially Disabled. Financially disabled means being unable to manage financial affairs.

    1. Cause of Disability. The inability must be due to a medically determinable mental or physical impairment.

    2. Required Effect of Disability. The impairment must be expected to either result in death, have already lasted for a continuous period of not less than 12 months, or must be expected to last for a continuous period of not less than 12 months.

  3. No Suspension While Financial Affairs Managed by Certain Persons. The period of financial disability does not include any period in which the taxpayer's spouse or any other person is authorized to act on behalf of the taxpayer in financial matters (e.g., a guardian).

  4. Procedural Requirements Regarding Impairment. Proof of the medically-determined impairment must be submitted with the taxpayer's claim for credit or refund of tax.

    1. A written statement from the person signing the claim for credit or refund that no person, including the taxpayer's spouse, was authorized to act on behalf of the taxpayer during the period the taxpayer was prevented from managing his/her financial affairs.

    2. A written statement from a medical physician, must name and describe the mental or physical impairment, give a medical opinion that the impairment prevented the taxpayer from managing his or her financial affairs, give a medical opinion that the impairment has had, or is expected to have, one of the effects described in (2)(b), above, state, to the best of the physician's knowledge, the period during which the taxpayer was prevented from managing his or her financial affairs, and include a signed certification that to the best of the physician's knowledge and belief, the above representations are true, correct, and complete.

  5. Joint Returns. Claims for credit or refund for a period in which a joint return was filed cannot be denied solely because one of the spouses on the return was not financially disabled. Such claims should be considered as they relate to the financially disabled spouse.

  6. Length of Mental Impairment for Purposes of (2)(b), above. An individual with a mental impairment who consults with a psychiatrist automatically has proof that the impairment continued for the entire period of consultation. If a mental impairment renders a person incapable of caring for himself or herself for part of a period but not for other parts, a physician must, as required above, identify the period during which the taxpayer was prevented from managing his or her financial affairs. In order for the exception to apply, the physician must determine that the person was continuously impaired for a period described in (2)(b), above. The impairment may vary between a severe and a moderate impairment during a period described in (2)(b), above, but it may not vary between severely impaired and not impaired

    Example:

    Taxpayer filed a timely return for tax year 2000. Taxpayer was entitled to claim a refund for 2000 but failed to submit it before the RSED on 4/15/2004. On May 1, 2003, Taxpayer was diagnosed with Alzheimer’s disease by his physician and by November of 2003, Taxpayer’s condition was so severe that he could not travel alone. On November 12, 2003, Taxpayer’s spouse authorized a relative to act for Taxpayer and on September 15, 2004, the relative filed a claim for refund on behalf of Taxpayer for tax year 2000. Along with the claim, taxpayer’s physician stated that to the best of the physician’s knowledge, Taxpayer had become permanently unable to manage financial affairs by March 31, 2003.

    Taxpayer qualifies for the financial disability exception for the 2000 tax year. The period of limitations for filing a claim for refund for tax year 2000 was suspended from March 31, 2003 through November 11, 2003 (225 days). Thus, the 225 days are added to April 15, 2004, the normal RSED, and the RSED for Taxpayer is November 26, 2004. The refund claim was timely because it was filed on or before November 26, 2004.

    Example:

    Taxpayer filed a timely return for tax year 2000. Taxpayer was entitled to claim a refund for 2000 but failed to submit it before the RSED on 4/15/2004. On December 1, 2005, Taxpayer was diagnosed with Alzheimer’s disease by his physician. The physician believes that the effects of the disease were evident as early as 2003, but that the disease was intermittent until recently. On April 1, 2006, Taxpayer's spouse authorized a relative to act for Taxpayer for tax year 2000.

    While the disease impaired Taxpayer intermittently during the period of limitations for filing a claim for refund for the 2000 tax year to the extent that during those intermittent periods he could not manage his financial affairs, he did not become impaired for a continuous period described in (2)(b), above, until late in 2005 after the RSED had passed. Accordingly, Taxpayer does not qualify for the financial disability exception for the 2000 tax year and the refund claim is not timely.

25.6.1.10.2.9.2  (05-17-2004)
Presidentially Declared Disaster Area

  1. In general, the Service may postpone a deadline for filing a claim for credit or refund for a period of up to one year for taxpayers (individuals and businesses) who the Service determine are affected by a Presidentially declared disaster. See IRC § 7508A.

  2. The length of postponement period will be prescribed in a Notice (or other guidance including an IRS News Release) issued by the Service regarding a particular disaster.

  3. Treas. Reg. § 301.7508A-1(d)(1) defines an "affected taxpayer" as any of the following:

    1. Any individual whose principal residence, or any business entity or sole proprietorship whose principal place of business, is located in the covered disaster area;

    2. Any individual who is a relief worker affiliated with a recognized government or philanthropic organization and who is assisting in the covered disaster area;

    3. Any individual whose principal residence, or any business entity or sole proprietorship whose principal place of business, is not located in the covered disaster area, but whose records necessary to meet a filing deadline are maintained in the covered disaster area;

    4. Any estate or trust that has tax records necessary to meet a filing or paying deadline in a covered disaster area; or

    5. Any spouse of an affected taxpayer, solely with regard to a joint return of the husband and wife.

    In addition, the Service may determine that other persons are affected taxpayers. Therefore, taxpayers located outside of the covered disaster area may qualify for relief. The "affected taxpayers" will be prescribed in a Notice (or other guidance including an IRS News Release) regarding a particular disaster.

25.6.1.10.2.9.3  (04-01-2006)
Disaster Area Recognized by Local Service Officials

  1. Local Service officials may use their authority to provide extensions of time to file (under IRC § 6081) and to pay (under IRC § 6161) to provide relief for a local disaster whose magnitude does not warrant a Presidential declaration of disaster. The officials, however, do not have the authority to provide an extension of time to file a claim for credit or refund; an extension may be obtained by entering an agreement to extend the period of limitations on assessment, which automatically extends the period for filing a claim. See IRM 25.6.1.10.2.7.3 , Extension of Time by Agreement, which extends time for assessments and refund if timely made.

25.6.1.10.2.9.4  (05-17-2004)
Terroristic or Military Action

  1. In General. The Service may postpone a deadline for filing a claim for credit or refund for a period of up to one year for an individual that the Service determines is affected by a terroristic or military action. See IRC § 7508A.

  2. See IRM 25.6.1.10.2.9.2, Presidentially Declared Disaster Area, for length of postponement.

  3. See IRM 25.6.1.10.2.9.2, Presidentially Declared Disaster Area, for affected taxpayers.

  4. List of Terroristic or Military Actions.

    1. The April 19, 1995, attack on the Alfred P. Murrah Federal Building (Oklahoma City attack).

    2. The September 11, 2001, attacks on the World Trade Center, the Pentagon, and United Airlines Flight 93 in Pennsylvania.

    3. Terrorist attacks involving anthrax occurring after September 10, 2001, and before January 1, 2002.

25.6.1.10.2.9.5  (10-01-2009)
Claims for Refund and Identity Theft

  1. The period of limitations for submitting a claim for credit or refund is not suspended due to identity theft.

  2. This situation could arise where a taxpayer has paid an adjustment resulting from a mismatch between a Form 1099 listing the taxpayer as a payee and the taxpayer later suspects the Form 1099 involved identity theft. If the taxpayer contacts the Service and claims that identity theft may have lead the taxpayer to owe and to pay tax on income the taxpayer did not receive, the IRS employee must follow the step below in resolving the claim for credit or refund:

    1. Refer to IRM 21.6.2.4.2.2, Taxpayer Inquiries Involving Questionable Ownership of a primary or Secondary TIN on a Filed Return, which provides guidance to employees regarding how a taxpayer may establish identity theft, and

    2. Inform the taxpayer that the period of limitations on seeking a refund is running from the date of the payment.

  3. If the taxpayer claims a credit or refund, refer to the appropriate IRM for processing the claim such as IRM 21.6.2.4.4.5, Determining if the Refund Should be Released. This IRM section deals with adjusting for TIN-related problems when a taxpayer indicates or states that his or her identity was stolen.

25.6.1.10.2.9.6  (11-01-2004)
Combat Zone

  1. This section provides guidance for identifying and resolving cases for taxpayers who are or have served in the following:

    1. In an area designated as a combat zone,

    2. In a contingency operation designated by the Department of Defense,

    3. In a qualified hazardous duty area as defined by Congress, or

    4. In direct support of military operations in a combat zone certified by the Department of Defense.

  2. The descriptions of a combat zone or other military service areas are as follows:

    1. A Combat Zone is an area designated in an Executive Order by the President of the United States. IRC § 7508 cross-references IRC § 112 (exclusion from gross income for combat pay) for this definition.

    2. Contingency Operation. The rules in IRC § 7508 apply to contingency operation designated by the Department of Defense for an individual deployed outside the United States away from the individual's permanent duty station while participating in the operation. This new rule is effective for any period for performing an act which has not expired before 11/11/2003.

    3. Qualified Hazardous Duty Area. Congress has extended some of the same tax relief provided for those in a combat zone to those in a qualified hazardous duty area. Congress has also extended the relief to persons performing qualifying service outside such area. See Notice 99-30, Tax Relief for Those Affected by Operation Allied Force, 1999–1 C.B. 1135, for an example of qualified hazardous duty area.

    4. Area Certified by the Department of Defense. The Department of Defense may certify an area as being in direct support of military operations in a combat zone and a person serving in such an area who receives hostile fire/imminent danger pay under 37 U.S.C. § 310 (a) (2) is treated as serving in a combat zone pursuant to Treas. Reg. § 1.112–1(e).

25.6.1.10.2.9.6.1  (05-26-2004)
Combat Zone Research

  1. To handle Combat Zone cases you may need to refer to the following:

    • IRM 25.6, Statute Of Limitations

    • IRC Section 7508

    • Pub 3, Armed Forces Tax Guide

25.6.1.10.2.9.6.2  (07-29-2008)
Deadlines Postponed

  1. IRC § 7508(a) postpones the deadlines for certain acts performed by taxpayers and the Service. The acts covered by IRC § 7508 include filing any return for income, estate, gift, employment, or excise tax; paying any income, estate, gift, employment , or excise tax; filing a claim for credit or refund of any tax; assessing or collecting a tax; bringing suit with respect to any claim for credit or refund. Also, see Rev. Proc. 2007-56, 2007-34 IRB 388, or its successor expands the list provided in the statute.

    Note:

    Penalties and interest. If the actual filing is before the postponed due date and it is a balance due return, compute penalty and underpayment of interest from the postponed due date or actual filing date.

  2. The deadline for acts that are postponed for taxpayers serving in a particular operation are described in a notice issued by the Service for that operation (e.g., Notice 2003-21, 2003-1 C.B. 817 provides that all of the acts listed in Rev. Proc. 2002-71 are applicable for those taxpayers who served in Operation Iraqi Freedom).

25.6.1.10.2.9.6.3  (11-01-2004)
Individuals Covered

  1. The postponement primarily applies to individuals who served in the Armed Forces in a combat zone or qualified hazardous duty area (and to persons performing qualifying services outside such area) or who participated in a contingency operation.

    Note:

    "-C" Freezes. Martinsburg Computing Center (MCC) extracts for MRS/TRS Transcripts and Taxpayer Information File (TIF) tax modules to identify accounts where military and civilian personnel are/were stationed in a Combat Zone. The freeze code "-C" ("-D" for Individual Retirement Account File (IRAF)) is also displayed.

  2. The postponement also applies to those serving in support of the Armed Forces in a combat zone. For example, those serving in support include merchant marines serving aboard vessels under the operational control of the Department of Defense, Red Cross personnel, accredited correspondents and civilian personnel acting under the direction of the U.S. Armed Forces in support of those forces.

  3. Hospitalization. The postponement applies after the last day of any "continuous qualified hospitalization" for an injury from service in the combat zone or qualified hazardous duty area (and to person performing qualifying service outside such area) or contingency operation. The period of postponement cannot be more than 5 years for hospitalization in the United States.

  4. Application to Spouse and Children. The relief also applies to the spouse and dependent children of the individual; however, the period of postponement for hospitalization in the United States does not apply to a spouse or children.

25.6.1.10.2.9.6.4  (10-01-2007)
Computation

  1. You must add the 180 day period to any combat zone computation. A deadline may be postponed 180 days after the last day of service in the combat zone (or hazardous duty area) or participating in a contingency operation or hospitalization from such service or participation.

  2. Additional time for service or hospitalization during a filing period. In addition to the 180 days mentioned in IRC 7508(a) itself, a deadline that includes a filing period is postponed by the number of days that were left in any period for taking action when the taxpayer entered the combat zone or the contingency operation.

    Example:

    If the taxpayer entered the combat zone or was hospitalized in December preceding the filing season, and remained there into January, the entire 105 day period from January 1 to April 15 for filing an individual income tax return (106 days in a leap year) will be added to the last day of service in the combat zone (along with the 180 day period) to determine the extended deadline for filing the tax return.

25.6.1.10.2.9.6.5  (11-01-2004)
Re-Entry into the Combat Zone

  1. Individuals re-enter the combat zone for a second time. These are called "in & out" . Treat these as beginning on the earliest entry date and the latest departure date because they were in and out within short time frames. The system does not recognize when a new period has started and ended. You must calculate separately, the interim period, between the combat zone periods for purposes of the statutory periods for assessment, collection, and refunds, and for penalty and interest computation.

  2. In order to determine whether it is necessary to establish separate combat zone periods, you must first decide the action required on the account. If it is the requirement to file a return, a new period must be determined when there are more than 285 days (286 in a leap year) between the prior exit date and the subsequent entry date. For other actions not related to filing, separate periods must be calculated when there has been more than 180 days between the prior exit date and the subsequent entry date. All TC 500’s (entry and departure) post to Tax Year 90 module but they are retained in the ENTITY.

25.6.1.10.2.9.6.6  (11-01-2004)
Combat Zone Procedures

  1. STAT, AM, AM–X transcripts, amended returns, correspondence etc., may have adjustment action if applicable. IRS will not initiate assessments/offsets with the exception of child support during the period a taxpayer is in a combat zone, and for at least 180 calendar days thereafter. If action is taken on a taxpayer's account and it results in a balance due status, only the first notice will be issued; all further notices will be suppressed and collection activity suspended.

  2. In cases where a Combat Departure Date (CDD) has not been entered on an account, and the taxpayer has filed a refund return, issue a manual refund, if an account is frozen from refunding.

25.6.1.10.2.9.6.7  (04-01-2007)
Current Combat Zones and Qualified Hazardous Duty Areas

  1. Recent combat zone and qualified hazardous duty areas are:

    1. Executive order number (13239) designated Afghanistan and the airspace above as a combat zone. (Operation Enduring Freedom) September 19, 2001 is the date of commencement of combatant activities. Members of the U.S. Armed Forces serving in Afghanistan or those serving in direct support are entitled to the suspension of time provisions provided by section 7508. Members of the U.S. Armed Forces in Pakistan, Tajikistan, and Jordan qualify as being in direct support as of September 21, 2001. Members of the U.S. Armed Forces in Kyrgyzstan and Uzbekistan qualify as being in direct support as of October 1, 2001. Members of the U.S. Armed Forces in the Republic of the Philippines qualify as being in direct support as of January 9, 2002. Members of the U.S. Armed Forces in Yemen qualify as being in direct support as of April 10, 2002. Members of the U.S. Armed Forces in Djibouti qualify as being in direct support as of July 1, 2002.

    2. Executive Order number (13119) designated the Federal Republic of Yugoslavia (Serbia/Montenegro), Albania, Adriatic Sea, and the Ionian Sea north of the 39th parallel including the airspace above these areas. (Operation Allied Force).

    3. Public law 104–117 established Bosnia, Herzegovina, Croatia, and Macedonia as qualified hazardous duty areas, effective November 1995.

    4. Executive order number (12744) designated the Arabian Peninsula areas: Persian Gulf, the Red Sea, the Gulf of Oman, the part of the Arabian Sea that is north of 10 degrees north latitude and west of 68 degrees east longitude, the Gulf of Eden and the total land areas of Iraq, Kuwait, Saudi Arabia, Oman, Bahrain, Qatar, and the United Arab Emirates and the airspace above all such locations. (Operation Desert Storm) Military personnel serving in support of such allied forces are eligible for all combat zone related tax benefits.

    5. Direct Support of Executive Order (12744) designated Turkey, effective January 1, 2002, Israel, effective January 1, 2003, the Mediterranean Sea east of 30 degree East longitude, effective April 1, 2003, and Syria, effective January 1, 2004.

      Note:

      See Publication 3 for additional information and qualified hazardous duty areas that may qualify for similar relief.

25.6.1.10.2.10  (05-17-2004)
Claims for Credit or Refund - Special Types of Taxpayer Status

  1. This section describes the procedures for processing claims for credit or refund on special types of taxpayer status.

25.6.1.10.2.10.1  (05-17-2004)
Partnerships

  1. Refund claims that relate to items reported on a partnership return may require special consideration. If the partnership is not subject to the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), apply normal statute of limitations to the return of a partner. If, however, the partnership is subject to TEFRA provisions, refer the case to Examination for assistance. IRC §§ 6511( g) and 7422(h) provide that taxpayers can claim refunds attributable to partnership items only in accordance with the TEFRA procedures (IRC §§ 6227, 6228 and 6230(c)).

25.6.1.10.2.10.2  (05-17-2004)
Joint Returns

  1. Joint liability, but separate taxpayers. Each spouse has a separate interest in the jointly reported income and a separate interest in any overpayment. Rev. Rul. 74-611, 1974-2 C.B. 399. Each spouse’s share of an overpayment claimed on a joint return is determined under Rev. Rul. 80-7, 1980-1 C.B. 296, and only that share may be credited to one spouse's unpaid separate tax liability. In a community property state each spouse is considered to own one-half of the total wages and the income from community property. Rev. Rul. 85-70, 1985-1 C.B. 361.

  2. Agreements extending period of limitations for assessment. Both spouses must consent to an extension of the period of limitations on assessment; however, if one spouse executes a consent for a year in which a joint return was filed, the consent will be effective for that spouse.

  3. Changing from separate to joint status and the date the joint return is considered filed. If the conditions set by IRC § 6013(b)(1) for changing from separate to joint status are satisfied, a joint return may be filed within three years from the due date (without extensions) for filing returns for such tax year. For purposes of filing a claim for credit or refund, the joint return is deemed filed on the last day prescribed for filing the return for that taxpayer (determined without regard to any extension of time granted to either spouse).

25.6.1.10.2.11  (05-17-2004)
Exceptions to the Period of Limitations

  1. This section describes the procedures for processing claims for credit or refund regarding exceptions to the period of limitations.

25.6.1.10.2.11.1  (05-17-2004)
Retroactive Law and Congressionally-Provided Waiver of the Period of Limitations for Filing Claims for Credit or Refund

  1. A change in the tax laws which is made retroactive to earlier tax years does not automatically permit a claim for a refund for such a year when the claim is barred by the period of limitations. Congress must expressly provide a waiver of the period of limitations for the retroactive statute. See United States v. Zacks, 375 U.S. 59 (1963).

  2. General Procedures for Claims to Take Account of Waiver.

    1. Input TC 29X with appropriate tax amount.

    2. Input applicable notice/hold codes.

    3. Input the received date (postmark date, if timely mailed) of the taxpayer's claim/amended return in the "RFSCDT" field.

    4. Input Override Code "S" in the "OVERRIDE CD" field.

    5. Issue a manual refund (apply any offsets if applicable) for the requested amount.

    6. Monitor case until tax adjustments have posted and account is in zero balance.

25.6.1.10.2.11.1.1  (05-17-2004)
Estate Tax Special Use Valuation for Property Used as a Farm for Farming Purposes or in a Trade or Business Other Than Farming

  1. On June 7, 2001, the President signed into law the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001. Section 581 of the Act provides for an extension of the normal RSED.

  2. A claim for credit or refund of any overpayment of tax resulting from the application of IRC § 2032A(c)(7)(E) is timely if filed before one year after the date of the enactment of EGTRRA. Thus, a claim is timely if filed on or before June 6, 2002.

25.6.1.10.2.11.1.2  (04-01-2006)
Exclusion of Gain on Sale of Principal Residence for Military

  1. A taxpayer on qualified official extended duty as a member of the U.S. Uniformed Services or the Foreign Service or as an employee of the intelligence community may elect to suspend for up to 10 years of such duty time the running of the 5-year ownership-and-use period before the sale of a residence. See IRC § 121(d)(9), which was enacted by the Military Family Tax Relief Act of 2003 (MFTRA of 2003) and made effective as if included in the revision of IRC § 121 by the Taxpayer Relief Act of 1997 (which applies to sales made after May 6, 1997).

    Note:

    Taxpayer should write "Military Relief Act" in the top margin of the 1040X.

  2. Section 101(b)(2) of the MFTRA of 2003 Pub. L. No. 108–121 (enacted on 11/11/2003) provides a wavier of limitations for claims for credit or refund filed by November 10, 2004, that are otherwise barred by operation of any law or rule of law on or before that date.

  3. Processing. Upon receipt of amended "Military Relief Act" Claims (i.e., "BARRED" years) the Statute function will place the stamp "No Statute Issue," in the area of the upper left margin with the date and your employee number. After clearing the claim, immediately forward (i.e., hand-carry) it to the Adjustment function via transmittal sheet, listing Name Control and TIN. Do not input these returns through normal processing. The Account Management/Adjustment Function will process these amended returns indicating a tax decrease where the RSED is imminent/expired.

25.6.1.10.2.11.2  (05-17-2004)
Statutory Mitigation Provisions

  1. In general, IRC §§ 1311–1314 authorizes correction of errors in years otherwise barred by the statute of limitations. These mitigation provisions apply only in seven specific circumstances described in IRC § 1312. A claim for refund based on the mitigation provisions must be filed within 1 year of the determination providing the basis for the claim.

  2. Special Rule for Employment Tax and Worker Misclassifications. IRC § 6521 provides a special mitigation rule with respect to the tax on self-employment income (SECA) and the tax under the Federal Insurance Contributions Act (FICA). It authorizes an offsetting adjustment if:

    1. An amount is erroneously treated as self-employment income instead of wages and the correction of the error would require an assessment of FICA tax and a credit or refund of SECA tax, or

    2. An amount is erroneously treated as wages instead of self-employment income and the correction of the error would require an assessment of SECA tax and a credit or refund of FICA tax, and

    3. The period of limitations for one of the taxes to be corrected is open, but the correction of the other tax is prevented by law or a rule of law (other than IRC § 7122 relating to compromises).

25.6.1.10.2.12  (11-03-2009)
Claims Against the Government Processed by the Service under Title 28 (6 years)

  1. The claims listed in this section are not governed by the provisions in the Internal Revenue Code for obtaining a tax refund. A claimant may obtain administrative consideration of a claim during the period the claimant may file suit in a District Court or in the Court of Federal Claims.

    Note:

    For the Telephone Excise Tax Refund (TETR) claim, the taxpayer has 6 years from July 26, 2006 to file a claim for refund.

  2. Length of Period. Unless otherwise provided, a taxpayer must file a suit for recovery of a non-tax claim within a six-year period. See 28 USC § 2401 for suits in the district courts and 28 USC § 2501 for suits in the Court of Federal Claims.

    Note:

    IRC § 6532(a), which provides a two-year period for bringing refund suits, is an example of a statute providing otherwise.

  3. Starting Point of the Period for Filing Suit. The starting point depends on the nature of the claim. The starting date is based on the common law rule for when the period for the cause of action begins; i.e., when all the events which fix the government's alleged liability have occurred and the taxpayer was or should have been aware of their existence. See General Instruments Corp. v. United States, 33 Fed.Cl. 4, 7-8 (1995).

25.6.1.10.2.12.1  (10-01-2007)
Claim for Overpayment Interest under IRC § 6611

  1. Overpayment interest accrues from the date of overpayment of the tax to a date not more than 30 days prior to the date of the refund under IRC § 6611. Generally, the interest is automatically computed and credited or paid when a tax claim is allowed.

  2. Submission of an Administrative Claim. A claim is not required before filing suit. An administrative claim may be allowed and paid upon request at any time before the period for filing suit at (3), below, expires. See Rev. Rul. 57-242, 1957-1 C.B. 452.

    Note:

    If a taxpayer files suit without bringing an administrative claim, a court may dismiss the suit using its discretion to refuse to hear a suit where the taxpayer failed to exhaust administrative remedies.

  3. Length of the Period for Filing Suit. The six-year period under 28 USC §§ 2401 and 2501 applies to the filing of a suit. See Rev. Rul. 56-506, 1956-2 C.B. 959.

  4. Starting Point of the Period for Filing Suit. A cause of action for overpayment interest begins to run when a claim for credit or refund is allowed. The date of the allowance of the refund is the date the Commissioner or his delegate signs the schedule on which the overpayment is listed as provided under IRC § 6407. See Rev. Rul. 57-242.

    Note:

    An administrative claim submitted on Form 843 does not stop the running of the six-year period. The only manner in which a taxpayer can fully protect the taxpayer’s rights is by filing suit before the expiration of the six-year period. See Rev. Rul. 57-242.

25.6.1.10.2.12.2  (05-17-2004)
Claim for Interest Netting Under IRC § 6621(d)

  1. A claim for interest netting under IRC § 6621(d) is treated the same as a claim for overpayment interest under IRC § 6611. See Rev. Proc. 2000-26, 2000-1 C.B. 125.

25.6.1.10.2.12.3  (10-01-2007)
Claim for Form 8697 Interest Computation Under the Look-Back Method for Completed Long-Term Contracts

  1. This section describes procedures for processing claims filed on Form 8697, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts.

    1. A taxpayer must report the income from a long term contract subject to IRC § 460(a) using the percentage of completion method of accounting. In the year that a taxpayer completes a long term contract, the taxpayer compares the actual costs with the estimated costs, and the actual revenue with the estimated revenue for each prior year of the contract (the "look back method )"

    2. If the taxpayer did not recognize income soon enough, the taxpayer pays lookback interest, which is treated as a payment of tax under IRC § 460(b)(1). See also Treas. Reg. § 1.460-6(f)(2) and (3). A claim to recover an overpayment of lookback interest is a claim for an overpayment of tax. See Treas. Reg. § 1.460-6(f)(3)

  2. Submission of an Administrative Claim. A claim is not required before filing suit. An administrative claim may be allowed and paid upon request at any time before the period for filing suit at (3), below, expires.

    Note:

    If a taxpayer files suit without bringing an administrative claim, a court may dismiss the suit using its discretion to refuse to hear a suit where the taxpayer failed to exhaust administrative remedies.

  3. Length of the Period for Filing Suit. The six-year period under 28 USC §§ 2401 and 2501 applies to the filing of a suit. See Treas. Reg. § 1.460-6(f)(3).

    Note:

    Paragraph (2) and (3) apply only with respect to lookback interest owed to the taxpayer - not to recovery of lookback interest paid by the taxpayer earlier.

  4. Starting Point of the Period for Filing Suit. In general, an action for overpayment interest begins to run at the end of the year in which a long-term contract is completed because that is when the government’s liability becomes fixed. However, other dates may be given consideration depending on the facts. See IRM 25.6.1.10.2.12.1, Claim for Overpayment Interest under IRC § 6611, for General Instruments Corp. v. United States case criterion.

    Note:

    An administrative claim submitted on Form 8697 does not stop the running of the six-year period. The only manner in which a taxpayer can fully protect the taxpayer’s rights is by filing suit before the expiration of the six-year period.

25.6.1.10.2.12.4  (05-17-2004)
Claim on Form 8866, Interest Computation Under the Look-Back Method for Property Depreciated Under the Income Forecast Method

  1. A taxpayer may claim a depreciation deduction under the income forecast method under IRC § 167 for certain property. A look-back method may provide a taxpayer with interest for overestimating income which is treated similar to lookback interest. See IRM 25.6.1.10.2.12.3, Claim on Form 8697, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts, for processing claims for interest on Form 8697.

25.6.1.10.2.12.5  (10-14-2008)
Other Claims (Open Period)

  1. In general, a taxpayer may file suit for the recovery of tax, penalty or any sum collected by the Service. IRC § 7422 requires that a claim for such refund be filed before filing suit. Items that may be covered by the "any sum" language of IRC § 7422 are not covered by the two or three year period in IRC § 6511. No period has been prescribed by the Service for submitting an administrative claim for "any sum" item at this time.

25.6.1.10.2.12.6  (10-14-2008)
Claim on Form 8038-R, Request for Recovery of Overpayment Under Arbitrage Rebate Provisions

  1. A bond issuer may pay an arbitrage rebate with Form 8038-T, Arbitrage Rebate, in order to avoid having the bonds classified as arbitrage bonds and losing the IRC § 103 interest exemption. Treas. Reg. § 1.148–3(i)(1) authorizes a bond issuer to recover an overpayment of the arbitrage rebate. The request is made on Form 8038–R, Request for Recovery of Overpayments Under Arbitrage Rebate Provisions.

  2. An administrative claim may be filed at any time. No period has been prescribe by the Service for the filing of an arbitrage rebate claim at this time.

25.6.1.10.2.12.7  (10-14-2008)
Deposit Made Under IRC Section 6603

  1. IRC Section 6603(c) provides that the Service will return to the taxpayer any amount of a deposit that the taxpayer request in writing be returned unless the amount has previously been used to pay tax or the Service determines that collection of tax is in jeopardy. IRC Section 6603(c) was added because of the American Jobs Creation Act of 2004, Pub. L. No. 108–357, enacted on October 22, 2004. Rev. Proc. 2005-18, 2005-13 IRB 798 provides guidance for recovering a deposit made pursuant to IRC § 6603.

  2. An administrative claim requesting the return of a deposit may be filed at any time. No period has been prescribed by the Service for the filing of the request for return of a deposit at this time.

  3. A request to recover a deposit which the Service has used to pay tax is a claim for refund of an overpayment. See Rev. Proc. 2005-18, 2005-1 C.B. 798 at Section 5.

    Note:

    If the taxpayer requests the return of a deposit under IRC § 6603 and the Service contends the payment is a tax payment, the Government will raise the period of limitations as a defense to the taxpayer's action if the request was not timely applying the rules for refund.

25.6.1.10.2.12.8  (10-14-2008)
Claim for IRC Section 7519 Payment Made in Connection with a IRC Section 444 Election

  1. Required Payments. A partnership or an S corporation may elect a taxable year that differs from its otherwise required taxable year under IRC § 444, but the entity may have to make any payments required by IRC § 7519. For an applicable election year beginning after 1987, the required payment is due and payable without assessment or notice, on or before May 15 of the calendar year following the calendar year in which the applicable election year begins. See Treas. Reg. § 1.7519-2T(a)(4)(ii). In general, the entity must both file a Form 8752, Required Payment or Refund under Section 7519, showing the required payment (even if the amount of such payment is zero), and pay the full amount of the required payment as reported for each year in which the entity’s section 444 election is in effect. See IRC § 7519(e)(2)(B) and Treas. Reg. § 1.7519-2T(a).

  2. Required Payment is a Deposit. A required payment submitted with Form 8752 generally is treated as a deposit. A claim for refund submitted on that form is a request for a return of an overdeposit and is not a claim for refund of tax. IRM 21.7.4.4.7, Form 8752, Required Payment or Refund Under Section 7519.

  3. An administrative claim may be filed at any time. No period has been prescribed by the Service for filing of the request for the return of a deposit at this time. Treas. Reg. 1.7519-2T(a)(6) provides guidance for recovering required payments stating that a partnership or S corporation should file a claim for refund, but it only provides the earliest date on which the request may be made.

  4. Section 6603(c) and the procedures in Rev. Proc. 2005-18, are not applicable because the section 7519 required payment is not a voluntary remittance. See IRC § 7519(f)(1) regarding tax for purposes of assessment and collection.

25.6.1.11  (10-01-2001)
Statute Transcripts

  1. This section provides guidance in identifying and resolving statute transcripts where the Assessment Statute Expiration Date (ASED) is imminent/expired or the Refund Statute Expiration Date (RSED) has expired.

  2. A Statute transcript is an internally generated correspondence by the Computer Services function in service campuses.

25.6.1.11.1  (04-05-2006)
Statute Transcript Research

  1. To resolve statute transcripts, you need to refer to the following Internal Revenue Manual (IRM) and Internal Revenue Codes (IRC) Sections.

    • IRM 3.12.21, Credit & Account Transfers

    • IRM 3.17.79, Accounting Refund Transactions

    • IRM 2.3, IDRS Terminal Responses

    • IRM 21.2.4, Master File Accounts Maintenance

    • IRM 21.4.5, Erroneous Refunds

    • IRM 21.5.1, General Adjustments

    • IRC Section 6501, Limitations on Assessment/Collection

    • IRC Section 6502, Collection After Assessment

    • IRC Section 6503, Suspension for Assessment and Collection

    • IRC Section 6511, Limitations On Credit/Refund

25.6.1.11.1.1  (07-29-2008)
IMF/BMF Accounts Maintenance/Statute Expiration Reports

  1. The IMF/BMF Accounts Maintenance/Statute Expiration Transmittal and Analysis Data Reports are produced to inform management on the number of accounts on the master files meeting pre-determined extraction criteria. The counts "Statute Selected Count" and "Current Expired ASED Count" columns indicate the number of cases that are statute related.

25.6.1.11.1.2  (07-29-2008)
Case Control Activity (CCA)

  1. The Case Control Activity (CCA) is designed for personnel to assign, close, and update cases on IDRS. All statute transcript cases are identified on IDRS with Category Codes STEX, ST-nn (number of transcript), X—nn, BARD, RSED, and ERAB. Cases can be systemically or manually controlled.

  2. The Accounts Management System (AMS) electronically deliver Statute transcripts on a weekly or monthly basis replacing the printed paper forms. The data is extracted and sorted by a computer program and cases are loaded into the AMS system as inventory items. The AMS system will automatically assign inventory cases to employees based on their skill codes and the number of cases in inventory. The Statute manager, lead or clerk may also manually assign transcript inventory to employees in their unit from the unassigned queue.

  3. When a case is in the unassigned queue on AMS, a generic control base is established on IDRS. When the AMS case is assigned to a tax examiner in Statute, the generic control base established on IDRS assigns the case to the same tax examiner in Statute.

  4. In addition, AMS will allow you to do the following from the Inventory Management file:

    • Suspense a case for additional information

    • Reactivate a case when the suspension period is complete or a reply is received from the taxpayer

    • Send case for Technical Assistant to (Manager, Lead or OJI)

    • Reactivate Technical Assistance case

    • Print a case for reroute

    • Cancel reroute actions

    • Input a credit transfer

    • Write a letter

    • Leave a history of action taken on a case

    • Review and reject a Rerouted case

    • Reactivate a reject Rerouted case

    • Switch to Summary Print of a rerouted case as paper

    • Monitor a case for closing posting action

    • Allow managerial review and PAS review of a case

    • Close a case in AMS and IDRS at the same time

25.6.1.11.1.3  (10-01-2001)
Overage Listing

  1. The overage listing is a computer generated list of cases assigned to individual employees which have met an established age. All statute transcripts become overage at 99 days.

25.6.1.11.1.4  (10-01-2001)
Statute Transcript Procedures

  1. The following subsections provide procedures for handling statute transcripts.

  2. Refer to Document 6209, IRS Processing Codes and Information, for Master File freeze codes.

25.6.1.11.1.4.1  (10-01-2009)
Diagnostic (DIAG) Transcripts

  1. DIAG Transcripts are similar to the AM/STAT transcripts and are issued to identify systemic programming or computer operations problems. In addition, they may disclose operational problems in other functional areas.

  2. You must analyze each statute transcript to determine:

    1. The ASED.

    2. The RSED.

    3. What action caused the module to be frozen.

    4. The action to take to clear the module of all freeze conditions.

  3. Due to the adverse impact on the Accounts Receivable, the Service must strive to minimize the volume of unresolved Large Dollar Debit And Credit Modules in the Statute inventory. All tax modules/issues involving a balance of ≡ ≡ ≡ ≡ and over must be expeditiously resolved.

  4. The Statute function "does not" work ST-24 (Math Error Protest) transcripts. These transcripts are generated to the Accounts Management/ Adjustment function. The procedures for resolving these types of cases is found in IRM 21.5.4.4.5, Math Error Unsubstantiated Protest Processing.

  5. The Statute function will work only DIAG transcripts for tax periods which are within 90 days of expiration or expired. Use general statute procedures to resolve these transcripts.

25.6.1.11.1.4.2  (10-01-2009)
Resolving STAT Transcripts

  1. You must analyze each statute transcript to determine:

    1. The ASED.

    2. The RSED.

    3. What action caused the module to be frozen.

    4. The action to take to clear the module of all freeze conditions.

  2. Due to the adverse impact on the Accounts Receivable, the Service must strive to minimize the volume of unresolved Large Dollar Debit And Credit Modules in the Statute inventory. All tax modules/issues involving a balance of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ must be expeditiously resolved.

  3. The Statute function "does not" work ST-24 (Math Error Protest) transcripts. These transcripts are generated to the Accounts Management/ Adjustment function. The procedures for resolving these types of cases is found in IRM 21.5.4.4.5, Math Error Unsubstantiated Protest Processing.

25.6.1.11.1.4.2.1  (10-01-2001)
AM–X (Statute Expired) Transcripts

  1. AM-X transcripts are generated on credit balance tax modules and the ASED has expired.

  2. Use general statute procedures to resolve these transcripts.

25.6.1.11.1.4.2.2  (04-01-2007)
ST-02 (Erroneous Credit Hold)

  1. An ST–02 transcript is generated when the module net balance is a credit exceeding $1.00, but is not composed entirely of refundable cash credits.

  2. Resolve the case by reversing the TC 606 on Doc Code 24 with TC 672 and TC 670 for the write-off date and amount. This action will generate a TC 607, which will release the freeze.

25.6.1.11.1.4.2.3  (09-09-2011)
ST-03 (Amended Return, No Original)

  1. If an amended return is posted to a master file module which does not contain an original return, then process as follows:

    If And Then
    The limitation period for assessment HAS NOT expired It is the original return but was coded in error Clear the return and re-input it as the original if the statute is not imminent.
    The limitation period for assessment HAS NOT expired The amended return is determined to be the original return and was timely filed causing the statute to be imminent (Received date is within 60 days of ASED) Create a TC 150 by manually assessing tax and, if applicable, penalty and interest. Input a TC 560 with blocking series 990-999 to correct the ASED.

  2. Input TC 290 for zero after the assessment posts. This will result in a refund or the issuance of a bill.

    If And Then
    The original return cannot be located   Contact the taxpayer for copies of the signed original with all schedules and attachments and copies of canceled checks if the return was a balance due.
    The copies of the signed original cannot be secured from the taxpayer The amended return was received with remittance and the statute is imminent Create a TC 150 by manually assessing the credit balance as tax. Assess applicable penalties and interest.
    All efforts to secure the original return are exhausted You cannot determine the amount of assessment Process as a dummy return with zero liability complete with name, address, SSN or EIN and tax period. Use the same document locator number (DLN) on the dummy return as on TC 977 to release the "E" Freeze .

    Caution:

    For BMF Form 941 tax return with Form 944 filing requirement, the input of a TC 971 cc 002 would be needed to release the freeze.

    .

25.6.1.11.1.4.2.4  (03-10-2010)
ST-04 (Duplicate Return)

  1. An ST-04 is caused by a duplicate return (TC 976/977) posting to a module which already contains an original return (TC 150). If the transcript generates with an unreversed TC 420/424, see IRM 21.5.3.4.7 paragraph (6), Processing Claims and Amended Returns With Examination Involvement, for resolution of this type of case.

  2. Consider the case resolved if:

    • An adjustment previously posted and released the freeze, or

    • An adjustment is pending.

  3. To resolve an ST-04 Transcript, you should request a copy of the TC 976/977 return document from Files. If the TC 977 posting was created by the input of a TC 971 Action Code 10, there is no return on that DLN. An amended return was received, but it was routed to Accounts Management/ Adjustment. You should search for the document on CIS prior to requesting a newly signed copy of the return document from the taxpayer if the correspondence time frame will allow a response (usually 45 days) to be received before the Assessment Statute Expiration Date passes.

  4. If your research of the document on CIS or an amended return is received from the taxpayer indicating a tax decrease is required, you must forward the amended return to Accounts Management/ Adjustment and stamp the document "No Statute Issue " . Accounts Management will resolve the -A Freeze condition. Statute employees will close their control base and leave a history on the transcript account stating no statute issue. Statute employees will resolve the freeze condition only if research shows that a "tax increase" is needed to resolve the freeze condition and the ASED is expired or about to expire.

  5. If your research of the transcript shows Identity (ID) Theft ndicated on the taxpayer's account, see IRM 21.6.2.4.2.2, Taxpayer Inquiries Involving Questionable Ownership of a primary or Secondary TIN on a Filed Return, for resolution of your case. In addition, see IRM 21.6.2.4.2.3, Preliminary Research, to research taxpayer information as needed in the resolution of an ID theft case.

  6. If unable to secure the amended return, and

    1. A payment was submitted, assess tax in the amount of the payment.

    2. No payment was submitted, but the account is in credit balance, and you are unable to determine where the credit belongs, apply the credit to the Excess Collection File (XSF). See IRM 25.6.1.7.3, Excess Collection File (XSF) And Unidentified Remittance (URF), for information before transferring any credit or payment. Input TC 290 for zero amount to release the freeze.

    3. No payment was submitted and module is in zero balance, input TC 290 to release freeze.

    4. Earned Income Credit (EIC) is on the module, follow the procedures in IRM 21.5.2.4.23.10, Moving Refunds, before taking actions in (a), (b), and (c) above.

  7. If the taxpayer's account contains a Z freeze, close your control base and route your transcript case to Criminal Investigation (CI) Scheme Detection Center (SDC) for resolution.

  8. If the TC 150 was created by an Substitute for Return (SFR) or Automated Substitute for Return (ASFR) and the original return subsequently posts as a duplicate filing condition, then route the case to the appropriate Examination function or ASFR function for the SFR case before assessing additional tax.

  9. If research reveals that the TC 976/977 return was filed by a different taxpayer or intended for a different tax year, reprocess the return or re-input the return to the correct taxpayer's account or tax year. Bear in mind that you may have to manually assess the return and correct the ASED with TC 560 Blocking Series 990-999.

25.6.1.11.1.4.2.5  (10-01-2010)
ST-05 (Examination/Data Processing (DP)) Tax Hold Codes

  1. An ST–05 is caused by unreleased hold codes (1, 2, or 4) on Examination/DP actions (TC 29X/30X) and a tax module credit balance exists. On a BMF accounts, it may be caused when Condition Code "N" (Joint Committee Case is sent to Examination) posts to a Form 1120 module.

  2. Release the -K freeze if the transcript indicates a refund was held in error.

  3. If a liability exists or will be established on another module, initiate credit transfer. If the RSED has passed, apply the credit to the XSF using Form 8758, input a TC 290 for zero, and send a disallowance letter (105C). See IRM 25.6.1.7.3, Excess Collection File (XSF) And Unidentified Remittance (URF), information before transferring any credit or payment.

  4. If the ST-05 was caused by SFR, route the case back to the SFR tax examiner for resolution.

  5. If the ST-05 transcript contains an unresolved -L freeze on the account module, you must route the transcript case to Examination for resolution.

  6. If the ST-05 transcript contains an F- freeze on the account module, you must route the transcript case to Examination Frivolous Return Program for resolution.

  7. Request the document that caused the freeze on an as needed basis.

25.6.1.11.1.4.2.6  (04-01-2007)
ST-08 (Manual Refund)

  1. ST–08 transcripts are generated when one or more of the following conditions are present:

    • TC 150 posted with Condition Code "O" and no TC 840,

    • TC 150 with Condition Code "O" and the account is in zero balance, or

    • TC 150 and 840 posted but return is not coded with Condition Code "O" and module balance is equal or less than TC 840 amount with no TC 29X/30X posted to Master File.

  2. If freeze was created by TC 840 and the return was not "O" coded, and the net module is debit:

    • Check for unpostable tax decrease; if found, forward to the Accounts Management/Adjustment function

    • If no unpostable is present, release the freeze with TC 290 for zero and Priority Code 8.

  3. If both a TC 846 and 840 are posted to the same module, and one appears to be in error and it is a rebate error, refer to IRM 21.4.5.

  4. If both a TC 846 and 840 are posted to the same module, and it is a non-rebate error, refer to IRM 21.4.5, for resolution.

  5. If freeze was created by TC 150 code "O" and a TC 840 or TC 846 was not generated, prepare a manual refund unless the RSED has passed. You must compute interest and check for any outstanding debit balances prior to releasing the freeze.

  6. If a TC 150 is "O" coded and the module is in zero balance, input a TC 290 for zero with Priority Code 8 to release the freeze.

  7. If a TC 840 posts with blocking series 6XX which indicates that the Refund Inquiry unit is waiting notification to post a TC 841 credit, close your case to refund inquiry.


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