25.15.9  Account Processing of Requests for Relief from Joint and Several Liability

Manual Transmittal

August 19, 2014

Purpose

(1) This transmits revised IRM 25.15.9, Relief from Joint and Several Liability - Account Processing of Requests for Relief from Joint and Several Liability.

Material Changes

(1) Editorial changes have been made throughout this IRM.

(2) Audience updated to W&I CCISO only.

(3) IRM 25.15.9.1(2) removed sentence about the taxpayer not being entitled to a refund.

(4) IRM 25.15.9.1.1(6)(a) added information for when a priority code 8 is needed.

(5) IRM 25.15.9.1.2(2) updated instruction to input a TC 290 on all non-qualifying tax years and added instructions for when there is nowhere for the TC 290 to post.

(6) IRM 25.15.9.1.3(2) moved content into an alphalist.

(7) IRM 25.15.9.1.4(4)(d) removed Follow Campus directions.

(8) IRM 25.15.9.1.6 removed all definitions and references for true partials.

(9) IRM 25.15.9.1.6(1) changed definition of partially allowed requests.

(10) IRM 25.15.9.1.6.1 added instructions previously found in IRM 25.15.9.1.6.2

(11) IRM 25.15.9.1.6.1(1) changed AC 102 to AC 103.

(12) IRM 25.15.9.1.6.2 deleted and any reference to true partials.

(13) IRM 25.15.9.1.7 changed the definition of an allowed request.

(14) IRM 25.15.9.1.7.1(1) changed AC 102 to AC 103.

(15) IRM 25.15.9.1.9(1)(d) clarified numbers 01 and 02 are value codes.

(16) IRM 25.15.9.1.12(1) removed the word true.

(17) IRM 25.15.9.1.12(2) second bullet updated to approved installment agreement.

(18) IRM 25.15.9.1.12(2) third bullet updated to state on the 10th day following an IRS intent to levy notice.

(19) IRM 25.15.9.1.12(3) changed FTF penalty rate to amount of the FTF penalty also updated to state FTP penalty charged per month.

(20) IRM 25.15.9.1.12(3)(a) changed $100.00 to $135.00.

(21) IRM 25.15.9.1.12(3)(b) changed (April 15th to May 14th) to (April 16th to May 15th).

(22) IRM 25.15.9.1.12(4)(a), (b) and (c) defined the codes.

(23) IRM 25.15.9.1.12(4) added (d) and (e) for doc code 51 and appropriate blocking series.

(24) IRM 25.15.9.1.12(7)(d) reworded last sentence for clarity.

(25) IRM 25.15.9.1.12(7)(e) changed true partial to just partial.

(26) IPU 13U0625 issued 03-27-2013 IRM 25.15.9.1.13 numerous editorial corrections and statements added for clarification.

(27) IRM 25.15.9.1.13(2)(a) added reference to IRM 20.2.8.11, Non-restricting Transaction Code (TC) 340.

(28) IRM 25.15.9.1.13(2)(b) changed true partial to just partial.

(29) IPU 13U0625 issued 03-27-2013 IRM 25.15.9.1.13(3) is new, the remaining paragraphs have been renumbered.

(30) IRM 25.15.9.1.13(4) updated bullets to match the IRC.

(31) IRM 25.15.9.1.13(5)(b) added that manual computations are necessary.

(32) IRM 25.15.9.1.13(5)(c) updated to state that manual computations are necessary.

(33) IRM 25.15.9.1.13(6) replaced partial (payments only), or true partial with partially allowed request.

(34) IRM 25.15.9.1.13(6) changed Presidentially declared disaster area to federally declared disaster area.

(35) IRM 25.15.9.1.13(6) removed terroristic or military action.

(36) IPU 13U0625 issued 03-27-2013 IRM 25.15.9.1.14 updated (1) and (2) for clarification on TC 340.

(37) IRM 25.15.9.1.14(4)(d) removed note and updated instruction for employee to input the information on MFT 31.

(38) IRM 25.15.9.1.15 entire section rewritten and renamed to Payments, Credits and Claims for Credit or Refund.

(39) IRM 25.15.9.1.15.1 new, Payment and Credit Disposition.

(40) IRM 25.15.9.1.15.1.1 new, Application of Payments or Credits.

(41) IRM 25.15.9.1.15.2 new, Claims for Credit or Refund.

(42) IRM 25.15.9.1.15.2.1 new, Claiming a Credit or Refund and RSED's.

(43) IRM 25.15.9.1.15.2.1.2 new, Special Processing.

(44) IPU 13U0625 issued 03-27-2013 IRM 25.15.9.1.17(3) added instructions and tables to clarify the process of computing allowable interest.

(45) IRM 25.15.9.1.17(3)(a) removed as information is contained in the following instructions. Subsequent items have been renumbered.

(46) IRM 25.15.9.1.17(4) reminder added to use the IAT tools.

(47) IRM 25.15.9.1.20(2)(b) changed to fully allowed cases.

(48) IRM 25.15.9.1.20(2)(c) changed to partially allowed cases.

Effect on Other Documents

IRM 25.15.9, Account Processing of Requests for Relief from Joint and Several Liability, dated March 12, 2013 is superseded. This IRM incorporates IPU 13U0625 (dated 03/27/2013).

Audience

Centralized Cincinnati Innocent Spouse Operation (CCISO) employees processing requests for relief from joint and several liability

Effective Date

(08-19-2014)


Steve C. Klingel
Director, Reporting Compliance
Wage and Investment Division

25.15.9.1  (08-19-2014)
Overview: Accounts Processing of Innocent Spouse Cases

  1. This IRM section contains instructions for the processing of innocent spouse cases for the Cincinnati Centralized Innocent Spouse Operation (CCISO) after the request was determined to be disallowed, partially allowed, nonqualifying, or allowed in full and the modules were not mirrored. For processing mirrored modules, see IRM 25.15.15, Mirror Modules for Requests for Relief from Joint and Several Liability.

  2. Allocation of liability could apply to either allowed or partially allowed requests. A partial allowance occurs when the taxpayer does not qualify for full relief but is entitled to some relief.

  3. Resolve account problems, see IRM 25.15.9.1.1, Account Problems. Certain account problems such as erroneous refunds, abatements, assessments, barred assessments, and no-merge accounts need to be forwarded to the appropriate compliance campus or office for resolution. Any change to a determination made by Automated Underreporter (AUR), Automated Substitute for Return (ASFR) or Examination must be approved by these areas. Innocent spouse examiners do not have the authority to change these determinations. Notify Collection if a problem on the account involving action taken by Collection exists (e.g., offer in compromise (OIC), bankruptcy, wage levy, installment agreement (IA), etc.). Refer to Document 6209, IRS Processing Codes and Information, to interpret Integrated Data Retrieval System (IDRS) transactions.

    Example:

    Additional transaction code (TC) 670 payments posting because a request for relief from joint and several liability was received may be the result of a continuous wage levy on the requesting spouse (RS). If the levy payment from the RS was taken after the Form 8857, Request for Innocent Spouse Relief was filed, contact the (RS) and ask for the employer or other levy source's name, telephone number, and fax number. If the RS does not know the fax number, contact the levy source for the fax number, and then fax them a statement to stop the levy. See IRM 25.15.7.5.8.2(2), Automated Collection System (ACS) Tax Levy for additional information.

  4. Prior to moving or posting transaction codes, review the account for transactions involving levies, liens, OICs, IAs, missing payments, and collection statute expiration dates. Coordinate any problems with these transactions with Collection for resolution. Certain prohibited collection actions against the RS must be stopped while the request for relief from joint and several liability is under consideration. See IRM 25.15.3.4.5, Prohibited Collection Actions.

  5. Check for freeze codes (-A, -L, -Y, -Z, and Z-) which could change prior closing instructions.

    1. If there is a -A freeze indicating a duplicate return and the duplicate return posted to the account after the date of the preliminary determination then the Processing Team must resolve it before the case can be worked. If the -A freeze posted before the case was sent to the Processing Team then return the case back to the Full Scope team.

    2. If there is a -L (TC 420, Exam) Audit Information Management System (AIMS) freeze on the account before the case was sent to the Processing Team, verify the examiner addressed it, see IRM 25.15.7.4.3.1, AIMS.

    3. If there is a -Y freeze (OIC), see IRM 25.15.9.1.10, Offer in Compromise (OIC) -Y Freeze.

    4. If there is a -Z or Z- (Criminal Investigation (CI)) freeze, check the case file to ensure the examiner contacted Criminal Investigation and documented the conversation. If not, reject the case. See IRM 25.15.9.1.23, Rejecting Cases.

  6. Identify allocation of any payments and credits. If this information is not available on the closing instructions, reject back to the examiner. See IRM 25.15.9.1.23, Rejecting Cases.

  7. Verify that the following actions have occurred:

    1. TC 971 action code (AC) 065 is posted correctly. See IRM 25.15.2.4.2, Innocent Spouse Indicator Transaction Code (TC) 971/972, for TC 971 AC 065 instructions.

    2. TC 130 is posted correctly on IDRS command code (CC) ENMOD. See IRM 25.15.2.4.3, TC 130 Entire Account Frozen From Refunding, for additional information on TC 130 and TC 131.

      Note:

      If TC 130 is incorrect and must be re-input, input TC 131. Then input new TC 130 using a posting delay code of 1 cycle.

    3. The final determination letter was sent to the RS, non-requesting Spouse (NRS) and any current power of attorneys (POA) by checking IDRS CC ENMOD. If missing, reject the case to the examiner. See IRM 25.15.9.1.23 Rejecting Cases.

  8. Refer to the following IRMs for additional information that may be needed for processing. This list is not all inclusive.

    • IRM 3.17.243, Miscellaneous Accounting

    • IRM 21.4.4, Manual Refunds

    • IRM 25.6 Statute of Limitations

    • IRM 21.5.1, General Adjustments

    • IRM 21.7.12, Non-Master File (NMF) Adjustments,

    • IRM 20.1, Penalty Handbook

    • IRM 20.2, Interest

    • IRM 21.5.8, Credit Transfers.

    • Document 6209, IRS Processing Codes and Information

    • IRM 25.15.7.10.2.1.1, Form 12412, Operations Assistance Request (OAR)

25.15.9.1.1  (08-19-2014)
Account Problems

  1. An account problem may be identified by either First Read or Full Scope while researching the taxpayers' account. Account problems can include math errors from the original return processing, duplicate assessments, missing/incorrectly applied payments, incorrect/incomplete tax assessments made by the Examination or AUR operations or Form 1040XAmended U.S. Individual Income Tax Return, for Accounts Management Adjustments.

  2. The examiner will prepare Form 3465, Adjustment Request, when an account problem is identified. Form 3465 must clearly explain what the problem is and what action the processor must take.

  3. The examiner must send back-up documentation to justify the actions requested, e.g., copy of the tax return, substantiation for math error, proof of payment. The examiner may or may not send the entire case file. Place account problems in the designated colored folders and send to the Processing Team.

  4. If the entire case file is sent, document the history sheet if the case must be returned to the examiner, or if it can be closed in the Processing Team. Update the Innocent Spouse Tracking System (ISTS) to Stage 27 if entire case file is sent to the Processing Team. If the case file is not sent, do not update ISTS.

  5. The processor will review Form 3465 for completeness and take the necessary actions to resolve the account problems.

  6. The following are reminders when making a tax adjustment. See IRM 21.5, Account Resolution, for additional adjustment instructions.

    1. When allowing earned income tax credit (EITC), use transaction code (TC) 764 PC 8 to prevent an unpostable, if the adjustment contains TC 764 and there is a previously posted TC 29X on the module (except a previously posted TC 290 with PC 6 or TC 290 with Julian Date 999).

    2. When zeroing out an account, input TC 171 to reverse a posted TC 170/176, or if neither is present, input TC 170 .00 to ensure an erroneous Estimated Tax (ES) penalty does not assess.

    3. When adjusting withholding and the account contains a manually-computed ES penalty (TC 170), address the penalty. The computer can adjust a computer-generated TC 176 in this case. Refer to IRM 20.1, Penalty Handbook for further guidance.

    4. An amended tax return filed after the normal or extended due date claiming a decrease in tax does not change the ES penalty computed on the original return. Additional prepaid credits will cause an adjustment to the ES penalty.

    5. When adjusting tax and the account contains a manual failure to file (FTF) penalty (TC 160), manually recalculate and adjust the penalty.

    6. When adjusting an accuracy-related penalty (TC 240 with Penalty Reference Number (PRN) 680) IDRS CC REQ54 input is the PRN (680) with the money amount in the lower portion of the screen. This will convert to TC 240 or TC 241 once the IDRS CC REQ54 screen is transmitted.

    7. Only accounts in status 06 or 08 on IDRS CC AMDIS may be adjusted. A TC 290 .00 does not require use of the priority code.

    8. The only tax, penalty, or item reference that can be adjusted to a negative amount is the adjusted gross income (AGI/TC 888).

    9. Enter the received date of the Form 8857, Request for Innocent Spouse Relief, in the "AMD-CLMS-DT" field when decreasing the tax.

    10. See IRM 21.5.3.4.3, Tax Decrease and Statute Consideration, for tax decreases on accounts where the refund statute expiration date (RSED) has expired.

    11. When adjusting an account and an entry for the field RFSCDT is required, use the received date of the Form 8857.

25.15.9.1.2  (08-19-2014)
Unprocessable Requests for Relief and Requests Not Meeting Basic Requirements (No Consideration)

  1. Requests for relief which cannot be considered must be identified and closed during the first read process.

  2. Input TC 290 .00 with:

    1. Blocking Series (BS) 00 (with original return) or 05 (without original return) or 99 (if tax period is more than 10 years earlier and the original return has been destroyed)

    2. Reason Code (RC) 097

    3. Source Code (SC) 2

    4. Hold Code (HC) 3

    5. Source Document (SD) Y

    If relief is non-qualifying for multiple years, input a TC 290 on all non-qualifying tax years. See IRM 21.5.2, Adjustment Guidelines, for additional instructions on posting the TC 290. See IRM 25.15.9.1.22, Case File Assembly, for case assembly instructions.

    Note:

    If there is nowhere for the TC 290 to post, enter "NOPOSTFILE" on ISTS and make a notation on the ISTS sheet.

  3. If TC 971 AC 065 is on the account, reverse it by inputting TC 972 AC 065. See IRM 25.15.2.4.2, Innocent Spouse Indicator TC 971/972, and see IRM 25.15.9.1.20, Final Purge/Transfer Complete, for additional information.

  4. Reverse TC 130, if appropriate. See IRM 25.15.9.1.5.1(1)(c), Denied under IRC 6015(b), (c), or (f).

  5. Update ISTS to Stage 29 including the appropriate activity code and Stage 30, Activity NOACCTP. See IRM 25.15.14, Innocent Spouse Tracking System Inventory Validation Instructions, for information on ISTS.

  6. Update history sheet with actions taken.

  7. Send the case to Files.

25.15.9.1.3  (08-19-2014)
Invalid Joint Election

  1. If the claim has been determined to be an invalid joint election:

    IF THEN
    Secondary taxpayer is not liable
    1. Prepare Form 3465, Adjustment Request, or Form 3198, Special Handling Notice for Examination Case Processing, requesting a correction be made to the entity to remove the secondary taxpayer's name, taxpayer identification number (TIN), and change the filing status to 1, 3, 4, or 6 as applicable. To remove the secondary taxpayer's TIN, input 000-00-0001 in the SPOUSES-TIN field on IDRS CC ENREQ if filing status is changed to 6. Filing Status 6 applies to forgery cases only.

    2. If the case requires an adjustment, credit transfer or manual refund, send the case to the Processing Team. Otherwise, close the case in the Full Scope team.

    3. Input TC 290 .00 with:

      1. RC 003/097 (unless examiner specifies another reason code)

      2. SC 2 and HC 3

      3. Blocking Series 00 (with original return) or 05 (without original return) or 99 (if tax period is more than 10 years earlier and the original return has been destroyed).

    4. If TC 971 AC 065 is on the account, reverse it by inputting TC 972 AC 065. Do not extend the collection statute expiration date (CSED) since IRC 6015 was not applicable. IRM 25.15.9.1.20., Final Purge/Transfer Complete

    5. Reverse TC 130, if appropriate. See IRM 25.15.9.1.5.1, Denied under IRC 6015(b), (c), or (f)

    6. Update ISTS to Stage 29, Activity INVA and Stage 30, Activity ACCTCORR

    7. Update history sheet with actions taken.

    8. Close the IDRS control base and send case to Files.

      Note:

      If the case is being forwarded to Examination, only a copy will be sent to Files and no other adjustment will be input, except TC 290 .00. Complete a transmittal and re-charge all documents to Examination.

    Primary taxpayer is not liable
    1. Follow the instructions on Form 3465 or Form 3198 requesting a transfer to Master File Tax (MFT) Code 31 for the secondary spouse. ISTS must have been updated to Stage 29 with activity "INVA" and then to Stage 27 by the employee asking for the transfer.

    2. Transfer any credits and/or issue refunds as instructed. See IRM 25.15.9.1.16, Credit Transfers, and IRM 25.15.9.1.17, Manual Refunds, for additional instructions.

    3. Prepare Form 12810, Account Transfer Request Checklist. See IRM 25.15.9.1.19, Form 12810 — Special Considerations, and IRM 21.5.2.4.23.9, Moving Assessments, for detailed instructions.

    4. Update IDRS control with the Form 8857 received date to 0297711399, Activity WTG402.

    5. Update ISTS to Stage 28.

    6. Document history sheet with actions taken.

    7. Place a highlighted IDRS CC TXMOD print and a copy of Form 12810 in case. Place original Form 12810 and highlighted TXMOD in the Processing Team's designated area.

  2. Refunds due a taxpayer for payments made with respect to a tax liability stemming from invalid joint elections are available if:

    1. the claim was received within 3 years of the date the return was filed, or 2 years from the payment date, whichever is later, AND

    2. a married filing separate (MFS) return has been filed, or the taxpayer would not have been required to file a return.

25.15.9.1.4  (08-19-2014)
Barred Statute One Signature (BSOS)

  1. During an Examination or AUR review of a joint return, one taxpayer may sign agreeing to a tax assessment while the other taxpayer does not respond. The taxpayers will be referred to hereafter as agreed and unagreed. In this case, the agreed taxpayer must have been assessed on Non-Master File (NMF) 20 or MFT 31. The unagreed taxpayer must have been issued a statutory notice of deficiency (SNOD). If there was no response to the SNOD, a separate assessment must have been made on NMF 20 or MFT 31.

    Note:

    Verify the existence of an NMF 20 account by using Account Management Services (AMS). There must also be a TC 130 with the campus document locator number (DLN) of the NMF 20 account. NMF processing is centralized in the Cincinnati Campus.

  2. Under the IRS's prior procedures, deficiency assessments sometimes were made to joint accounts based on one signature on a waiver of assessment form if certain criteria were met. The Service has now changed its policy and will no longer make assessments against the non-signing spouse. Some of these erroneous assessments cannot be corrected as assessment is now barred by the statute of limitations. These are referred to as "Barred Statute One Signature (BSOS)" cases. These barred statutes are attributable to a policy decision and not to any employee action or lack of action. In lieu of completing Form 3999, Statute Expiration Report, a copy of the BSOS memorandum found at http://win.web.irs.gov/innocent_spouse.htm must be completed, approved by the manager, and placed in the administrative file. These cases do not meet innocent spouse criteria, but the RS is nevertheless relieved of the liability because the assessment period has expired. The barred assessment is moved to MFT 31 for the spouse whose signature is on the report.

  3. The Processing Team examiner will follow the instructions on Form 3465. Use the following information to determine which taxpayer to establish a MFT 31 or NMF 20 account to transfer the barred assessment to:

    1. If the primary taxpayer is the unagreed spouse, the secondary taxpayer will be established on MFT 31.

    2. If the secondary taxpayer is the unagreed spouse, the primary taxpayer will be established on MFT 31.

    3. If both taxpayers were assessed on NMF 20 as mirrored assessments, the unagreed spouse's NMF 20 assessment will be abated. Review the agreed spouse's NMF 20 assessment to ensure all credits were applied to both NMF 20 accounts.

    4. If the unagreed spouse's account was transferred to MFT 31 or NMF 20 due to OIC or bankruptcy relief granted to the agreed spouse, the unagreed spouse's assessment will be abated.

  4. If abatement of NMF 20 is required, obtain a current NMF transcript from the campus maintaining the NMF 20 account. If mirrored assessment, obtain transcripts for both taxpayers.

    1. Complete Form 1331-B, Notice of Adjustment, and/or Form 3870, Request for Adjustment. In the "Reason for Adjustment" section, indicate the specific reason for the abatement request. Address refund issues (e.g., Taxpayer is entitled to refund of payment dated xx/xx/xxxx for $. Taxpayer is not entitled to any refund). Also, request a copy of the NMF transcript be faxed to you when abatement is completed.

    2. Send a copy of the signed, completed Form 1331-B, and/or Form 3870 and a copy of the NMF transcript to the appropriate campus.

    3. If a NMF transcript has not been received after approximately 4 - 6 weeks, call and request a new transcript to see if assessment has been abated.

  5. When the transcript is received showing the abatement, close the case using the following steps:

    1. Input TC 290 .00 on the joint MFT 30 account with :
      BS 00 (with original return), 05 (without original return), or 99 (if tax period is more than 10 years earlier and the original return has been destroyed
      RC 097
      SC 2, Hold Code (HC) 3
      SD Y with the remarks "IS Claim - BSOS"
      See IRM 21.6.7, Adjusting Individual Tax Accounts, for additional information on posting the TC 290. See IRM 25.15.9.1.22 Case File Assembly for case assembly instructions.

    2. Reverse TC 971 AC 065. See IRM 25.15.2.4.2, Innocent Spouse Indicator Transaction Code (TC) 971/972 and IRM 25.15.9.1.20, Final Purge/Transfer Complete.

    3. Reverse TC 130, if appropriate. For TC 130 information, see IRM 25.15.9.1.5.1, Denied under IRC 6015(b), (c), or (f)

    4. Update ISTS to Stage 30, Activity ACCTCORR.

    5. Update history sheet with actions taken.

    6. Close the IDRS control base.

    7. Send case to Files.

  6. If the unagreed spouse was assessed on MFT 31, abate the tax using IDRS CC REQ77 per Form 3465 instructions. Close the case in the same manner as above.

25.15.9.1.5  (03-12-2013)
Fully Disallowed Requests

  1. These procedures are for the employee processing the disallowed request.

25.15.9.1.5.1  (03-12-2013)
Denied under IRC 6015(b), (c), or (f)

  1. If notification is not received by the 106th day that the RS has petitioned the Tax Court then:

    1. On the primary master file account, for each year being disallowed, input a TC 290 .00 with:
      BS 98 (without original return) or 99 (with original return)
      RC 097
      SC 2, and HC 3
      SD Y
      See IRM 21.6.7,Adjusting Individual Tax Accounts, for additional instructions on posting the TC 290. See IRM 25.15.9.1.22 for Case File Assembly.

    2. Input TC 972 AC 065. See IRM 25.15.2.4.2, Innocent Spouse Indicator Transaction Code (TC) 971/972 and see IRM 25.15.9.1.20, Final Purge/Transfer Complete, for additional instructions.

    3. Research to determine if the TC 130 is still needed on the account. Do not remove if there are other Innocent Spouse years open. Check ISTS to ensure all innocent spouse years are in Stage 30. Do not remove TC 130 if input by another campus unless the DLN of the TC 971 AC 065 and the TC 130 DLN are for the same center and posting cycle of the TC 130 is one cycle later than the posting cycle of the TC 971 AC 065.

      Note:

      Do not remove if a "2" is in the ninth digit of the TC 130 DLN. This means the TC 130 was input by NMF and they will reverse it when required.

    4. Update ISTS to Stage 30, Activity NOACCTP. see IRM 25.15.14, Innocent Spouse Tracking System Inventory Validation Instructions, for additional information.

    5. Close the IDRS control base.

    6. Update history sheet with actions taken.

    7. Send case to Files.

25.15.9.1.6  (08-19-2014)
Partially Allowed Requests

  1. A request is considered to be a partial if the RS is still liable for any part of a tax assessment (including EITC reversal, withholding credit, accuracy-related penalty, etc.).

    Note:

    Claims are considered fully allowed when the RS is granted full relief from all the items giving rise to the deficiency or to the entire underpayment reported on the joint return, regardless of whether the RS is entitled to a refund. See IRM 25.15.9.1.7, Allowed Requests, for more information.

25.15.9.1.6.1  (08-19-2014)
Processing Partially Allowed Requests

  1. Prior to completing Form 12810, Account Transfer Request Checklist, the processor will review the case and account information to make sure the TC 971 AC 065, and TC 130 are posted correctly whether the case is partially allowed or fully allowed. If not, make the appropriate changes. Input TC 971 AC 103 to establish MFT 31 for the NRS. If a TC 971 AC 104 has been input and an account has been established on MFT 31 in error, input a TC 972 AC 104 on both MFT 30 and MFT 31 accounts to reverse the TC 971 AC 104.

  2. Review the Form 3465, Adjustment Request, for closing instructions as follows:

    1. A separate Form 3465 is required for each tax period

    2. The RS's and NRS's TINs must be entered correctly on Form 3465

    3. The instructions must specify which transactions are to be transferred to MFT 31 or state the Entire Account must be transferred. Entire Account means the TC 150 and all subsequent transactions must be transferred to MFT 31.

    4. The examiner's name and team number must be present.

    5. All instructions regarding the transfer of the tax liability must be clearly indicated including the tax TC 150, TC 290, and/or TC 300 and reversed EITC.

    6. Determine the amount of tax to be transferred to MFT 31 and the amount to leave on MFT 30, if any.

    7. An allocation worksheet (underpayment and/or understatement) must be included in the case file.

    8. All penalties associated with income items, e.g., fraud TC 320, including the accuracy-related penalty TC 240 penalty codes 68X must indicate which spouse is responsible for the penalty or part of the penalty. (The examiner will allocate any Failure to File (FTF), Failure to Pay (FTP), or Estimated Tax (ES) penalty and interest based on the percentage of tax allocable to each spouse) see IRM 20.1, Penalty Handbook, and IRM 20.2, Interest.

    9. If any of the above are not present, reject the case to the Full Scope examiner. See IRM 25.15.9.1.23, Rejecting Cases.

  3. Address all payments, including which payments will be transferred to MFT 31 and which payments must be refunded.

    1. Form 3465 instructions may state a payment (or payments) must be used to pay the claimant’s portion of the liability with the remainder to be refunded. In these cases, compute the penalty and interest for each account, applying payments as required, to determine the refund amount, if any. If all payments are the NRS's, the payments can be applied to both the MFT 30 and MFT 31 accounts.

    2. If payments have been made on the account by the RS, a manual computation of the account will be necessary to determine if the joint MFT 30 liability will be paid in full, and if a refund to the RS is required and the correct amount of the refund.

    3. If a payment(s) is applied before the date of determination and not addressed, follow procedures for rejecting cases.

    4. If a payment(s) is applied to the account after the date of determination, and it belongs to the RS or you are unable to determine who made the payment(s), confer with the financial assistant or prepare Form 1725, Routing Slip, asking the financial assistant to address the payment(s) (this would include a TC 706). Re-control IDRS to the Full Scope examiner, keeping the original received date. Change ISTS Stage 27 to appropriate team number in the Unit field and enter "Back to XXX" in comment field. Route the case to the appropriate team.

    5. If payments were made by the NRS and Form 3465 states to apply similar payments to MFT 31, then transfer these also.

  4. Verify the following freeze codes were addressed by the examiner: -L (AIMS), -V (Bankruptcy), -Y (OIC), -Z, and Z- (CI freezes). The examiner must have contacted CI for all Z freezes and documented the conversation. If not documented reject the case to the examiner. See IRM 25.15.9.1.23, Rejecting Cases.

  5. Check the balance due of MFT 30 to determine if the account is in Master File Status 12 (full paid). If it is, determine whose payment(s) paid the account off:

    1. If payment was made by the RS, refer to paragraph (3) 2) above.

    2. If the payment was made by the NRS, close the case. Input TC 290 .00 with:
      BS 00 (with original return), 05 (without original return), or 99 (if tax period is more than 10 years earlier and the original return has been destroyed)
      RC 098 (full allow) or 097 and 098 (if partial)
      SC 2, HC 3
      SD Y with the remarks of: IS Claim, Full Paid

    3. Reverse TC 971 AC 065 and TC 971 AC 104.

    4. Reverse TC 130 if appropriate. See IRM 25.15.9.1.5.1, Denied under IRC 6015(b), (c), or (f).

    5. Update ISTS to Stage 30, Activity NOACCTP, and in the Comment field enter NRS Full Paid. See IRM 25.15.9.1.22, Case File Assembly, for case assembly instructions.

    6. Update history sheet with actions taken.

    7. Close IDRS control base.

    8. Send case to Files.

  6. Process Form 3465.

  7. Prepare Form 12810, Account Transfer Request Checklist. For detailed instructions see IRM 25.15.9.1.19, Form 12810 — Special Considerations and IRM 21.5.2.4.23.9, Moving Assessments.

  8. Update the IDRS control with the Form 8857, Request for Innocent Spouse Relief, received date to 0297711399 or 0297711105, Activity WTG402.

  9. Update ISTS to Stage 28 and note the ISTSR Input Record.

  10. Document the history sheet with actions taken.

  11. Place the original Form 12810, Account Transfer Request Checklist, and highlighted IDRS CC TXMOD in the Processing Team's designated area. Place a copy of Form 12810 and highlighted TXMOD in the case file.

25.15.9.1.7  (08-19-2014)
Allowed Requests

  1. Requests are considered fully allowed when the RS is granted full relief of all items giving rise to a deficiency or to the entire underpayment reported on the joint return. The request is considered fully allowed regardless of whether the RS is or is not entitled to a refund of payments made. The important thing to remember is that "relief" relates to whether the RS remains liable for any of the deficiency or underpayment, not whether the RS is eligible for a refund.

25.15.9.1.7.1  (08-19-2014)
Processing Allowed Requests

  1. Prior to completing Form 12810, Account Transfer Request Checklist, the processor will review the case and account information to make sure the TC 971 AC 065, and TC 130 are posted correctly whether the case is partially allowed or fully allowed. If not, make the appropriate changes. Input TC 971 AC 103 to establish MFT 31 for the NRS. If a TC 971 AC 104 has been input and an account has been established on MFT 31 in error, input a TC 972 AC 104 on both MFT 30 and MFT 31 accounts to reverse the TC 971 AC 104.

  2. Review the Form 3465, Adjustment Request, for closing instructions as follows:

    1. A separate Form 3465 is required for each tax period.

    2. The RS's and NRS's TINs must be entered correctly on Form 3465.

    3. The instructions must specify which transactions are to be transferred to MFT 31 or state the Entire Account must be transferred. Entire Account means the TC 150 and all subsequent transactions must be transferred to MFT 31.

    4. The examiner's name and team number must be present.

    5. If any of the above are not present, reject the case to the Full Scope examiner. See IRM 25.15.9.1.23, Rejecting Cases.

  3. Address all payments, including which payments will be transferred to MFT 31 and which payments must be refunded.

    1. If a payment(s) is applied before the date of determination and not addressed, follow procedures for rejecting cases.

    2. If a payment(s) is applied to the account after the date of determination, and it belongs to the RS or you are unable to determine who made the payment(s), confer with the financial assistant or prepare Form 1725, Routing Slip, asking the financial assistant to address the payment(s) (this would include a TC 706). Re-control IDRS to the Full Scope examiner, keeping the original received date. Change ISTS Stage 27 to appropriate team number in the Unit field and enter "Back to XXX" in comment field. Route the case to the appropriate team.

    3. If payments were made by the NRS and Form 3465 states to apply similar payments to MFT 31, then transfer these also.

  4. Verify the following freeze codes were addressed by the examiner: -L (AIMS), -V (Bankruptcy), -Y (OIC), -Z, and Z- (CI freezes). The examiner must have contacted CI for all Z freezes and documented the conversation. If not documented reject the case to the examiner. See IRM 25.15.9.1.23, Rejecting Cases.

  5. Check the balance due of MFT 30 to determine if the account is in Master File Status 12 (full paid). If it is, determine whose payment(s) paid the account off:

    1. If payment was made by the RS, refer to paragraph (3) 2) above.

    2. If the payment was made by the NRS, close the case. Input TC 290 .00 with:
      BS 00 (with original return), 05 (without original return), or 99 ( if tax period is more than 10 years earlier and the original return has been destroyed)
      RC 098 (full allow) or 097 and 098 (if partial)
      SC 2, HC 3
      SD Y with the remarks of: IS Claim, Full Paid

    3. Reverse TC 971 AC 065 and TC 971 AC 104

    4. Reverse TC 130 if appropriate.

    5. Update ISTS to Stage 30, Activity NOACCTP, and in the Comment field enter NRS Full Paid. See IRM 25.15.9.1.22, Case File Assembly, for case assembly instructions.

    6. Update history sheet with actions taken.

    7. Close IDRS control base.

    8. Send case to Files.

  6. Process Form 3465.

  7. Prepare Form 12810, Account Transfer Request Checklist. For detailed instructions see IRM 25.15.9.1.19, Form 12810 — Special Considerations and IRM 21.5.2.4.23.9, Moving Assessments.

  8. Update IDRS control with the Form 8857, Request for Innocent Spouse Relief, received date to 0297711399 or 0297711105, Activity WTG402.

  9. Update ISTS to Stage 28 and note the ISTSR Input Record.

  10. Document the history sheet with actions taken.

  11. Place the original Form 12810, Account Transfer Request Checklist, and highlighted IDRS CC TXMOD in the Processing Team's designated area. Place a copy of Form 12810 and highlighted TXMOD in the case file.

25.15.9.1.8  (08-19-2014)
Collection Statute Expiration Date (CSED)

  1. Check IDRS CC IMFOLT for the last collection statute expiration date (CSED). IDRS CC IMFOLT will show the next, last and first CSED to expire. IDRS CC TXMOD only shows the current CSED.

    Example:

    The TC 150 has a 10 year collection statute from the 23C assessment date. If the TC 150 CSED has not yet expired, IDRS CC TXMOD will show only the TC 150 CSED. Additional assessments (TC 290 and TC 300) each carry a separate 10 year CSED. The CSED shown on IDRS CC TXMOD will update only after the first CSED expires.

    Note:

    The CSED is extended when a claim is filed so if the CSED was open when claim was received, it will not expire before claim is closed.

  2. Take the following actions

    IF THEN
    CSED has already expired and the TC 608 has posted
    1. Close the case if the RS is not entitled to any refunds.

    2. Reverse TC 971 AC 065 and TC 971 AC 104.

    3. Reverse the TC 130 if appropriate, for TC 130 information, see IRM 25.15.9.1.5.1, Denied under IRC 6015(b), (c), or (f).

    4. Input TC 290 .00 with:

      1. BS 00 (original return) 05 (no original return), or 99 ( if tax period is more than 10 years and the original return has been destroyed)

      2. RC 098 (fully allowed) or 097 and 098 (partially allowed)

      3. HC 3

      4. SC 2

      5. SD Y, with the remarks of: "IS Claims, CSED expired"

    5. Update ISTS Stage 30, Activity NOACCTP. In the comment field input TC 608/CSED. see IRM 25.15.9.1.22, Case File Assembly, for case file assembly instructions.

    6. Close the IDRS control base.

    7. Update the history sheet with the actions taken

    8. Send case to Files.

    If CSED on IDRS CC TXMOD is blank Check for open TC 520, closing code 6X and 8X, TC 480 or TC 780.


    While an account is in open bankruptcy or OIC, the CSED on IDRS CC TXMOD and IDRS CC IMFOLT is blank because there is a collection suspension in place during this time. See IRM 25.15.9.1.9, Bankruptcy -V/-W Freeze, for TC 520 instructions. See IRM 25.15.9.1.10, Offer in Compromise (OIC) -Y Freeze, for TC 480 and TC 780 instructions.

25.15.9.1.9  (08-19-2014)
Bankruptcy -V/-W Freeze

  1. If an account has a -V and/or -W freeze, check for an open bankruptcy indicator TC 520 with closing codes 60-67, 81, 83 or 85-89. The TC 520 will also contain a CSED-EXT-IND. Valid entries are P for primary, S for secondary or B for both. Determine if the RS or NRS filed the bankruptcy.

    1. If the RS filed bankruptcy (open TC 520), work the case as usual. Do not have the TC 520 for the RS input to the MFT 31 account for the NRS.

    2. If the NRS filed bankruptcy (open TC 520), and the TC 520 posted to the account before date of determination, then the Full Scope examiner must document the history sheet stating they contacted the Insolvency office, if not, reject back to the examiner. See IRM 25.15.9.1.23, Rejecting Cases. If the TC 520 posted to the account after the date of determination, then the Processing Team examiner will coordinate with the Insolvency office.

    3. If an account has a closed bankruptcy indicator (TC 520 and TC 521) with closing codes 60-67, 81, 83 or 85-89, determine who filed the bankruptcy action. If the bankruptcy was filed for the RS, continue to work the case. If the bankruptcy indicator was for the NRS, take a print of the MFT 30 TXMOD to the designated Processing Team examiner to have the TC 520(s) and TC 521(s) with closing codes input to MFT 31. This will ensure the correct CSED is calculated for the NRS. Continue processing the case. You do not need to wait until the TC 520(s) and TC 521(s) post to the MFT 31 account to continue to work your case. Do not request the TC 520(s) and TC 521(s) to be transferred to MFT 31 on Form 12810, Account Transfer Request Checklist. Notate on current TXMOD print and activity sheet the request was made to have the TC 520 and TC 521 input on MFT 31.

    4. If the account has been transferred to the RS on MFT 31 because the NRS received a discharge of the debt as a result of bankruptcy, process per the instructions listed below:

      If the RS is granted the following innocent spouse relief And the NRS has been fully discharged in bankruptcy, Then
      Full relief The liability on the joint account was moved to MFT 31 for the RS Input TC 971 AC 131 XREF MFT "01" (value code 01)
      Partial relief The liability on the joint account was moved to MFT 31 for the RS Input TC 971 AC 131 XREF MFT "02" (value code 02)
      Full relief The liability on the joint account has not been transferred to MFT 31 or NMF 20
      1. Coordinate with the Insolvency Section.

      2. Provide them with a copy of the final determination letter.

      3. If the determination is made within 30 days of the discharge, the Processing Team can input TC 290 .00 with RC 098.

      4. Then the Insolvency Section will input their TC 971 AC 031 which will result in a zero balance on the MFT 30 account.

      Partial relief The liability on the joint account has not been transferred to MFT 31 or NMF 20
      1. Wait until the liability has been transferred to MFT 31 or NMF 20.

      2. Then abate the amount of relief granted to the RS.

    5. If the account has been transferred to the RS on NMF 20 because the NRS received a discharge of the debt as a result of bankruptcy, follow campus directions for zeroing out the NMF 20 account.

    6. If the account has been transferred to the RS on MFT 31 and the RS has been granted full relief, a TC 971 AC 131 will be used to establish a false credit to clear a debt. Verify the TC 971 AC 065 is on the MFT 31 account. The following values have been modified to allow input of the TC 971 AC 131 in the XREF-MFT section of the REQ77/FRM77:

      Value Code Explanation
      01 Claim fully allowed, NRS received a discharge of the liability through bankruptcy
      02 Claim partially allowed, NRS received a discharge of liability through bankruptcy
      03 Claim fully allowed, NRS's liability was compromised through an offer in compromise
      04 Claim partially allowed, NRS's liability was compromised through an offer in compromise
      05 Claim fully allowed and NRS is deceased
      06 Claim partially allowed and NRS is deceased

25.15.9.1.10  (08-19-2014)
Offer in Compromise (OIC) -Y Freeze

  1. If the account has an open -Y freeze, check for a TC 480 or TC 780. Look at the indicator to determine which taxpayer filed the OIC; P is for primary; S is for secondary; B is for both. If the NRS filed the OIC and the TC 780 posted to the account before the date of determination, then the Full Scope examiner must document the history sheet stating they contacted the OIC office. If not, reject back to the examiner. See IRM 25.15.9.1.23, Rejecting Cases. If the TC 780 posted to the account after the date of determination, then the Processing Team examiner will coordinate with the OIC office. The following is a list of all transactions related to OIC:

    • TC 480 - OIC pending

    • TC 481 - OIC rejected

    • TC 482 - OIC withdrawn by taxpayer

    • TC 483 - TC 480 posted in error

    • TC 780 - OIC accepted

    • TC 781 - Accepted OIC defaulted

    • TC 782 - TC 780 posted in error

    • TC 788 - All conditions of the OIC have been satisfied

      Note:

      All of the above transactions, except TC 483 and 782, suspend the assessment and collection statute of limitations.

  2. If TC 48X or TC 78X transactions are present for the NRS, transfer the module to MFT 31. If the TC 48X or TC 78X transactions belong to the NRS, take a print of the MFT 30 TXMOD to the designated Processing Team examiner to have the TC 48X(s) and TC 78X(s) input to MFT 31. Notate on current IDRS CC TXMOD print and activity sheet the request was made to have the TC 480 etc. input on MFT 31. This is necessary so the computer can figure the correct CSED for the NRS. If there is a TC 480 or 780 posted in error, those do not need to be transferred to MFT 31. The CSED would not be extended in this case.

  3. When an accepted OIC is fully paid, including payment of deferred installment payments and completion of the terms of any collateral agreements, the tax liabilities are adjusted to zero. The OIC file is placed into a monitoring status. For more information, see IRM 5.19.7.3.22, Closing an OIC. One of the terms of the offer agreement requires the taxpayer to timely file returns and timely pay taxes for five years after the acceptance of the OIC or until the offered amount is paid in full, whichever is longer. Breach of this future tax compliance provision permits the Service to reinstate the original tax liability. See IRM 5.19.7.3.19.4, Failure to Adhere to Compliance Terms. The future compliance period (five years after acceptance of the OIC or until the OIC is paid in full) starts from the TC 780 date.

  4. Due to the possible reinstatement of the original tax liability because of noncompliance, the initial adjustment bringing the balance in the account to $0 is not considered an abatement of the tax assessment. Given these facts, process all cases involving an accepted OIC (TC 780) as follows:

    If RS is granted And the NRS has an accepted OIC (TC 780), Then
    Full Relief The joint liability was transferred to MFT 31 for the RS
    1. Input TC 971 AC 131 cross reference (X-REF) MFT 03 on the MFT 31 account.

    2. Send a copy of the innocent spouse final determination letter to the OIC unit monitoring the NRS's offer.

    3. If a determination of default is made within the future compliance monitoring period for the NRS, the OIC team will reinstate the previously adjusted liability on MFT 31 for the NRS only.

    Full Relief The joint liability has not yet been transferred to NMF 20 or MFT 31
    1. Because not all cases are alike, contact the OIC team in each case to coordinate whether the MFT 31 account must be established.

    2. Advise the OIC team you will be inputting a TC 290 .00 with RC 098 on the MFT 30 account.

    3. Send a copy of the innocent spouse final determination letter to the OIC team to be placed in the case file.

    Partial Relief The joint liability was transferred to NMF 20 or MFT 31 for the RS
    1. Input TC 971 AC 131 X-REF MFT 04 on the MFT 31 account for the amount of relief granted.

    2. Send a copy of the innocent spouse final determination letter to the OIC team monitoring the NRS's offer.

    3. If a determination of default is made within the future compliance monitoring period for the NRS, the OIC team will reinstate the previously adjusted liability on MFT 31 for the NRS only.

    Partial Relief The joint liability has not yet been transferred to MFT 31
    1. Because not all cases are alike, contact the OIC team in each case to coordinate whether the MFT 31 account must be established.

    2. Advise the OIC team you will be inputting TC 290 .00 with RC 098 on the MFT 30 account.

    3. Send a copy of the innocent spouse final determination letter to the OIC team to be placed in the case file.

  5. If the account has been transferred to the RS on NMF 20 because the NRS's liability was compromised through an OIC, follow campus directions for zeroing out the NMF 20 account.

  6. If the account has been transferred to the RS on MFT 31 and the RS has been granted full relief, input a TC 971 AC 131 to establish a false credit to clear a debt. Verify the TC 971 AC 065 is on the MFT 31 account. The following values have been modified to allow input of the TC 971 AC 131 in the XREF-MFT section of the REQ77/FRM77:

    Value Code Explanation
    01 Claim fully allowed, NRS received a discharge of the liability through bankruptcy
    02 Claim partially allowed, NRS received a discharge of the liability through a bankruptcy
    03 Claim fully allowed, NRS's liability was compromised through an offer in compromise
    04 Claim partially allowed, NRS's liability was compromised through an offer in compromise
    05 Claim fully allowed and NRS is deceased
    06 Claim partially allowed and NRS is deceased

25.15.9.1.11  (03-12-2013)
Decedents

  1. Abatement is not permitted when the NRS is deceased and has no estate. Transfer the joint liability to MFT 31 for the NRS for the full amount or partial amount, as appropriate. Collection will determine if the account is not collectible.

25.15.9.1.12  (08-19-2014)
Penalty Considerations

  1. If transferring a partially allowed account to MFT 31, accruals of Failure to Pay (FTP) penalty and interest may need to be posted to the MFT 30 account. Input a TC 290 .00 with:

    1. BS 05

    2. SC 02

    3. HC 3

    4. PC 5

    5. No Source Doc (NSD) and in the remarks enter Post accruals - IS claim

    Wait for the adjustment to post before transferring.

  2. There are three rates of FTP penalty that can be charged:

    • 1/2 percent per month of underpaid tax is the normal rate;

    • 1/4 percent per month of underpaid tax is the rate charged during the period a taxpayer has an approved installment agreement (IA);

    • 1 percent per month is the rate beginning on the 10th day after the issuance of an IRS intent to levy.

    In all cases, the maximum FTP penalty charged is an aggregate total of 25 percent of the underpaid tax.

  3. If a FTP penalty is being charged concurrent with the Failure To File (FTF) penalty, the amount of the FTF penalty is reduced by the amount of the FTP penalty charged per month. The rate does not change see IRC 6651(c)(1). If a FTP penalty is not being charged concurrently (as in a TC 300 examination assessment), the FTF penalty rate is 5 percent per month on the unpaid tax as of the normal return due date, for a maximum of 5 months, or 25 percent.

    1. If the return is more than 60 days late, a minimum penalty of $135.00 or 100 percent of the underpaid tax, whichever is less, applies.

    2. Any payments received after the normal return due date do not decrease the amount of underpaid tax the FTF penalty is computed on.

      Example:

      A taxpayer did not file his tax return by the April 15, due date. On May 1, he paid tax liability of $10,000; and on November 2, Year 2, he filed the return. The FTF and FTP penalties are computed on $10,000. The FTF and FTP penalties run concurrently for the first month (April 16th to May 15th), so the FTF penalty rate for that month is reduced by the FTP penalty rate - the FTP penalty is .5 percent of $10,000 and the FTF penalty is 4.5 percent of $10,000. After the first month, there is no longer a FTP penalty, but the FTF penalty continues to accrue on the full $10,000 until the return is filed. Therefore, the FTF penalty accrues at the full 5 percent per month (or fraction thereof) until the earlier of the date the return is filed, but not for more than five months.

      Note:

      For purposes of the FTF and FTP penalties, the months are computed from the due date for filing or paying, regardless of whether that date was a Saturday, Sunday, or legal holiday. In the above example, if April 15 was a Saturday but the return was not timely filed, the FTF and FTP penalties would still be computed from April 15.

  4. When transferring accounts to MFT 31, notice status 21, 56, and 58 cannot be transferred. The original 1 percent start date which triggers a 1 percent FTP penalty will be lost. Indicators the FTP penalty must be computed at 1 percent are:

    1. MFT 30 shows Status 58, which indicates a CP 504 notice of intent to levy has been issued.

    2. TC 971 AC 035, indicating the manual recordation of a notice of intent to levy.

    3. TC 971 AC 069, indicating a notice of intent to levy with a Collection Due Process notification.

    4. Assessment with doc code 51 and blocking series 140–149 indicating a notice of intent to levy in conjunction with an assessment notice.

    5. Assessment with doc code 51 and blocking series 100–119 indicating a demand for immediate payment as part of a jeopardy assessment.

  5. Using IDRS CC REQ77, input TC 971 AC 035 on MFT 31 to maintain the original 1 percent start date. Required fields are:

    • TC 971

    • Transaction Date - Use the earliest of the TC 971 AC 035 or TC 971 AC 069 transaction date or Status 58 date (Use the earliest posted Status 58 date as the 1 percent start date unless the account was fully paid at a later date and then a subsequent assessment was made. In this case, use the next Status 58 date). Compare this date to the date on IDRS CC INTST and if there is a difference, consult with the manager.

    • TC 971/151-CD 035

  6. The taxpayer may receive the 1/4 percent rate for the IA if the original return was filed timely (including extensions). An indication the taxpayer was allowed the 1/4 percent rate is the TC 971 AC 063 on the MFT 30 account. The Full Scope examiner will note on the history sheet whether the IA was entered into by the RS or NRS. If the IA was entered into by the NRS then input TC 971 AC 063 on the MFT 31 account. Using IDRS CC REQ77, input TC 971 AC 063 on MFT 31 account. If there is a TC 971 AC 163 on the MFT 30 account, input this on the MFT 31 account as well.

  7. The following are some situations you may encounter affecting the calculation of the FTP penalty. These are not all-inclusive. See IRM 20.1.2, Failure to File/Failure to Pay Penalties, for additional information.

    1. The FTP penalty is suspended on the account during a bankruptcy. The suspension period runs from the TC 520 transaction date through the TC 521 transaction date.

    2. For months beginning on or after January 1, 2000, the FTP penalty rate is reduced to 1/4 of 1 percent during the period a taxpayer is in installment status, if the return was timely filed (including extensions). If the taxpayer defaults on the agreement, the rate changes to 1/2 percent per month or 1 percent per month (if notice and demand for payment has been made and 10 days have elapsed since payment). The FTP penalty rate will revert to 1/4 percent again, if the agreement is reinstated and the 1 percent rate never went into effect. For installment agreements reinstated or posted after cycle 200452, the rate changes to 1/4 percent regardless whether the 1 percent rate was ever in effect.

    3. The FTP penalty on an original TC 150 is computed on the tax as calculated by the taxpayer. If the taxpayer makes a math error which results in an increase in tax, the FTP penalty is charged on the tax per the taxpayer until the TC 150 posting date plus 21 days. At that point, the FTP penalty is charged on the corrected tax until the tax is paid. This allows the taxpayer time to pay the corrected tax without incurring additional FTP penalty.

    4. If a taxpayer does not file a tax return and IRS records indicate a tax return is due, Substitute For Return (SFR)/Automated Substitute For Return (ASFR) procedures may be started. An IRS prepared return can be identified by TC 150 .00 with "SFR" or "ASFR" located to the right of the TC 150. This is known as a "dummy" return. If the taxpayer does not respond to the request to file a return, a TC 599 closing code 88 is input on the account and a default SFR/ASFR assessment is made (TC 290 or 300). If the taxpayer agrees with the proposed assessment or files a tax return, a TC 599 closing code 89 is input on the account and the taxpayer's return is posted as TC 290 with Priority Code (PC) 2 or TC 300 with PC 9. In both cases, per Taxpayer Bill of Rights (TBOR) II, for returns due after July 30, 1996, the Service will assess FTP from the original return due date. IRC 6015 relief cannot be an issue for a defaulted SFR assessment because default SFR and ASFR assessments never use the married filing joint filing status.

    5. When allocating a FTP penalty for partials, a TC 806 posted with a subsequent assessment (TC 290) can be difficult to verify. The computer will table the TC 806 with the TC 150 for the purpose of computing the FTP penalty. Check IDRS CC INTSTD to verify how the computer is tabling tax and credits in these cases.

25.15.9.1.13  (08-19-2014)
Interest Consideration

  1. Interest is charged on underpaid tax from the last date prescribed for payment, without regard to extensions (generally the normal return due date). Underpaid tax is the total tax minus timely credits such as, TC 806, TC 764, TC 660 and any other payments received on or before the due date. Interest is charged on the Failure to File (FTF) and TC 240 penalties (penalty reference number (PRN) 680, 681, and 682) from the normal due date, extended due date, or July 18, 1984 (whichever is later). Interest on Failure To Pay (FTP) penalties is not charged until the penalties are assessed (23C date). See IRM 20.2.5.3, Interest on Penalties and Additions to Tax.

  2. An original tax return (TC 150) resulting in a refund issued after the normal return due date affects the underpayment interest on a subsequent assessment. Interest is not charged on a subsequent assessment (up to the amount of the refund) for the periods of time the Service had use of the taxpayer's money without the Service paying interest. However, if the taxpayer received interest on the refund, underpayment interest on the subsequent assessment is charged at the overpayment rate during the period interest was paid on the refund (up to the amount of the refund). Input a TC 772 for the underpayment interest amount that was netted, or if one interest adjustment involves multiple overpayments that were netted, combine the netted amounts for a single TC 772 adjustment. See IRM 20.2.14.4.3, Manually Computing Within Module Interest Netting.

    Exception:

    Because TC 772 will not post to an MFT 31 tax module that was not established through mirroring of its corresponding MFT 30 tax module, any netted interest amount(s) must be included with the TC 340 amount.

    1. A complete account transfer allows the computer to make this calculation of interest on MFT 31. If this is not possible because the module is restricted, manually compute the interest amount to be input on MFT 31 for a Non-Restricting (NR) TC 340. See IRM 20.2.8.11, Non-Restricting Transaction Code (TC) 340.

    2. In the case of a partial, it is necessary to compare both the MFT 30 and MFT 31 tax amounts against the refund amount to determine the correct interest-start dates.

      Example:

      A refund is issued on 06–13–XX for $5,000 (without interest). A subsequent assessment is made for $7,000. $4,000 of the tax will remain on MFT 30 and $3,000 will be transferred to MFT 31. $4,000 of the tax being left on MFT 30 will start accruing interest on 06–13–XX. ($5,000 refund minus $4,000 tax used on MFT 30 leaves $1,000 to apply against the $3,000 being transferred to MFT 31). Of the $3,000 being transferred to MFT 31, $1,000 will start accruing interest on 06–13–XX and the remaining $2,000 will start accruing interest on the normal due date (04–15–XX).

      Example:

      Using the same figures and dates, except a refund was issued on 06–13–XX for $1,000. $1,000 of the $4,000 MFT 30 tax starts accruing interest on 06–13–XX, the other $3,000 on the normal due date. All of the MFT 31 tax of $3,000 would start accruing interest on the normal due date. Therefore, it would not be necessary to request a NR 340 on MFT 31.

  3. If there is a credit elect (TC 836) on the MFT 30 account, interest may need to be manually computed depending on what quarter the amount applied as a credit elect is needed in the subsequent year. See IRM 20.2.5.7.2, Rev. Rul. 99-40 and Credit Elects (May Sequa), for additional information.

  4. IRC 6404(g) suspends interest and certain penalties for tax years ending after July 22, 1998 in cases where the Service fails to provide a notice of liability to the taxpayer within 36 months (18 months prior to November 26, 2007), beginning on the later of:

    • the date the return is filed; or

    • the due date of the return without regard to extensions

    If the notice is not provided to the taxpayer before the close of the 18 or 36-month period, interest and certain penalties are suspended for the following period:

    • beginning on the day after the close of the 18 or 36-month period, and

    • ending on the date which is 21 days after the date on which the 6404(g) notice is provided to the taxpayer.

      Note:

      The IRC 6404(g) suspension applies only to timely filed individual income tax returns for taxable years ending after July 22, 1998.

      Note:

      The notice must state the liability and the basis for the liability. IRM 20.2.7, Abatement and Suspension of Debit Interest, contains information about inputting TC 971 AC 064 on these cases.

  5. Programming was created to allow the computer to perform this suspension. A TC 971 AC 064 is input on the account with the transaction date as the mailing date of the 6404(g) notice. Input TC 971 AC 064 only if the 6404(g) notice was issued after the 18-month or 36-month period; however, keep in mind that TC 971 AC 064 may have been prematurely input on some AUR/Examination cases. There are three scenarios innocent spouse processing personnel must watch regarding IRC 6404(g).

    1. The TC 971 AC 064 is posted on the account, the transaction date is within the 18-month or 36-month period, the Exam/AUR assessment is posted, and a subsequent TC 29X adjustment was made. Before input of subsequent TC 29X, input TC 972 AC 064 using the same transaction date as shown on the TC 971 AC 064 you are reversing. Continue processing case as usual.

    2. TC 971 AC 064 is posted on the account, the transaction date is beyond the 18-month or 36- month period and the Examination/AUR assessment is posted. IDRS CC INTSTD will show the interest is suspended from the day after the close of the 18-month or 36-month period until 21 days from the TC 971 AC 064 date or the date the notice was issued. If the notification is not issued by the close of the 18-month or 36-month period, interest is suspended from the day after the 18-month or 36-month period until 21 days after the TC 971 AC 064 date. In this case IDRS and Master File can no longer calculate interest on the subsequent TC 29X and manual computations are necessary.

    3. Two TC 971 AC 064s are posted to the account. This may have been caused by an incorrect transaction date being used. A TC 972 AC 064 was input to reverse the incorrect transaction and a second TC 971 AC 064 is input with the correct date. There were two separate 6404(g) notices issued and both are valid. In either case, IDRS and Master file can no longer calculate the interest and manual computations are necessary.

  6. If an account contains the following conditions, it can be worked by a Processing Team examiner.

    • TC 340 for a significant amount, and

    • Associated with TC 290 .00, and

    • Adjustment RC 065--028, and

    • Contains a COMP-INT-AMT.
      This adjustment indicates the taxpayer was affected by a federally declared disaster. A taxpayer affected by one of these is given relief from penalty and interest if the return due date or extended return due date is within the declared disaster period. After the time period ends, normal interest and penalty is charged.

      The case must be either an allowed request or a partially allowed request where the entire account can be transferred. Use IDRS CC INTST to get the accrued interest amount. Transfer all the interest transaction codes to MFT 31. This includes TC 196, 197, 340, and 341. Request a NR 340 on MFT 31. This is the accrued interest on INTST. The COMP INT AMT will be all the items you are transferring plus the accrued interest from INTST.

  7. Once a notice and demand is issued, the taxpayer has a limited amount of time to pay the amount shown before additional interest is charged. Notice status codes are 19, 20, 21, 54, 56 and 58. See IRM 20.2.5.4, Notice and Demand and Debit Interest, for additional information.

    1. For notice and demand issued before January 1, 1997, if the amount shown on the notice is paid within 10 calendar days, additional debit interest is not computed.

    2. For notice and demand issued after December 31, 1996, refer to the following table:

      If the amount shown on the notice And Then
      is less than $100,000 is paid within 21 calendar days, additional interest is not computed
      equals or exceeds $100,000 is paid within 10 business days, additional interest is not computed

25.15.9.1.14  (08-19-2014)
Non-restricting TC 340

  1. The non-restricting TC 340 is an enhancement to Master File programming to allow a systemic interest update on a tax module after it has been restricted. Input of the non-restricted TC 340 requires a manual computation of interest up to the date in the INT-TO-DATE field, and the module balance (including tax, penalty and interest) entered in the COMP-INT-AMT field. Entering the module balance in the COMP-INT-AMT field causes Master File to resume normal interest computation on that amount from the date entered in the INT-TO-DATE field. See IRM 20.2.8.11, Non-Restricting TC 340 for specific input instructions and limitations. The following situations require a NR TC 340 to be input to MFT 31:

    1. A refund issued after the return due date. Transferring the entire account will negate the need for a NR 340 in this situation.

    2. An 870 waiver (taxpayer agreed to the Examination assessment) date is present and the 870 date on IDRS CC TXMOD is more than 30 days prior to the 23C date of the assessment (TC 300). The 870 date is located beneath the TC 300 tax amount on IDRS CC TXMOD.

    3. AUR assessment (TC 290 following TC 922), BS 55-58 or 65–67, with CR-INTDT indicates the taxpayer agreed to the AUR assessment. The TC 290 must be made within 30 days of the CR-INT-DT date.

    4. Any credit transaction posting dates (received after the Return Due Date (RDD)) on MFT 30 IDRS CC TXMOD differ from the IDRS CC INTSTD posting dates and the credit transaction will be transferred to MFT 31.

    5. The original TC 150 was paid off with credits after the normal RDD and the RS was relieved of a subsequent assessment. Transferring the entire account will negate the need for a NR TC 340 in this situation. This also applies even if the TC 150 is paid off prior to the posting (23C date) of the subsequent assessment.

    6. Any accounts requiring transfer of carry-back transactions (TC 294, TC 295, TC 298, TC 299, TC 304, TC 305, TC 308, or TC 309) carry an interest computation date affecting the deficiency interest. Accounting cannot pick up this date on the transfer document.

    7. Accounts containing a TC 840 and the credits refunded were not the latest credits in the module.

    8. Transaction date of the TC 971 AC 064 is 18 or 36 months beyond the return due date of a timely filed return. IRM 25.15.9.1.13 (4), Interest Consideration.

  2. The non-restricting TC 340 should only be used in instances where normal interest computation can be resumed by Master File. Interest computed at 120 percent of the normal rate (e.g. Tax Motivated Interest) is not compatible with a non-restricting TC 340. A TC 34X can identify these accounts on IDRS CC TXMODA for a money amount posted with Item References 221 TX-MOTVTD-TRANS and 222 TX-MOTVTD-INT. Compute the interest and request a restricting TC 340 be posted to MFT 31. Complete Form 12810, Account Transfer Request Checklist, with the interest transactions and item reference codes and amounts required. See IRM 20.2.8.11, Non-Restricting TC 340, for additional limitations.

  3. Take the following action if a non-restricting TC 340 is required and you are moving the entire account to MFT 31 including the interest (TCs 190, 196, 197, 336, 337):

    1. Print IDRS CC INTST.

    2. Enter the "ACCRUED INT" amount from your IDRS CC INTST print on Form 12810 as the NR TC 340.

    3. Copy the date interest was computed to from IDRS CC INTST to Form 12810 as the DEBIT DATE.

    4. Add the MFT 30 module balance plus the "ACCRUED INT" from IDRS CC INTST and enter on Form 12810 as the "COMP AMT" .

  4. Take the following action if a non-restricting TC 340 is required, but you are not moving the posted interest transactions from MFT 30 to MFT 31:

    1. Print IDRS CC INTST.

    2. Enter the "TOTAL INT" amount from your IDRS CC INTST print on Form 12810 as the NR TC 340.

    3. Copy the date interest was computed to from IDRS CC INTST to Form 12810 as the DEBIT DATE.

    4. Add the MFT 30 module balance plus the "ACCRUED INT" from IDRS CC INTST and enter on Form 12810 as the "COMP AMT" . Input this information to MFT 31 using IDRS CC REQ 54, after the transfer has been completed.

25.15.9.1.15  (08-19-2014)
Payments, Credits and Claim of Refund

  1. The following provides information and guidance for the disposition of payments and credits by the Service and for processing claims for credit or refunds from a RS on innocent spouse claims.

25.15.9.1.15.1  (08-19-2014)
Payment and Credit Disposition

  1. Payments and credits can be applied to a taxpayers account in three different ways.

    1. The IRS computer system will automatically apply payments and credits when received or available.

    2. Service personnel may apply payments and credits to specific tax periods.

    3. The taxpayer may designate the application of certain payments.

  2. Conduct the following research in order to determine the disposition of the payments.

    1. IDRS CC INOLET for other TINs where the RS may be the secondary taxpayer on a joint account.

    2. IDRS CC INOLEX under the TIN of the RS for the debt indicator (I – IRS debt, F- Non-tax debt, B- Both, or blank – No debt).

    3. IDRS CC IMFOLI under TIN of the RS and any cross-reference TINs.

    4. IDRS CC TXMOD – Any new activity since the determination has been made

    5. IDRS CC SUMRY – other open tax years which may impact the tax year for which relief was requested.

25.15.9.1.15.1.1  (08-19-2014)
Application of Payments or Credits

  1. Undesignated voluntary payments, involuntary payments or credits are applied in the following manner:

    1. For accounts where there are several periods with a balance due, the Service will apply payments and credits in an order of priority that will serve it's best interest (Rev. Proc. 2002-26 section 3.02). Usually the best interest is to satisfy the individual or joint liabilities with the earliest CSED.

    2. Within a tax period the Service applies payments and credits to a balance due first to the tax, then to the penalties and finally to the interest.

    3. Apply any credits to any existing separate or joint liabilities for which the RS was not granted relief or was only granted partial relief. Satisfy the liabilities on the earliest CSED.

      Caution:

      Do not apply a payment or credit to an account with an unreversed TC 971 AC 065.

  2. A designated payment is a voluntary partial payment designated in writing by the taxpayer to be applied in a particular manner, (i.e., specific tax period, kind of tax, or among tax, penalty and interest within a period) when the payment is insufficient to satisfy the balance due. See (3) for designated payment codes.

    Note:

    A payment obtained after informing a taxpayer that a tax is due does not make the payment involuntary. There must be either a court action or an administrative action that results in an actual seizure of money or property.

  3. A designated payment code (DPC) is mandatory on all Collection initiated posting vouchers for transaction codes 640, 670, 680, 690, 693, and 700. DPC's serve three purposes.

    • Identify payments that are designated for trust fund or non-trust fund employment and excise taxes.

    • Indicate application of payments for a specific liability.

    • Identify the event which resulted in the payment

    Refer to IRM 3.8.45.9.1Designated Payment Codes (DPCs), for a list of codes and meanings.

25.15.9.1.15.2  (08-19-2014)
Claims for Credit or Refund

  1. The Form 8857, Request for Innocent Spouse Relief, can be the RS's claim for credit or refund for purposes of IRC 6402.

  2. If granted relief under IRC 6015(b) or (f):

    1. a RS is eligible for a refund of separate payments made by the RS after July 22, 1998, if the RS establishes that the funds used to make the payment for which a refund is sought were provided by the RS. A RS is not eligible for refunds of payments:
      1) made with the joint return
      2) joint payments
      3) payments made by the NRS

    2. If granted relief under 6015(b) or (f), a RS may be eligible for a refund of the RS's portion of the RS and NRS's joint overpayment from another tax year, that was applied to the joint income tax liability, to the extent that the RS can establish that the RS provided the funds for the overpayment.

    3. The availability of refunds is subject to the refund limitations of section 6511.

      Note:

      Keep in mind no credits or refunds are allowed in connection with an IRC 6015(c) election.

  3. Certain designated payment codes cannot be refunded:

    1. DPC 41 - 57 are for Installment Agreement (IA) user fees. IA user fees will not be refunded.

    2. DPC 03 and 11 are for bankruptcy payments. The financial technician must contact Bankruptcy to determine if these payments can be refunded. Contact must be made on all payments, to determine refundability, when there is an open bankruptcy on the account.

  4. In determining if any payments or credits can be refunded, all payments and credits need to be applied to tax in the order that they have been received, in order of assessment.

    Example:

    The RS requests relief for both a $1,000.00 underpayment and a $700.00 understatement on the 2011 tax year. The RS was granted relief of the $700.00 understatement under 6015(b) The RS was not granted relief and is still jointly liable for the $1,000.00 underpayment.
    (1) There is a TC 706 from a joint 2012 filing for $600.00 received on 04/15/2013.
    (2) The RS made a TC 670 payment for $100.00 on 06/01/2013.
    (3) The NRS made a TC 670 payment for $500.00 on 07/01/2013.

    As of 06/01/2013 a total of $700.00 had been paid towards the $1,000.00 underpayment. On 07/01/2013 the NRS has paid off the remaining underpayment and had $200.00 applied towards the $700.00 understatement.

    The RS is not entitled to a refund of her $100.00 payment because it was used towards the joint liability.

    Example:

    In this example the scenario is the same except the person making the payments has changed. The RS requests relief for both a $1,000.00 underpayment and a $700.00 understatement on the 2011 tax year. The RS was granted relief of the $700.00 understatement under 6015(b) The RS was not granted relief and is still jointly liable for the $1,000.00 underpayment.
    (1) There is a TC 706 from a joint 2012 filing for $600.00 received on 04/15/2013.
    (2) The NRS made a TC 670 payment for $100.00 on 06/01/2013.
    (3) The RS made a TC 670 payment for $500.00 on 07/01/2013.

    As of 06/01/2013 a total of $700.00 had been paid towards the $1,000.00 underpayment. On 07/01/2013 the RS paid off the remaining $300.00 of the underpayment and had paid $200.00 of the understatement. Because the RS was granted relief of the understatement, the RS is eligible for a refund of $200.00.

25.15.9.1.15.2.1  (08-19-2014)
Claiming a Credit or Refund and RSED's

  1. An RS and an NRS each have a separate interest in any overpayment on the joint account. As a result, each spouse may have a different RSED for claiming a credit or refund for the account when a payment or a credit applied from another account is not joint, but rather is shown to have been paid by or is attributable to only one of them.

    Note:

    For purposes of determining whether the RS's claim was timely, the date the Form 8857, Request for Innocent Spouse Relief, is received is considered the date of the RS's claim for a refund or credit.

  2. 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. 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. See IRM 25.6.1.10.2.7, Claims for Credit or Refund – General Time Period for Submitting a Claim, for more information.

  3. An overpayment, including any interest allowed on the credit by the Service, credited to an underpayment of another year, constitutes a payment on the date the credit is allowed. See IRM 25.6.1.7.2(5), Time When Payments and Credits Are Considered to be Made.

    Example:

    If the RS filed a 2011 tax return on 02/01/2013 and the overpayment of $100.00 was applied to a 2010 outstanding joint liability with a TC 706 dated 03/15/2013, the date of the payment to be considered is 03/15/2013. This is the date to use under the Two-year Rule.

  4. If the RS is entitled to relief but the RSED has expired on payments made or credits attributable to the RS, the amount will remain on the account to be applied against the outstanding liability. Do not transfer the payment/credit to excess collection. This would result in the amount being collected twice.

25.15.9.1.15.2.2  (08-19-2014)
Special Processing

  1. If any freeze conditions exist that make a refund inappropriate or prevent a refund from being issued by Master File, either resolve the freeze or issue a manual refund. See Document 6209, IRS Processing Codes and Information, Section 8.

  2. When possible, rather than issuing a manual refund, transfer credits back to the year producing the offset and allow the computer to refund the overpayment or transfer to another year. This will ensure the allowable interest on the refund is correctly computed.

  3. Apply any credits to any existing separate or joint liabilities for which the RS was not granted relief or was only granted partial relief. Satisfy the liabilities on the earliest CSED.

    Caution:

    Do not apply a payment or credit to an account with an unreversed TC 971 AC 065.

  4. Installment Agreement (IA) user fees will not be refunded except for IRS error, (i.e., fee taken twice). See IRM 5.19.1.5.4.6IA Payment Methods and User Fees (UF) Overview. DPC 41 - 57 on a payment are for Installment Agreement (IA) user fees.

  5. A taxpayer's overpayment may be applied to any outstanding Federal tax, non-tax child support, Federal agency non-debt, State income tax obligation or Unemployment Compensation prior to crediting the overpayment to a future tax pursuant to a taxpayer's election or making a refund. Information on refund offsets may be found in IRM 21.4.6, Refund Offset.

25.15.9.1.16  (08-19-2014)
Credit Transfers

  1. Credit transfers are requested on Form 3465, Adjustment Request. The credit transfer request will be in addition to the account transfer information shown on the form. Information must be documented in the case file by the examiner if the claim was allowed under IRC 6015(b), IRC 6015(c), or IRC 6015(f) and if refund/offset of credits is appropriate.

    Note:

    No credit or refund is allowed under IRC 6015(c).

  2. Form 3465 requesting a credit transfer is also received without the case file when a refund has offset from the RS’s individual tax return to the joint account after Form 8857, Request for Innocent Spouse Relief, was filed.

  3. For purposes of determining the date of payment when there is a TC 706 (offset of overpayment from the RS's account) use the cycle the offset posted. Prior to January 1, 2012, Monday's date is considered the first day of the cycle and the date the offset occurred. Effective January 1, 2012, the cycle format is YYYYCCDD. The date is determined by the last two digits of the cycle.
    01 = Friday
    02 = Monday
    03 = Tuesday
    04 = Wednesday
    05 = Thursday

  4. Please refer to IRM 21.5.8, Credit Transfers, for detailed instructions on credit transfers. Use IDRS CC ADD24 or Integrated Automation Technologies (IAT) tool to transfer the credit. Use remarks NSD IS Claim/Form 3465.

    Note:

    In general, once a credit or payment is properly applied to a period or kind of tax, the Service and the taxpayer generally may not move a TC 706 on account of subsequent events.

  5. If TC 971 AC 065 has not posted to the account (has an incomplete DLN, in process of going though all validity checks Adjustment Pending (AP) or has a complete DLN and has passed all validity checks (Pending (PN)), use a posting delay code of one cycle on both sides of the credit transfer.

  6. If a TC 131 is required (posted to incorrect account or not timely released) along with the credit transfer, use a posting delay code of one cycle on both sides of the credit transfer.

25.15.9.1.17  (08-19-2014)
Manual Refunds

  1. It may be necessary to issue a manual refund to the RS if Master File is unable to refund the credit. See IRM 21.4.4, Manual Refunds, for detailed instructions on manual refunds. Some of the reasons a manual refund would be necessary are:

    • An erroneous TC 130 freeze, i.e., the TC 130 was input to the RS’s TIN in error

    • Deceased taxpayers

    • RSED expired

    • Certain Tax Year 2001 rebates

    • Payments, other than offsets, on the joint module belonging to only one spouse

    • Primary taxpayer is the RS, IDRS is in Status 60 (IA), and payment(s) need to be refunded

  2. Do NOT issue a manual refund from a tax module where no TC 150 has posted. This will create an –X freeze and you will be unable to post a TC 290 .00 to release it. If payments must be refunded on an expedite basis and conditions on the module prevent the issuance of the refund from the module, transfer the payments to a module where a TC 150 has posted and the module is in zero balance.

  3. Compute allowable interest, if appropriate, using either the IDRS CC COMPA or the Automated Computational Tool (ACT) by Decision Modeling Inc. (DMI).

    1. No interest is paid on an original return overpayment if the refund is issued within 45 days of the later of the return received date, the return due date (determined without regard to any extension of time for filing the return), or the date the return was received in processable form.

    2. If the 45-day interest-free period is missed, interest must be paid on the refund. Generally, interest is allowed from the availability date of the overpayment. The availability date of the overpayment is determined by the payment(s) and/or credit(s) of which it is comprised. See the table below for determining the availability date of a payment.

      If the Payment/Credit is a Then the availability date of the overpayment is the
      Prepaid or timely credit (e.g., estimated tax payment, withholding, or a payment before the due date (determined without regard to any extension of time for filing)) Due date of return (determined without regard to any extension of time for filing).
      Subsequent payment/credit made/dated on or after the due date (determined without regard to any extension of time for filing) Payment received date/credit date.
    3. Interest may be computed from other than the availability date of the overpayment when the original tax return was filed late or in unprocessable form. See the table below for determining which date to calculate interest from.

      If the return is Then allow interest from the later of
      Timely filed (i.e., return received by the original or extended due date) The return due date (determined without regard to any extension of time for filing), the date of the overpayment (as determined in the preceding table), or the return processable date (if the RPD is after the extension date).
      Late filed (i.e., return not received by the original or extended due date) The late return received date, the date of the overpayment (as determined in the preceding table), or the return processable date.
    4. Compute interest to the next working day. Print a copy of the interest computation.

  4. Use Form 5792, Request for IDRS Generated Refund (IGR), to request the refund. See IRM 21.4.4.4.1, Preparation of Form 5792, IDRS Generated Refund for instructions.

    Reminder:

    IAT tools are required to be used when generating a manual refund. See IRM 25.15.7.2.3 IAT Tools.

  5. Attach the following to Form 5792 before scanning:

    • Credit interest computation

    • IDRS CC TXMOD of joint or single module refund is being issued from

    • IDRS CC IMFOLI of both spouses

    • IDRS CC ENMOD of RS

    • Copy of Form 3465, Adjustment Request

  6. Input TC 971 AC 037 using IDRS CC REQ77 if the refund is being issued from a joint year. This will show the TIN of the recipient of the manual refund on the joint account. Use the IDRS CC RFUNDR input date as the Transaction Date. Enter the TIN of the person receiving the refund.

  7. If leaving an account in debit balance, TC 840 will set an -X freeze. To release the -X freeze, input TC 290 .00, with:

    1. BS 05

    2. RC 099

    3. SC 2

    4. HC 3

    5. PC 8

    6. PDC 1

    7. NSD Remarks: "To release -X freeze"

  8. Update IDRS activity to "WTG840" . Open a control base on the MFT 31 account where the TC 840 is. Use M status, activity code WT840, category code MISC, IDRS number 0297700840 and the current date as the received date.

  9. After completing Form 5792, the manager will review and sign it.

  10. After the manual refund packet is complete, pull up IDRS CC CMODE FR (Fresno) and input IDRS CC RFUNDR screen. Have the manual refund packet scanned as PDF file and e-mailed to your computer. Drop the PDF file to the M drive and Fresno will input IDRS CC REFAP for the pending TC 840 that same day. Monitor the TC 840 to be Pending (PN) the following day.

  11. Input IDRS CC CMODE CI to get back to Cincinnati Campus.

  12. Follow procedures in IRM 21.4.4.5.1Monitoring Manual Refunds, to monitor the manual refund.

  13. Continue to work case after TC 840 posts, or, if the only action requested was the manual refund, close the IDRS base. Attach Form 1725, Routing Slip, to a copy of Form 5792 and send them to the team where case is being worked to be associated with the case.

  14. For credit transfer(s) and/or manual refund(s) on NMF 20, obtain a NMF transcript from the campus maintaining the NMF 20 account.

    1. Complete Form 3870, Request for Adjustment. In the "Reason for Adjustment" section, indicate "Innocent Spouse Claim," please refund and state amount and date of payment. Also, request a copy of the NMF transcript be faxed to you when refund is completed.

    2. Send a copy of the signed, completed Form 3870 and a copy of the NMF transcript to the Cincinnati Campus.

    3. If a transcript is not received back within 4-6 weeks, call the campus and ask for a current transcript to be faxed to you.

    4. When received, verify either a TC 840 has posted to NMF 20 or the credit was transferred back to the MFT 30 account. If the credit was transferred back to the RS’s MFT 30 account, verify a TC 846 has posted from the MFT 30. If the credit is being held by a V- freeze, a manual refund will be required.

25.15.9.1.18  (07-17-2009)
Liability Application

  1. The Full Scope examiner must address reversed EITC on Form 3465, Adjustment Request, because an EITC reversal may be treated as a joint liability unless there is clear evidence only one spouse received the benefit of the credit.

  2. An offset to the tax or non-tax debt of one spouse will be considered a benefit to that spouse.

  3. The Processing Team examiners will compute penalties TC 16X, TC 27X, TC 17X based on the net tax liability of each spouse. Net tax liability is the total tax for each spouse, less the prepaid credits allocated to each spouse.

  4. Income related penalties TC 24X, and TC 32X must be addressed by the Full Scope examiner.

  5. Each taxpayer is responsible for any bad check penalties incurred separately.

  6. Installment Agreement (IA) user fees will not be refunded or reapplied to the tax liability unless they were the result of IRS error.

  7. Withholding credits TC 806 will be moved according to the instructions on Form 3465.

  8. Likewise, withholding credits TC 806 will not be left on MFT 30 if an overpayment will result. The entire account will be transferred to MFT 31 in this case.

25.15.9.1.19  (03-12-2013)
Form 12810 - Special Considerations

  1. Form 12810, Account Transfer Request Checklist, is used to request transfer of part or all of a tax assessment to MFT 31 or NMF 20.

    Note:

    Read the following for transfer restrictions and resolutions prior to completing Form 12810. It is not necessary to remove reversed transactions e.g., TC 582 reversed by a TC 583.

  2. The Credit and Account Transfer Unit cannot transfer a TC 896 through 899 (offset to non-tax debt). This is usually associated with the original settlement (TC 150 transactions). Do not transfer the TC 150 and related transactions. A NR TC 340 may be required if the purpose of the entire account being transferred was because of a refund/offset after the due date. If it is necessary to transfer the TC 150, see your manager.

  3. If transferring a TC 280 (bad check penalty) from the MFT 30 account, the related TC 670/671 causing the penalty must also be transferred.

  4. The Credit and Account Transfer Unit cannot transfer a TC 766 with an Offset Trace Number (OTN)-CD number. If it is necessary to transfer the TC 766 with an OTN-CD number, see the manager.

  5. Transfer any TC 960/961/962 Centralized Authorization File (CAF) indicator ONLY if they pertain to the NRS. Always verify on IDRS CC CFINK who the valid CAF indicator belongs to. These transactions along with the TC 460 will be listed on the "TO SIDE" only. DO NOT request input of TC 520/521 and closing codes (Bankruptcy transactions) pertaining to the RS. See IRM 25.15.9.1.9, Bankruptcy -V/-W Freeze, and follow the procedures referenced.

  6. If transferring a TC 740 credit (undeliverable refund) posted after a TC 300 or TC 290, transfer the entire account. You cannot transfer a one-sided TC 740. The TC 740 is a credit transaction following a TC 840/846 debit transaction. The only one-sided transactions you can transfer are TC 807 and TC 765. If there is a reason why you must not transfer the entire account, see your manager.

  7. If transferring an account with a TC 777 (reversal of allowable interest paid) posted with the TC 300 or TC 290, transfer the entire account. The TC 777 and TC 776 cannot be netted against each other. The TC 777 is a debit transaction now part of the balance due. Accounting cannot transfer just the TC 777 because it is a two-sided transaction (TC 776/777). If there is a reason why you must not transfer the entire account, see your manager.

  8. If a TC 840 has posted to the account as the result of a refund of various payments to the RS, be alert to the fact the computer will always presume the last payments posted before the TC 840 are the payments refunded. IDRS CC INTSTD will reflect this. The computer has no way of knowing the payments refunded may not be the last payments made. Therefore, if a NR TC 340 is required, and the payments refunded do not agree with IDRS CC INTSTD, you will need to manually compute the interest.

  9. If the NRS has a pending IA TC 971 AC 043 or has an IA TC 971 AC 063, it is necessary to manually input these transactions to MFT 31 account using IDRS CC REQ77. These protect the taxpayer from levy action. The taxpayer can also receive the benefit of a 1/4 percent rate on the FTP penalty. The original return must be filed timely (including extensions). If the taxpayer meets both of these requirements, he/she will receive the benefit of the 1/4 percent rate on the FTP penalty. If the NRS was taken out of the IA status, the account will reflect a TC 971 AC 163 on the MFT 30 account. Input this on the MFT 31 account.

  10. Invalid secondary TINs must be corrected before trying to post to MFT 31.

  11. If the taxpayer used an incorrect TIN (transposed numbers or typographical error) and through research the correct TIN is found, use IDRS CC ENMOD/ENREQ to correct the secondary TIN. After posting, the TIN will be validated and the account can be transferred to MFT 31.

  12. The TC 971 AC 065 will also need to be corrected. When the TIN is validated, input TC 972 AC 065 with the invalid X-REF TIN. Also input the correct TC 971 AC 065 with the valid XREF TIN.

  13. Typographical errors in the name control and/or use of a hyphenated last name can also be corrected using IDRS CC ENMOD/ENREQ to validate the secondary TIN as long as the IDRS CC INOLEX Social Security Administration (SSA) and Individual Master File (IMF) name controls match.

  14. Invalid secondary TINs due to name control mismatches can be validated using IDRS CC IRCHG. To use IRCHG:

    1. Input IDRS CC ENMOD on the primary taxpayer's TIN residing on the valid segment.

    2. Overlay with IDRS CC ENREQR to bring up IDRS CC IRCHG.

    3. Input Justification Indicator (JUST-IND) "1" YEAR-NM-LINE "19XX or 20XX" , SPOUSES-TIN (no asterisk), and REMARKS "to validate name of spouse" .

    4. This will generate a TC 017 on IDRS CC ENMOD. Monitor for the TC 017 to post. This will move the spouse's TIN from the invalid segment to the valid segment.

    5. TC 971 AC 102 can now be input to create a MFT 31 account for the secondary taxpayer.

  15. The only cases which must be transferred to NMF 20 are those where the secondary claimant is actually using a TIN belonging to another taxpayer. Do not validate the TIN in this situation.

  16. Prior to transferring an account to NMF 20:

    1. Print a copy of IDRS CC INTST computed to the 23C posting date.

    2. Using IDRS CC REQ54, post the accruals of Failure to Pay (FTP) penalty and interest to the MFT 30 account.

    3. Wait for the adjustment to post. Then continue with Form 12810 processing.

    4. Update IDRS control with the Form 8857 received date to 0297711105, Activity "WTG402" .

    5. Update ISTS to Stage 28.

    6. Document the history sheet with actions taken.

    7. Place original Form 12810 and highlighted IDRS CC TXMOD (if more than 10 transactions) in the Processing Team's designated area. Place a copy of Form 12810 and highlighted TXMOD in case file.

  17. If an account must be transferred to NMF 20, and it is necessary to transfer two or more tax assessments from the same module (TC 150, TC 290, TC 300 and their related transactions), prepare a separate Form 12810 for each tax assessment. NMF 20 accounts are set up to reflect only one collection statute per module. Be certain to indicate the correct CSED for each tax assessment.

  18. Invalid primary TINs will post to MFT 31.

  19. The following transactions will affect the processing of a claim. These indicate the NRS and/or RS have been relieved of all or part of the debt by Bankruptcy or OIC. The amount may subsequently be transferred to either taxpayer or the entire balance may be removed with a TC 604 (assessed debit cleared). You must ensure the actions taken by Compliance are in agreement with the innocent spouse determination. You may be required to post a TC 604 to the RS if the account has been transferred to MFT 31 for the RS or you may be able to close your case if the joint debt was written off. If you are uncertain of the correct action to take, see your manager.

    TC AC Explanation
    971 031 Full bankruptcy discharge
    971 032 Fully accepted OIC
    971 033 Partial bankruptcy abatement
    971 034 Partial OIC abatement
    971 100 Creates MFT 31 - Bankruptcy
    971 101 Creates MFT 31 - OIC
    971 102 Creates MFT 31 - Examination Tax Court
    971 103 Creates MFT 31 - Appeals Tax Court
  20. The Credit and Account Transfer Unit cannot transfer a TC 767 without the corresponding TC 766. If there is a reason why you cannot transfer both transactions, see your manager.

  21. The Credit and Account Transfer Unit can only transfer 50 transactions on Form 3413, Transcription List (Account Transfer In). If there are more than 50 transactions to be transferred, transfer enough payments to the MFT 31 so the number of transactions is less than 50. Use IDRS CC ADD/ADC34 with a "1" in the Credit Freeze Code field on the credit side of the transfer to keep the payments from refunding off the MFT 31. Print an entire IDRS CC INTSTD before you transfer the payments and keep in case file in case a NR TC 340 is required.

  22. A transfer of the entire account may be required if there is a reversal of penalties with the TC 290 or TC 300 and the reversal amount differs from the amount originally assessed with the TC 150 transaction.

    Example:

    A TC 276 for $105.00 and a TC 277 for $55.00

25.15.9.1.19.1  (08-19-2014)
Routing Form 12810 to Account Transfer Team

  1. Form 12810, Account Transfer Request Checklist, requesting transfer to MFT 31 are routed to:
    Cincinnati Accounting
    Stop 21

    The following information is required:

    • Completed Form 12810 with original signature

    • Current (highlighted, per agreement) IDRS CC TXMODA print of MFT 30

    • IDRS CC IMFOLT or TXMODA print of MFT 31

    • Interest and penalty computation, if needed

    • Add and highlight the following statement "Please post TC 402 to MFT 30 - Innocent Spouse Claim" in the remarks section of Form 12810

  2. Form 12810 requesting transfer to NMF 20 are routed to Stop 21.

    The following information is required:

    1. Completed Form 12810 with original signature. If less than 10 transactions are to be transferred, they must be listed on Form 12810. If 10 or more, highlight the transactions to be transferred on IDRS CC TXMODA. Include the business operation division (BOD) code from IDRS CC TXMODA and the appropriate CSED for the tax assessment being transferred. For NMF 20 CSED information, see IRM 25.15.9.1.19, Form 12810 — Special Considerations

    2. Add and highlight the following statement "Please post TC 402 to MFT 30 – Innocent Spouse Claim" in the remarks section of Form 12810

    3. Current print of IDRS CC TXMODA for MFT 30

    4. Interest and penalty computation, if needed

    5. Address of the NRS. (only if more current address is found in case file)


25.15.9.1.20  (08-19-2014)
Final Purge/Transfer Complete

  1. When the TC 400 and TC 402 have posted on the account, the case is ready for final purge. Cases are identified as ready to purge by a review of the team inventory reports.

  2. Closing tax examiners will do the following:

    1. Compare Form 12810 and MFT 31 to ensure all requested transactions were transferred.

    2. For fully allowed cases, the MFT 30 balance due must be zero. If there is a balance due or credit balance on MFT 30, give to Processing Team to resolve.

    3. On partially allowed cases, the MFT 30 may or may not have a balance due. As long as the Form 12810 and the MFT 31 agree, the case can be closed.

  3. Post the TC 290 (additional assessment) on the account where the balance due exists on MFT 31. This will be the primary TIN shown on the ISTSR Input Record. Multiple years may be contained in the case file.

    1. Follow instructions. See IRM 25.15.9.1.20, Final Purge/Transfer Complete, above to verify which years are ready to close.

    2. If all years are not ready to close, pull out the paperwork (prints, tax returns, etc.) for the years ready to close.

    3. All innocent spouse documentation (Form 8857, Request for Innocent Spouse Relief, work papers, history sheet, ISTSR Input Record, and correspondence) must be filed with the latest claim year. Attach the statement "Original Form 8857 and work papers are with the XXXX taxable year" to all years except the latest claim year. In the event the latest claim year is not the last year to close, also make a copy of the history sheet and ISTSR Input Record to file with latest year. Keep the original history sheet and ISTSR Input Record with the years not ready to close.

    4. Document the history sheet the innocent spouse "Documentation was filed with Tax Year XXXX" .

    5. Re-file the remaining years on the 0297711399/0297711105 wall.

    6. When each remaining year is ready to close, staple statement "Original Form 8857 and Workpapers Are With The XXXX Tax Year" .

    7. If closing all years, file the innocent spouse documentation with the latest year. Staple statement "Original Form 8857 and Workpapers Are With The XXXX Tax Year" to the front of each of the earlier claim years.

  4. On the NRS's MFT 31 module, input TC 290 .00, with:

    1. BS 00 (with original return), 05 (without original return), or 99 (if tax period is more than 10 years and the original return has been destroyed)

    2. SC 2

    3. RC 097 and/or 098

    4. HC 3

    5. SD Y with the remarks: "To file case"

    If the case file contains an Electronic Filing System (ELF) return, research IDRS CC TXMODA to determine if a previous adjustment was made to the account with a re-file blocking series. See Document 6209 for "Adjustment Blocking Series" . This can be verified by the controlling DLN on the second line of IDRS CC TXMODA. If the ELF return was renumbered with the controlling DLN, use blocking series 00. If not, use blocking series 05. Do not include Form 8453, U.S. Individual Income Tax Transmittal for an IRS e-file Return. Send this document back to Files.

  5. Input TC 972 AC 065 to reverse the L- freeze. When reversing TC 971 AC 065 use the same transaction date and X-REF TIN as the TC 971 AC 065 for all allowed and disallowed cases under IRC 66(c) cases. For partials and disallowed cases under IRC 6015(f), IRC 6015(b), and IRC 6015(c), the date must be 90 days from the mailing date of the Final Determination Letter plus 60 days if no Tax Court petition was filed, the date the IRS receives a signed Form 870-ISWaiver of Collection Restrictions in Innocent Spouse Cases, plus 60 days or the date the Tax Court decision becomes final plus 60 days if a petition was filed. Do not reverse a TC 971 AC 065 pertaining to a claim filed by the NRS. Both spouses may have filed claims for the same tax period. For additional information on TC 971 AC 065, see IRM 25.15.2.4.2, Innocent Spouse Indicator Transaction Code (TC) 971/972.

  6. Research to determine if the TC 130 is still needed on the account. See IRM 25.15.9.1.5.1, Denied under IRC 6015(b), (c), or (f) for additional information. Do not remove if there are other innocent spouse years still open. Check ISTS to ensure all innocent spouse years are in Stage 30. Do not remove TC 130 if input by another campus unless the DLN of the TC 971 AC 065 and the TC 130 are for the same center and posting cycle of the TC 130 is one cycle later than the posting cycle of the 971 AC 065. If appropriate, input TC 131 using IDRS CC REQ77.

    Note:

    If the RS is the primary taxpayer, the TC 130 will be posted to the secondary taxpayer’s Entity module.

  7. Update IDRS CC ISTS to Stage 30, Activity "NOACCTP" . Document the history sheet with actions taken.

  8. Update history sheet with actions taken.

  9. Close IDRS control base.

  10. Assemble the case and send to Files. See IRM 25.15.9.1.22, Case File Assembly.

25.15.9.1.21  (07-17-2009)
Problems Posting for an Additional Tax Assessment (TC 290)

  1. A TC 290 will not post in the following instances:

    • The module has dropped to retention.

    • The module is on the vestigial file.

    • No return was filed for the period.

  2. If the conditions above exist, close ISTS in the appropriate manner and include a history "NO POST FILE" .

  3. Send the case file to the appropriate Innocent Spouse team. This team maintains a database for these cases. The cases are retained for 2 years and a yearly purge occurs each October 1st.

  4. If a taxpayer files a claim where no joint return exists (other than IRC 66 cases covered in IRM 25.15.5, Relief from Community Property Laws/Community Property States), post the TC 290 to the year listed on the claim.

    Example:

    A taxpayer’s single 2008 overpayment is offset to a joint liability for 2006. The taxpayer files Form 8857, Request for Innocent Spouse Relief, requesting relief for tax year 2008. The claim will be disallowed for filing status. Post the TC 290 to tax year 2008.

  5. If the original return and the processing tax year is more than 10 years earlier, use blocking series 99 when inputting TC 290 .00.

25.15.9.1.22  (09-11-2009)
Case File Assembly

  1. When forwarding the case to Files, assemble it in the following manner:

    1. Form 11272, Associable IDRS Input Document Label

    2. If not mirrored, controlling DLN document

    3. If mirrored, refile all previous adjustment documents including original return. Do not staple the original return to your case file.

    4. Form 8857, Request for Innocent Spouse Relief, with original correspondence or statement "Original Form 8857 and Workpapers Are With The XXXX Tax Year" if needed

    5. ISTSR Input Record

    6. History Sheet

    7. Account Management Services (AMS) Workpapers

    8. Other documentation, e.g., research papers (including all IRPTRL prints), divorce decrees, questionnaires, Form 12508, Innocent Spouse Information Request, AMS printouts, allocation worksheets, phone logs, Form 3465, Adjustment Request.

      Note:

      Do not include any Form 8453, U.S. Individual Income Tax Transmittal for an IRS e-file Return. These documents must be filed separately.

      Exception:

      If the RS claims forgery, include a copy of Form 8453 in case file.

      Note:

      If IRS employee, leave the case in the white folder and place in a security envelope. Write in red "Employee Case" on the envelope. Seal envelope. Place the envelope in the folder for files with the other closures for that day.

25.15.9.1.23  (03-12-2013)
Rejecting Cases

  1. Complete Reject Sheet with date, Full Scope examiner's name, team number and reason for rejection.

  2. Document the history sheet.

  3. Re-control IDRS to the examiner's team number and update activity to BACK2U10X, keeping the original received date.

  4. Change Stage 27 on ISTS to appropriate team number in the Unit field and enter "Back to XXX" in comment field.

  5. Attach reject sheet to the designated colored folder and place in the designated area.

25.15.9.1.24  (03-12-2013)
Disaster Freeze -O

  1. Verify that AMS has been updated to document a telephone call to the taxpayer that has the –O Freeze (Requesting and/or Non-Requesting) determining whether or not they are actually in a disaster zone. If the taxpayer is in a disaster zone continue with the following instructions. If the taxpayer states that they are not in a disaster zone, follow normal processing procedures.

  2. Update ISTSR to Stage 06 and the activity as “OTHER”. Update the comment field with “-0 Freeze” with RS, NRS, or Both as appropriate.

  3. Update TXMOD with an activity of “-O Freeze” and control it to (0297X00000), the financial technician that made the determination.

  4. Return case to lead of team for the financial technician that made the determination.

25.15.9.2  (03-12-2013)
Overview: Accounts Processing of Innocent Spouse Cases for Area Offices

  1. Refer to IRM 4.8.5, Post Examination Case Processing Requirements.


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