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Part 3. Submission Processing

Chapter 11. Returns and Documents Analysis

Section 3. Individual Income Tax Returns

3.11.3  Individual Income Tax Returns

All Official Use Only content has been replaced with ≡.

3.11.3.1  (01-01-2008)
Introduction

  1. This section of the Internal Revenue Manual (IRM) provides instructions for coding and editing individual income tax returns for computer processing. Special codes are entered into the computer to perform specific functions. Editing is necessary because many returns are incomplete, contain invalid or misplaced entries or are computed incorrectly. When processing Forms 1040, supporting forms and schedules must be in order by form sequence code. This requirement is not applicable when processing Forms 1040A or Forms 1040EZ.

  2. Instructions in this manual are for Forms 1040, 1040A, and 1040EZ (1040/A/EZ).

  3. A Coding and Editing Job Aid was developed as a reference guide for this manual. This manual refers the tax examiner to clarifying information or exhibits in the Job Aid, where appropriate. When a conflict between any referenced material and the IRM instructions occur, the IRM instructions take precedence.

3.11.3.2  (01-01-2008)
General Guidelines

  1. Instructions in this manual are for a typical return. Apply the instructions as far as possible when a situation is not explained.

  2. Take no action when there is not a specific instruction for a situation.

  3. Refer conflicts between general and specific instructions, unusual situations, and complex cases to your work leader.

  4. Any line in this manual which is marked with a "#" is for official use only and must not be disclosed.

  5. The general guidelines described in more detail in this subsection of the manual are:

    • Programs worked in Code & Edit

    • Identifying "numbered" and "unnumbered" returns

    • Routing completed work

3.11.3.2.1  (01-01-2008)
Programs Worked

  1. Code & Edit works the Form 1040/A/EZ programs listed below:

    Program Code Description
    4311X Other-than-full-paid Forms 1040
    4321X Full-paid Forms 1040
    4411X Other-than-full-paid Forms 1040A
    4412X Full-paid Forms 1040A
    4713X Other-than-full-paid Forms 1040EZ
    4714X Full-paid Forms 1040EZ

3.11.3.2.2  (01-01-2008)
Identifying "Numbered" and "Unnumbered" Returns

  1. A "numbered" return has a fourteen-digit Document Locator Number (DLN) imprinted in the top right margin. Do not remove a numbered return from the block.

  2. An "unnumbered" return has no DLN. These documents are numbered after coding and editing. Unnumbered returns may be removed from the block, as instructed.

3.11.3.2.2.1  (01-01-2008)
Document Locator Number (DLN)

  1. DLNs are unique numbers assigned to every return processed by the Automatic Data Processing (ADP) Systems. The DLN is used to control, identify, and locate the document.

3.11.3.2.2.1.1  (01-01-2008)
Julian Date

  1. A Julian date is the numeric day of the year. For example, April 15, 2008, is Julian date 106, the 106th day of 2008.

    1. The sixth, seventh, and eighth digits in the DLN make up the Julian date.

3.11.3.2.2.1.2  (01-01-2008)
Sequence Number

  1. The twelfth and thirteenth digits of the DLN are the sequence number.

    1. Returns in a block are numbered from "00" to "99" . The maximum number of returns in a numbered block is 100.

    2. Numbered returns in a block must be kept in sequence number order.

3.11.3.2.3  (01-01-2008)
Routing Completed Work

  1. After coding and editing:

    If the returns are Then
    Numbered and blocked, Send them to be transcribed.
    Unnumbered and not blocked, Send them to be numbered and blocked.

3.11.3.3  (01-01-2008)
General Instructions

  1. The general instructions for all Form 1040-series returns are provided here. The general instructions in this section include:

    • Perfecting transcription lines

    • Putting forms and schedules in transcription sequence

    • Preparing Forms 3471– Edit Sheet and 4227– Intra-SC Reject or Routing Slip

    • Editing "Action Trails"

    • Handling attachments to returns

    • Editing special processing and unallowable codes

    • Identifying unprocessable and uncomputed returns

3.11.3.3.1  (01-01-2008)
Computer Assisted Pipeline Review (CAPR)

  1. CAPR is the computer-based system for tracking the causes of errors on returns processed to the Error Resolution System (ERS).

3.11.3.3.2  (01-01-2008)
Stamping Tax Examiner (TE) Numbers

  1. Every Code & Edit Tax Examiner (TE) is assigned a unique, 3-digit TE Number.

  2. Stamp your TE number in the upper left-hand corner of the document. All returns must be stamped with your TE number.

    Exception:

    It is only necessary to stamp the first document when working numbered returns.

  3. Line through the TE number when corresponding and the return is going to be sent to the taxpayer.

  4. Line through the old TE number and stamp the document with your TE number when working returns which were TE stamped before (e.g., misblocked, converted or correspondence returns).

3.11.3.3.3  (01-01-2008)
Transcription Lines (T–Lines) and Transcription Compute Lines (T–COMPUTE Lines)

  1. Not all entries on forms and schedules are entered into the computer during processing. Only the information from transcription lines (T–lines) or computed transcription lines (T–COMPUTE lines) is entered into the computer after coding and editing.

  2. T–lines and T–COMPUTE lines are listed in this manual in the overview information for each form or schedule. The edited locations of all T–lines and T–COMPUTE lines are illustrated in the Job Aid.

  3. Always compute and enter a T-COMPUTE line when it is blank and there are entries leading to a total. Compute and enter a T-COMPUTE line that is not blank only when required to do so in the line-by-line instructions.

    Note:

    Use the tax form instructions when computing T-COMPUTE line totals unless other directions are provided in the line-by-line instructions.

  4. Enter T–line and T–COMPUTE line amounts when they are illegible, obviously misplaced, or when instructed to do so in the line-by-line instructions. Correct the entry by referring to other schedules, attachments, or entries on the return only when directed.

  5. Delete an entry on a transcribed line when the meaning of the line has been changed, unless otherwise instructed. (See Figure 3.11.3-1a). Also, edit an obviously misplaced amount to the correct T-line or T-COMPUTE line when appropriate. (See Figure 3.11.3–1b.)

  6. Use attachments to prepare "dummy" forms or schedules when they are required to support entries on transcribed lines.

  7. Edit the combined total of the amounts when a T–line or T–COMPUTE line has multiple entries. (See Figure 3.11.3–2.)

  8. DO NOT MATH VERIFY the transcribed lines on forms or schedules unless specifically directed to do so in the line-by-line instructions.

    Figure 3.11.3-1
    This image is too large to be displayed in the current screen. Please click the link to view the image.

    Figure 3.11.3-2
    This image is too large to be displayed in the current screen. Please click the link to view the image.

3.11.3.3.4  (01-01-2008)
Sequence of Transcribed Schedules and Forms

  1. Organize the Form 1040 return and its transcribed schedules and forms according to sequence code. Sequence Codes are preprinted numbers, usually present in the upper right margin. See the table at the end of this subsection for a list of the Sequence Codes of all transcribed schedules and forms. Any document not on the list is not a transcribed form or schedule and should be deleted or moved. Also delete any form that shares a sequence number with a transcribed form. Examples include, but are not limited to, Forms 3468 (Seq. 52), Forms 3903 (Seq. 62), and Forms 2106 (Seq. 54).

    Note:

    "X" a transcribed schedule or form if it is blank or has no significant T–line entries, unless specifically instructed otherwise.

  2. Leave Forms W–2 and 1099, Form 1040V, taxpayer statements, deposit slips, small forms, and other items where found when they do not obstruct T–lines or any part of the caption area.

  3. Delete or move any document which will not be transcribed. Documents which are not transcribed may be in any order behind the last transcribed page.

    Form 1040
    Transcribed Form or Schedule Sequence Code
    Schedule A 07
    Schedule B 08
    Schedule C / C-EZ 09, 10, 11
    Schedule D 12
    Schedule E 13
    Schedule F 14,15
    Schedule R 16
    Schedule SE 17, 18
    Form 1116 19
    Schedule J 20
    Form 2441 21
    Form 3800 22
    Form 4136 23
    Form 4137 24, 25
    Form 4684 26
    Form 4797 27
    Form 4972 28
    Form 5329 29, 30
    Form 6198 31
    Form 6251 32
    Form 8615 33
    Form 4835 37
    Form 8839 38
    Form 8853 39
    Form 8814 40, 41, 42
    Schedule EIC 43
    Schedule H 44, 45
    Form 8812 47
    Form 8606 48, 49
    Form 8863 50
    Form 4952 51
    Form 8889 52, 53
    Form 8880 54
    Form 8888 56
    Form 8917 60
    Form 8919 61, 62
    Note: Sequence numbers 57, 58 and 59 are intentionally omitted from this list.

    Form 1040A
    Transcribed Form or Schedule Sequence Code
    Schedule 1 N/A
    Schedule 2 N/A
    Schedule 3 N/A
    Form 8615 33
    Schedule EIC 43
    Form 8812 47
    Form 8606 48, 49
    Form 8863 50
    Form 8880 54
    Form 8888 56
    Form 8917 60

    Note:

    Sequencing of supporting forms and schedules is not required when processing Form 1040A..

  4. Form 8888 is the only valid attachment for Form 1040EZ.

3.11.3.3.5  (01-01-2008)
Forms 3471 and 4227, Internal-Use Forms

  1. Two general internal-use forms are used in Code & Edit. They are:

    • Form 3471—Edit Sheet

    • Form 4227—Intra–SC Reject/Routing Slip

  2. The conditions requiring these forms are found in the line-by-line instructions.

3.11.3.3.5.1  (01-01-2008)
Form 3471—Edit Sheet

  1. Edit money amounts on Form 3471 in dollars and cents for all form types (1040/A/EZ).

  2. Position the Form 3471 on the left side of page 1, Form 1040/A/EZ, even though it has a Sequence Code of "02" . Staple Form 3471 to the first page margin of:

    1. Forms 1040/A, just below the filing status area.

    2. Form 1040EZ, just below the Presidential Election Campaign Fund (PECF) area.

  3. Enter line 4, Return Processable Date (RPD), in "MMDDYY" format. An entry is required when a complete reply to correspondence is received after the due date for a return. See the instructions for general response procedures in IRM 3.11.3.6.3 for additional information.

3.11.3.3.5.1.1  (01-01-2008)
Unallowables

  1. Edit Form 3471, lines 1, 2, and 3—Unallowable Items—as follows:

    1. Enter all codes in the order the unallowables are found.

    2. Edit the first two unallowables on lines 1 and 2 when there are more than three and enter Unallowable Code "98" on line 3 with no money amount. Enter the remaining Unallowable Codes and amounts in the "Processing Memo" space.

    Note:

    Refer to the instructions on Unallowable Codes in IRM 3.11.3.3.9 for more information.

3.11.3.3.5.1.2  (01-01-2008)
Late Filing/Late Payment Penalties and Interest

  1. Returns may be received from Examination or Collection with penalty and interest amounts entered. These amounts will usually be present on Form 4364, Delinquency Computations.

    Note:

    Use the instructions in IRM 3.11.3.14.8.5 when penalty and interest amounts are entered by the taxpayer.

  2. Enter a "1" on line 6, Late Filing Code, when Failure to File (FTF) or Failure to Pay (FTP) penalties or interest have been entered on a full- or part-paid return and≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. Enter an amount on line 7, Pre-Delinquent Penalty (Late Filing Penalty), when both of the following apply:

    1. The return has a received date ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. There is a notation that this penalty is to be applied.

3.11.3.3.5.1.3  (01-01-2008)
Identification Number Penalty

  1. Enter an amount on line 11, Identification Number Penalty, when there is a notation on the return that this penalty is to be assessed and an amount is present.

    Note:

    Examination or Collection will indicate when this penalty is to be assessed.

3.11.3.3.5.2  (01-01-2008)
Form 4227—Intra–SC Reject/Routing Form

  1. Some returns need research, referral, or action before they can be processed. Form 4227 is often used to identify these special conditions and initiate actions.

  2. Take the following actions when a numbered return needs research, referral, or action before further processing:

    1. Edit the appropriate Action Code.

    2. Prepare Form 4227 and note the reason for rejection.

    3. Leave the return in the block.

  3. Prepare Form 4227 when an unnumbered return/document is withdrawn from processing, and:

    If the return/document is Then
    Leaving the campus, Pull the document for routing to Receipt and Control for shipment.
    Not leaving the campus, Pull the document for routing to the appropriate function.

3.11.3.3.6  (01-01-2008)
Action Trails

  1. An "Action Trail" is written on a return/document as a record of actions taken.

  2. Always leave an Action Trail when Computer Condition Code "Y" is edited. Give the reason for the "Y" code in the Action Trail.

  3. Edit an Action Trail when a return/document is detached. For example, notations such as "detached 1040X" or "detached taxpayer correspondence" must be made.

  4. The Action Trail is written on Forms 1040/A/EZ in the lower-left margin of page 1. Refer to the Job Aid for an illustration of the editing location.

3.11.3.3.7  (01-01-2008)
Attachments to Return

  1. Examine all attachments to the return. Leave the attachments with the return unless specifically instructed otherwise. Refer to the Attachment Guide in Exhibit 3.11.3–1 for specific attachment-by-attachment instructions. Research either an attachment or a notation on the return, as appropriate.

  2. Immediately take any discovered remittance to the work leader. (Work leader shall refer to IRM 3.8.46, Discovered Remittance and IRM 3.0.273, Administrative Reference Guide).

  3. Take either of the following actions when there is a notation on the return that indicates it needs to be routed elsewhere:

    1. Edit the information on a blank piece of paper.

    2. Photocopy the notation.

  4. Generally, all taxpayer-initiated correspondence must be responded to within 30 days.

    1. Detach and route all correspondence addressing an issue not directly related to the processing of the return.

      Note:

      Examples include, "I didn't receive my refund last year" , or "I need a payment plan" , etc.

    2. Do not detach correspondence attached to an original return which asks a question or raises an issue about the processing of the return or if the correspondence contains only a general comment submitted with a payment.

      Note:

      Examples include, "Here is my payment" , "I will pay you in two months" , or "Apply my refund to the amount that I owe from last year" , etc.

  5. Route to Examination any taxpayer-initiated correspondence related to Earned Income Credit fraud. Use Form 4227 and notate "EIC fraud informant" . Correspondence that must be routed to Examination will state the following:

    1. The taxpayer was unable to file electronically because another taxpayer had already filed and claimed the same qualifying exemption(s), and/or

    2. The name and/or Social Security Number of the other taxpayer involved.

  6. When a taxpayer submits a credit card and/or credit card number, immediately take the return and all attachments to your work leader. The work leader will:

    1. Edit Action Code "460" and continue to process the return.

    2. Return the credit card to the taxpayer via express mail with an accompanying letter of explanation.

    3. Sanitize any credit card information on the return and send a letter of explanation to the taxpayer via first class mail.

    Note:

    Alert your work leader of the need to notify the taxpayer and the work leader will ensure that the appropriate letter is prepared and sent. DO NOT take returns to your work leader when it can be determined that the number written on the return is the credit card payment confirmation number (not the actual credit card number). The confirmation number will be in the top-left margin of the front page of the return. These returns must be batched as remittance returns so that they will receive the remittance indicator. If the return is received with a credit card confirmation number and No amount is indicated, or the amount does not match the balance due line on the return, batch as "Part Paid" .

3.11.3.3.7.1  (01-01-2008)
Detached Documents

  1. Always leave an Action Trail on the return when an attachment is removed. For example, when a form or letter is detached from a return, notations such as "detached 1040X" or "detached TP correspondence" must be made.

  2. An Action Trail must also be written on the detached document. If present on the return, all of the following must be present or edited on all detached items:

    • Current date if before ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , otherwise use the received date in "MMDDYY" format.

    • Tax period in "YYMM" format.

    • Form from which detached.

    • Taxpayer's name(s).

    • Primary/secondary taxpayer's identification number(s).

    • Taxpayer's address.

  3. Route detached items using Form 4227.

3.11.3.3.8  (01-01-2008)
Processing Codes

  1. Certain conditions require the editing of processing codes. There are five types of processing codes. They are:

    • Computer Condition Code (CCC)

    • Return Processing Code (RPC)

    • Action Code

    • Audit Code

    • Special Processing Code

  2. Processing codes may be either letters or numbers. Use CAPITAL BLOCK LETTERS when editing codes which are letters. Write the codes legibly.

  3. The edited location of most of these codes varies by return type.

  4. Refer to the Job Aid for an illustration of the editing locations of processing codes.

  5. The conditions for editing processing codes can be found in the line-by-line instructions.

3.11.3.3.8.1  (01-01-2008)
Computer Condition Code (CCC)

  1. A CCC is used to identify a special condition or computation. CCCs post to the Master File.

  2. When CCC "3" is edited, it MUST be first.

  3. Always edit an Action Trail when CCC "Y" is edited.

  4. Edit the CCC (horizontally) in the following location on:

    1. Forms 1040/A—in the upper center portion of the filing status area.

    2. Form 1040EZ—above the dotted line of the PECF area.

  5. Refer to the table in Exhibit 3.11.3–2 for conditions for editing CCCs and an explanation of each CCC action.

3.11.3.3.8.2  (01-01-2008)
Return Processing Code (RPC)

  1. An RPC is used to identify a special condition or computation for the computer. An RPC does not post to the Master File.

  2. Edit the RPC vertically in the margin on:

    1. Form 1040 to the right of line 22

    2. Form 1040A to the right of line 15

    3. Form 1040EZ to the right of line 10

  3. Refer to the table in Exhibit 3.11.3–3 for conditions for editing each RPC and an explanation of each RPC action.

3.11.3.3.8.3  (01-01-2008)
Action Code

  1. An Action Code is used to reject a document and identify the reason for rejection.

  2. Assign only one Action Code to a document. Edit Action Codes in the following priority:

    1. "310"

    2. "4XX"

    3. "6XX"

    4. "2XX"

    5. "3XX"

  3. Continue perfecting returns assigned any Action Code except "6XX" . Edit only the caption area when an Action Code of "6XX" is edited.

  4. Edit the Action Code in the center of the bottom margin on page 1 of Forms 1040/A/EZ.

  5. Refer to the table in Exhibit 3.11.3–4 for an explanation of each Action Code.

3.11.3.3.8.4  (01-01-2008)
Audit Code

  1. Audit Codes identify questionable conditions for Examination.

  2. These codes are edited horizontally in the right-bottom margin of page 1 on Forms 1040/A/EZ.

  3. Refer to the table in Exhibit 3.11.3–5 for the explanation of each Audit Code.

3.11.3.3.9  (01-01-2008)
Unallowable Code

  1. Certain conditions on a tax return are unallowable by law. Search all attachments to find unallowable items.

  2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Exception:

    The ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. Do not code unallowables when the only dollar amount is a total of allowable and unallowable items. There must be separate dollar figures for unallowable coding, unless otherwise instructed.

  4. Prepare Form 3471 when coding unallowables. Enter amounts on Form 3471 in dollars and cents.

  5. Pull unnumbered returns from the block for post-edit review. Leave numbered returns with the block for review. Use local procedures for flagging these returns for review.

  6. The unallowable conditions are described in the specific line-by-line instructions and in the table in Exhibit 3.11.3–6.

3.11.3.3.9.1  (01-01-2008)
Special Processing Code

  1. Special Processing Codes are edited on Form 3471 to the right of the form title.

  2. Conditions for editing Special Processing Codes are described in the specific line-by-line instructions and in the table in Exhibit 3.11.3-7.

3.11.3.3.9.2  (01-01-2008)
Post-Editing Unallowable Review

  1. Review all returns with edited unallowables.

  2. Review each return closely for additional unallowables or frivolous conditions. Correct any unallowables which have been improperly coded.

3.11.3.3.10  (01-01-2008)
Unprocessable Return

  1. A return is unprocessable when all of the entity data is missing or illegible and the entity cannot be perfected from attachments or through research.

  2. Handle unprocessable returns as follows:

    If the return is Then
    Numbered, 1. Edit Action Code "640" .
    2. Prepare Form 4227 instructing the Reject Unit to void the DLN and dispose of the return.
    Unnumbered, Give the return to your work leader. The work leader will refer to IRM 3.11.3.7.2.3 and IRM 3.0.273, Administrative Reference Guide for instructions on proper disposal.

3.11.3.3.11  (01-01-2008)
Uncomputed Return

  1. An uncomputed return is one filed by a taxpayer expecting the IRS to figure his/her tax. Do not confuse an uncomputed return with a return that has no tax due.

  2. An uncomputed return can be identified as follows:

    1. Form 1040 has no entries on lines 44, 45, 46, 57, 63, 73, 74a, 75 and 76 (See Figure 3.11.3–3).

    2. Form 1040A has no entries on lines 28, 35, 37, 42, 44a, 45 and 46.

    3. Form 1040EZ has no entries on lines 10, 11a, and 12.

  3. An unnumbered, uncomputed return can be sent back to the taxpayer when corresponding.

    Note:

    When the return is with remit, do not mail it back to the taxpayer. Use the correspondence procedures for a return that is not sent back to the taxpayer.

  4. Edit CCC "Y" —and enter an Action Trail—on an uncomputed return when both of the following conditions are present:

    1. Separate income amounts are shown for the husband and wife on a joint return, and

    2. No exemptions are claimed in positions 2 through 7, or an allocation of exemptions is indicated.

      Example:

      The taxpayer notes "My wife has the exemptions for our two children" .

    Figure 3.11.3-3
    This image is too large to be displayed in the current screen. Please click the link to view the image.

3.11.3.4  (01-01-2008)
Editing

  1. Editing is done to prepare returns and attachments for transcription an