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Part 3. Submission Processing

Chapter 11. Returns and Documents Analysis

Section 14. Income Tax Returns for Estates and Trusts (Forms 1041, 1041-QFT, and 1041-N)

3.11.14  Income Tax Returns for Estates and Trusts (Forms 1041, 1041-QFT, and 1041-N)

All Official Use Only content has been replaced with ≡.

3.11.14.1  (01-01-2008)
Overview/Purpose

  1. IRM 3.11.14 provides Code & Edit procedures for Form 1041 (U.S. Income Tax Return for Estates and Trusts) and related Schedules and Forms. This IRM also includes instructions for processing Form 1041-QFT (U.S. Income Tax Return for Qualified Funeral Trusts) and Form 1041–N (U.S. Income Tax Return for Electing Alaska Native Settlement Trusts (ANST)).

  2. Form 1041 is used by a fiduciary of a domestic estate, trust, or bankruptcy estate to report the following:

    • Income received by the estate or trust.

    • Income that is either accumulated or held for future distribution or distributed currently to the beneficiaries.

  3. Form 1041-QFT was added to the Internal Revenue Code by the Taxpayer Relief Act of 1997 to permit certain trusts which previously filed Forms 1041 as Grantor Trusts to elect Qualified Funeral Trust status. All Domestic Forms 1041-QFT will be processed at the Cincinnati Submission Processing Center (CSPC). All International Forms 1041-QFT will be processed at the Ogden Submission Processing Center (OSPC).

    If ... Then ...
    An original Domestic Form 1041-QFT is received at any Submission Processing site other than CSPC

    Exception:

    Domestic Forms 1041-QFT that are erroneously sent to Ogden will be processed in Ogden.

    1. Detach and forward to the following address:
       
      Internal Revenue Service
      Cincinnati Submission Processing Center
      Cincinnati, OH 45999

    An original International Form 1041-QFT is received at any Submission Processing site other than OSPC

    1. Detach and forward to the following address:
       
      Internal Revenue Service
      1973 North Rulon White Blvd
      Mail Stop 4091
      Ogden, UT 84404

    2. Prepare Letter 86C to inform the taxpayer that the return was sent to OSPC.

    Caution:

    Prior to shipping Forms 1041-QFT to CSPC or OSPC, ensure that the Received Date is edited to the return.

    1. For detailed instructions for processing Form 1041-QFT, See IRM 3.11.14.45.

  4. Form 1041-N was added by IRC Section 671 of the Economic Growth and Tax Relief Reconciliation Act of 2001. All Domestic Forms 1041-N will be processed at the Ogden Submission Processing Center (OSPC). All International Forms 1041-N will be processed at the Ogden Submission Processing Center (OSPC).

    If ... Then ...
    An original Domestic Form 1041-N is received at any Submission Processing site other than OSPC

    1. Detach and forward to the following address:
       
      Internal Revenue Service
      Ogden Submission Processing Center
      Ogden, UT 84201

    An original International Form 1041-N is received at any Submission Processing site other than OSPC

    1. Detach and forward to the following address:
       
      Internal Revenue Service
      1973 North Rulon White Blvd
      Mail Stop 4091
      Ogden, UT 84404

    2. Prepare an Form 86C Letter to inform the taxpayer that the return was sent to OSPC.

    Caution:

    Prior to shipping Forms 1041-N to OSPC, ensure that the Received Date is edited to the return.

    1. For detailed instructions for processing Form 1041-N, See IRM 3.11.14.46.

  5. The Return Due Date for Forms 1041, 1041-QFT, and 1041-N is the fifteenth day of the fourth month after the Tax Period Ending (April 15 for calendar year returns).

  6. Forms 1041, 1041-QFT and 1041-N will be processed as a "Non-Remittance" return.

    Caution:

    These forms will no longer have the payment amount "green rockered" on it. The payments will be processed with a separate DLN with Doc Code 17, 19, 70, or 76 and assigned a Trace ID and Transaction Sequence Number. These numbers will be posted to master file.

3.11.14.2  (01-01-2008)
Definitions

  1. General Definitions:

    • Fiduciary – Trustee of a trust; or executor, executrix, administrator, administratrix, personal representative, or person in possession of property of a decedent's estate.

    • Beneficiary – A person designated as the recipient of funds or other property under a trust or an estate.

    • Corpus – The principal sum or capital of a trust or an estate, as distinguished from interest or income.

    • Maker, Grantor, etc. – The person/organization to the extent such person /organization either creates a trust, or directly or indirectly makes a gratuitous transfer to the trust.

  2. Trusts – A legal entity created under State law and taxed under federal law. The trust can be created either under a will or inter vivos action.

    • Simple Trust – When the trust instrument requires that all income be distributed currently, with no authority to make charitable contributions or distribute amounts allocated to the corpus of the trust.

      Note:

      A trust is a Simple Trust only for the year in which it distributes income and makes no other distributions to beneficiaries. For a year when the trust does not meet these requirements, it is a "Complex Trust" .

    • Complex Trust – A trust which, for the taxable year, does not qualify as a "Simple Trust" .

    • Grantor Trust – A trust in which the grantor retains certain powers of ownership or benefits. In general, a grantor trust is ignored for tax purposes and all income, deductions, etc. from the trust is taxable Income of the grantor.

      Type of Trust Reporting Instructions
      Grantor Trusts (Non-Taxable) Report Income, Deductions, and Credits on Form 1040.
      Grantor Trusts (Partially Taxable) Report Income, Deductions, and Credits on Form 1041.

    • Inter Vivos Trust – Established by a grantor during the grantor's lifetime.

    • Revocable Trust – The grantor or a non-adverse party has power to revoke the trust. The grantor of the trust will pay the taxes of the trust on their Form 1040 return. The trustee will file Form 1041 return for "Information Only" purposes, unless they select an optional filing method.

    • Irrevocable Trust – The grantor or non-adverse party does not have power to revoke the trust. The trust will pay all taxes unless the grantor retains other powers of ownership or benefit. The trust cannot be revoked or amended.

    • Testamentary Trust – Set forth or contained in a Will or a formal declaration of a person's wishes as to the disposition of the property after their death. A paper, instrument, document, gift, appointment, etc., is said to be "Testamentary" when it is written or made so as not to take effect until after the death of the person making it, and to be revocable and retain the property under their control during their life, although they may have believed that it would operate as an instrument of a different character.

    • Trust Under the Will – The same as a "Testamentary Trust" .

    • Residual Trust – Established under the terms of the will to receive that part of an estate that remains after the payment of all debts, charges, devises, and specific and pecuniary bequests.

    • Conservatorship – A trust (not an estate) which is usually set up for an incompetent person. (Not necessarily a trust for tax purposes)

    • Guardianship/Custodianship – A trust usually set up for a minor. (Not necessarily a trust for tax purposes)

    • Ancillary and Domiciliary Trust – A trust which exists in a "foreign" state because the grantor is domiciled (resides) in another state.

    • Qualified/Pre-Need Funeral Trust – A trust which has elected to be taxed as a qualified funeral trust. Normally, one Form 1041-QFT will be filed in lieu of one or more Forms 1041. "However" , if Form 1041 is received with the notation "QUALIFIED FUNERAL TRUST" , "PRE-NEED FUNERAL TRUST" , etc., process as a Form 1041 filed for a Grantor Trust.

    • Generation Skipping Trust – A trust with beneficiaries who are more than one generation younger than the grantor's generation.

    • Pooled Income Fund – A fund maintained by a public charity which provides contributors to the fund with an income interest for life with remainder to the public charity.

    • Clifford Trust – A Grantor Trust where the assets are placed in a trust but there is still some ownership Taxable to the grantor.

    • Non-Explicit Trust – An arrangement that has substantially the same effect as a trust will be treated as a trust even though it is not an explicit trust. Examples of such arrangements are insurance and annuity contracts, arrangements involving life estates and remainders. Non-Explicit Trusts do not include Decedent's Estate.

    • QTIP Trust – A trust established, whether during life or at death, for the benefit of the grantor's or decedent's spouse that qualifies for the gift or estate tax marital deduction as qualified terminable interest property as qualifiable terminable interest property described in IRC 2523(f) (gift tax) or IRC 2056(b)(7) (estate tax).

  3. Estates – A legal entity created as the result of a person's death. The estate consists of the real and/or personal property of the deceased person. The estate pays any debts owed by the decedent and then distributes the balance of the estate's assets to the beneficiaries of the estate.

    • Ancillary and Domiciliary Estate – An estate which exists in a "foreign" state because the taxpayer was domiciled (resided) in another state at the time of death.

    • Probate Estate – The same as an Estate Entity. Probating an estate in court is done to establish that the Will is authentic or valid.

    • Bankruptcy Estate – A separate and distinct taxable entity from the individual debtor. Created when an individual debtor files for bankruptcy under Chapter 7 or 11. This creates a separate "estate" consisting of property that belongs to the debtor prior to the filing date.

    • Decedent's Estate – Estate of a deceased person that is a taxable entity separate from the decedent. It exists until the final distribution of the assets are made to the heirs and other beneficiaries.

  4. Exemption Amounts – Determined based on whether the fiduciary is filing for a decedent's estate or trust. Exemption amounts are claimed on Line 20 of Form 1041. For instructions for processing Exemptions, See IRM 3.11.14.22.6.

3.11.14.3  (01-01-2008)
Program Responsibility

  1. The Partnerships, Trusts and International Section (SE:W:CAS:SP:BMF:N) is responsible for the following Internal Revenue Manuals (IRM's) and relevant project documents.

    • IRM 3.11.14, SPC Returns and Document Analysis, Income Tax Returns for Estates and Trusts.

    • IRM 3.12.14, SPC Error Resolution, Income Tax Returns for Estates and Trusts.

3.11.14.4  (01-01-2008)
IRS Employee Contacts - Section 3705(a)

  1. Section 3705, of the Restructuring and Reform Act of 1998, provides identification requirements for all IRS employees working tax-related matters. IRS employees are required to give their name and unique identification number during taxpayer telephone, face to face and written contact. In addition, a telephone number is required on all taxpayer correspondence. This will provide taxpayers with enough information to identify an IRS employee who has previously assisted with tax-related matters. All IRS employees who communicate by telephone, correspondence or face to face, with taxpayers or their personal representatives, on tax-related matters are required to provide (at a minimum) the following information:

    1. Telephone Contact – Their title (e.g., Mr., Mrs., Ms., Miss), last name and badge identification (ID Card) number.

    2. Face to Face Contact – Their title (e.g., Mr., Mrs., Ms., Miss), provided as appropriate during the conversation, their last name and badge identification (ID Card) number.

    3. Correspondence – All correspondence must include a telephone number where the taxpayer's question can be answered. In addition, manually generated and handwritten correspondence must have their title (e.g., Mr., Mrs., Ms., Miss), last name, and IDRS number, letter system number, or their badge identification (ID Card) number.

    4. The IDRS number and numbers for some other letter systems are automatically generated. If it is not generated, or a handwritten note is prepared, the badge identification (ID Card) number must be used. Toll-free employees may also provide their location for identification purposes. Faxes to taxpayers on tax-related matters, is considered manually-generated correspondence and must include the required information. See IRM 11.3.1.10 for disclosure issues.

    5. Correspondence, whether sent directly to the taxpayer or to the taxpayer's personal representative, must contain the required information.

    6. When a taxpayer requests to speak with a specific employee who previously handled the inquiry or request, or complains about the level of service previously provided, every attempt should be made to resolve the taxpayer's inquiry. If the issue cannot be resolved, the employee should refer the inquiry using established procedures to his or her manager.

    7. Correspondex letters will require a specific employee name and telephone number only if the employee initiating the correspondence is in the best position to respond to any questions that the taxpayer may have about the correspondence, or the employee is asking the taxpayer to provide additional case-related information.

    8. Otherwise, if the taxpayer does not need to contact a specific employee, the correspondence needs only an IRS telephone number and standard signature.

    9. Secretaries, receptionists or other people who answer the telephone in functional offices need to identify themselves and should provide their badge identification (ID Card) number only if they are answering telephones which are routinely used to provide tax or account information.

    10. It is not necessary to repeat the badge identification (ID Card) number on a subsequent contact, when the nature of an employee's work involves multiple contacts with the same taxpayer, and the employee has given the taxpayer (either telephone or in-person) the employee's ID Card (badge) number on the first contact.

  2. During a taxpayer contact,

    If ... And ... Then ...

    • It appears that there may be a hardship situation,

    • The taxpayer requests to be referred to the Taxpayer Advocate Service (TAS), or

    • The contact meets TAS criteria.

    		 You can't resolve the taxpayer's issue the same day (See (3) below Prepare and forward Form 911, Request for Taxpayer Advocate Service Assistance, to the Local Taxpayer Advocate (see IRM Part 13, Taxpayer Advocate Service.)

  3. The definition of "same day" is within 24 hours. There will be times when you can completely resolve the issue within 24 hours. There will be also be times that although you cannot completely resolve the issue within 24 hours, if you have taken steps within 24 hours to resolve the taxpayer's issue, these cases also meet the definition of "same day" . Do not refer these cases to TAS unless the taxpayer asks to be transferred to TAS. Refer to IRM 13.1.7.4, Same-Day Resolution by Operations.

3.11.14.5  (01-01-2008)
♦ Taxpayer Advocate Service Level Agreements (SLA)♦

  1. The National Taxpayer Advocate and the Commissioner, Wage and Investment (W&I) Division have reached an agreement (effective Sept. 1, 2002) outlining the procedures and responsibilities for processing Taxpayer Advocate Service (TAS) casework when either the statutory or delegated authority to complete a case transaction rests with the W&I Division.

  2. In preparation for a case being referred to a W&I Division function, the TAS employee is responsible for:

    1. Preparing Form 12412 (Operations Assistance Request).

    2. Securing all necessary supporting documentation, such as IDRS prints, missing or corrected schedules, forms or other attachments.

    3. Forwarding Form 12142 and documentation on Form 3210 (Document Transmittal) to the W&I Division Liaison.

  3. W&I Division is responsible for:

    1. Assigning a liaison in each office or Campus where a Taxpayer Advocate is located.

    2. Acknowledging receipt of the case via Form 3210 within one (1) workday for cases involving economic hardship or within three (3) workdays for cases involving systemic hardship (delay or procedural/systemic failure).

    3. Responding to TAS within three (3) workdays in writing for any economic hardship case, via facsimile or hand-delivery, regarding his or her relief/no relief decision.

    4. Negotiating with TAS a reasonable timeframe for resolution of cases involving systemic hardship.

    5. Providing TAS with the name and telephone number of the W&I employee assigned the case.

  4. For further information, refer to IRM 13.1.19, TAS Operations Assistance Request (OAR) Process and IRM 13.1.19.2, TAS Service Level Agreements (SLA).

3.11.14.6  (01-01-2008)
Schedules Found In Form 1041

  1. The following schedules are found within Form 1041:

    • Schedule A (Charitable Deductions) – Used by a trust that claims a contribution deduction under IRC Section 642(c), or by a trust described in IRC Section 4947(a)(2).

    • Schedule B (Income Distribution Deduction).

    • Schedule G (Tax Computation).

    • Schedule I (Alternative Minimum Tax).

  2. Listed below are some additional schedules and forms which may be filed with Form 1041:

    • Schedule C (Form 1040) (Profit or Loss From Business (Sole Proprietorship)).

    • Schedule D (Capital Gains and Losses) – Used to report details of gain (or loss) from the sales or exchanges of capital assets.

    • Schedule E (Form 1040) (Supplemental Income and Loss).

    • Schedule F (Form 1040) (Profit or Loss From Farming).

    • Schedule H(Form 1040) Household Employment Taxes.

    • Form 3800 (General Business Credit).

    • Form 4136 (Credit for Federal Tax Paid on Fuels).

    • Form 4797 (Sale of Business Property).

    • Form 4952 (Investment Interest Expense Deduction).

    • Schedule J (Information Return - Trust Allocation of an Accumulation Distribution ( IRC 6655) – Used by domestic complex trusts to report accumulation distributions.

    • Schedule K-1 (Beneficiary's Share of Income, Deductions, Credits, etc.) – Used to report each beneficiary's share of the Income, Deductions, Credits, and Alternative Minimum Taxable Income from the estate or trust.

    • Form 1041-A (U.S. Information Return – Trust Accumulation of Charitable Accounts) – Used by a trust that claims a contribution deduction under IRC 642(c), or by a trust described in IRC 4947(a)(2).

    • Form 1041-ES (Estimated Tax for Estates and Trusts) – Used to figure and pay estimated tax for fiduciaries.

    • Form 1041-T (Transmittal of Estimated Tax Credited to Beneficiaries) – Used by an estate or trust to make an election under IRC 643(g) to allocate an estimated tax payment to beneficiaries.

    • Form 8913 (Credit for Federal Telephone Excise Tax Paid).

3.11.14.7  (01-01-2008)
BMF Consistency

  1. The purpose of this initiative is to achieve consistency in the BMF Code & Edit processing IRMs.

  2. Topics for BMF Consistency have been identified and developed as a coordinated effort between Cincinnati SPC, Ogden SPC, and CAS Submission Processing (BMF Policies, Procedures, and Guidance Branch).

  3. BMF Consistency subsections are identified by a "♦" (diamond) before and after the subsection title.

  4. Text in normal print is the common processes to be used for all BMF returns. The text in bold print is form-specific and applies to this IRM only.

3.11.14.8  (01-01-2008)
General Editing Guidelines

  1. The following general information can be used when editing Form 1041 returns.

  2. General instructions eliminate repetition of the same instructions for each return. If the general instructions and the specific instructions conflict, follow the specific instructions.

  3. Do not edit brackets or parentheses around amounts clearly indicated to be negative by the presence of a minus sign (-).

    Reminder:

    It will be necessary to bracket negative amounts when editing negative entries on transcription lines (i.e., computing and entering a line entry, entering a missing line entry, etc.)

  4. Instructions for editing Schedules K-1 are in IRM 3.0.101.

  5. Received date is edited in MMDDYY format.

  6. If a current/prior year return is filed on a tax form for other than the appropriate tax year, convert the tax return to the current year format using the prior year conversion charts. See IRM 3.11.14.47.2.

  7. If a current year (2007) return is filed on a 1997 – 2006 tax form, renumber the prior year return to comply with current year line numbers.

  8. If a current year (2007) form is used to report prior year tax information, edit the tax period to reflect the prior year.

  9. If the prior year return is filed on the correct/incorrect 1041 tax form, renumber the prior year form to current year format (1997 and subsequent).

3.11.14.8.1  (01-01-2008)
♦ Edit Marks♦

  1. Edit marks are edited on the return for transcription to Automatic Data Processing (ADP) System through ISRP. The editing can be entered in brown, red, orange or green pencil/pen.

  2. The only items edited on the return are those to be transcribed except where specific instructions require editing of a non-transcribed item. Lines are left blank if the entry would be a zero amount unless otherwise instructed.

  3. The original entry on a return is never obliterated, altered or erased when deleting or correcting an entry. Always exercise care to ensure that the original entry remains legible. Perfected entries provide a legible "edit trail" for anyone who may work with the return later.

  4. For a description of specific edit marks, see the table below:

    EDIT MARK DESCRIPTION
    "X" or "/" The "X" is used to delete tax data or to indicate that an item is not to be transcribed. A "/" can be used when deleting a form or schedule not being transcribed.
    "//$" The "//$" is used in the entity area to identify the beginning and ending of a foreign country code. For example, "/EI/$" is edited for "Ireland" or "/GM/$" is edited for "Germany" .
    % or c/o Indicates an "in-care-of-name" for transcription.
    Circle Indicates that an entry is not to be transcribed. Also used to delete Entity data or a Received Date.

    Note:

    If the taxpayer circles an entry, edit the entry.
    Underline Indicates that an entry is to be transcribed. Examples are: Name Control; Tax Period; and a Received Date that is other than IRS Stamped Date.
    Arrow Indicates the correct placement of a misplaced entry. An arrow may be used if the misplaced item is close to the correct line and there is no question where the entry belongs.

    Note:

    A double arrow may be used if the same figure is to be transcribed in two different places (along with any required transcription data between the two arrows).

    Check Mark Indicates that an entry has been manually math verified and is correct or that the Fiduciary's EIN needs to be transcribed.
    Bracket/Parenthesis Indicates a negative numerical amount.

    Note:

    C&E is no longer required to bracket negative amounts when brackets are preprinted on the form or schedule or when the taxpayer clearly indicates a negative amount with brackets or (-) sign. It will be necessary to bracket negative amounts when editing negative entries on transcription lines (i.e., computing and entering a line entry, entering a missing line entry, etc.).

    Vertical Line or Decimal Point Indicates the separation of dollars and cents if no distinction has been made by the taxpayer.
    Zero, Dash or None "ZERO" , "DASH" or "NONE" are considered valid entries except when specific instructions require editing of an entry.
    Edit Marks Made by Other IRS Functions Edit marks entered by another area (such as Collections or Accounts Management) are not to be reedited except to place the marks in the correct area.
    Rocker Indicates the amount paid when drawn under a remittance amount. See "Caution" in IRM 3.11.14.1(6).

3.11.14.8.2  (01-01-2008)
Sequential Order of Forms

  1. Document Perfection is responsible for arranging Form 1041 in the following order when transcription line entries are present:

    1. Form 1041, Pages 1, 2, 3, and 4.

    2. Schedule D (Form 1041).

    3. Form 4952.

    4. Schedule H (Form 1040).

    5. Form 3800.

    6. Form 4136.

    7. Form 8913 (prior year 2006 only).

      Note:

      Form 8855 will be detached from the return and forwarded to Entity.

      Note:

      Place all Schedules K-1 (Form 1041), filed as attachments to Form 1041, as the last attachment in the package or follow local agreement. See IRM 3.0.101 for Schedule K-1 procedures.

3.11.14.8.3  (01-01-2008)
Dollar Tolerances

  1. Taxpayers must provide documentation to support claims for most gains, losses, debits, and credits ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. Unless otherwise instructed, correspond for documentation to support any claims ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

3.11.14.8.4  (01-01-2008)
Editing Dollars and Cents

  1. Effective 1-1-2004, the Form 1041 program was modified to accept dollars-only transcription for all lines on Form 1041 and its attachments except for the following:

    • Line 23 – Total Tax

    • Line 24a – Estimated Tax Payments

    • Line 24b – Credit to Beneficiaries

    • Line 24d – Tax Paid With Extension

    • Line 24e – Federal Income Tax Withheld

    • Line 24f – Regulated Investment Company Credit

    • Line 25 – Total Payments

    • Line 26 – Estimated Tax Penalty

    • Line 27/28 – Tax Due/Overpayment

    • Line 29a – Credit Elect

    • Line 29b – Refund

    Note:

    C&E is no longer required to edit a vertical line, 00, dash, or decimal point to indicate dollar and cents.

  2. For a display of Form 1041 transcription lines (including Schedules G and I), See Exhibit 3.11.14-1.

3.11.14.9  (01-01-2008)
♦ Action Codes ♦

  1. Action Codes are used to indicate whether correspondence, research, or some other action is needed. The Action Code will set the suspense period to be assigned to the return and place the return in the workable or unworkable suspense inventory.

  2. When necessary, a three-digit Action Code will be assigned by the tax examiner.

  3. Edit the Action Code in the bottom-left margin of the return.

  4. Assign Action Codes in the following priority order:

    1. Action Code 310 (Statute Control).

    2. Action Code 320 (Entity Control).

    3. Action Code 4XX.

    4. Action Code 6XX.

    5. Action Code 3XX.

    6. Action Code 2XX. (Correspondence)

    Exception:

    Use Action Code 211, 215, 225 or 226 before Action Code 341 to ensure the return is complete before a manual refund is issued.

  5. Only one Action Code can be assigned to a record at one time. If more than one Action Code is needed, edit the second Action Code on Form 4227.

  6. If more than one Action Code of the same priority is required (e.g., 342 and 355), edit the Action Code with the shortest suspense period and attach a Form 4227 to indicate the second unprocessable condition.

  7. Edit the following Action Codes when a return cannot be perfected from the information present:

    Action Code Description
    211 (First Correspondence)

    • The return is so illegible, incomplete, or contradictory that it is not acceptable for computer processing.

    • The taxpayer notates on the return or attachment that they are reporting tax for more than one Tax Period or for more than one type of tax.

    225 (Missing Signature Correspondence)

    • Unsigned returns (only issue for correspondence).
    226 (Missing signature International Correspondence

    • Unsigned foreign return (only issue for correspondence.
    610 (Renumbered Non-Remittance) or
    611 (Renumbered With Remittance)

    • The return is mis-blocked (e.g., Form 1065 found in a Form 1041 batch of work).

    650 (AC International)

    • The return is an international return and must be forwarded to OSPC.

    • The return has a foreign address and must be forwarded to OSPC.

      Note:

      An APO/FPO address is not considered foreign.

    480 (Early Filed - Suspense)

    • The return is an early-filed current year return.
    640 (Void)

    • To delete the assigned DLN on the return (e.g., Re-Entry Returns).

  8. Continue perfecting the return after editing the Action Codes.

  9. For a list of valid Action Codes, See Exhibit 3.11.14-13.

3.11.14.10  (01-01-2008)
Unprocessable Conditions and Correspondence Action

  1. This section details the actions to be taken to resolve unprocessable conditions on Form 1041.

3.11.14.10.1  (01-01-2008)
Perfecting Unprocessable Conditions

  1. If a return contains no entity data, or the signature on the return is illegible and the alpha letter of the last name cannot be determined and the only entries are money amounts then give the return to the manager.

  2. Use the following guidelines for disposition of returns that cannot be perfected from schedules and other attachments and necessary data was not obtained through research. If you cannot correspond or send the return back to the taxpayer because of illegible entity data, consider the return unprocessable:

    If ... Then ...
    Unnumbered Returns

    1. Remove Form 1041 from the batch.

    2. Give the return to the manager.
    Numbered Returns

    1. Edit Action Code 640 (Void).

    2. Prepare a Form 4227 instructing the Rejects function to void the DLN.

    3. Forward the return to the Rejects function.

  3. If a Form 1041 is received with a second Form 1041 attached and the second return has the same EIN and Tax Period:

    1. Leave the second return attached to the first.

    2. "X" the first page of the second return and treat as an attachment to the first return.

  4. See IRM 3.0.273 (Administrative Reference Guide) for additional information.

3.11.14.10.2  (01-01-2008)
Editing of Unprocessable Documents

  1. Perfect all documents if possible. Examine schedules and other attachments for the information necessary to make the document processable and edit the information on Form 1041.

  2. When perfection is not possible, prepare Form 4227 and notate the reason for rejection. Attach Form 4227 to the face of the document in a position that will leave the Entity data, Condition Codes and Remittance Amount visible for transcription.

    If ... Then ...
    Numbered Returns

    1. Edit to extent possible.

    2. Edit Action Code 640 (Void).

    3. Leave document in the block.
    Unnumbered Returns

    1. Do not continue editing the return.

    2. Withdraw the document from the batch and continue to below.

  3. If liability for two or more Forms 1041 for the same tax class have been reported on one numbered return and the information necessary for the preparation of the individual returns is present:

    1. Adjust the line entries on the multiple period return to reflect the liability for the earliest period.

    2. Edit Action Code 610/611 (Renumber/Remittance Renumber) and leave the original return in the block.

    3. Prepare the additional period returns.

    4. Route the newly prepared returns for processing.

  4. If liability for two or more Fo