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Part 3. Submission Processing

Chapter 21. International Returns and Documents Analysis

Section 3. Individual Income Tax Returns (Cont. 7)

3.21.3  Individual Income Tax Returns (Cont. 7)

3.21.3.65 
Form 1040NR General Editing Instructions

3.21.3.65.15 
Payments — Lines 59 Through 70

3.21.3.65.15.10  (01-01-2008)
Line 67b — U.S. Tax Withheld at Source Under Section 1446 (Form 1042-S)

  1. If Form 1042-S is not attached, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ correspond.

  2. If the TIN on Form(s) 1042-S is other than the TIN in the caption information area, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , "X" Line 67b.

  3. If no reply, "X" the credit.

3.21.3.65.15.11  (01-01-2008)
Line 68a — Form 8288-A

  1. If any credit is claimed, verify that Form 8288-A is attached and the Date of Transfer on Form 8288-A (box 1) is within the Tax Period of the return being filed.

    1. If Form 8288-A is not attached, correspond.

    2. If no reply, "X" the Line 68a entry.

    3. If the Date of Transfer on Form 8288-A (box 1) is not within the Tax Period of the return, (for current year returns see instructions below) "X" line 68a and edit only the credit(s) that are within the Tax Period of the return.

      Reminder:

      If the return is being filed for a Fiscal Period, allow only credit(s) for which the Date of Transfer on Form 8288-A (box 1) falls within the Fiscal Period of the return being filed.

    Note:

    Form 8288 may not be used as verification of 8288-A withholding.

  2. If the 8288-A was issued after the current tax year,

    1. The return is numbered, "X" the credit(s).

    2. The return is unnumbered send the return back to the taxpayer stating that they must wait until the end of the tax year to file the claim for the 8288-A.

  3. All 8288-A credits must be verified by the FIRPTA Unit. Follow the instructions below: See Exhibit 3.21.3-7.

    1. If the return is unnumbered:

      If And Then
      Form 8288-A is attached,   Completely code and edit the return, then place return in designated basket for verification.

      Note:

      The verification slip (Form 13698) or printout is attached to the tax form after the credit verification is completed

      .
      Credits are verified, It is the same amount the taxpayer entered on Line 68a

      1. Attach the verification slip/Form 13698 to the tax return

      2. ensure that the verified amount is reported on line 68a

      .
      Credits are verified, It is a different amount than what the taxpayer entered on Line 68a

      1. Attach the verification slip/Form 13698 to the tax return

      2. "X" the amount where reported by the taxpayer

      3. edit only the amount that was verified to line 68a

        Caution:

        Edit only the amount that was verified not to exceed the amount the taxpayer is claiming.

    2. If the return is numbered, attach verification slip to request verification of the credit from FIRPTA Unit and edit Action Code 420.

3.21.3.65.15.12  (01-01-2008)
Line 68b — Form 1042-S

  1. If Form 1042-S indicating "Real Property" is present, leave the amount on Line 68b.

  2. If the TIN on Form(s) 1042-S is other than the TIN in the caption information area, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , "X" Line 68b.

  3. If Form 1042-S or statement is not present, correspond≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . If no reply, "X" Line 68b.

3.21.3.65.15.13  (01-01-2008)
Line 69 -- Refundable Credit for Prior Year Minimum Tax (Form 8801)

  1. If an amount is present on line 69, Form 8801 must be attached. Correspond if missing.

3.21.3.65.15.14  (01-01-2008)
Line 70 — Total Payments

  1. If blank, compute and enter.

3.21.3.65.16  (01-01-2008)
Refund or Amount Owed — Lines 71 Through 75

  1. The following subsections contain information pertaining to perfection of Lines 71 through 75 on Form 1040NR.

  2. Edit lines 72a, 73, 74 and 75 in dollars and cents.

  3. Line 71 is not a T-Line.

  4. Lines 72a and 74 are T-COMPUTE lines.

3.21.3.65.16.1  (01-01-2008)
Line 72a — Refund Due

  1. If blank, compute and enter the proper amount when Lines 71, 73 and 74 are blank, and one of the following conditions are present:

    • Line 70 has an entry.

    • The taxpayer has computed or indicated no tax is due on Lines 41, 43, 52, or 58, or it can be determined that Line 58 would be zero if it were computed.

3.21.3.65.16.2  (01-01-2008)
Line 73 — Estimated Tax Credit Elect

  1. When lines 71, 72a, and 73 are the same perfect them as follows:

    If ES payments (line 60) Then
    Are claimed "X" the entry on line 72a
    Are not claimed "X" the entry on line 73

    Note:

    An overpayment can be divided between lines 72a (refund) and 73 (ES Credit Elect)

  2. Exclude the additional amount when line 73 includes an amount for any of the following:

    1. Late filing penalty

    2. Late payment penalty

    3. Interest

    Note:

    Do not exclude estimated tax penalty

  3. Edit Action Code "430" to send the return to Rejects in the following circumstances:

    • A statement is present on or near line 73 indicating that the taxpayer wants the credit applied to their spouse's account.

    • The return is FS 3 or 6 and there is a statement or schedule present showing how estimated payments are to be allocated.

3.21.3.65.16.3  (01-01-2008)
Line 74 — Amount You Owe (Balance Due)

  1. If blank, compute and edit the amount when Lines 71, 72a and 73 are blank, and Line 58 has a significant entry.

    Note:

    When computing Line 74, include the amount on Line 75, estimated tax penalty.

  2. If Line 74 has been computed to a significant amount, do not edit CCC"B" .

3.21.3.65.16.4  (01-01-2008)
Line 75 — Penalty for Underpayment of ES Tax (Form 2210/2210F)

  1. Form 2210 has been assigned sequence number "06" and Form 2210F has been assigned sequence number "06a" . However, these forms are not transcribed. Move these forms out of sequence order after editing line 75.

  2. Edit CCC "P" whenever the ES penalty is to be suppressed because Form 2210F is attached OR Form 2210 is attached with any of boxes 1a through 1d marked OR an indication on Form 2210 or in the line 75 area, or notated in the occupation area of Form 1040NR:

    1. Actual withholding

    2. An indication of Fisherman

    3. Annualized Income or AI

    4. Not liable for ES penalty (Reasonable Cause for Underpayment)

    5. Exempt

    6. An indication of Farmer

    7. Waiver

    Exception:

    If Box A or Box B in Part II on Form 2210 (Box A in Part I on Form 2210F) is marked, verify the attached statement meets reasonable cause criteria. If statement does not meet reasonable cause criteria, do not edit CCC "P" . Instead, edit CCC "7" and correspond using Letter 854C.

  3. If Line 75 is blank and Form 2210/F is attached, edit the amount from Line 17 or Line 31 of Form 2210, (or line 20 of Form 2210F).

  4. Compare the line 75 entry with the amount on line 17 or line 31 on Form 2210 (or line 20 Form 2210F) when CCC "P" is edited. Take one of the following actions when the entry on line 75 is different from the amount on Form 2210/2210F after allowing for rounding:

    1. "X" the line 75 entry

    2. Edit the amount from 2210/2210F to line 75

3.21.3.65.17  (01-01-2008)
Signature

  1. For Form 1040NR, accept the facsimile signature and process the returns that are signed for the taxpayer by an agent (i.e. ATTORNEY-IN-FACT)

    Note:

    Refer to IRM 3.11.3 for complete correspondence instructions.

3.21.3.65.18  (01-01-2008)
Occupation

  1. See IRM 3.21.3.13.10.

3.21.3.65.19  (01-01-2008)
Form 1040NR — Page 3, Itemized Deductions

  1. DO NOT "X" page 3 if there are entries that must be transcribed from page 4.

  2. If the taxpayer claims an allowable treaty exemption, exclusion or deduction on Schedule A,

    1. "X" the amount entered on Schedule A, and

    2. Enter the allowable exclusion on page 1, line 22 and follow line 22 procedures. See Figure 3.21.3-35.

    Figure 3.21.3-35

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

    Editing Treaty Exemption Amount

  3. If taxpayer claims an unallowable treaty exemption, "X" where found.

  4. India residents are entitled to claim on Schedule A, either actual itemized deductions or the standard deduction/additional standard deduction (the taxpayer may elect the one that benefits them:

    1. Actual itemized deductions, or

    2. Standard deduction/additional standard deduction, (Age Blind Indicator, "ABI" ) :

      Filing Status Standard Deduction ABI boxes checked or number in the box is 1 ABI boxes checked or number in the box is 2 ABI boxes checked or number in the box is 3 ABI boxes checked or number in the box is 4
      "1" $5,350 $6,650 $7,950 N/A N/A
      "2/5" $10,700 $11,700 $12,700 $13,700 $14,700
      "3" $5,350 $6,650 $7,950 N/A N/A
      "6" $5,350 $6,350 $7,350 $8,350 $9,350

  5. If the taxpayer did not attach Schedule A and you can determine they were students and/or business apprentices then dummy a Schedule A and enter the appropriate standard deduction amount (using chart above) on Line 3, and notate to the left of Line 3 "Standard Deduction Allowed Under U.S.—India Income Tax Treaty" ,

  6. India residents: If both itemized and standard deductions are claimed on Schedule A: See Figure 3.21.3-36.

    1. "X" the lesser amount of the standard deduction or itemized deductions.

    2. Do not adjust Line 17.

    Figure 3.21.3-36

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

    Editing Page 3 — Itemized Deductions

  7. Itemized deductions are allowed only on returns with entries on Lines 8 through 23. Enter UA Code 94 if the taxpayer itemizes deductions and has no entries on Lines 8 through 23.

  8. Enter UA Code 58 if itemized deductions are claimed for medical expenses, interest, and taxes (except state and local taxes).

  9. There may be items in Schedule A that are unallowable by law but not mentioned in this section, IRM 3.11.3.≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

3.21.3.65.19.1  (01-01-2008)
Line 3 — State and Local Income Tax Total

  1. Compute and enter, if missing.

3.21.3.65.19.2  (01-01-2008)
Line 5 — Contributions Other Than Cash

  1. Follow instructions in IRM 3.11.3 for assignment of code.

3.21.3.65.19.3  (01-01-2008)
Line 6 — Carryover Contributions

  1. Carryover Contributions will be entered on Line 6.

3.21.3.65.19.4  (01-01-2008)
Line 7 — Total Contributions

  1. Compute and enter, if missing and entries leading to an amount are present.

3.21.3.65.19.5  (01-01-2008)
Line 8 — Casualty Losses

  1. If an amount is claimed, verify that Form 4684 is attached.

  2. If Form 4684 is missing, correspond.

  3. If no reply, "X" the Line 8 entry.

3.21.3.65.19.6  (01-01-2008)
Line 9 — Employee Business Expenses from Form 2106

  1. If an amount is claimed ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , verify that Form 2106 is attached. If Form 2106 or similar statement is not attached, correspond. If no reply, "X" Line 15.

  2. RPC "P" is not valid on Form 1040NR.Do Not Edit.

  3. If the taxpayer meets the criteria outlined below, enter Unallowable Code 95, J-1 Visa Student and the applicable amount.

    1. Visa status - J-1 (Student)

      Note:

      Not all students will identify J-1 Visa; however, returns with similarities where occupation indicates "Summer Exchange Program" that have similar income, similar expenses for EBE, same tax preparer, POA is the same as the tax preparer, signature is the same for all the returns, W-2 employments are retail stores or any of the Beach locations in the U.S.

    2. Form 2106, Employee Business Expense, attached ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    3. Low wage earner/low W-2 income (usually no other income and often earned from resorts and restaurants).

    4. All or almost all of the wages withheld are refunded as a result of the Form 2106.

    5. Form 2848, Power of Attorney, attached that changes taxpayer address to Foreign Preparer's address.

    Caution:

    Returns that specify US AID (Treasury Reg 1.6012(1)(b)(3), USAID/G/HCD/POSS/TAX) at the top may have a claimable EBE, but they should be clearly identified as such and also identifiable by having government or university W-2s.

  4. If the taxpayer claims education expenses on Form 2106, "X" line 9, Schedule A Form 1040NR.

3.21.3.65.19.7  (01-01-2008)
Line 12 — Miscellaneous Deductions Before 2% Limitation

  1. If blank and amount(s) can be determined from attachments, compute and enter.

3.21.3.65.19.8  (01-01-2008)
Line 15 — Miscellaneous Deductions After 2% Limitation

  1. If blank and amount(s) can be determined from attachments, compute and enter.

3.21.3.65.19.9  (01-01-2008)
Line 16 — Total Other Miscellaneous Deductions

  1. If blank and amount(s) can be determined from attachments, compute and enter.

3.21.3.65.19.10  (01-01-2008)
Line 17 — Total Itemized Deductions

  1. If blank, compute and enter.

3.21.3.65.20  (01-01-2008)
Form 1040NR — Page 4, Not Effectively Connected Income

  1. Income not effectively connected with a U.S. trade or business is reported on page 4, Form 1040NR.

  2. Non-effectively connected income can be identified as follows:

    1. Form 1042-S – See IRM 3.21.3.21.

    2. Social Security/Railroad Retirement Form SSA/RRB 1042-S – for processing instructions. See IRM 3.21.3.64.13.

    3. Gambling winnings (Form 1042-S, income code 28 or 50) — for processing instructions. See IRM 3.21.3.65.20.1.

    Note:

    Real property may be treated as effectively connected income if reported on Schedule E and page 1, Form 1040NR.

  3. Page 4, line 89 amounts should correspond to page 2, line 53 amounts. If amounts are present on page 4 or Form 1042-S with not effectively connected income per (2) above is attached, and no amount is present on line 53, compute and enter the line 53 amount.Do not adjust or compute line 58.

  4. A taxpayer who is a permanent resident of a foreign country with which the U.S. has not concluded an income tax treaty is generally taxed at a flat rate of 30% on his U.S. source not effectively connected income.

  5. To determine the country in which the filer is a permanent resident, review the following areas of Form 1040NR:

    1. Page 1 of Form 1040NR—Taxpayer response to question "Give address in country in which you are a permanent resident."

    2. Page 5, Form 1040NR—Taxpayer response to Question M.

    3. If country of permanent residence cannot be determined, correspond. If no reply, calculate the tax rate at 30%.

  6. Form 1040NR not effectively connected income is taxed at a rate of 30% unless a U.S. tax treaty with the filer's country or permanent residency prescribes a lower rate.

    1. If the taxpayer enters a rate lower than 30%, verify the rate entered using See Exhibit 3.21.3-5.

    2. If the taxpayer uses a lower rate than the one listed in See Exhibit 3.21.3-5. , enter Unallowable Code 75 and the applicable amount ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    3. Edit the correct amount to line 53, page 2, Form 1040NR. Do not adjust or compute line 58.

    4. If the filer uses a higher rate than the one indicated in See Exhibit 3.21.3-5. , accept the taxpayer's figure.

3.21.3.65.20.1  (01-01-2008)
Gambling Winnings

  1. Gambling winnings are non-effectively connected income and are not reducible by gambling losses.

  2. Effective January 1, 1996 residents of Canada may claim gambling losses, but only to the extent of gambling winnings. They should report both their gambling winnings and losses (not to exceed winnings) on the dotted portion of line 85. If they have net gambling winnings (after offsetting their total gambling losses against their total gambling winnings), they should include this net amount on line 85, column (d). They are taxed at 30% on their net winnings.

    Note:

    Do not calculate gambling losses if the taxpayer has not reported losses on their tax return.

  3. If gambling winnings are the only item reported on Form 1040NR, ensure that the returns are blocked with Document Code 72.

  4. Gambling income won in the U.S. by residents of the following foreign countries is not taxable by U.S.:

    1. Austria

    2. Czech Republic

    3. Denmark

    4. Finland

    5. France

    6. Germany

    7. Hungary

    8. Ireland

    9. Italy

    10. Japan (effective 2005)

    11. Latvia

    12. Lithuania

    13. Luxembourg

    14. Netherlands

    15. Russian Federation

    16. Slovak Republic

    17. Slovenia

    18. South Africa

    19. Spain

    20. Sweden

    21. Tunisia

    22. Turkey

    23. Ukraine

    24. United Kingdom (England, Northern Ireland, Scotland and Wales)

      Note:

      Gambling income won in the U.S. by residents of Malta is not taxable by U.S. for 1996 and prior. For 1997 and subsequent it is taxable at a 30% rate.

      Reminder:

      If line 35 is blank, dash or zero, or edited to be blank and line 53 is significant, edit RPC "J"

  5. All other countries are taxed at a rate of 30%.

  6. If gambling winnings are reported on page 1, Form 1040NR, "X" the amount on page 1 and

    1. Multiply the amount of gross gambling winnings by 30% and

    2. Edit the result to Line 53.

    3. Do not adjust or compute Line 58. See Figure 3.21.3-37.

      Note:

      If gambling is the only income reported on page 1, "X" all the lines.

      Caution:

      If a country is exempt from U.S. tax on gambling winnings, "X" entry where found.

      Figure 3.21.3-37

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

      Editing Gambling Winnings

  7. If Schedule C is attached to the return to report gambling winnings and gambling losses:

    1. If exempt from U.S. tax, "X" Schedule C. Do not edit the amount to Line 53.

    2. If not exempt from U.S. tax, "X" Schedule C. Multiply the amount of gross gambling winnings by 30%, and edit the result to line 53. Do not adjust or compute Line 58.

3.21.3.65.20.2  (01-01-2008)
Alimony Income

  1. If alimony income is being reported on page 4, Form 1040NR, consider it not effectively connected income, calculate the tax at the tax treaty rate indicated in See IRM 3.21.3.68.3.3. , column 14 (pensions/annuities).

  2. If the taxpayer has reported alimony income received on page 1, Form 1040NR, line(s) 8 through 20, edit the entry to line 21.

  3. If the taxpayer reports effectively connected income on line 8 through 23, page 1, Form 1040NR,

    1. Accept the taxpayer's figure for alimony paid, and

    2. Edit the entry to the dotted portion of line 34, page 1, Form 1040NR.

3.21.3.65.20.3  (01-01-2008)
Page 4 column (e)1 — Other (specify)

  1. The percentage column labeled Other (specify) must be edited if an amount is present or edited to Line 87 (e)1. Edit the column using the percentage entered, see table below: See Figure 3.21.3-38.

    If the taxpayer enters: Then Code & Edit will enter:
    9% 090
    20% 200
    27.5% 275

  2. If the taxpayer enters the percent in the column"Other (specify)" as:

    1. 10%, edit amount from 87 (e)1 to 87 (b)

    2. 15%, edit amount from 87 (e)1 to 87 (c)

    3. 30%, edit amount from 87 (e)1 to 87 (d)

    Figure 3.21.3-38
    This image is too large to be displayed in the current screen. Please click the link to view the image.

    Editing Rates on Tax on Income Not Effectively Connected

3.21.3.65.20.4  (01-01-2008)
Page 4 column (e) 2 — Other (specify)

  1. The percentage column labeled Other (specify) must be edited if an amount is present or edited to Line 87 (e)2. Edit the column using the percentage entered, see table below:

    If the taxpayer enters: Then Code & Edit will enter:
    9% 090
    20% 200
    27.5% 275

  2. If the taxpayer enters the percent in the column "Other (specify)" as:

    1. 10%, edit amount from 87 (e)2 to 87 (b)

    2. 15%, edit amount from 87 (e)2 to 87 (c)

    3. 30%, edit amount from 87 (e)2 to 87 (d)

3.21.3.65.20.5  (01-01-2008)
Line 87 column (b) 10% — Total U.S. Tax Withheld At Source

  1. If blank, and there are entries present on column (b), Line(s) 76a through 85, compute and enter.

3.21.3.65.20.6  (01-01-2008)
Line 87 column (c) 15% — Total U.S. Tax Withheld At Source

  1. If blank, and there are entries present on column (c), Line(s) 76a through 85, compute and enter.

3.21.3.65.20.7  (01-01-2008)
Line 87 column (d) 30% — Total U.S. Tax Withheld At Source

  1. If blank, and there are entries present on column (d), Line(s) 76a through 85, compute and enter.

3.21.3.65.20.8  (01-01-2008)
Line 87 column (e)1 Other % — Total U.S. Tax Withheld At Source

  1. If blank, and there are entries present on column (e)1, Line(s) 76a through 85, compute and enter.

    Reminder:

    If an amount is present or edited to Line 87 column (e)1, the corresponding column percentage must be edited. (i.e. 25% must be in either (e) column 1 or 2 and must be edited 250; 25.5 % edit as 255; 17% as 170, etc.).

3.21.3.65.20.9  (01-01-2008)
Line 87 column (e)2 Other % — Total U.S. Tax Withheld At Source

  1. If blank, and there are entries present on column (e)2, Line(s) 76a through 85, compute and enter.

    Reminder:

    If an amount is present or edited to Line 87 column (e)2, the corresponding column percentage must be edited. (i.e. 25% must be in either (e) column 1 or 2 and must be edited 250; 25.5 % edit as 255; 17% as 170, etc.).

3.21.3.66  (01-01-2008)
Form 1040NR–EZ — Items for Perfection

  1. The following subsections contain information pertaining to the perfection of items on Form 1040NR-EZ.

  2. If any of the following conditions are present on Form 1040NR-EZ, convert to Form 1040NR :

    1. Tax Period is other than calendar year

    2. Taxable Income is more than $100,000.00

    3. Interest income is taxable

      Caution:

      If it can be determined that the interest income is from a bank, "X" the amount and DO NOT CONVERT UNLESS OTHER CONDITIONS MEET CONVERSION CRITERIA.

    4. Dividend income is taxable

    5. Entry without appropriate printed line

    6. Exemption(s) claimed in addition to self and spouse.

    7. Indication taxpayer is claimed as a dependent on another person's return.

    8. Itemized deductions (other than state and local income taxes)

    9. Indication that line 3 amount includes $434.00 or more of Self-Employment income, Non-Employee Compensation, or Fishing boat Proceeds

    10. Indication taxpayer is claiming any adjustments to income (other than scholarship/fellowship grants excluded or Student Loan Interest Deduction)

    11. Indication taxpayer is claiming any tax credits

    12. Indication taxpayer is filing an "Expatriation Return"

    13. Indication taxpayer is claiming taxes owed (other than from tax rate table or social security/medicare tax on tip income not reported to employer)

    14. Non-effectively connected income

    15. Indication of gambling income

    16. Indication of Community Property

    17. Form 1042-S reporting pension

    18. Form W-2G

    19. Unemployment Compensation

    20. Social Security Benefits

    21. Railroad Retirement Benefits

    22. Form 1099-MISC with an amount of $434.00 or more in box 5 or Box 7.

    23. Form 1099-R reporting IRA Distributions in Box 7, code 1