Taxpayers use Form 5329 or Form 1099-R to report the amount and the penalty for early withdrawal/distribution or an excess contribution of their IRA. Taxpayers may explain they are claiming this amount in lieu of submitting Form 5329 or Form 1099-R

When a taxpayer submits Form 5329, only process claims that have Part I or Part II of Form 5329 completed. Refer to CIS/AM any Form 5329 with entries in Parts III through VIII. Use the following Reason Codes when processing:

If the taxpayer used Form 1099-R instead of Form 5329 to report the amount, process only those claims that have a Distribution Code of "1" or "7" . Refer as CIS/AM any Form 1099-R with a Distribution Code other than a 1 or 7.

If the taxpayer is reporting that they are not subject to the 10% penalty, Form 5329 must be attached with an Exception Code 01 through 11, listed on Line 2 of Form 5329. Lines 1 and 2 of Form 5329 should show the entire distribution amount with a breakdown of the amount that is not listed to the penalty; otherwise refer as CIS/AM.

Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most wage earners. Taxpayers can also deduct half of their SE tax when figuring adjusted gross income (AGI), SE tax is figured using Schedule SE and is reported on Line 9 of Form 1040X.

Taxpayers must pay SE tax if they had net-earnings ≡ ≡ ≡ ≡ ≡ ≡ ≡ from a non-exempt trade or business. The Social Security Administration (SSA) uses the information from Schedule SE to figure the taxpayer's benefits under the social security program.

Earnings from one of the following occupations may be subject to SE tax:

SE income is reported on Schedules C, C-EZ, E, F or as Other Income on Form 1040, Line 21 (e.g. Form 1099-MISC)

Take the following action based on the chart below:

The adjustment to the account will be the difference between the amounts shown on TXMOD (if any) to the amended return.

Taxpayer files an amended return to reduce the amount of the estimated tax penalty (TC 170/176) and does not provide a Form 2210. Send the taxpayer a 369C letter using paragraphs A, G,I,O,3, c. Use call back number 1-800-829-1040.

When adjusting withholding using a TC 806/807 and a prior TC 17X is on the account use Priority Code 8 to bypass an unpostable condition.

Adjusted Gross Income (AGI) must be less than:

Taxpayer must have a valid Social Security Number -- to claim the EIC (and spouse if filing a joint return) must have a valid SSN issued by the Social Security Administration (SSA). Any qualifying child listed on Schedule EIC must also have a valid SSN. A valid SSN does not include the following:

Taxpayers filing married filing separate do not qualify for the credit.

Taxpayer must be a U.S. Citizen or Resident Alien all year

Taxpayer cannot file Form 2555, Foreign Earned Income or Form 2555-EZ, Foreign Earned Income Exclusion

Taxpayer investment income must be less than:

Taxpayer must have earned income, refer to IRM 3.11.6.8.12 to determine what qualifies as earned income.

Taxpayer (and spouse if filing jointly) is not the qualifying child of another person for the same year.

Taxpayers with qualifying children must also meet the following three tests:

The taxpayer's kidnapped child can meet the residency requirement if the following requirements are also met. If met the child is treated as meeting the residency requirement for all taxable years ending during the period that the child is kidnapped.

Taxpayer's with no qualifying child must also meet these requirements:

Before allowing the EIC, verify the validity of the name(s) and SSN(s) submitted by the taxpayer for the individual(s) with the invalid indicator on CC RTVUE. Research using CC INOLE, CC NAMES, and CC RTVUE to verify the name, number, and date of birth.

When the taxpayer makes an initial claim for EIC or when adding a qualifying child, Schedule EIC must be attached, correspond if missing per IRM 3.11.6.9

If asked by the taxpayer to compute their EIC, and they qualify compute using CC EICMP with Definer R. Input the following fields as applicable:

Always verify the amended EIC amount on line 13, Correct Amount Column of Form 1040X when the credit or AGI changes using either CC EICMP or EIC worksheet on AMS or from a 1040 instruction booklet. (Earned Income must be verified)

EIC allowed on the original return posts as a computer-generated TC 768 with a minus after the amount.

Update the DUPOL database using CC DDBCK prior to making any adjustments when:

When making an adjustment to EIC, use RC 053 and:

Route the following case types to CIS/AM:

A regulated investment company (RIC) may elect to keep and pay income tax on certain capital gain income it received during the tax year. The RIC is required to issue a Form 2439 to each of its shareholders for the amount of the undistributed capital gain to be included on the shareholders Schedule D, Form 1040. In addition, the tax paid by the RIC may be claimed by its shareholders as a credit on their respective Form 1040s.

The shareholder should attach Copy B, Form 2439, to the original or amended tax return. Do not reject claim or correspond for a missing Form 2439 if the taxpayer claims ≡ ≡ ≡ ≡ ≡ ≡ ≡ . If the amount claimed on Line 15 (1040X) is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , correspond.

Loose Forms 2439, Copy A and/or B, may be received. If " NOMINEE" is noted at the top of the form, no adjustment is made to the taxpayers account. Associate the form with the return of the taxpayer who appears in the "Shareholder's" name and address box. (If this is a company entity, route to BMF.)

Action required:

Form 4136 must be attached to an income tax return (Form 1040) or an amended tax return (Form 1040X), if credit claimed is ≡ ≡ ≡ ≡ ≡ ≡ ≡ , and be filed within the statute of limitations. If not present, correspond. If credit claimed is less than ≡ ≡ ≡ ≡ ≡ , and no form attached, do not correspond, process using CRN 362 and RC 061. If present, process using CRNs on the Form 4136 that correspond with the changes the taxpayer has made and RC 061.

Form 4136 claiming a credit of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ is CAT A criteria .

The telephone excise tax has been in place continuously since 1898 the date of the Spanish-American War; it has actually been repealed and reinstated several times, usually in times of war or economic crisis. Per Notice 2006-50 the Internal Revenue Service will no longer collect the federal excise tax on long distance and local service as this excise tax does not apply to long distance service and bundled service as it invoiced today.

The Federal Telephone Excise Tax/Telecommunications Excise Tax Refund is a one-time payment available on 2006 federal income tax returns, designed to refund previously collected long-distance federal excise taxes. It is available to anyone who paid long-distance taxes on land line, cell phone or Voice over Internet Protocol (VoIP) service.

On May 10, 2005 The American Bankers Insurance Group won an important victory in the fight against the telephone excise tax, when the United States Court of Appeals for the Eleventh Circuit reversed the decision of the United States District Court for the Southern District of Florida, which had held that the services that ABIG purchased from AT and T were taxable. These cases hold that a telephonic communication for which there is a toll charge that varies with elapsed transmission time and not distance (time-only service) is not taxable toll telephone service as defined in §4252(b)(1) of the Internal Revenue Code. As a result, amounts paid for time-only service are not subject to the tax imposed by §4251.

A telephone excise tax refund request allows taxpayers to request a one-time refund of the telephone excise taxes they paid on long distance service over a 41 month period including interest. Taxpayers may request a refund of tax on nontaxable service that was billed after February 28, 2003, and before August 1, 2006, only on the 2006 federal income tax returns. For this purpose, the 2006 Federal income tax return is the income tax return with a tax period ending 200612. The refund statute is open for six years from July 26, 2006 to July 25, 2012.

Form 8913 is used to figure the credit or refund of the federal excise tax paid when using the actual or estimation method.

Data Transcription in Submission Processing (SP) will only transcribe Line 15 of Form 8913. Each individual period shown on Form 8913 will not be transcribed. Command Code RTVUE/TRDBV will show Line 15(d), total amount of credit, and Line 15(e), total amount of interest.

The following procedures will be used in Submission Processing to process these claims.

1040EZ-T

1040EZ claiming TETR without Form 8913

1040EZ claiming TETR with Form 8913

If the individual shown on the TETR request died before March 2003, SP will disallow the request and send a Letter 105C , Claim Disallowed.

Any TETR claims that are identified as Substitute For Return (SFR or ASFR) treat as classified waste. Compliance will address the TETR when they process the return.

On claims that do not have a TC 150 posted to the account see IRM 3.11.6.4 for processing instructions.

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If the individual does not figure the interest column on the Form 8913, then the TETR tax will be reduced by 14% and the corresponding amount will be entered as the TETR interest. These returns can be identified by a difference in the amounts shown on CC RTVUE and the amount shown on CC TXMOD. CC RTVUE will show the TETR tax on Form 8913, Line 15(d) and nothing for the TETR interest on Form 8913, Line 15(e). CC TXMOD will show both the reduced TETR tax and the TETR interest.

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Normal math error procedures do not apply to the TETR requested on the federal income tax return or Form 1040-EZ-T. Math error procedures apply to the remainder of the return not associated with the TETR.

The following Taxpayer Notice Codes (TPNC) will be used to inform the individual of the changes associated with TETR:

If TETR was not previously allowed then adjust the account to allow the standard amount of $30/$40/$50/$60 based on the number of exemptions claimed (If Form 1040-EZ-T is involved allow $30 if one name is listed on the form or $40 if a spouse is listed on the form).

If TETR was previously allowed then disallow the request and send the taxpayer a Letter 105C, Claim Disallowed. The open paragraph must state "We have disallowed the credit amount claimed since you did not submit the requested documentation to substantiate the amount of federal excise tax you paid for long-distance and bundled service after February 28, 2003 and before August 1, 2006 or the substantiation submitted was incomplete and did not verify the credit claimed." Include Appeal rights in the letter.

Credit Reference Number (CRN) 253 indicates the telephone excise tax (Line 15(d) of Form 8913) and CRN 254 indicates the interest portion of the credit (Line 15(e) of Form 8913).

Input Credit Reference Number (CRN) 253 to adjust the tax portion of the credit. Use a minus sign (-) when decreasing the TETR tax. The CRN 253 will generate a TC 766 (increase) or TC 767 (decrease).

Input Credit Reference Number (CRN) 254 to adjust the interest portion of the credit. Use a minus sign (-) when decreasing the TETR interest. The CRN 254 will generate a TC 770 (increase) or TC 772 (decrease) but will not restrict the module. Both the TC 770 and TC 772 will generate with a "997" Julian Date in the Document Locator Number (DLN).

Normally, both the Credit Reference Number (CRN) 253 and CRN 254 will be input when adjusting the TETR. However, if adjusting only the TETR tax or TETR interest, IDRS will generate the warning message "MSG-269 ARE BOTH CRNS 253/254 NEEDED?/OVR-CD E IN POSITN 1 TO CONTINUE". Enter "E" to bypass the error message.

The Housing and Economic Recovery Act of 2008 (HERA): For homes purchased after April 8, 2008 and before January 1, 2009, the taxpayer can claim a credit of the lesser of 10% of the purchase price of the home or $7,500 ($3,750 for FS 3).

The American Recovery and Reinvestment Tax Act of 2009 (ARRA): For homes purchased after December 31, 2008 and before November 7, 2009, the taxpayer can claim a credit of the lesser of 10% of the purchase price of the home or $8,000 (4,000 for FS 3).

The Worker, Home Ownership, and Business Assistance Act of 2009 (WHBAA): For homes purchased after November 6, 2009 and before May 1, 2010, the taxpayer can claim a credit of the lesser of 10% of the purchase price of the home or $8,000 (4,000 for FS 3).

Under WHBAA, for homes purchased after April 30, 2010 and before October 1, 2010, the taxpayer must close before October 1, 2010 and can claim a credit of the lesser of 10% of the purchase price of the home or $8,000 (4,000 for FS 3).

Under WHBAA, Long time residents (LTHBC): For homes purchased after November 6, 2009 and before May 1, 2010, the taxpayer can claim a credit of 10% of the purchase price up to $6,500.

Under WHBAA, Long time residents (LTHBC): For homes purchased after April 30, 2010 and before July 1, 2010 the taxpayer must close before October 1, 2010. The taxpayer can claim a credit of 10% of the purchase price up to $6,500.

Under WHBAA, members of the armed services, Foreign Service officers and the intelligence community must close before May 1, 2011. This applies to any individual (and, if married the individual's spouse) who serves on qualified official extended duty service outside of the U.S. for at least 90 days during the period beginning December 31, 2008, and ending before May 1, 2010.

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Any recapture of the First Time Homebuyer Credit or acceleration of recapture will be routed to CIS/AM.

As part of the Economic Stimulus Act of 2008, eligible individuals were sent an Economic Stimulus Payment (ESP) giving them an advance payment of the 2008 Recover Rebate Credit (RRC). The RRC is figured in the same manner as the ESP except that the amounts are based on Tax Year (TY) 2008 instead of TY 2007.

Individuals may be eligible to claim the RRC on their 2008 tax return only if:

Taxpayers whose ESP is larger than the RRC amount figured on the 2008 tax return will not have to pay back the difference.

Individuals who did not qualify for the ESP claim the RRC on their 2008 tax return, provided they are otherwise eligible.

If the taxpayer states he/she did not receive their ESP check and it appears on the 2007 tax account, route to CIS/AM.

Check TY 2007, if taxpayer received the ESP and is requesting the RRC on the 2008 Form 1040X, calculate what the 2008 RRC should be and:

If the taxpayer has already received the RRC for the maximum amount, input TC 290 .00 and send 76C letter using paragraphs A, L and 0. Use the following fill-in: "We did not allow the Recovery Rebate Credit because our records indicate that you previously received the maximum amount based on your 2008 tax return" .

For tax years 2009 and 2010, the Making Work Pay provision will provide a refundable tax credit of up to $400 for individuals and $800 for married taxpayers filing joint returns. This credit is reported on Schedule M and will be entered on Form 1040, line 63 or Form 1040A, line 40. The credit will be calculated at a rate of 6.2% of earned income up to $6,451 ($12,903 if married filing jointly) for a maximum credit of $400 and $800 respectively. The 6.2% calculation will only come into play when the earned income is lower than the $6,451 and $12,903 figures.

Effective for tax year 2010 the Schedule M was changed to"Making Work Pay Credit" . The" Government Retiree" section was eliminated for tax year 2010. For tax years 2009 and 2010 the credit is reported on each respective (2009 and 2010) Schedule M. For tax year 2010 Schedule M consists only of the "Making Work Pay Credit" .

Schedule M must be submitted with the 1040X (See exception and note). If it is missing correspond per 3.11.6.9.2. For box 20 use the following fill in, "Schedule M is required, please send us the completed schedule. If other issues are present recompute the correct amount column and continue to process the return for the other issues.

In 2010 the "Making Work Pay Credit" will be reduced if the taxpayer (or spouse if married filing jointly) received a $250 Economic Recovery Payment (ERP from SSA/VA or RRB during 2010.

In 2009 the "Making Work Pay Credit" will be reduced if either of the following situations occur:

The credit will begin to phase out for taxpayers with an adjusted gross income (AGI) in excess of $75,000 ($150,000 for married couples filing jointly) and the credit will be eliminated completely when the AGI is $95,000 ($190,000) or more. The credit is reduced by 2% of the dollar amount that exceeds the threshold amount.

For people who receive a paycheck and are subject to withholding, the credit was typically handled by their employers through automated withholding changes made in early spring. These changes resulted in an increase in the amount of take-home pay. Even though a taxpayer’s withholding was reduced during 2009 because of the credit, Schedule M still must be completed and the credit must be claimed in order to benefit from it. Taxpayers who do not have taxes withheld by an employer during the year can also use Schedule M to claim the credit on the 2009 tax return filed in 2010.

In addition to the Making Work Pay Credit, certain government retirees will also be eligible for a Government Retiree Credit in tax year 2009 only in an amount equal to $250 ($500 in the case of a joint return where both spouses are eligible individuals) with certain limitations. The taxpayers qualify if they received a pension or annuity payment in 2009 for service performed for the U.S. Government or any U.S. state or local government (or any agency of one or more of these) and the service was not covered by social security. This is also reported on Schedule M and attached to the Form 1040.

The credit phase out due to AGI does not apply to the government retiree’s credit. In 2009 Submission Processing will code the return with SPC "M" if the "Yes" box on Line 11 of Schedule M is checked or there is an amount present on Line 11.

The Economic Recovery Payment (ERP) is a $250 payment sent to the taxpayer directly by the U.S. Treasury representing social security benefits, supplemental social security benefits, veterans disability benefits, and/or railroad retirement benefits. Each taxpayer may have received a $250 payment from a different agency. These payments were NOT issued from IRS accounts. The agencies sent electronic files to IRS and can be researched on the CC INOLE response screen. These payments could have been issued in 2009 or 2010.

CC INOLE(S) and CC INOLE(X) responses will display the new literal "ERP" (Economic Recovery Payment) with the following literals:

The IRS will match the information provided from each agency against what the taxpayer has claimed and process the return accordingly.If the taxpayer's amount claimed does not match the agency's data, a corrected refund or adjusted balance due will be issued to the taxpayer with a math error notice. If the taxpayer calls, writes or files an amended return with the Service in response to the math error notice, they will have to contact the appropriate agency to resolve the discrepancy with the economic recovery payment.

The Making Work Pay Credit will be reduced by the amount of any economic recovery payment and/or Government Retiree Credit.

To take either credit, the social security number must be included (). A social security number does not include an identification number issued by the IRS.

A non-resident alien is not eligible for the Making Work Pay credit. However, a non-resident alien might be eligible for the Government Retiree credit, but this would be processed as an NR claim and would not be processed in submission processing.

Taxpayers are not eligible for Making Work Pay credit if they can be claimed as a dependent on someone else’s return. If a taxpayer removes his personal exemption the Making Work Pay credit will have to be removed. If a taxpayer removes Schedule M or states they are not eligible for the credit (s) then the Making Work Pay credit and Government Retiree credit would also be removed.

Adjusting the tax account:

When reviewing Forms 1040X in response to math error notices (TPNC 664, 665, 667) determine on CC INOLE if the taxpayer received an ERP payment. If the taxpayer states he did not receive the payment do not allow the $250 amount unless there is a letter from the agency stating there was an error. Follow math error procedures in IRM 3.11.6.6.6 and fill-in: we have information from another agency that indicates the taxpayer received an Economic Recovery Payment of $XXX and therefore we reduced the Schedule M credit by this amount.

If the taxpayer does not compute the Making Work Pay Credit on the tax return, the credit will be calculated for the taxpayer and TPNC 661 will be assigned. A new notice will generate to the taxpayer (CP 11M, 12M, or 13M). This notice has a special toll free number (1-800-908-4184) to assist taxpayers in understanding why this credit was given to the taxpayer.

The Schedule M credit is completely eliminated due to the Adjusted Gross Income

The Schedule M Credit is being phased out and the taxpayer has not addressed the phase out amount and/or has calculated the phase out amount incorrectly.

If the taxpayer already received the Making Work Pay or the Government Retiree Credit Schedule M

The taxpayer is not eligible for the credit:

Taxpayer was given the credit in original processing Math Error 661

For claims involving the refundable portion of the American Opportunity Tax Credit (Form 8863) see IRM 3.11.6.8.6.7 for processing procedures.

EITC is denied if taxpayer receives investment income (sometimes referred to as disqualified income) of more than a certain amount. The maximum amount of investment (disqualified) income is:

Investment income includes: