3.11.14  Income Tax Returns for Estates and Trusts (Forms 1041, 1041-QFT, and 1041-N) (Cont. 2)

3.11.14.13 
♦Entity Perfection – General♦

3.11.14.13.5  (01-01-2014)
♦Entity Perfection – Foreign Address♦

  1. A foreign (international) address is any address that is not in the 50 states or the District of Columbia.

  2. Returns with APO/DPO/FPO addresses are considered domestic addresses. See IRM 3.11.14.13.4 .

  3. Route returns with a foreign address to Ogden Submission Processing Campus (OSPC) for processing. Prepare Letter 86C to inform the taxpayer that the return has been sent to Ogden.

    Exception:

    All 1040-NR Fiduciary returns filed using an EIN instead of a SSN are processed in Cincinnati as Non-Master File (NMF). Fiduciary Form 1041, that has a Form 1040-NR attached for an individual (SSN) will be forwarded to Austin SPC for processing.

  4. Returns with addresses in the following U.S. Possessions/Territories are considered to be foreign for processing purposes but are edited in the same way as domestic addresses.

    1. A two-character alpha code must be edited for the Possession/Territory name:

      U.S. Possession/Territory Abbreviation
      American Samoa AS
      Federated States of Micronesia FM
      Guam GU
      Marshall Islands MH
      Northern Mariana Islands MP
      Palau PW
      Puerto Rico PR
      Virgin Islands (U.S.) VI

    2. A ZIP code must be present for U.S. Possessions/Territories. Edit the appropriate ZIP code if one is not provided. See Exhibit 3.11.14-18 .

  5. All other foreign addresses are edited the same as a domestic address with the following exceptions:

    1. The foreign country must be the last entry in the address.

    2. Circle the foreign country and edit the country code preceded by a "/" and followed by "/$" (e.g., "/GM/$" is edited for Germany). See Document 7475, State and Address Abbreviations, Major City codes (MCCs), ZIP Codes and Countries, for official foreign Country Codes.

    3. A unique country code will be edited for returns filed with an address in Canada. See IRM 3.11.14.13.5.1 , Country Code - Canada.

      Note:

      Submission Processing BMF Foreign Address Job Aid (Number 2324–002) provides examples for editing foreign addresses.

    4. If the foreign address is from Australia, Brazil, Canada, Cuba, Italy, Mexico or The Netherlands, check if the address contains a province, state or territory. See Exhibit 3.11.14-19

    If .. Then ...
    A province, state or territory is present,
    1. Circle the province, state or territory name.

    2. Edit the appropriate abbreviation. See Exhibit 3.11.14-19

    Province, state, or territory is shown in abbreviated format, Continue editing the return.
    A province, state, or territory is not present, Continue editing the return.

  6. A ZIP code or state is not required on a foreign address. Foreign addresses use a postal code that is entered before the city or foreign country and is part of the address.

3.11.14.13.5.1  (01-01-2014)
♦Country Code - Canada♦

  1. In an effort to assist Compliance with workload assignment, returns filed with an address in Canada will be edited using a unique country code based on the province/territory.

    If ... Then ...
    The foreign address contains a Canadian Province/Territory name or abbreviation shown in the table below,
    1. Circle the country name.

    2. Edit the appropriate Country Code based on the province/territory preceded by a "/" and followed by a "/$" as the last entry in the address.

    The foreign address does not contain a Canadian Province/Territory name or abbreviation shown in the table below,
    1. Circle the country name.

    2. Edit the Country Code "/CA/$" as the last entry in the address.

    Canadian Province Province Abbreviation Country Code
    Alberta AB XA
    British Columbia BC XB
    Manitoba MB XM
    New Brunswick NB XN
    Newfoundland and Labrador NL XL
    Northwest Territories NT XT
    Nova Scotia NS XS
    Nunavut NU XV
    Ontario ON XO
    Prince Edward Island PE XP
    Quebec QC XQ
    Saskatchewan SK XW
    Yukon YT XY

  2. The rest of the foreign address is edited using procedures in IRM 3.11.14.13.5 .

3.11.14.14  (01-01-2014)
Section "E" – Nonexempt Charitable and Split-Interest Trusts

  1. Section "E" , Nonexempt charitable and split-interest trusts, is located in the upper-right corner of Form 1041.

  2. Edit Audit Code "6" in the left margin next to Line 10 in "1 - 6" format, if either box is checked:

    If ... Then ...
    The Described in section 4947(a)(1) box is checked, Edit Audit Code "6" .
    The Described in section 4947(a)(2) box is checked Edit Audit Code "6" and Fiduciary Code "9"

3.11.14.15  (01-01-2014)
Section "F" – Type of Return Filed (Initial, Final, Amended, etc.)

  1. Section "F" of Form 1041 provides the taxpayer with check boxes to indicate any of the following:

    If ... Then ...
    Initial Return See IRM 3.11.14.11.3
    Final Return See IRM 3.11.14.11.2
    Amended Return See IRM 3.11.14.8.1
    Change in Fiduciary See IRM 3.11.14.13.2
    Change in Fiduciary's Name See IRM 3.11.14.13.2
    Change in Fiduciary's Address See IRM 3.11.14.13.2
    Change in Trust's Name See IRM 3.11.14.13.2

3.11.14.16  (01-01-2014)
Form 1041, Income Section (Lines 1–9)

  1. This subsection provides instructions for editing Lines 1 through 9 of Form 1041. Edit Lines 1 through 9 in dollars only.

  2. Do not bracket any entry, unless editing or computing a negative amount.

  3. Perfect all illegible or misplaced entries (when possible).

  4. Delete misplaced entries and edit to the appropriate lines.

  5. If a Nontaxable Grantor Trust do not edit amounts from schedules or attachments to Lines 1 through 9, Form 1041. "X" Schedules I and/or D if transcription entries are present.

3.11.14.16.1  (01-01-2014)
Line 1 – Interest Income

  1. Accept taxpayer's entry.

3.11.14.16.2  (01-01-2014)
Line 2a – Total Ordinary Dividends

  1. Accept taxpayer's entry.

3.11.14.16.3  (01-01-2014)
Line 2b(2) – Qualified Dividends

  1. Qualified Dividends Allocable to Estate or Trust are reported on Line 2b(2) of Form 1041.

  2. If present, Line 2b(2) must be a positive amount. Never bracket a Line 2b(2) amount as a loss.

    1. Though transcribed, Line 2b(2) is not used in the computation of Total Income (Line 9). Instead, Line 2b(2) is combined with Line 2b(1) (Qualified Dividends Allocable to Beneficiaries) to equal the amount reported on Line 2a.

  3. If Line 2b(2) is blank or illegible and the Qualified Dividends Allocable to Estate or Trust are reported on attachments to the return, determine the correct amount and perfect Line 2b(2). If the correct amount cannot be determined, do not perfect Line 2b(2) or correspond for Qualified Dividend information.

  4. If an amount is present on Line 23 of Schedule D and Line 2b(2), page 1, of 1041 is blank, edit the amount from Line 23 to Line 2b(2) of 1041.

    Exception:

    If the ESBT box is checked on Form 1041, do not edit the amount to Line 2b(2) of Form 1041.

3.11.14.16.4  (01-01-2014)
Line 3 – Business Income (or Loss)

  1. A Schedule C/C-EZ (Form 1040) or equivalent (computer printouts, written attachments, etc.) must be attached to Form 1041 if an amount ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ is present on Line 3 of Form 1041. ( Figure 3.11.14-31 )

  2. Edit Line 3 as follows:

    If ... And ... Then ...
    Line 3 contains an entry ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Schedule C/C-EZ (Form 1040) or equivalent is blank or missing, Correspond for the missing Schedule.
    If Line 3 is blank or illegible, Schedule C/C-EZ (Form 1040) or equivalent is present,
    1. Edit amount from Line *31, Schedule C to Line 3 of Form 1041.

    2. Bracket Line 3 if a loss.


    *(Line 3, Schedule C-EZ)

    Note:

    Line 31 of Schedule C reflects the Business Income (or Loss) and Line 3 of Schedule C–EZ reflects Business Income only.

    Figure 3.11.14-31
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    Line 3 - Business Income or Loss (Sch C or C EZ (Form 1040))

3.11.14.16.5  (01-01-2014)
Line 4 – Capital Gain or Loss/Schedule D

  1. The total gain or loss from the sale or exchange of capital assets is reported on Line 4 of Form 1041.

  2. Line 4 cannot have an amount in excess of -$3,000. If the taxpayer enters more than -$3,000, X the entry and edit -$3,000 to Line 4.

    Exception:

    On a Final return, allow losses exceeding $3,000 but only if it is entered by the taxpayer on Line 4. Tax examiners should not enter a loss greater than $3,000 on Line 4, if blank.

  3. Form 8824 must be attached if Schedule D (Form 1041) or Form 4797 (Sales of Business Property) is attached to Form 1041 and the filer has notated "RELATED PARTY LIKE-KIND EXCHANGE" on Schedule D or Form 4797.

  4. Schedule D must be attached if an amount≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ is present on Line 4 of Form 1041.

    If Schedule D is not attached and ... Then ...
    Line 4 of Form 1041 contains an entry≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Correspond.
    Form 8824 is attached with an amount greater than zero on Line 22, Correspond, regardless of the entry on Line 4 of Form 1041.

    Reminder:

    Edit CCC "1" when Form 8824 is attached.

    Form 4952 is attached and an amount is present on Line 4g (Form 4952), See IRM 3.11.14.35. Correspond.

  5. Do not edit Line 4 if corresponding.

  6. Only a Schedule D (Form 1041) is acceptable. If the taxpayer substitutes a Schedule D from any other tax return )i.e., Form 1040, Form 1065, Form 1120, etc.), correspond.

  7. Edit Schedule D in dollars only.

  8. Only one Schedule D can be processed. If more than one is attached, take the following actions:

    Note:

    If Line 19(3)/20 is blank, compute by adding Lines 19(1) and 19(2), Use the comparison with Line 4, Form 1041. It is not necessary to edit Line 19(3).

    If ... Then ...
    Line 4 of Form 1041 equals Line 19(3)/20 of one of the Schedules D,
    1. Process the Schedule D that matches Line 4 of Form 1041.

    2. "X" the remaining Schedules D.

    3. Move deleted Schedules D out of sequence order.

    Line 4 of Form 1041 equals the combined totals of the multiple Schedules D Line 19(3)/20,
    1. Edit the combined totals of the Schedules D to the first Schedule D.

    2. Bracket if negative.

    3. "X" the remaining Schedules D.

    4. Move deleted Schedules D out of sequence order.

    Line 4 of Form 1041 equals Line 19(3) or Line 20 on more than one of the attached Schedules D,
    1. Delete any Schedules D with annotations such as Alternative Minimum Tax, AMT, S-Corp Portion, ESBT Portion, etc.

    2. Move deleted Schedules D out of the sequence order.

    Line 4 of Form 1041 does not equal Line 19(3) or Line 20 on any of the attached Schedules D, Correspond to determine the correct Schedule D amount.

  9. Transcription of page 1, Schedule D will only be for tax year 2013 and subsequent tax returns with a current revision of Schedule D attached. At this time, we are only capturing the data entered on the Schedule D. If a prior revision is used, line through page 1, Schedule D and only convert page 2 line numbers.

3.11.14.16.5.1  (01-01-2014)
Schedule D, Part III, Page 2

  1. When Schedule D (Form 1041) is attached the following lines will be transcribed from Schedule D, Part III Column 2, Page 2.

    • Line 17 (Net Short-Gain or Loss) -- Positive or negative.

    • Line 18a (Net Long-Term Gain or Loss) -- Positive or negative.

    • Line 18b (Unrecaptured Section 1250 Gain) -- Positive only. Do not"X" if negative.

    • Line 18c (28% Rate Gain or Loss) -- Positive or negative.

    • Line 19 (Total Net Gain or Loss) -- Positive or negative.

  2. Line 4 is verified with entries, if any reported on Schedule D, Part III, except when Schedule D is attached to a "Nontaxable" Grantor Trust.

    1. When comparing entries on Line 4 of Form 1041 and Schedule D, Part III, ensure that Schedule D, Part III is complete. "Dummy" Schedule D, Page 2 if missing:

      Exception:

      Do not "dummy" or complete a Schedule D if attached to a "Nontaxable" Grantor Trust or if corresponding for other missing items. If corresponding, include the request for Schedule D in the correspondence to the filer. Do not edit Form 1041, Line 4, if corresponding for missing Schedule D.

    If ... Then ...
    The Schedule D, Line 7 amount equals Line 4 (Form 1041) and no amount on Schedule D, Line 16,
    1. Edit the Line 7 amount to Lines 17(2) and 19(2).

    2. Bracket if negative.

    The Schedule D, Line 16 amount equals Line 4 (Form 1041) and no amount on Schedule D, Line 7,
    1. Edit the Line 16 amount to Lines 18a(2) and 19(2).

    2. Bracket if negative.

    The total of Schedule D, Lines 7 and 16 equals Line 4 (Form 1041),
    1. Edit the Line 7 amount to Lines 17(2).

    2. Edit the Line 16 amount to Lines 18a(2).

    3. Compute the total of Lines 17(2) and 18a(2). Edit the total to Line 19(2).

    4. Bracket if negative.

    The total of Schedule D, Lines 7 and 16 does not equal Line 4 (Form 1041),
    1. Do not dummy Schedule D, Page 2.

    2. Correspond.

    If Schedule D, Part III, Columns (1) and (2) are both blank… And ... Then ...
    Line 17, Schedule D, Line 7 has an entry,
    1. Edit the amount from Line 7 to Line 17(2).

    2. Bracket if negative.

    Schedule D, Line 7 is blank but there are entries in Lines 1a - 6, Column (f),
    1. Compute the total of Lines 1a - 6 Column (f) and edit to Line 17(2).

    2. Bracket if negative.

    Line 18a, Schedule D, Line 16 has an entry,
    1. Edit the amount from Line 16 to Line 18a(2).

    2. Bracket if negative.

    Schedule D, Line 16 is blank but there are entries in Lines 8a - 15, Column (f),
    1. Compute the total of Lines 8a - 15, Column (f) and edit to Line 18a(2).

    2. Bracket if negative.

    Line 19, Entry(s) present in Line 17, Column (2) and/or Line 18a, Column (2),
    1. Compute the total of Line 17(2) and Line 18a(2).

    2. Edit the amount to Line 19(2).

    3. Bracket if negative.

  3. Verify Line 4 of Form 1041 with amounts reported on Schedule D, Part III as follows:

    Exception:

    If the ESBT box is checked on Form 1041, do not edit money amounts from Schedule D to Line 4 of Form 1041.

    If ... And ... Then ...
    Line 4 has a positive entry, Line 4 equals Line 19(3), Take no action.
    Line 4 does not equal Line 19(3),

    Note:

    Compute line 19(3) when necessary.

    1. "X" the amount on Line 4.

    2. Edit the amount reported on Line 19(3) of Schedule D in its place.

    Line 4 has a negative entry of $3,000 or less, Line 4 equals Line 20 (Line 19(3), if Line 20 is blank, zero or illegible), Take no action.
    Line 4 does not equal Line 20 (Line 19(3), if Line 20 is blank, zero, or illegible),
    1. X” the amount on Line 4.

    2. Edit the amount reported on Line 20 (Line 19(3) if Line 20 is blank, zero, or illegible) in its place.

    3. Bracket the edited amount.

      Note:

      Do not edit more than ($3,000).

    Line 4 has a negative entry greater than 3,000, Form 1041 is not a Final return,
    1. "X" the amount on Line 4.

    2. Edit $3,000 on Line 4.

    3. Bracket the edited amount.

    Figure 3.11.14-32
    Form 1041 is a Final return, Take no action.
    Line 4 is blank, zero, or illegible, A positive entry (a gain) is present on Line 19(3), Edit the amount from Line 19(3) to Line 4 of Form 1041. See Figure 3.11.14-33
    A negative entry (a loss) of $3,000 or less is present on Line 20 (Line 19(3), if Line 20 is blank, zero, or illegible),
    1. Edit the amount from Line 20 (Line 19(3) if Line 20 is blank, zero, or illegible) to Line 4 of Form 1041.

    2. Bracket the edited amount.

    A negative entry (a loss) greater than $3,000 is present on Line 20, (Line 19(3), if Line 20 is blank, zero, or illegible),
    1. Edit $3,000 to Line 4 of Form 1041.

    2. Bracket the edited amount.

    Edit $3,000 to Line 4 of Form 1041.

    Figure 3.11.14-32

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    Line 4 - Capital Gains and Losses (Sch D, Form 1041)

    Figure 3.11.14-33

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    Line 4 blank - Determine Schedule D Income/Loss

3.11.14.16.5.2  (01-01-2014)
Schedule D, Part V, Page 2

  1. Schedule D, Part V, page 2, Tax Computation Using Maximum Capital Gains Rates is completed by the taxpayer when both Lines 18a and 19 in column (2) are gains, or an amount is entered in Part I or Part II and there is an entry on Form 1041, Line 2b(2) and Form 1041, line 22 is more than zero.

  2. If Line 43 is blank, compute by adding Lines 37, 41, and 42.

  3. If an amount is present on Line 23 of Schedule D and Form 1041, Page 1 Line 2b(2) is blank, edit the amount from Schedule D, Line 23 to Line 2b(2) of Form 1041.

    Exception:

    If the ESBT box is checked on Form 1041, do not edit the amount to Line 2b(2) of Form 1041.

  4. If an amount is present on Line 45 of Schedule D and Line 1a of Schedule G is blank, edit amount from Line 45 to Line 1a of Schedule G.

3.11.14.16.5.3  (01-01-2014)
Schedule D-1, Continuation

  1. Schedule D-1 (Form 1041) Is used to report gains and losses from the sale or exchange of capital assets if there are more transactions to report than spaces on Lines 1a or 6a of Schedule D.

  2. Schedule D-1 should be attached to support Line 1b and/or Line 6b of Schedule D.

    Note:

    Do not correspond for missing Schedule D-1 unless you are corresponding for other items.

  3. If an amount is present on Line 6b of Schedule D and Schedule D-1 or supporting attachment is missing:

    If ... Then ...
    Corresponding for other missing information (ie., Schedules, Forms, signature, etc.), Include the request for missing Schedule D-1 in the correspondence to the filer.
    No other correspondence items, No action necessary.

  4. Move Schedule D-1 out of the sequence order for Form 1041.

3.11.14.16.6  (01-01-2014)
Line 5 – Rents, Royalties, Partnerships, Other Estates and Trusts, etc.

  1. All income or losses from rents, royalties, partnerships, other estates and trusts (except dividends, certain interest, and capital or ordinary gains and losses and depreciation) are reported on Line 5 of Form 1041.

    Note:

    Effective TY 2007 and subsequent, farm rental is no longer reported on Form 4835, and should be reported on Schedule E, line 40.

  2. A Schedule E (Form 1040) or equivalent (e.g., computer printouts, written attachments, etc.) must be attached to Form 1041 if an amount ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ is present on Line 5 of Form 1041.

  3. Edit Line 5 as follows:

    If ... And ... Then ...
    Line 5 contains and entry ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Schedule E (Form 1040) or equivalent is blank or missing, Correspond for the missing Schedule.
    If Line 5 is blank or illegible, Schedule E (Form 1040) or equivalent is present, Edit amount from Line 41, Schedule E to Line 5 of Form 1041. Figure 3.11.14-34

    Figure 3.11.14-34

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    Line 5 - Rents, royalties, ... (Sch E, Form 1040)

3.11.14.16.7  (01-01-2014)
Line 6 – Farm Income (Loss)

  1. All farm income or losses are reported on Line 6 of Form 1041.

  2. A Schedule F (Form 1040) or equivalent (e.g., computer printouts, written attachments, etc.) must be attached to Form 1041 if an amount ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ is present on Line 6 of Form 1041.

  3. Edit Line 6 as follows:

    If ... And ... Then ...
    Line 6 contains an entry ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Schedule F (Form 1040) or equivalent is blank or missing, Correspond for the missing Schedule.
    Line 6 is blank or illegible, Schedule F (Form 1040) or equivalent is attached, Edit amount from Line 34, Schedule F to Line 6 of Form 1041. (Figure 3.11.14-35)

    Figure 3.11.14-35

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    Line 6 - Farm Income and Loss (Sch F, Form 1040)

3.11.14.16.8  (01-01-2014)
Line 7 – Ordinary Gain (or Loss) from Form 4797

  1. A Form 4797 or equivalent (e.g., computer printouts, written attachments, etc.) must be attached to Form 1041 if an amount is present on Line 7 ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

  2. Edit Line 7 as follows:

    If ... Then ...
    Line 7 contains an entry ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ but Form 4797 (or equivalent) is not attached, Edit Missing Schedule Code "35" .
    Form 4797 is attached, compare Line 7, of Form 1041 with Line 17* of Form 4797, *(Line 18 for 2003 and prior) If different, edit Form 4797 amount to Form 1041, Line 7.

  3. Form 8824must be attached if Form 4797 (Sales of Business Property) or Schedule D is attached to Form 1041 and the filer has notated "RELATED PARTY LIKE-KIND EXCHANGE" on Form 4797 or Schedule D. Correspond for Form 8824 if missing.

    Reminder:

    Edit CCC "1" if Form 8824 is attached.

3.11.14.16.9  (01-01-2014)
Line 8 – Other Income (or Loss)

  1. Other income or loss not shown on lines 1 through 7 is reported on Line 8 of Form 1041.

  2. An amount on Line 8 may be supported by an attached statement:

    If ... Then ...
    If an amount from Form 982 or Form 4972 is present on Line 8, Treat as a misplaced entry. Decrease the Line 8 amount by the amounts from Form 982 or Form 4972.

    Note:

    Form 4972 amount will be edited to Line 1b on Schedule G.

    Other Income items are included on Lines 1 - 7, Add all the "Other Income" items and include in Line 8. Bracket if negative.
    A statement is not attached, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    The attachment shows the type of income to be the same as that reported on any of Lines 1 through 7, Decrease the Line 8 amount by that amount and increase the appropriate Income line (Lines 1 through 7). ( Figure 3.11.14-36 )
    Line 8 is blank or illegible and "Other Income" is reported on an attachment to Form 1041, Determine if the amount has been reported elsewhere on the return. If unable to determine, edit the amount to Line 8 of Form 1041.
    The amount on Line 8 does not match the amount on the attachment and there are entries leading to the correct amount, Edit the correct amount on Line 8 of Form 1041.

    Caution:

    The Net Operating Loss (NOL) must be reported on Line 15b. If reported on any other line, "X" the amount, edit to Line 15b as a positive amount only, and adjust the appropriate Total line(s).

    Figure 3.11.14-36

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    Line 8 - Other Income

3.11.14.16.10  (01-01-2014)
Line 9 – Total Income (Loss)

  1. The total income or loss (sum of Lines 1 through 8) is reported on Line 9 of Form 1041.

  2. Edit Line 9 as follows:

    If ... Then ...
    Line 9 is blank or illegible but there are entries on Lines 1 through 8 and/or attachments, Compute and edit amount to Line 9 of Form 1041.
    Line 9 is the only entry in the Income Section, Edit the Line 9 amount to Line 8 of Form 1041.

    Note:

    Do not recompute Line 9 if editing amounts from attached schedules or attachments (to Lines 1 - 8).

3.11.14.17  (01-01-2014)
Form 1041, Deductions Section (Lines 10–21)

  1. This subsection provides instructions for editing Lines 10 through 21 on Form 1041. Edit Lines 10 through 21 in dollars only.

  2. Do not bracket any entry, unless editing or computing a negative amount.

  3. Perfect all illegible or misplaced entries (when possible).

  4. Delete misplaced entries and edit to the appropriate lines.

3.11.14.17.1  (01-01-2014)
Lines 10 through 15c

  1. All authorized deductions on Page 1 of Form 1041 are to be reported on Lines 10 through 15c.

  2. Lines 10 through 15c consist of the following items:

    • Line 10 – Interest Deduction.

    • Line 11 – Taxes.

    • Line 12 – Fiduciary Fees.

    • Line 13 – Charitable Deductions.

    • Line 14 – Attorney, Accountant and Return Preparer Fees.

    • Line 15a – Other Deductions not Subject to the 2% Floor.

    • Line 15b - Net Operating Loss Deduction.

    • Line 15c – Allowable Miscellaneous Itemized Deductions Subject to the 2% Floor.

  3. After perfecting Lines 10 through 14, from taxpayer entry on return, edit the balance to Line 15(a). ( Figure 3.11.14-37 )

    Figure 3.11.14-37

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    Allocating Deductions

  4. Lines 10 through 15c will normally be positive.

  5. If a negative amount is present on any of Lines 10 through 15c, determine from Lines 16 and 17 as instructed in the table below:

    If ... Then ...
    Line 16 is positive,
    1. "X" (delete) the negative amounts on Lines 10 through 15c

    2. Move the deleted amounts from Lines 10 through 15c to Line 8 as a positive amount.

    3. If an amount was already present on Line 8, delete the existing Line 8 amount and recompute Line 8 to include the amounts moved from Lines 10 through 15c.

    4. Recompute the amounts on Lines 9, 16, 17, and 22. ( Figure 3.11.14-38 )

    Line 16 is negative and Line 17 is less than Line 9,

    Note:

    Taxpayers (particularly on computer-generated tax returns) may enter negative amounts on Lines 10 through 15c which are actually positive.

    Do not bracket or move the entries in Lines 10 through 15c.
    Line 16 is negative and Line 17 is greater than Line 9,
    1. "X" (delete) the negative amount(s) on Lines 10 through 15c.

    2. Move the deleted amount(s) from Lines 10 through 15c to Line 8 as a positive amount.

    3. If an amount was already present on Line 8, delete the existing Line 8 amount and recalculate to include the amounts moved from Lines 10 through 15c.

    4. Recompute the amounts on Lines 9, 16, 17, and 22.

  6. If a negative amount is on Line 15b and the taxpayer indicates a NOL (net operating loss), ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . Do not bracket or move the entry.

    Exception:

    If a negative entry is present on Line 15a, 15b, or 15c and the taxpayer indicates that all of a negative amount is for a Tax Exempt Allocation, there is only one other deduction claimed within Lines 10 through 14, and Line 1 in the "Other Information" Section (Page 2 of Form 1041) is marked "Yes" or is blank and no computation is present, process as instructed in IRM 3.11.14.17.8 .

    Figure 3.11.14-38

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

    Negative Deductions and Line 16 is Positive

  7. The Net Operating Loss (NOL) must be reported on Line 15b. If reported on any other line, delete the amount, edit to Line 15b, and adjust the appropriate Total line(s). (Figure 3.11.14-39)

  8. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Figure 3.11.14-39
    This image is too large to be displayed in the current screen. Please click the link to view the image.

    Net Operating Loss (NOL) and Line 15(b)

3.11.14.17.2  (01-01-2014)
Line 16 – Total of Lines 10 through 15c

  1. Line 16 is the total of Lines 10 through 15c on Form 1041.

  2. If Line 16 is blank, add the entries on Lines 10 through 15c and edit amount to Line 16.

  3. Line 16 will normally be positive. However, taxpayers (particularly on computer-generated tax returns) may enter negative amounts on Lines 10 through 15c which are actually positive, resulting in a negative amount on Line 16.

    If ... Then ...
    Line 16 is negative and Line 17 is less than Line 9, Do not bracket or move the entries in Lines 10 through 15c.
    Line 16 is negative and Line 17 is greater than Line 9,
    1. Delete the negative amount(s) on Lines 10 through 15c.

    2. Move the deleted amount(s) from Lines 10 through 15c to Line 8 as a positive amount.

    3. If an amount was already present on Line 8, delete the existing Line 8 amount and recalculate to include the amounts moved from Lines 10 through 15c.

    4. Recalculate the amounts on Line 9, Line 16, Line 17, and Line 22.

  4. If an entry is present on Line 16 but all of Lines 10 through 15c are blank, determine if an attachment or schedule is present which clarifies the deduction.

    1. If documentation is present, edit the amount to the appropriate Line 10 through 15c.

    2. If documentation is not present, correspond to determine the proper deduction amount, if any.

3.11.14.17.3  (01-01-2014)
Line 17 – Adjusted Total Income

  1. Line 17 is derived by subtracting Line 16 from Line 9.

  2. This line is not transcribed and does not require perfection. However, any changes made in the Income or Deductions sections may require recomputing Line 17. This may then impact the perfection of subsequent compute lines (i.e., Lines 21 and 22).

3.11.14.17.4  (01-01-2014)
Line 18 – Income Distribution Deduction (Schedule K-1)

  1. Line 18 of Form 1041 is the Total Income Distribution Deductions reported from Line 15 of Schedule B (Page 2 of Form 1041).

  2. Line 18 must be positive only unless it is the final return of the trust or estate.

    1. If Line 18 is negative (bracketed), determine Line 18 as follows:

      Caution:

      Do not follow the table if you are working a final return with a negative entry on Line 18. Allow the negative amount to remain.

    If ... Then ...
    Line 18 is negative and Line 17 is blank,
    1. Compute Line 17.

    2. Use the next two If/Then boxes to determine what action to take next.

    Line 18 is negative, but Line 17 is positive,
    1. Remove the brackets from Line 18 ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. Continue editing the return.

    Line 18 is negative and Line 17 is negative or zero,
    1. Delete the Line 18 amount.

    2. Continue editing the return.

      Caution:

      Do not recompute Lines 21 and 22.

    A Form 1041 (usually prior year) with pre-printed brackets on Line 18,
    1. Remove the brackets ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. Continue editing the return.

  3. If Line 18 is blank process as follows:

    1. If Line 16 is greater than Line 9 and Line 18 is blank, do not edit an amount on Line 18.

    2. If Line 9 is greater than Line 16, determine the amount for Line 18 of Form 1041 from Line 15 of Schedule B (Page 2 of Form 1041):

    If ... Then ...
    Line 15 of Schedule B is present or can be computed from the lesser of Lines 13 or 14 of Schedule B, Edit this amount to Line 18 of Form 1041. (See Figure 3.11.14-40 )
    Line 15 of Schedule B is blank and cannot be computed,
    1. Compute lines 1, 2a, 3, 4a, 5, 6, 7 and 8 of Schedule K-1.

    2. Edit the amount to Line 18 of Form 1041. (See Figure 3.11.14-41 )

      Note:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Exception:

    If Line 18 is blank and the amount entered on Line 21 is the total of Lines 18 through 20, do not perfect Line 18.

    Figure 3.11.14-40

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

    Determine Line 18 From Schedule B

    Figure 3.11.14-41

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

    Determine Line 18 From Schedule K–1

  4. A Schedule K-1 (Form 1041) must be attached to Form 1041 if an entry ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ is present on Line 18 of Form 1041.Correspond if missing.

    Do not correspond on the following types of returns:

    • IRC 6020(b) returns

    • Examination Prepared Substitute (SFR) returns

    • Re-Entry returns

    • Amended (“G” coded) returns

    • ESBT returns

    • Nontaxable Grantor Trust (FID Code 4/Trust Code 3)

    • Bankruptcy Estate

    • Payee is a foreign entity

    • Section 642(i) Trust (Maintenance of Cemetery Property or Number of Gravesites)

    • Funeral Trusts

    • Prior year tax periods.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. For Schedule K-1 editing instructions, see IRM 3.0.101 (General - Schedule K-1 processing).

3.11.14.17.5  (01-01-2014)
Line 19 - Estate tax deduction

  1. Only positive entries are valid for Line 19. If negative, remove the brackets and continue editing the return.

3.11.14.17.6  (01-01-2014)
Line 20 - Exemption

  1. Accept taxpayer's entry.

    Note:

    For TY 2001, the taxpayer was required to notate "SECTION 642(b)(2)(C)" in the dotted potion of Line 20. If "SECTION 642(b)(2)(C)" is notated on Line 20 of a TY 2001 Form 1041, edit Fiduciary Code "8" .

  2. Allowable exemptions are:

    • $600 for a decedent estate.

    • $300 for a trust, which under its instrument, is required to distribute all of its income for the taxable year (This deduction is allowed regardless of whether the trust is simple or complex.).

    • $100 for a trust which is not required to distribute all of its income for the taxable year (Generally, complex trusts are entitled to this exemption.).

    • Same exemption as an individual under IRC 151 for a bankruptcy estate.

      Note:

      Grantor trusts are not entitled to an exemption, except for a partial grantor trust, which is entitled to the appropriate exemption for its non-grantor trust portion.

    • A Qualified Disability Trust is entitled to the same personal exemption amount as an unmarried individual and is effective for tax years ending after September 10, 2001. A Qualified Disability Trust is also subject to the same phaseout as the personal exemption if the trust's modified AGI exceeds certain limits. Taxpayers must complete the Exemption Worksheet for Qualified Disability Trusts to figure the amount of the trust's exemption when their modified AGI exceeds the limits shown in the chart below.

      Note:

      This provision does not apply to any portion of a disability trust that is treated as a grantor trust.

3.11.14.17.7  (01-01-2014)
Line 21 – Total Deductions

  1. Line 21 of Form 1041 is the total of Lines 18 through 20.

  2. Line 21 can be positive or negative.

  3. If Line 21 is blank or illegible:

    1. If entries are present on any of Lines 18 through 20, add these amounts and edit the total to Line 21.

      Exception:

      If a Line 18 entry has been deleted based on the instructions in IRM 3.11.14.17.4, do not recompute Lines 21 and 22.

    2. If Lines 18 through 20 are blank, determine if entries are present on Lines 13, 14 or 15 of Schedule B (Page 2 of Form 1041):

    If ... Then ...
    Line 15 of Schedule B is present or can be computed from the lesser of Lines 13 or 14 of Schedule B,
    1. Edit this amount to Line 18 of Form 1041.

      Reminder:

      If Line 18 is blank and the amount entered on Line 21 is the total of Lines 18 through 20, do not perfect Line 18

    2. Perfect Line 21 of Form 1041 accordingly.

    Line 15 of Schedule B is blank and cannot be computed,
    1. Compute Lines 1, 2a, 3, 4a, 5, 6, 7 and 8 of Schedule K-1.

    2. Edit the amount to Line 18 of Form 1041.

    3. Perfect Line 21 of Form 1041 accordingly.

  4. If an entry should have been placed on Line 22 (Taxable Income) but was inadvertently placed on Line 21 and Line 22 is blank or zero:

    1. Delete Line 21 amount and edit that amount to Line 22.

3.11.14.17.8  (01-01-2014)
Tax-Exempt Entries

  1. Taxpayers cannot claim deduction against Tax Exempt Income on a Form 1041.

    1. If deductions against Tax Exempt items are notated on Form 1041 or attachments, do not include those items in any entries on Lines 10–21. ( Figure 3.11.14-42 )

    Figure 3.11.14-42

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

    Tax-Exempt Entries

  2. If the taxpayer indicates that all of a negative amount on Line 15a, 15b, and 15c is for a Tax Exempt Allocation, there is only one other deduction claimed within Lines 10 through 14, and Line 1 in the "Other Information" Section (Page 2 of Form 1041) is marked "Yes" or is blank and no computation is present, process as follows:

    1. Delete any negative amounts reported on Line 15a, 15b, or 15c.

    2. Reduce the remaining Deduction line amount (positive) by the negative amount the taxpayer entered on Line 15a, 15b, or 15c.

    3. Perfect Line 16, if necessary.

      Example:

      If $461.00 is entered on Line 14 (positive amount), Line 15a or 15c is a negative $120.00, and Lines 10 through 13 are blank, delete the negative $120.00 from Line 15a or 15c and reduce the Line 14 amount from $461.00 to $341.00 ($461.00 – $120.00 = $341.00). Also perfect Line 16 (if necessary) as a positive ($341.00) amount. ( Figure 3.11.14-43 )

    Figure 3.11.14-43

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

    Tax Exempt Allocation

    Note:

    Although this example shows the one positive deduction amount on Line 14, the procedure applies to a positive entry on any of the Lines 10 through 14.

  3. If an entry should have been placed on Line 22 (Taxable Income) but was inadvertently placed on Line 21 and Line 22 is blank or zero:

    1. Delete the Line 21 amount and edit that amount to Line 22.

  4. If unable to determine the correct deduction amount and there are negative entries on Lines 10 through 15c:

    1. "X" the negatives entries.

    2. Add these entries to Line 8 of Form 1041.

    3. Continue normal processing.

3.11.14.18  (01-01-2014)
Line 22 – Taxable Income

  1. If Line 22 is blank, subtract Line 21 from Line 17 and edit on Line 22.

  2. If Line 22 is blank and it can be determined that an entry that should have been placed on Line 22 was inadvertently placed on Line 23.

    1. "X" the Line 23 amount and edit the amount to Line 22.

3.11.14.19  (01-01-2014)
Line 23 – Total Tax

  1. Line 23 of Form 1041 is derived from Line 7 of Schedule G.

  2. If Line 23 contains a negative amount (a loss), determine Line 23 from Line 7 of Schedule G (Page 2):

    If ... Then ...
    Line 7 (Schedule G) is positive, Edit the Line 7 amount to Line 23.
    Line 7 (Schedule G) is negative, "X" the Line 23 amount.

  3. If Line 23 is blank or illegible:

    1. Compute by adding Lines 4 through 6 of Schedule G.

    2. Edit the total to Line 23 of Form 1041.

    3. If there are no entries on lines 3 through 6 of Schedule G and no entries are present on Lines 24 through 26, edit the amount from Line 27 to Line 23.

    Note:

    For instructions for editing Form 1041 with an entry present on Line 7 of Schedule G, see IRM 3.11.14.31 .

  4. If it is determined that an entry was inadvertently placed on Line 23, determine if the entry should be edited to Line 22:

    If ... Then ...
    The Line 23 entry should be on Line 22 and Line 22 is blank, "X" the Line 23 amount and edit the amount to Line 22.
    The Line 23 entry should be on Line 22, but an entry is already present on Line 22,
    1. "X" the Line 23 amount.

      Note:

      Do not edit the amount to Line 22.

    2. Continue editing the return.

    If unable to determine where the Line 23 entry belongs,
    1. "X" the Line 23 amount.

      Note:

      Do not edit the amount to Line 22.

    2. Continue editing the return.

    Note:

    For instructions for editing Schedule G, see IRM 3.11.14.26 through IRM 3.11.14.31 .

  5. Taxpayers may report a special tax for Electing Small Business Trusts (ESBT) on Line 7 of Schedule G. Effective for TY 2002, the taxpayer should check the "ESBT" box in Section "A" (Type of Entity) of Form 1041 or they may notate one of the following on the dotted portion of Line 7, Schedule G:

    • ELECTING SMALL BUSINESS TRUST

    • ESBT

    • IRC Section 641(c)

  6. If the one of the above notations is written on the dotted portion of Lines 7, process as follows:

    If ... Then ...
    The ESBT amount was included on Line 7 (Schedule G) and Line 23, Form 1041, Continue editing the return.
    The ESBT amount on Line 7 (Schedule G, was not included on Line 23 (Form 1041), Increase Line 23 (Form 1041) by the ESBT amount written in on Line 7 of Schedule G.
    The ESBT amount is written separate from the Line 7 (Schedule G) amount, Increase Line 23 (Form 1041) by the ESBT amount written in separately from the Line 7 (Schedule G) amount (if the taxpayer has not already done so).

    Reminder:

    Edit the ESBT indicator "1" in the left margin next to Line 10, in "2 - 1" format when the ESBT box in Section "A" is checked or there is an indication of ESBT.

3.11.14.20  (01-01-2014)
Form 1041 Refundable Credits Section - Lines 24a to 25

  1. This subsection provides instructions for editing Lines 24a through 25 of Form 1041.

  2. If a return has a short Tax Period and any of Lines 24a through 24d have an entry, process as instructed in IRM 3.11.14.11.9, Short Period Returns with Prepaid Credits.

3.11.14.20.1  (01-01-2014)
Line 24a – Estimated Tax Payments

  1. Only Form 1041–ES Tax Payments are to be reported on Line 24a.

    1. "X" any amounts determined to be other than ES Tax Payments and edit these amounts to the proper line. See Figure 3.11.14-44 .

    Figure 3.11.14-44

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

    Estimated Tax Payments

  2. Estimated tax paid by an individual during the year of death should not be claimed on a Form 1041. These ES Credits should be claimed on the deceased taxpayer's Form 1040.

    1. If the Estate has incorrectly included an amount which can be identified as Form 1040-ES Credits, delete the Form 1040 Credit.

3.11.14.20.2  (01-01-2014)
Line 24b – Estimated Tax Treated as Paid by Beneficiary (Form 1041-T)

  1. Line 24b of Form 1041 will reflect the portion of Line 24a that the fiduciary is electing to be treated as paid by a beneficiary. The fiduciary makes this election by filing a Form 1041-T.

  2. A Form 1041-T should be attached to Form 1041 if an entry is present on Line 24b. Edit Line 24b as follows:

    If ... Then ...
    Form 1041-T is attached and Form 1041 Line 24b is blank,
    1. Edit CCC "X" on Form 1041. See IRM 3.11.14.7.13

    2. If Form 1041-T, Lines 1 and 4 have entries, edit Form 1041-T, Line 1 amount to Form 1041, Line 24b.

    3. Detach Form 1041-T and notate "FORM 1041-T DETACHED" on Form 1041.

    4. Edit the Received Date and Tax Period to Form 1041-T.

    5. If the "Final Return" box is checked on Form 1041, notate "Final" below the Received Date on Form 1041-T. ( Figure 3.11.14-45 )

    6. Route Form 1041-T to Accounts Management.

    Form 1041-T is attached and Form 1041, Line 24b contains as entry,
    1. Edit CCC "X" on Form 1041.

    2. Detach Form 1041-T and notate "FORM 1041-T DETACHED" on Form 1041.

    3. Edit the Received Date and Tax Period to Form 1041-T.

    4. If the "Final Return" box is checked on Form 1041, notate "Final" below the Received Date on Form 1041-T. (See Figure 3.11.14-45 )

    5. Route Form 1041-T to Accounts Management.

    Form 1041-T is not attached,
    1. Continue editing the return.

    2. Do not correspond.

    Figure 3.11.14-45
    This image is too large to be displayed in the current screen. Please click the link to view the image.

    Form 1041-T Attached to "Final" Return

3.11.14.20.3  (01-01-2014)
Line 24c – Balance of Estimated Tax Payments

  1. Accept taxpayer's entry.

3.11.14.20.4  (01-01-2014)
Line 24d – Tax Paid with Extension Form

  1. If there is an illegible entry on Line 24d, examine the attached Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns (or attachment in lieu of) or determine the amount from entries on Lines 24a, 24e or 24h (24i for TY 2006).

    1. If a legible amount is found, place an "X" to the left of the illegible entry and edit the verified amount to the left of the "X" .

3.11.14.20.5  (01-01-2014)
Line 24e – Federal Income Tax Withheld

  1. Form W–2, Form W2–G, Form 1099R, or a supporting statement (i.e., an earnings statement with year-to-date totals) must be attached to Form 1041 if an entry ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ is present on Line 24e.

    1. If an entry is present on Line 24e ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ but, supporting documentation is not attached, correspond for the missing form.

      Exception:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. Edit Line 24e as follows:

    If ... And ... Then ...
    Line 24e contains an entry ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , Supporting documentation is not attached, Correspond for the missing form.
    Line 24e contains an entry ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , Form W-2, W-2 G, etc., do not equal the Line 24 entry,
    1. "X" the Line 24e amount.

    2. Edit the correct amount from Form W-2 or W-2G to the left of the "X" . (See Figure 3.11.14-46 )

    Line 24e entry is illegible, check the attached Form W-2, Form W2-G, Form 1099R or a supporting statement for a legible amount,  
    1. Edit an "X " to the left of the illegible entry.

    2. Edit the computed amount to the left of the "X" .

    Line 24e contains an entry ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Amount cannot be determined,
    1. "X" the Line 24e amount.

    2. Compute the correct amount by subtracting Line 25 from the sum of the amounts on Lines 24a through 24d.

    3. Edit the computed amount to the left of the "X" .

    Figure 3.11.14-46

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

    Line 24e Does Not Equal W-2, W2-G, 1099R, or Supporting Statement

  3. Line 24e or 25 can also be used to accommodate unusual credits such as "Claim of Rights" for which there is no line on the return.

    1. If no supporting documentation is attached for a credit ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ for which there is no specific line, correspond for support of this unusual credit.

  4. When examining a return for a Form W–2, W2–G, etc. and the form is not found but a Form 7004 is found and there is no entry on Line 24d, determine if the Line 24e amount equals the amount on Form 7004:

    If the entries are ... Then ...
    The same, Move the Line 24e amount to Line 24d.
    Not the same and the amount claimed is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Correspond.

3.11.14.20.6  (01-01-2014)
Line 24f – Form 2439

  1. Form 2439, "Notice to Shareholder of Undistributed Long-Term Capital Gains" is reported on Line 24f.

  2. Compare Line 24f, Form 1041 to Line 2 of Form 2439:

    If ... Then ...
    Line 24f contains an entry≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and Form 2439 is missing, Correspond for the missing form.
    Form 2439 shows a lesser amount, Place an "X" to the left of the entry on Line 24f, Form 1041. Edit the lesser amount to the left of the "X" .

3.11.14.20.7  (01-01-2014)
Line 24g – Form 4136

  1. If Line 24g contains a significant entry and Form 4136 (Credit for Federal Tax Paid on Fuels) is not present, correspond for the missing Form 4136.

  2. For processing instructions, see Form 4136, - Credit for Federal Tax Paid on Fuels, in IRM 3.11.14.41 .

3.11.14.20.8  (01-01-2014)
Line 24h – Total Credits

  1. Accept taxpayer's entry.

  2. If Lines 24f and 24g are blank and there is a significant entry on Line 24h, process as follows:

    If ... Then ...
    Both Form 2439 and Form 4136 are missing, Correspond for missing forms to support the entry on Line 24h.
    Both Form 2439 and Form 4136 are attached, Edit the Form 2439 amount to Line 24f.
    Form 2439 is the only form attached,
    1. If Form 2439, line 2 and Form 1041, line 24h are the same, edit amount from Form 2439, line 2 to Form 1041, line 24f. Figure 3.11.14-47

    2. If Form 2439, line 2 and Form 1041, line 24h are not the same, edit the smaller amount to Form 1041, Line 24f.

    3. Correspond for missing Form 4136 if the entry on Line 24h is more than the Form 2439 amount.

    Form 4136 is the only form attached, Subtract the Form 4136 amount from Line 24h and edit the difference to Line 24g. Correspond for missing Form 2439 ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Figure 3.11.14-47

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

    Line 24f Does Not Match Form 2439

3.11.14.20.9  (01-01-2014)
Line 25 – Total Payments

  1. If Line 25 is blank or illegible, add Lines 24c through 24e and 24h. Edit the sum on to Line 25.

  2. If Line 25 contains an entry, but there are no entries in Lines 24a through 24h, double arrow or edit the amount to Line 24a.

  3. Do not correct the taxpayer's entry on Line 25 unless it is a misplaced entry or the Line 24h credits are being brought forward.

3.11.14.21  (01-01-2014)
Lines 26 through 29 – Settlement Area

  1. This subsection provides instructions for editing Lines 26 through 29 of Form 1041.

3.11.14.21.1  (01-01-2014)
Line 26 – Estimated Tax Penalty

  1. Estimated Tax Penalty must be edited when either:

    1. An additional penalty is precomputed on the return, or

    2. Form 2210 is attached to return and shows liability for estimated tax penalty.

      Reminder:

      Also, edit CCC "K" if Form 2210, box "F" is checked in Part II on a 2009 tax return. See IRM 3.11.14.7.6.

  2. If Line 26 is blank, edit the amount from Line 17 or Line 27 of Form 2210 to Line 26, Form 1041.

  3. Edit CCC "8" if ALL of the following conditions are met:

    1. Schedule H is attached to the return.

    2. Form 1041 does not contain withholding credit (Line 24e), and

    3. Total tax without household employment tax is less than $1,000. (Schedule G, Line 7 minus Line 6 is less than a $1,000)

3.11.14.21.2  (01-01-2014)
Lines 27 and 28 – Amount Owed/Overpayment

  1. Lines 27 and 28 are edited as positive only. If the entry is a negative amount, do not bracket.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. If an entry is present on Line 27 and no entries are present on Lines 23 through 26, edit the amount from Line 27 to Line 23.

  3. If Lines 27 and 28 are blank and entries are present on lines 23 through 26, do both of the following:

    1. Add Lines 23 and 26. Subtract Line 25.

    2. Edit the positive result on Line 27 or the negative result (do not bracket) on Line 28. Figure 3.11.14-48

  4. If pre-computed interest or delinquency penalty is evident, ensure that it has not been included in Line 27 or reduced Line 28.

    If ... Then ...
    The amount on Line 27 contains pre-computed interest or penalty,
    1. "X" Line 27 amount.

    2. Delete the interest, penalty or additional charge from the amount owed.

    3. Edit the correct amount owed to the left of the original entry.

    Figure 3.11.14-49
    The amount on Line 28 is reduced by precomputed interest or penalty,
    1. "X " Line 28 amount.

    2. Compute the Overpayment amount without the interest or penalty.

    3. Edit the correct Overpayment to the left of the original entry.

    Figure 3.11.14-48

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

    Calculation of Overpayment

    Figure 3.11.14-49

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

    Line 27 Includes Late Filing Penalty

3.11.14.21.3  (01-01-2014)
Lines 29a and 29b – Credit Elect/Refund

  1. If an entry is present on Line 28, an entry must be present on Line 29a or 29b.

    If ... And ... Then ...
    Lines 29a and 29b are both blank or zero, Return is not final, Edit the amount from Line 28 to Line 29a.
    Final Return, Edit the amount from Line 28 to Line 29b.
    Lines 29a and 29b are the same, Return is not final, Delete the amount on Line 29a.
    Final Return, Delete the amount on Line 29a.
    Line 29a contains an entry, and Line 29b is blank or zero, Return is not final, Take no action.
    Final Return, Arrow entry from Line 29a to Line 29b,

    Note:

    An entry on Line 29b is an indication of a refund return. For refund return processing instructions, see IRM 3.11.14.8.7.

3.11.14.21.4  (01-01-2014)
Penalty and Interest Code Editing

  1. The purpose of this code is to induce the computer to perform an abnormal computation of delinquency penalty and/or interest.

  2. The Penalty and Interest Code (P&I) will be edited in the left margin next to Line 10 of Form 1041 in "4 -1" format. See IRM 3.11.14.9.4 .

  3. Determine the Penalty and Interest Code as follows:

    1. If penalty and/or interest is included on Line 27 of Form 1041, delete the Line 27 amount and edit the true Tax Due (minus the penalty and/or interest) to the left of the "X" .

    If ... Then ...
    Form 1041 is received by the Return Due Date, Do not edit a P&I Code when the taxpayer has notated penalty and/or interest on the return.
    Form 1041 is received within ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , but only interest is indicated, Edit P&I Code "1" in the left hand margin next to Line 10 in " 4 - 1" format. See Figure 3.11.14-50.
    Form 1041 is provided within ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , but only precomputed penalty (or precomputed penalty and interest) is provided, Edit P&I Code "1" in the left hand margin next to Line 10 in " 4 - 1" format.
    The Received Date is not stamped on Form 1041 and a penalty and/or interest code is shown, Determine and edit the Received Date in the center of Form 1041.

    Figure 3.11.14-50

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

    Penalty and Interest Code

3.11.14.22  (01-01-2014)
♦Signature♦

  1. A signature and jurat are required for all returns except the following:

    • Returns prepared under IRC §6020(b). These returns must be signed by a Compliance Function representative. See IRM 3.11.14.8.8.1 .

    • Returns prepared by Examination, for example "SFR" (Substitute for Return) or "SUBSTITUTE RETURN" .

    • Dummy returns prepared by IRS.

    • Returns filed under IRC §501(d) (Religious or Apostolic Organization).

    • Correspondence containing a signature and jurat is attached showing that the taxpayer is responding to an IRS letter. See paragraph (5) below.

    • Re-entry returns originally filed electronically ("E-File " ). These returns may be identified by the presence of Mod E-File printouts or "TRPRT Print Do Not Process" in lieu of an actual return.

      Note:

      If the TRPRT print states "TRPRT Print Do Not Process" in the top margin, circle the words "Do Not Process" .

    • Returns received with a Request for Prompt Assessment under IRC §6501 (d).

  2. Do not correspond for a signature on "CIS" returns that have Form 13596 attached. See IRM 3.11.14.5.3.3, Correspondence Imaging System (CIS) Returns, for processing instructions.

  3. If a signature is missing, correspond:

    If ... Then ...
    • The return is not signed on the line designated for the fiduciary or trustee signature, or

    • The jurat is not present on the line designated for the estate or trusts's signature (non-standard return), or

    • Only the Entity information is present and there are no attachments containing tax data.

    1. Edit Action Code 225 (Correspondence for Signature only) or 226 (International Correspondence for signature only).

    2. Leave in batch and continue editing.

    Note:

    Paper returns sent in by the filer that states their return was rejected through the E-file system require a signature. Form 8879-F is not an acceptable substitute for a paper return.

  4. If the jurat is altered or stricken (crossed-out), see IRM 3.11.14.5.3.5 for frivolous return instructions.

  5. Accept a "signature declaration" (a signature with jurat obtained through IRS correspondence) if attached to the return.

    1. If the "signature declaration" is altered or stricken (crossed-out), see IRM 3.11.14.5.3.5 , for frivolous returns instructions.

    2. If the taxpayer responds with a self prepared "signature declaration" it must contain the same language as the jurat on the tax return: e.g., "UNDER PENALTIES OF PERJURY, I DECLARE THAT I HAVE EXAMINED THIS RETURN, INCLUDING ACCOMPANYING SCHEDULES AND STATEMENTS, AND TO THE BEST OF MY KNOWLEDGE AND BELIEF, IT IS TRUE, CORRECT AND COMPLETE."

    3. Form 8879-F is not an acceptable signature substitute for a paper return.

  6. Since tax examiners are not expected to be handwriting experts, IRC §6064 and IRC §6064-1 of Regulations allows the Service to presume that the signature on a return, statement, or other document is the true signature of the person who actually signed the document.

    Note:

    A "✓" or "X" used to designate where the taxpayer should sign the return is not considered a valid signature.

  7. Only one correspondence attempt is required for a signature.

  8. Facsimile Signature – Rather than actually signing each return, a Fiduciary may use a "Facsimile" or stamp of the signature. If a facsimile is used, the person filing the return must retain a letter signed by the Fiduciary with a statement that the facsimile represents their signature; a statement that the signature was placed there by their direction; and, a list of each return (Name and TIN) being covered by the letter.

3.11.14.23  (01-01-2014)
Fiduciary's EIN (Trusts Only)

  1. The Fiduciary's EIN box is located to the right of the Signature area and above the Tax Preparer's box on Form 1041.

  2. A Fiduciary's EIN must be present when certain criteria is met. Edit a "Check mark" to the right of the Fiduciary EIN when all of the following apply: (See Figure 3.11.14-51 )

    1. There is a positive entry on Line 22.

    2. There is an entry on Line 24a (Estimated Tax Payments).

    3. Fiduciary Code "2" or "3" is edited.

    4. The Fiduciary's EIN is different than the Trust's EIN (Section C).

    5. The return is not an amended return.

    6. The fiduciary is a trust or financial institution (i.e., bank, credit union, savings and loan, N.A.). This information will be documented in the Entity section on either the "Name of Estate or Trust" line or on the "Name and Title of Fiduciary" line and may follow in care of or %.

      Exception:

      Do not edit the EIN if the taxpayer has notated "TRUST COMPANY" (if other than part of a financial institution name), e.g., bank, credit union, savings and loan, N.A., etc., in the Entity area or Signature area. N.A. stands for National Association.

      Example:

      "Pike Bank & Trust Company" or" Pike Trust Company, N.A." would be indicators for editing a Fiduciary EIN while "Pike Trust Company" would not.

  3. If the return meets all the above criteria, process as follows:

    If ... Then ...
    The Fiduciary's EIN is present in the Fiduciary's EIN box,
    1. Edit a check mark to the right of the Fiduciary's EIN box.

    2. Continue editing the return.

    The Fiduciary's EIN is blank, illegible, or less than nine digits, but can be determined from the return or attachments,
    1. Edit the Fiduciary's EIN to the right of the Fiduciary's EIN box.

    2. Continue editing the return.

    The Fiduciary's EIN is blank, illegible, or less than nine digits. but cannot be determined from the return or attachments, Correspond for the missing information.

    Figure 3.11.14-51

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

    Fiduciary’s EIN

3.11.14.24  (01-01-2014)
♦Paid Preparer Checkbox Indicator♦

  1. The Paid Preparer Checkbox is located next to the taxpayer signature area. It indicates whether the taxpayer has elected to allow the Paid Preparer to answer questions about the return as it is processed.

  2. No action is required on amended returns.

  3. Take the following actions when an entry is present in the Paid Preparer Checkbox:

    If ... Then ...
    Only the "Yes" box is checked, Take no action.
    The "No" box is checked; neither box is checked; or both boxes are checked, Circle the Paid Preparer's Telephone Number, if present. ( Figure 3.11.14-52 )

    Figure 3.11.14-52
    This image is too large to be displayed in the current screen. Please click the link to view the image.

    Paid-Preparer Checkbox Indicator

3.11.14.25  (01-01-2014)
♦Paid Preparer Section♦

  1. The Paid Preparer Section is located to the right of and below the Fiduciary's Signature area near the bottom of Form 1041, Form 1041-QFT, and Form 1041-N.

3.11.14.25.1  (01-01-2014)
♦Paid Preparer Tax Identification Number (PTIN)♦

  1. The Preparer's Social Security Number (SSN) (2009 and prior revisions) or Preparer's Tax Identification Number (PTIN) is located to the right of the Preparer's Signature in the PTIN box (Preparer's SSN or PTIN box for 2009 and prior revisions) at the bottom-right corner of Form 1041, Form 1041-QFT and Form 1041-N.

  2. No action is required on amended returns.

  3. A PTIN begins with the alpha "P" followed by an eight digit number (e.g., PXXXXXXXX). Circle the PTIN if all zeroes or all nines.

3.11.14.25.2  (01-01-2014)
♦EIN♦

  1. The Firm's EIN (Paid Preparer EIN - 2009 and prior revisions) is located below the Preparer's PTIN box at the bottom-right corner of Form 1041, Form 1041-QFT and Form 1041-N (Page 1).

  2. No action is required on amended returns.

  3. The Firm's EIN (Paid Preparer's EIN - 2009 and prior revision) is a nine-digit number. Circle the EIN if all zeroes or all nines.

3.11.14.25.3  (01-01-2014)
♦Paid Preparer Phone Number♦

  1. The Paid Preparer's Phone Number is located below the Paid Preparer's EIN at the bottom right corner of Form 1041, 1041-QFT and 1041-N.

    If ... Then ...
    The return is amended, No action required.
    The Preparer’s Phone Number is more than 10 digits, No action required.
    The Preparer’s Phone Number is illegible or less than 10 digits, Circle the Phone Number. Figure 3.11.14-53

    Figure 3.11.14-53
    This image is too large to be displayed in the current screen. Please click the link to view the image.

    Editing Paid Preparer Phone Number

3.11.14.25.4  (01-01-2014)
E-File Waiver Indicator (Form 8948)

  1. P.L. 111-92 H.R. 3548 Sec. 17 mandates that preparers of more than ten Form 1041 returns must file electronically. Form 8948, Preparer Explanation for Not Filing Electronically, provides certain exclusions from that requirement.

  2. The valid indicators are 1, 2, 3, 4, 5 and 6. Only one indicator can be edited.

  3. If Form 8948 is attached edit the E-File Waiver Indicator in the bottom center margin of page 1, Form 1041 by following the instructions in the table below:

    If the box marked on Form 8948 is... Then Edit E-File Waiver Indicator...
    Box 1 "1"
    Box 2 "2"
    Box 3 "3"
    Box 4 "4"
    Box 5 "5"
    Box 6 a, b or c "6"

    Caution:

    If editing E-File Waiver Indicator Code "6," DO NOT edit any following alpha characters, such as "a" , "b" , or "c" .

  4. If multiple boxes are checked, edit only one E-File Waiver Indicator, according to the following priority order:

    Priority Order E-File Waiver Indicator
    Box 6a "6"
    Box 6b "6"
    Box 3 "3"
    Box 2 "2"
    Box 1 "1"
    Box 4 "4"
    Box 5 "5"
    Box 6c "6"

    Caution:

    If editing E-File Waiver Indicator Code "6," DO NOT edit any following alpha characters, such as "a" , "b" , or "c" .

  5. If no box is checked on Form 8948, but a notation is written near a box, go with filer intent.


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