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Part 3. Submission Processing

Chapter 11. Returns and Documents Analysis

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

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

All Official Use Only content has been replaced with ≡.

3.11.14.1  (10-27-2009)
Overview

  1. The purpose of Document Perfection is to code and perfect (edit) documents being input to the Automated Data (ADP) System to make them adaptable to computer processing and to recognize and properly dispose of accompanying attachments.

  2. IRM 3.11.14 provides Code & Edit procedures for the following returns and related Schedules and Forms:

    • Form 1041 (U.S. Income Tax Return for Estates and Trusts).

    • Form 1041-QFT (U.S. Income Tax Return for Qualified Funeral Trusts).

    • Form 1041-N (U.S. Income Tax Return for Electing Alaska Native Settlement Trusts (ANST)).

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

    • Income received and expenses incurred during the taxable period by the estate or trust.

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

    • Any applicable tax liability of the fiduciary.

  4. Form 1041-QFT was added to the Internal Revenue Code by the Taxpayer Relief Act of 1997 to permit certain trusts which previously filed Form 1041 as Grantor Trusts to elect Qualified Funeral Trust status. See IRM 3.11.14.40., for detailed instructions.

    • All Domestic Forms 1041-QFT will be processed at the Cincinnati Submission Processing Campus (CSPC) and all International Forms 1041-QFT will be processed at the Ogden Submission Processing Campus (OSPC).

      Exception:

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

  5. Form 1041-N was added by IRC Section 671 of the Economic Growth and Tax Relief Reconciliation Act of 2001. AllForms 1041-N will be processed at the Ogden Submission Processing Campus (OSPC) only. See IRM 3.11.14.41., for detailed instructions.

3.11.14.1.1  (10-27-2009)
IRS Employee Contacts - Section 3705(a)

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

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

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

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

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

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

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

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

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

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

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

3.11.14.1.2  (10-27-2009)
♦Taxpayer Advocate Service (TAS)♦

  1. Refer taxpayers to the Taxpayer Advocate Service (TAS) (see IRM Part 13, Taxpayer Advocate Service) when the contact meets TAS criteria ( IRM 13.1.7, TAS Case Criteria) and you can't resolve the taxpayer's issue the same day. The definition of "same day" is within 24 hours. "Same day" cases include cases you can completely resolve in 24 hours, as well as cases in which you have taken steps within 24 hours to begin resolving the taxpayer's issue. Do not refer these cases to TAS unless they meet TAS criteria and the taxpayer asks to be transferred to TAS. Refer to IRM 13.1.7.4 ,Same-Day Resolution by Operations. When referring cases to TAS, use Form 911, Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order), and forward to TAS in accordance with your local procedures.

3.11.14.1.2.1  (10-27-2009)
♦Taxpayer Advocate Service Level Agreements (SLA)♦

  1. The National Taxpayer Advocate has reached agreements with the Commissioners of the Wage and Investment (W& I) Division, Small Business & Self-Employed (SB/SE) Division, Tax Exempt & Government Entities (TE/GE), Criminal Investigation (CI), Appeals and Large & Mid-Size Business (LMSB), that outline the procedures and responsibilities for the processing of Taxpayer Advocate (TAS) casework when either the statutory or delegated authority to complete a case transaction rests outside of TAS. These agreements are known as Service Level Agreements (SLAs)

  2. The SLAs are located at http://tas.web.irs.gov under the heading "Policy/Procedures/Guidance" .

3.11.14.1.3  (10-27-2009)
Definitions

  1. Definitions:

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

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

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

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

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

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

      Note:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    • Qualified Disability Trust - A qualified disability trust is normally a trust set up for a person that qualifies under the Social Security Act as being 100% disabled. The trust is entitled to a larger exemption than a simple or complex trust

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

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

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

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

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

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

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

    • Bankruptcy Estate – A separate and distinct taxable entity from the individual debtor

    • . Created when an individual debtor files for bankruptcy under Chapter 7 or 11. This creates a separate "estate" consisting of property that belongs to the debtor prior to the filing date.

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

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

  4. Exemption Amounts – Determined based on whether the fiduciary is filing for a decedent's estate or trust. Exemption amounts are claimed on Line 20 of Form 1041. For instructions for processing Exemptions, See IRM 3.11.14.17.6.

3.11.14.1.4  (10-27-2009)
Schedules Found In Form 1041

  1. The following schedules are found within Form 1041:

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

    • Schedule B (Income Distribution Deduction).

    • Schedule G (Tax Computation).

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

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

    • Schedule D ( Form 1041) (Capital Gains and Losses).

    • Schedule D-1 ( Form 1041) (Continuation Sheet for Schedule D).

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

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

    • Schedule H ( Form 1040) Household Employment Taxes.

    • Schedule I ( Form 1041) (Alternative Minimum Tax).

    • Schedule J ( Form 1041) (Information Return - Trust Allocation of an Accumulation Distribution ( IRC Section 6655) – Used by domestic complex trusts to report accumulation distributions.

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

    • Form 3800 (General Business Credit).

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

    • Form 4797 (Sale of Business Property).

    • Form 4952 (Investment Interest Expense Deduction).

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

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

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

3.11.14.1.5  (10-27-2009)
♦BMF Consistency♦

  1. The purpose of this initiative is to achieve consistency in the Business Master File (BMF) Code & Edit (C&E) processing IRMs.

  2. Topics for BMF Consistency have been identified and developed as a coordinated effort between Cincinnati, Ogden, and Paper Processing Branch BMF Code & Edit/ERS.

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

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

3.11.14.1.6  (10-27-2009)
♦Foreign Currency♦

  1. For returns completed in other than U.S. currency, process as filed. However, if corresponding for missing/incomplete item(s), include in the letter to resubmit in U.S. currency.

3.11.14.2  (10-27-2009)
General Editing Guidelines

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

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

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

    Reminder:

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

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

  5. Received date is edited in MMDDYY format.

  6. If a current/prior year return is filed on a tax form for other than the appropriate tax year, convert the tax return to the current year format using the prior year conversion charts. See IRM 3.11.14.42.2.

  7. If a current year (2009) return is filed on a 1998 – 2008 tax form, renumber the prior year return to comply with current year line numbers.

  8. If a current year (2009) form is used to report prior year tax information, edit the tax period to reflect the prior year.

  9. If the prior year return is filed on the correct/incorrect 1041 tax form, renumber the prior year form to current year format (1998 and subsequent).

3.11.14.2.1  (10-27-2009)
♦Edit Marks♦

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

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

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

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

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

    Note:

    If the taxpayer circles an entry, edit the entry.
    Underline Indicates that an entry is to be transcribed. (e.g., Name Control; Tax Period; etc.).
    Arrow Indicates the correct placement of a misplaced entry. An arrow may be used if the misplaced item is close to the correct line and there is no question where the entry belongs.

    Note:

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

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

    Note:

    Code & Edit (C&E) is not required to bracket negative amounts when brackets are preprinted on the form or schedule or when the taxpayer clearly indicates a negative amount with brackets () or "-" sign. It will be necessary to bracket negative amounts when editing negative entries on transcription lines (e.g., computing and entering a line entry, entering a missing line entry, etc.).

    Vertical Line or Decimal Point Indicates the separation of dollars and cents.
    Zero, Dash or None "ZERO" , "DASH" or "NONE" are considered valid entries except when specific instructions require editing of an entry.
    Edit Marks Made by Other IRS Functions Edit marks entered by other areas, such as Collection or Accounts Management, are not to be re-edited except to place the marks in the correct area.
    Rocker Indicates the amount paid when drawn under a remittance amount.

3.11.14.2.2  (10-27-2009)
Sequence — Form 1041

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

    • Form 1041, Pages 1 and 2

    • Schedule I ( Form 1041), Pages 1 and 2

    • Schedule D ( Form 1041), Pages 1 and 2

    • Form 4952

    • Schedule H (Form 1040)

    • Form 3800

    • Form 4136

    • Form 8913 (TY 2006 only).

  2. Below are additional instructions:

    1. Schedule D-1 ( Form 1041), Pages 1 and 2 should be moved out of sequence to the back of the return.

    2. "X" any prior year Schedule I that supports Form 8801 (Schedule G, Line 2d). See IRM 3.11.14.27.4.

    3. Place all Schedules K-1 ( Form 1041), filed as attachments to Form 1041, as the last attachment in the package or follow local agreement. Detach current year Schedules K-1 through November 30th and all future year Schedules K-1. See IRM 3.0.101 for Schedule K-1 procedures.

    4. Detach Form 8855 from the return and forward to Entity.

3.11.14.2.3  (10-27-2009)
Dollar Tolerances

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

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

3.11.14.2.4  (10-27-2009)
Editing Dollars and Cents

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

    • Line 23 – Total Tax

    • Line 24a – Estimated Tax Payments

    • Line 24b – Credit to Beneficiaries

    • Line 24d – Tax Paid With Extension

    • Line 24e – Federal Income Tax Withheld

    • Line 24f – Regulated Investment Company Credit

    • Line 25 – Total Payments

    • Line 26 – Estimated Tax Penalty

    • Line 27/28 – Tax Due/Overpayment

    • Line 29a – Credit Elect

    • Line 29b – Refund

    Note:

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

  2. For a display of Form 1041 transcription lines and related schedules, see Exhibits 3.11.14-1 through 6.

3.11.14.3  (10-27-2009)
♦Action Codes♦

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

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

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

  4. Assign Action Codes in the following priority order:

    1. Action Code 310 (Statute Control).

    2. Action Code 320 (Entity Control).

    3. Action Code 4XX.

    4. Action Code 6XX.

    5. Action Code 3XX.

    6. Action Code 2XX (Correspondence).

    Exception:

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

  5. Attach Form 4227 when more than one Action Code is needed. Edit the second Action Code on Form 4227.

  6. If more than one Action Code of the same priority is required (e.g., 440 and 480), edit the Action Code with the shortest suspense period and attach Form 4227 to indicate the second unprocessable condition.

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

    Action Code Description
    211 (First Correspondence) or 215 (International Correspondence)

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

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

    225 (Missing Signature Correspondence)

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

    • Unsigned foreign return (only issue for correspondence).
    480 (Early Filed Suspense)

    • The return is an early-filed return.
    610 (Renumbered non-remittance) or
    611 (Renumbered with remittance)

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

    640 (Void)

    • To delete the assigned Document Locator Number (DLN) on the return (e.g., Re-Entry Returns).
    650 (International)

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

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

  9. Valid action codes are listed below:

    Action Code Description Workday Suspense Period
    211 First Taxpayer Correspondence 40
    212 Second Correspondence 25
    215 International Correspondence 45
    225 Taxpayer Correspondence (Signature Only) 40
    226 International Correspondence (Signature Only) 45
    310 Statute Control 10
    320 Entity Control 10
    331 Questionable Refund Detection Team (QRDT) (Cincinnati) 10
    341 Manual Refund 10
    342 Credit Verification 10
    352 Name Research 3
    360 Other-in-House Research 10
    440 Frivolous Argument (Ogden) 10
    480 Early Filed Suspense 150
    610 Renumber - Non-Remit 0
    611 Renumber - Remit 0
    640 Void 0
    650 International 0

3.11.14.4  (10-27-2009)
CAF, Centralized Authorization File

  1. Editing of CAF codes is no longer required.

  2. The Centralized Authorization File (CAF) contains the type of authorization that the taxpayer gives a representative regarding the taxpayer's account. Representatives may submit Form 2848, Power of Attorney (POA) and Declaration of Representative or Form 8821, Tax Information Authorization (TIA).

    If ... Then ...
    Form 2848 or Form 8821 attached,

    1. Detach the Form 2848 or Form 8821 from the Form 1041.

    2. Edit the taxpayer's name and EIN on Form 2848 or Form 8821, if missing.

    3. Edit received date on Form 2848 or Form 8821.

    4. Route Form 2848 or Form 8821 to CAF function.

    5. Edit "Action Trail" in the lower left corner going vertically up the side of the return.

    A General POA or Durable POA or TIA is submitted on any document other than a Form 2848 or Form 8821,

    1. Take no action.

    2. Leave POA or TIA attached to the return.

    3. Do not route to the CAF unit.

3.11.14.5  (10-27-2009)
Unprocessable Conditions and Correspondence Action

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

3.11.14.5.1  (10-27-2009)
Unprocessable Conditions

  1. A return must contain specific items before it is considered processable. Perfect all documents to the extent possible from schedules and other attachments. The specific items needed are:

    • An Employer Identification Number (EIN),

    • A legible name (for name control),

    • Valid tax period,

    • Legible tax data, if tax liability is indicated, and

    • Signature.

  2. Conditions which make a return unprocessable are:

    • Name so illegible or incomplete that the name control cannot be determined.

    • Employer identification number (EIN) is other than 9 numeric digits which cannot be perfected from information on the return or attachments.

    • The EIN or Taxpayer Identification Number (TIN) is other than nine numeric digits and cannot be perfected from information on the return or attachments.

    • The document has two or more different EIN's.

    • The taxpayer has stated that they have combined liability for more than one tax period or more than one type of tax.

    • Tax data entries are so incomplete, illegible or contradictory that the tax liability cannot be determined.

    • The return is mis-blocked.

    • The return is unsigned.

    • The return has only entity data and no other statements or attachments from the taxpayer.

    • Any condition set forth as unprocessable in the sections on processing specific documents.

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

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

    If ... Then ...
    Unnumbered Returns,

    1. Remove Form 1041 from the batch.

    2. Give the return to the manager.
    Numbered Returns,

    1. Edit Action Code 640 (Void).

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

    3. Forward the return to the Rejects function.

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

    1. Leave the second return attached to the first.

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

      Exception:

      Do not "X" if an amended return.

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

3.11.14.5.2  (10-27-2009)
Perfecting Unprocessable Conditions

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

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

    If ... Then ...
    Numbered Returns,

    1. Edit to extent possible.

    2. Edit Action Code 640 (Void).

    3. Leave document in the block.
    Unnumbered Returns,

    1. Do not continue editing the return.

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

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

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

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

    3. Prepare the additional period returns.

    4. Route the newly prepared returns for processing.

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

    1. Adjust the line entries on the multiple period return to reflect the liability for the earliest period and prepare additional period returns.

    2. Retain all these unnumbered returns in the batch.

  5. Reject all Non-remittance Forms 1041 showing Taxable Income but no Tax computation and the taxpayer notates that the return is for an exempt organization (e.g., EXEMPT, NONTAXABLE, NONPROFIT, etc.):

    1. Prepare Form 4227 and notate "TAX EXEMPT STATUS PENDING" .

    2. Enter Command Code "FRM 49" to input TC 599, Closing Code 17.

    3. Notate "TC 599, CC 17 INPUT" on Form 1041.

    4. Forward the return for shipment to the appropriate Key Area Examination function.

  6. For all other conditions, initiate correspondence action when the document cannot be perfected from attachments or schedules. The only exceptions are when the Name and Address are missing or are so illegible that correspondence is impossible, and when a document is being reinput after correspondence has already been conducted but the document still is unprocessable.

3.11.14.5.3  (10-27-2009)
♦Correspondence♦

  1. Issue correspondence to resolve any conditions causing the return to be unworkable or unprocessable.

    Exception:

    Do not correspond on returns prepared by Collection, IRC Section 6020(b) or by Examination, "Substitute for Return" (SFR).

  2. Examine the return so that all of the conditions can be included in the same correspondence.

    If... And... Then...
    Correspondence is needed, Requires a response,

    1. Complete an approved Correspondence Action Sheet indicating the letter number (86C, 854C, 177C,1355C, 3875C, etc.), MFT, number of copies and the appropriate paragraphs.

      Note:

      Within these paragraphs there may be Fill-ins that the Tax Examiner will be required to enter, such as tax period, form number, DLN, etc.

    2. Attach the Correspondence Action Sheet to the front of the return below the Entity area.

    3. Edit Action Code "211" (First Correspondence) or 215 (International Correspondence) on the return.

    4. Finish editing the return and leave in the batch.

    ( See Figure 3.11.14-1.)
    Correspondence is needed, Does not require a response,

    1. Complete an approved Correspondence Action Sheet indicating the letter number (86C, 854C, 177C, 1355C, 3875C, etc.), MFT, number of copies and the appropriate paragraphs.

      Note:

      Within these paragraphs, there may be fill-ins that the Tax Examiner will be required to enter, such as, Tax Period, form number DLN, etc.

    2. Photocopy first page of return and attach the Correspondence Action Sheet below the Entity area on the front of the return. Be sure the name and address shows clearly above the Correspondence Action Sheet.

    3. Forward the copy to the Correspondence area.

    4. Edit an Action Trail (e.g., "3875C SENT" ) in the lower left corner going vertically up the side of the return.

    5. Finish editing the return and leave in batch.

    Note:

    There may be additional letters that are exclusive to the Tax Examiner's campus. These letters are for specific forms or conditions where it was deemed necessary for ease of processing. The Tax Examiner should go to his or her Lead or manager for copies of these letters to facilitate processing.

    Figure 3.11.14-1
    There is currently no description available for this image. For help with this image, please call the IRS.gov Helpdesk at 1-800-876-1715.

3.11.14.5.3.1  (10-27-2009)
♦Correspondence Imaging System (CIS) Returns♦

  1. Correspondence Imaging System (CIS) is an inventory system for scanning all Account Correspondence Management (AM) receipts into digital images and working the cases from those images.

  2. "CIS" returns are identified with "CIS Image-Do not correspond for Signature" stamped below the signature line or "CIS" annotated on the front of the return.

  3. Verify all edit marks and ensure placement is correct on a" CIS" return.

    If ... Then ...
    The edit marks are black, Underline the edit mark if correct or circle if incorrect.
    The edit marks are red or green, Circle if incorrect.
    The edit marks are missing or incorrect Perfect as necessary.

  4. Follow the correspondence instructions below for CIS returns:

    If ... And ... Then ...
    The CIS return has a Form 13596 attached,

    Note:

    If there is an indication on the return that correspondence has been sent (e.g., CCC "3" is edited on the return), do not route the return to Accounts Management. Continue processing the return.

    		The return is not complete (e.g., missing signature, schedules or forms), Remove the return from the batch and route to Accounts Management.

    Note:

    Do not correspond for missing information on "CIS" reprocessable/reinput returns.

    The "CIS" return does not have a Form 13596 attached, The return is not complete (e.g., missing signature, schedules or forms), Follow normal correspondence procedures.

3.11.14.5.3.2  (10-27-2009)
♦Use of Fax for Taxpayer Submissions♦

  1. Tax return information can be received via fax as part of return perfection even if a taxpayer signature is required. In circumstances where contact with the taxpayer has been made and documented, fax signatures are acceptable.

  2. Contact with the taxpayer may be by telephone or correspondence. Follow local procedures to determine which method of contact will be used.

  3. Code & Edit examiners will indicate the fax paragraph on the approved Correspondence Action Sheet to advise taxpayers of the option to fax their response.

    Caution:

    Before disclosing any tax information, you must be sure you are speaking with the taxpayer or authorized representative. See the Taxpayer Authentication guidelines in IRM 21.1.3.2.3, Required Taxpayer Authentication and IRM 21.1.3.2.4, Additional Taxpayer Authentication. Also, before leaving any messages on a taxpayer's answering machine, review IRM 11.3.2.6.1, Leaving Information on Answering Machines/Voicemail. Fax procedures contained in IRM 11.3.1.10, Facsimile Transmission of Tax Information must be reviewed prior to faxing confidential information to the taxpayer.

3.11.14.5.3.3  (10-27-2009)
♦Frivolous Arguments♦

  1. A frivolous argument is used for the purpose of expressing dissatisfaction with the substance, form or administration of the tax laws by attempting to illegally avoid or reduce tax liabilities. Recognized frivolous arguments made by businesses include, but are not limited to, the examples in IRM 4.10.12., Frivolous Return Program, shown in See Exhibit 3.11.14-14.

  2. Review the return to determine whether it appears to be a frivolous return.

    If ... Then ...
    The return meets any of the conditions identified as a frivolous return, ( See Exhibit 3.11.14-14. )

    Caution:

    If the return shows Action Code 440 (OSPC) or 331 (CSPC), and has a Form 4227 attached with the remarks, "Refer to Examination FRP for audit after processing" , continue to next procedure.

    		Remove return from the batch and place the return in the locally designated basket for Examination, Frivolous Return Processing (FRP) for review.

    Note:

    IRM 4.10.12.1.3.3, Campus FRP Coordinators requires Examination to expedite the return and make a determination whether it qualifies as a frivolous return within two (2) business days. If a determination is not made within the allowed timeframe, the Examination examiner will edit Action Code 440 (OSPC) or 331 (CSPC) in the lower-left margin of Form 1041, 1041-QFT or 1041-N.

    Examination has selected the return as frivolous, e.g., indicated by an Action Code 440 (OSPC) or 331 (CSPC), and a Form 4227 with the remarks, "Refer to Exam FRP for audit after processing" , but sends the return for processing, Continue processing the return using procedures in IRM 3.11.14. However, do not circle or void the Action Code indicating a frivolous return.

    Note:

    Returns having only zeros, no entries, are blank or indicate "None" , "Not Liable" , etc. with no evidence of a frivolous argument are not to be considered as frivolous returns.

3.11.14.6  (10-27-2009)
Examination of Attachments

  1. All attachments to the return being processed will be examined and action taken as required by the attachment.

  2. When an attachment has an effect on the document being processed, it will remain attached unless a specific instruction requires that it be detached.

    1. Notate any action taken on Form 1041, 1041-QFT, 1041-N regarding attachments, photocopying, etc., (to leave an action/working trail). Edit the Action Trail(s) in the lower left corner going vertically up the side of the return.

    2. Refer to the Campus Mail Routing Guide for proper disposition of attachments not found in the Routing Guide for Attachments, in See IRM 3.11.14.43.

  3. If the document to be detached contains any information that is pertinent to the return being processed, photocopy or transfer the data to a blank piece of paper and attach it to the return.

  4. Forward any attachment requesting an adjustment or correspondence to Accounts Management Branch via Form 4227.

3.11.14.7  (10-27-2009)
♦Computer Condition Codes (CCC)♦

  1. Computer Condition Codes (CCC) are used to identify a special condition or computation for the computer. Computer Condition Codes post to the Master File.

  2. Computer Condition Codes are edited in the center of Lines 1 and 2 of Form 1041, 1041-QFT and 1041-N.

3.11.14.7.1  (10-27-2009)
♦CCC "D" – Reasonable Cause For Waiver of Failure To Pay Penalty♦

  1. Do not edit CCC "D" if the taxpayer requests abatement for "Failure to Pay timely" when the return is submitted. Send Letter 1382C to inform taxpayer of the proper procedure to follow to request penalty abatement, if, and when a penalty is assessed.

  2. Edit CCC D on a "Final" , Balance Due return if the Received Date is after the short period due date but on or before the regular full tax period due date ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

  3. Do not edit CCC "D" when pre-computed penalty is shown on the return.

3.11.14.7.2  (10-27-2009)
♦CCC "F" – Final Return♦

  1. Edit CCC "F" when the "Final Return" box is checked or there is another indication the estate or trust is not liable for future returns. Notations may include (but are not limited to):

    • Final

    • Deceased

    • Out of Business

    • Liquidation

    • Exempt Under IRC Section 501(c)(3)

    • Dissolved

3.11.14.7.3  (10-27-2009)
♦CCC "G" – Amended Return♦

  1. See IRM 3.11.14.8.1. for Amended Return instructions.

3.11.14.7.4  (10-27-2009)
CCC "I" – Regulated Futures Contracts and Tax Straddles

  1. Edit CCC "I" when Form 6781 (Gains and Losses from Section 1256 Contracts and Straddles) is attached.

3.11.14.7.5  (10-27-2009)
CCC "K" - Qualifying Small Business Taxpayer

  1. Edit CCC "K" when:

    1. Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, box "F" is checked in Part II, or

    2. Form 2210-F, Underpayment of Estimated Tax by Farmers and Fishermen, box "C" is checked in Part I

3.11.14.7.6  (10-27-2009)
CCC "O" – Pre-Settlement Manual Refund

  1. CCC "O" is edited when a Pre-Settlement Manual Refund will be issued and a Form 3753 (Manual Refund Posting Voucher), Form 5792 (Request for IDRS Generated Refund), or Form 12857 (Refund Transfer Posting Voucher) is attached. Verify that the Name Control, EIN, and Tax Period on the return are the same as the information on the attached form.

  2. When editing CCC "O" , research to determine if TC 840 (Manual Refund Transaction) has posted:

    If ... Then ...
    TC 840 has posted, Edit CCC "O" and continue processing the return.
    TC 840 has not posted, Edit Action Code 341 (Manual Refund).

3.11.14.7.7  (10-27-2009)
♦CCC "Q" - Return Filed Claiming TETR Only (Telephone Excise Tax Refund)♦

  1. CCC "Q" is edited on the estate or trust return when Form 8913 (Credit for Federal Telephone Excise Tax Paid) is attached and the only entry on the 2006 tax return is edited on:

    • Form 1041, Line 25,

    • Form 1041-QFT, Line 14 (dotted area),

    • Form 1041-N, Line 16 (dotted area).

    Caution:

    Do not edit this code if there are any other monetary amounts on the return.

3.11.14.7.8  (10-27-2009)
♦CCC "R" – Delinquent Return With Reasonable Cause Established♦

  1. CCC "R" is no longer edited when a reason is given by the taxpayer for a delay in filing a return. Issue Letter 1382C and continue editing the return.

  2. Edit CCC "R" on the return when any of the following are present:

    • There is an indication such as "DO NOT ASSESS FAILURE TO FILE PENALTY" on a secured return annotated with " 599" .

    • There is an indication of assessment of a fraud penalty (e.g., IRC Section 6663 or IRC Section 6664).

    Note:

    All "R" coded returns must have a received date. If one is not present, edit the date in the middle of the return.

3.11.14.7.9  (10-27-2009)
CCC "T" – Investors Reporting of Tax Shelter Registration Number

  1. Edit CCC "T" when Form 8271 (Investors Reporting of Tax Shelter Registration Number) is attached to a return prior to tax year 200709.

3.11.14.7.10  (10-27-2009)
♦CCC "W" – Return Cleared by Statutes♦

  1. CCC "W" is used when the return has been cleared by Statute Control. ( See IRM 3.11.14.8.10.)

3.11.14.7.11  (10-27-2009)
CCC "X" – Credit Freeze (Manual Assessment Indicator)

  1. Edit CCC "X" when any of the following conditions occur:

    If ... Then ...
    The taxpayer has requested part of the refund be applied to another account,

    1. Edit CCC "X."

    2. Photocopy Pages 1 and 2 of Form 1041 (Page 1 of Form 1041-QFT or Form 1041-N).

    3. Prepare Form 3465, attach to the photocopy, and forward to Accounts Management.

    4. Notate "Form 3465 PREPARED " on the original Form 1041

    ( See Figure 3.11.14-2.)
    Form 1041–T is present with an entry on Line 24b, See IRM 3.11.14.20.2.for instructions.

    Figure 3.11.14-2
    Editing suppression of credit interest
    Please click here for the text description of the image.

    CCC "X" – Suppression of Credit Interest

3.11.14.7.12  (10-27-2009)
CCC "Y" – Short Period Return for Change of Accounting Period

  1. Edit CCC "Y" when any of the following conditions exist:

    • Short Period returns which have IRS approval for change of accounting period.

    • Short Period returns which have changed to Tax Period Ending month of "12" .

  2. CCC "Y" will result in the following systemic conditions:

    • Automatic update of the old Tax Period month ending in the Entity Section of the BMF account to conform with the date shown on the return and allows the return to post.

    • Automatic forwarding of the return to the Error Register for manual verification.

  3. Do not Edit CCC "Y" for "Initial" or "Final" returns.

3.11.14.7.13  (10-27-2009)
CCC "1" – Like-Kind Exchanges (Form 8824)

  1. Edit CCC "1" if Form 8824, Like-Kind Exchanges, is attached.

3.11.14.7.14  (10-27-2009)
♦CCC "3" – No Reply to Correspondence♦

  1. Edit CCC "3" when the return is completely unprocessable.

3.11.14.7.15  (10-27-2009)
♦CCC "4" – IRS Prepared Return Under IRC Section 6020(b)♦

  1. Edit CCC "4" when the IRS's Compliance Branch has prepared a return and the Revenue Officer has entered "IRC Section 6020(b)" .

    Note:

    CCC "4" cannot be used with CCC "R" .

3.11.14.7.16  (10-27-2009)
CCC "8" – Waiver of Estimated Tax Penalty

  1. Edit CCC "8" when any of the following conditions are present:

    1. The date entity created is within two years of the Tax year ending and :

      • The return is for a decedent estate (Fiduciary Code 1) or bankruptcy estate (Fiduciary Code 5 or 6); or
      • The taxpayer notated Testamentary Trust, Tstmtry, Trust Under the Will, T.U.W, or TR/W in the entity portion of return.

      Example:

      If the filer has entered 3-17-2007 in Section D, edit CCC "8" for any return with a Tax Year Ending on or before 3-16-2009.( See Figure 3.11.14-3.)

      Caution:

      Do not edit CCC "8" if the "Date Entity Created" is after the Tax Period Ending Date.

      Figure 3.11.14-3

      There is currently no description available for this image. For help with this image, please call the IRS.gov Helpdesk at 1-800-876-1715.

    2. The taxpayer has checked any of the boxes, other than box "F" , in Part II of Form 2210 or other than box "C " in Part I of Form 2210-F. ( See Figure 3.11.14-4.)

      Note:

      For TY 2002 and prior, the boxes were in Part I.

      Reminder:

      Also, edit CCC "K" if Form 2210 box "F" is checked in Part II or box "C" is checked on Form 2210-F, Part II.

      Figure 3.11.14-4

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

    3. The taxpayer notates "WAIVER" on Line 26 of Form 1041 (Estimated Tax Penalty) or on Form 2210 or 2210-F. ( See Figure 3.11.14-5.)

    4. The taxpayer provides an explanation for underpayment.

      Note:

      Examples of valid explanations of underpayment are:

      • The taxpayer retired during the Tax Year.
      • The taxpayer became disabled during the tax year of the return.

  2. Also 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, and

    3. Total tax without household employment tax is less than $1,000.

    Figure 3.11.14-5
    There is currently no description available for this image. For help with this image, please call the IRS.gov Helpdesk at 1-800-876-1715.

3.11.14.7.17  (10-27-2009)
CCC "9" – Low-Income Housing (LIHC)

  1. Edit CCC "9" when any of the following forms are attached and an entry is present on Line 2c, Schedule G of Form 1041:

    • Form 8586 (Low-Income Housing Credit).

    • Form 8609 (Low-Income Housing Credit Allocation and Certification) for years 200412 and prior.

    • Form 8609-A (Annual Statement for Low Income Housing Credit).

    • Form 8693 (Low-Income Housing Credit Disposition Bond).

    Caution:

    Do not edit CCC "9" if Form 8611 (Recapture of Low-Income Housing Credit) is attached.

3.11.14.8  (10-27-2009)
Special Conditions/Returns

  1. The following editing instructions are for returns that require specific editing.

3.11.14.8.1  (10-27-2009)
♦Amended Returns♦

  1. An Amended Return may be identified by checking the "Amended Return" box and/or by such words as "SUPPLEMENTAL" , "DUPLICATE" , "ADDITIONAL" , or any other positive indication that the taxpayer has filed previously. Filing a "Copy" of a return is not sufficient reason to label a return "Amended" unless accompanied by a positive statement from the taxpayer.

  2. Examine the return for attachments. Do not separate any related attachments from the return that the taxpayer has submitted to explain the reason for the Amended return; this information will be used by Accounts Management. Detach any unrelated documents and route them to the appropriate function using Form 4227. Edit Action Trail on the return.

  3. There is an indication the return is amended and:

    If ... Then ...
    TC 59X or ICS was entered on the return by Compliance Services, Do not edit CCC "G" . Process the return as an original.
    The return is stamped "Delinquent Original Cleared for Processing" by Statutes,
    Do not edit CCC "G" . Process the return as an original.
    Form 3893 or 13596 is attached, Do not edit CCC "G" . ( See IRM 3.11.14.8.6.2.)
    None of the above are present, Edit CCC "G" . No other codes may be used with a CCC "G" except "W" , "3" and/or ERS (Error Resolution System) Action Codes.

    Reminder:

    Do not edit a Fiduciary Code or Trust Code when editing CCC "G" .

  4. Do not edit CCC "G" on returns filed under Section 443(b)(2). See Exhibit 3.11.14-13., IRC Sections and Actions to be taken on Form 1041.

  5. The following data must be present on all amended returns:

    1. Name Control (unless Check Digits are present) ( See IRM 3.11.14.13.2.)

    2. EIN ( See IRM 3.11.14.13.1. )

    3. Tax Period ( See IRM 3.11.14.11.)

    4. CCC "G" ( See IRM 3.11.14.7.3.)

    5. Received Date ( See IRM 3.11.14.10.)

    6. Signature ( See IRM 3.11.14.22.)

    Note:

    Do not perfect the address on amended returns. See IRM 3.11.14.13.4.

  6. Detach Schedules K-1 for current year only through November 30th. Process according to IRM 3.0.101.

3.11.14.8.2  (10-27-2009)
Bankruptcy Returns

  1. This subsection provides instructions for processing bankruptcy returns.

3.11.14.8.2.1  (10-27-2009)
Identification of Bankruptcy Estate Returns

  1. If the "Bankruptcy Estate" box is not checked, determine if the return is for a Bankruptcy Estate from the Name Line on Form 1041 or from any attachments to the return.

    Note:

    These instructions also apply when either box is checked.

  2. If the determination is made that a Bankruptcy Estate Return exists, Form 1040 should be attached. All Income and Deductions must be reported on Form 1040. Only the Tax Liability should be reported on Lines 23 through 29 of Form 1041.

    1. If the taxpayer has entered amounts in any of Lines 1 through 22 of Form 1041, place a large "X" across Lines 1 through 22.

    2. If Form 1040 is not attached and Lines 23 through 29 of Form 1041 are present, correspond with the taxpayer.

    Note:

    If Form 6252 is attached to a nontaxable Grantor Trust or Bankruptcy Estate return, do not edit an Installment Sale Indicator Code. Form 6252 information will be included on the individual tax return.

  3. The amounts reported on Form 1041 should equal the information provided on Form 1040.

    1. If Form 1040/1040A/1040EZ is attached, ensure that the amounts reported on Form 1041 equal the amounts reported on Form 1040/1040A/1040EZ as follows: ( See Figure 3.11.14-7.)

      Form 1041 Form 1040 Form 1040A Form 1040EZ Description
      Line 23 Line 60 Line 37 Line 11 Total Tax
      Line 25 Line 71 Line 44 Line 10 Total Payments
      Line 28 Line 72 Line 45 Line 12a Overpayment
      Line 27 Line 75 Line 48 Line 13 Tax Due

      Note:

      For prior year returns, match the Total Tax, Total Payments, Overpayment, and Tax Due on Forms 1040, 1040A, and 1040EZ to the same line descriptions on Form 1041.

    2. Process deviations to each line compared above as follows:

      If ... Then ...
      Form 1041 equals Form 1040, Continue editing the return.
      The Form 1041 entry is zero or blank and Form 1040 contains an entry, Edit the amount from Form 1040 to Form 1041.
      Form 1041 contains an entry and Form 1040 is zero or blank, Continue editing the return.
      Entries are present on both Form 1041 and 1040 but, the amounts on each form are different, Correspond via Letter 177C to determine which entry is correct.
      Form 1040 is not attached and Lines 1 through 22 of Form 1041 are completed and Line 9 contains Gross Income of less then the applicable tax year Exemption plus the Standard Deduction, See Figure 3.11.14-6.

      1. "X" Lines 1 through 22 of Form 1041 and process as a nontaxable return.

      2. Correspond via Letter 177C to inform the taxpayer that there is no need to file Form 1041.

      3. Do not suspend.

      Form 1040 is not attached and Lines 1 through 22 are completed on Form 1041, and Line 9 contains Gross Income of greater than the applicable tax year Exemption plus the Standard Deduction, See Figure 3.11.14-6. Correspond via Letter 177C to request a copy of Form 1040 for the applicable Tax Period.

    Figure 3.11.14-6

    Tax Year Exemption Standard Deduction
    2009 $3,650 $5,700
    2008 $3,500 $5,450
    2007 $3,400 $5,350
    2006 $3,300 $5,150
    2005 $3,200 $5,000
    2004 $3,100 $4,850
    2003 $3,050 $4,750
    2002 $3,000 $3,925
    2001 $2,900 $3,800
    2000 $2,800 $3,675
    1999 $2,750 $3,600
    1998 $2,700 $3,550

    Exemption/Standard Deduction Chart

    Figure 3.11.14-7

    Edit of Fiduciary Code 6 when the Bankruptcy estate Chapter 11 box is marked.
    Please click here for the text description of the image.

    1040 Bankruptcy Estate

3.11.14.8.2.2  (10-27-2009)
Individual Bankruptcy

  1. Bankruptcy Estate Returns can only be filed by individuals.

    Note:

    If the Name Line indicates Partnership or Corporation, See IRM 3.11.14.8.2.4.

  2. Bankruptcy Estate returns are submitted only by the fiduciary (trustee) of a bankruptcy estate of an individual involved in bankruptcy proceeding under Chapter 7 or 11 of Title 11 of the United States Code.

  3. A Form 1040 is required to determine the estate's correct Income and Tax.

    1. If a Form 1040 is not attached and Lines 23 through 29 of Form 1041 are present, correspond with the taxpayer.

  4. Prompt identification should be made of a bankruptcy related Request for Prompt Assessment or a Quick Determination of tax liability to ensure that the crucial 60 and 180 day deadlines can be met timely by Compliance.

    1. Identify any Form 1041 for which the trustee appointed by the bankruptcy court requests a "PROMPT ASSESSMENT" , "QUICK DETERMINATION OF TAX LIABILITY" , or "QUICK REFUND" . The trustee may also make a request for a quick refund on a bankruptcy case.

    2. If either of these situations are identified, photocopy Form 1041 and the attachments pertaining to the request and EXPEDITE the case to the Campus Examination (Audit) Support function for referral to the applicable Campus or Area Office Examination function.

      Note:

      Form 1041 requesting a bankruptcy related Prompt Assessment, Quick Determination of tax liability and/or a Quick Refund may or may not have either of the "Bankruptcy Estate" boxes checked. The bankruptcy procedures above should be followed regardless of whether either box is checked.

    Reminder:

    Edit Fiduciary Code "5" on all Chapter 7 Bankruptcy Estate returns or "6" on all Chapter 11 Bankruptcy Estate returns. If neither box is checked, edit Fiduciary Code "5" if the return indicates it is a bankruptcy.

3.11.14.8.2.3  (10-27-2009)
Individual Bankruptcy Cases – Special Procedures

  1. Bankruptcy estates are created at the commencement of the bankruptcy case. Under Chapter 7 (LIQUIDATION) and 11 (REORGANIZATION), this estate is a new entity, completely separate from the individual taxpayer(s).

  2. The estate is represented by a court appointed trustee or by a debtor in possession who manages the estate for the benefit of any creditor.

  3. The taxes of the individual who filed bankruptcy have nothing to do with the taxes of the estate. However, if the individual chooses to file two short year returns, any balance due for the first short year return will be collected from the estate.

    1. If the Signature section of Form 1041 contains the same name as the name in the Entity section, examine the return for the following:

    If ... Then ...
    Taxpayer notates "DEBTOR IN POSSESSION" (Chapter 11), Continue editing the return.
    Taxpayer notates "CHAPTER 7" or there is no indication of Debtor in Possession on a Numbered Return,

    1. Continue editing the return.

    2. Attach Form 4227 and notate "POSSIBLE FILING DISCREPANCY" .

    3. Edit Action Code 320 (Entity Control).

    4. Leave the return in the block.
    Taxpayer notates "CHAPTER 7" or there is no indication of Debtor in Possession on an Unnumbered Return,

    1. Do not continue editing the return.

    2. Attach Form 4227 and notate "POSSIBLE FILING DISCREPANCY" .

    3. Withdraw the document from the batch.

    4. Route the document to the Entity Control.

3.11.14.8.2.4  (10-27-2009)
Corporation or Partnership Bankruptcy

  1. Filing requirements for corporations and partnerships are as follows:

    • Corporations - Form 1120 (U.S. Corporation Income Tax Return).

    • Partnerships - Form 1065 (U.S. Partnership Return of Income).

  2. If either of the Bankruptcy boxes are checked in Section A (Type of Entity) and there is an indication that a Form 1120 or Form 1065 should have been filed (i.e., the form is attached or the name of the entity includes terms such as "CORPORATION" , " CORP." , "PARTNERSHIP" , etc.), process as follows:

    If ... Then ...
    Numbered Returns,

    1. Continue editing the return.

    2. Attach Form 4227 and notate "POSSIBLE FILING DISCREPANCY" .

    3. Edit Action Code 320 (Entity Control).

    4. Leave the return in the block.
    Unnumbered Returns,

    1. Do not continue editing the return.

    2. Attach a Form 4227 and notate "POSSIBLE FILING DISCREPANCY" .

    3. Withdraw the document from the batch.

    4. Route the document to Entity Control.

  3. Through research or correspondence with the filer, Entity will determine if the filer must file a Form 1041 or if the filer should have filed a Form 1120 or Form 1065.

    If ... Then ...
    Form 1041 is returned from Entity with an EIN present (determined that Form 1041 should have been filed), Continue editing the return.
    Form 1041 is returned from Entity without an EIN present (filing requirement could not be determined), Correspond via Letter 177C.

3.11.14.8.2.5  (10-27-2009)
Joint-Filed Bankruptcy Returns

  1. When a husband and wife file a joint bankruptcy petition, their estates are effectively consolidated for administrative purposes. However, these estates are treated as separate entities for tax purposes and must file separate bankruptcy returns.

  2. Correspond (via Letter 177C) when any of the following conditions exist:

    • One Form 1041 is received with two Forms 1040 attached.

    • One Form 1041 is received with a Form 1040 Joint return (Box "2" is checked in the "Filing Status" section at the top of Form 1040).

      Note:

      Taxpayers claiming "Administrative Consolidation" require correspondence.

    If ... Then ...
    One Form 1041 is received with either two Form 1040 returns (husband and wife) or one "Joint" Form 1040,

    1. Correspond via Letter 177C to inform the taxpayer that they must file two separate Form 1041 returns. Use the following statement:

      "TWO SEPARATE FORM 1041 TAX RETURNS MUST BE FILED. A HUSBAND AND WIFE THAT FILE A JOINT BANKRUPTCY PETITION AND THEIR ESTATES ARE JOINTLY ADMINISTERED MUST TREAT THEIR ESTATES AS SEPARATE ENTITIES FOR TAX PURPOSES (IF THEY SEPARATELY MEET THE FILING REQUIREMENTS). FOR ADDITIONAL INFORMATION, SEE PUBLICATION 908 (BANKRUPTCY TAX GUIDE)."

    Two Forms 1041 are received with one "Joint" Form 1040,

    1. Separate the two Form 1041 returns.

    2. Photocopy Form 1040.

    3. Attach the original Form 1040 to one Form 1041 and the photocopy to the other Form 1041.

    4. Process as filed.

3.11.14.8.2.6  (10-27-2009)
Chapter 12 Bankruptcy Returns

  1. The Family Farmer Bankruptcy Act of 1986 was designed specifically to address the "debt plight" that farmers found themselves in after the inflationary period of the 1970's.

  2. When returns are received with an indication of "CHAPTER 12" or "FAMILY FARMER" :

    1. Send the return back to the taxpayer.

    2. Inform the taxpayer of their non-filing requirement using the language below:
       
      "Form 1041 should not be filed. There is no requirement to prepare a federal income tax return on behalf of the bankruptcy estate as there is no separate entity for tax purposes."

3.11.14.8.2.7  (10-27-2009)
Form 1041 Used as a Transmittal for Bankruptcy Form 1040 Returns

  1. For Bankruptcy returns, Form 1041should be used as a transmittal form for Form 1040.

    1. Do not detach Form 1040 from Form 1041.

3.11.14.8.3  (10-27-2009)
Prompt Assessment (Form 4810)/Prompt Determination

  1. Prompt identification should be made of a bankruptcy related Request for "Prompt Assessment" or "Prompt Determination" of tax liability to ensure that the crucial 60 and 180 day deadlines can be met timely by Compliance.

  2. A "Prompt Assessment" is requested either in the form of a letter or on Form 4810 (Request for Prompt Assessment Under IRC Section 6501(d)) or a "Prompt Determination" is requested under Section 505(b) of the U.S. Bankruptcy Code.

    If ... And... Then ...
    A Prompt Assessment or Prompt Determination request is not attached to a tax return,   Forward the Prompt Assessment/Prompt Determination request to Examination.
    A Prompt Assessment or Prompt Determination request is attached to a tax return, A TC 150 has not posted for that return, Process the return and forward the Prompt Assessment/Prompt Determination request to Examination with a copy of the tax return.
    A TC 150 has posted for that return,

    Note:

    The Returns listed above box should be checked.

    		 Route the return and the Prompt Assessment/Prompt Determination request to Examination.

  3. If the Form 1041 is a photocopy (TC 150 posted):

    1. Detach Form 4810 and place it beneath the Entity Section of Form 1041 (Page 1).

    2. Route the package to Examination via Form 4227. ( See Figure 3.11.14-8.)

  4. If the Form 1041 is an original (TC has not posted):

    1. Photocopy Form 1041 (and its attachments) and Form 4810.

      • Notate "PHOTOCOPY — DO NOT PROCESS" on the front page of the photocopyForm 1041.
      • Notate "ORIGINAL FORM 4810 SENT TO _______ON MM/DD/YY" on the photocopy and originalForm 4810.

    2. Attach the originalForm 4810 to the front of the photocopyForm 1041 and route to the appropriate SPC function via Form 4227.

    3. Attach the photocopyForm 4810 beneath the originalForm 1041 and edit following procedures in this IRM and (4).

    4. Edit Action Trail "COPY SENT TO EXAMINATION" in the lower left corner going vertically up the side of the original Form 1041;

    5. Edit Audit Code "" in the left margin next to Line 10 in "≡ ≡ ≡ ≡ " format; and,

    Figure 3.11.14-8
    Request for Prompt Assessment (Form 4810)
    Please click here for the text description of the image.

    Request for Prompt Assessment (Form 4810)

3.11.14.8.4  (10-27-2009)
IRC Section 663(c) – Separate Share Tax Rule Trust

  1. Forms 1041 are being received with a notation such as "SEPARATE SHARE" and attached to the returns are several supporting returns identified as copies for information purposes. This indication may be present on either Page 1, Page 2, Schedule B (Income Distribution Deduction) or Schedule G (Tax Computation) of Form 1041.

    1. Perform necessary research (following local guidelines) to determine if TC 150 is present. It is possible that the original return has become detached during batching.

    If ... Then ...
    TC 150 has posted, Route the "Separate Share" Form 1041 to the Research function for association with the original return.
    TC 150 has not posted and entries are present on entire Page 1,

    1. "X" through the supporting documents and leave them attached to the return.

    2. Continue normal processing of the return.
    TC 150 has not posted and entries are present on Lines 20 through 27, Correspond for the original Form 1041.

3.11.14.8.5  (10-27-2009)
Nontaxable Returns (No Line Entries)

  1. Process a Form 1041 as an original return if it is received with all of the following:

    • No tax data entries (and no tax data information attached).

    • A notation on the return such as "NOT LIABLE" .

    • A taxpayer signature.

3.11.14.8.6  (10-27-2009)
♦Re-Entry Document Procedures♦

  1. A return posted to the wrong account or module or attempting to post must be reprocessed to post to the proper account or module.

  2. Some re-entry returns may have originally been filed electronically (E-File). These returns may be identified by the presence of Mod E-file printouts in lieu of an actual return. Do not correspond for missing signatures on these documents.

  3. Each re-entry return must have a Form 3893, Re-Entry Document Control or Form 13596, Reprocessing Returns, attached.

    • Form 3893 is used to reinput documents that have not posted to an account or module

    • Form 13596 is used to reprocess documents to the correct account or module that had previously posted to the wrong account or module

  4. Always leave Form 3893 or Form 13596 on the front of the return. It must remain as a permanent part of the document.

  5. Examine Form 3893 or Form 13596 to determine the action needed to make the return processable.

    Caution:

    If the Received Date is 2 years and 9 months or more from the Return Due Date, refer to Statute procedures before re-entering or reprocessing the return. See IRM 3.11.14.8.10., Statute Returns.

    .

  6. If Schedules K-1 is attached to a Reprocessable/Re-Entry, current year return that has not been processed, detach Schedules K-1 and process as "Loose Schedule K-1" using IRM 3.1.101.

3.11.14.8.6.1  (10-27-2009)
♦Form 3893 - Re-Entry Document Control♦

  1. Form 3893, Re-Entry Document Control, is used to reinput a return that has not posted to an account or module.

  2. If more than one return is in the batch and only the top Form 3893 has an entry in Box 1 (Alpha/Numeric block control no.), edit all returns using current processing instructions and keep all returns clipped together.

  3. Circle the CCC "G" if present.

  4. Do not edit CCC "G" on amended returns.

  5. Do not send Letter 1382C if a request for reasonable cause is attached.

  6. If the return was not edited according to current processing instruction, circle any Action Codes, Computer Condition Codes and any other edit marks that are no longer applicable. Re-edit according to current processing instructions.

  7. If the return was edited according to current processing instruction, ensure that the information from Form 3893 is edited on the return.

    Form 3893 Action Taken
    Box 14 (Remarks) Ensure that the information is edited to the return.
    Box 15 (Process as)

    1. Circle any green rocker and edit marks that may indicate a receipt of remittance.

    2. Do not change any tax due amounts.

  8. Examine returns that have any color other than red editing in the tax data section to determine if the corrections are the result of improper perfection or taxpayer error.

    If ... Then ...
    Improper Perfection, Edit the same correction in red/green (per local procedure) to the appropriate area.
    Taxpayer error, Leave the entries as shown on the document.

  9. A received date must be present on all reinput returns.

    If ... Then ...
    Received date is not present, Edit a received date to the middle of the return.
    Multiple received dates are present, Circle all but the earliest date.

  10. When additional information is still needed to make the return processable, prepare approved Correspondence Action Sheet or Form 4227 for the appropriate action (e.g., correspondence, research, etc.).

    Exception:

    Do not correspond for missing Schedules K-1. ( See IRM 3.11.14.17.4.)

  11. When perfection is not possible, edit Action Code 640 on the return and attach Form 4227 noting "PERFECTION NOT POSSIBLE" and leave in batch.

3.11.14.8.6.2  (10-27-2009)
♦Form 13596 - Reprocessing Returns♦

  1. Form 13596, Reprocessing Returns, is used to reprocess a return to the correct account or module that had previously posted to the wrong account or module.

  2. Circle CCC "G" if present.

  3. Do not edit CCC "G" on amended returns.

  4. Do not send Letter 1382C if a request for reasonable cause is attached.

  5. If the return was not edited according to current processing instructions, circle any Action Codes, Computer Condition Codes and any other edit marks that are no longer applicable. Re-edit according to current processing instructions.

  6. If the return was edited according to current processing instructions, ensure that the information from Form 13596 is edited on the return.

    Form 13596 Action Taken
    TIN correction Edit correct TIN on return.
    Tax period correction Edit correct Tax Period ending on return.
    Reasonable cause Edit appropriate Computer Condition Code:

    1. Edit CCC "R" if the FTF box is checked.

    2. Edit CCC "D" if the FTP box is checked.

  7. Examine returns that have any color other than red editing in the tax data section to determine if the corrections are the result of improper perfection or taxpayer error.

    If ... Then ...
    Improper perfection, Edit the same correction in red/green (per local procedure) to the appropriate area.
    Taxpayer error, Leave the entries as shown on the document.

  8. A received date must be present on all reprocessed returns:

    If ... Then ...
    Received date is not present, Edit a received date to the middle of the return.
    Multiple received dates are present, Circle all but the earliest date.

  9. Circle any green rocker and edit marks that may indicate a receipt of remittance.

  10. When additional information is still needed to make the return processable, prepare approved Correspondence Action Sheet or Form 4227 for the appropriate action (e.g., correspondence, research, etc.

    Exception:

    Do not correspond for missing Schedules K-1. See IRM 3.11.14.17.4(4). .

3.11.14.8.7  (10-27-2009)
♦Refund Returns (45-Day Jeopardy and Million Dollar Refunds)♦

  1. Document Perfection is responsible for identifying refunds and for initiating requests for manual refunds.

    Note:

    Expeditious processing of refund returns is critical if the 45-day period is about to expire.

    If ... Then ...
    A refund return is batched in a non-refund batch,

    1. Completely edit the return.

    2. Pull the return from the non-refund batch and merge into a refund batch using local procedures.


    Note:

    Follow the instructions below when the processing date is more that 20 days after the received date or the return due date OR the refund is $1,000,000 or more.

    The processing date is more than 20 days after the Received Date or the Return Due Date (whichever is later) and the refund is $5,000 or more,

    Note:

    " Refund" in this instruction means only the amount requested to be refunded to the taxpayer, not overpayments transferred to other periods.

    1. Edit Action Code 341. ( See Figure 3.11.14-9.)

    2. Give the return to the manager.

    The refund is $1,000,000 or more,

    Note:

    "Refund" in this instruction means only the amount requested to be refunded to the taxpayer, not overpayments transferred to other periods.

    1. Do not leave the return in the block.

    2. Edit Action Code 341 for numbered and unnumbered returns.
      ( See Figure 3.11.14-9.)

    3. Give the return to the manager.
    The W&I Submission Processing TAS Liaison walks a return through Code & Edit, In addition to normal editing, edit the following:

    1. CCC "O" to freeze the refund.

    2. CCC "Y" to send the return to ERS.

    Figure 3.11.14-9

    There is currently no description available for this image. For help with this image, please call the IRS.gov Helpdesk at 1-800-876-1715.


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