3.11.25  Miscellaneous Tax Returns

Manual Transmittal

November 05, 2013

Note:DO NOT REMOVE AND INSERT PAGES OR DISPOSE OF OBSOLETE TRANSMITTALS PRIOR TO JANUARY 1, 2014.

Purpose

(1) This transmits revised IRM 3.11.25, Returns and Documents Analysis, Miscellaneous Tax Returns.

Material Changes

(1) Editorial changes have been made throughout the IRM.

(2) IRM 3.11.25.2.4(1) Added the tax rates to the procedures.

(3) IRM 3.11.25.2.5(2) Added revision 2013 to the procedures.

(4) Figure 3.11.25-2- Update the VDN information.

(5) Figure 3.11.25-3- Update the VDN information.

(6) Exhibit 3.11.25-1 Form CT-2- Update VDN information.

Effect on Other Documents

IRM 3.11.25 dated October 26, 2012 (effective January 01, 2013) is superseded. This IRM also incorporates the following Interim Procedural Update: IPU13U1364.

Audience

Wage and Investment (W & I), Submission Processing

Effective Date

(01-01-2014)

Paul J. Mamo
Director, Submission Processing
Wage and Investment Division

3.11.25.1  (01-01-2014)
General Instructions

  1. This section provides general background information about the types of returns processed and the nature of the work that Document Perfection personnel are expected to perform on these returns and documents.

  2. The instructions in this section pertain to the processing of Non-Master File (NMF) Returns. These returns are not processed into a Master File (Individual Master File (IMF) or (Business Master File (BMF). The accounting for these returns is handled entirely by the NMF procedures in the Accounting function.

  3. These instructions apply to Cincinnati Submission Processing Campus.

3.11.25.1.1  (01-01-2014)
Internal Revenue Service (IRS) Employee Contacts - RRA98, Section 3705(a)

  1. The Restructuring and Reform Act of 1998 (RRA98), Section 3705(a), 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.

  2. 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 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 are considered manually-generated correspondence and must include the required information. See IRM 11.3.1.11, Facsimile Transmission of Tax Information.

    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 their 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 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) his or her badge identification (ID Card) number on the first contact.

    Caution:

    In cases where telephone contact with the taxpayer is required, consult IRM 21.1.3.2.3, Required Taxpayer Authentication, for information regarding required taxpayer authentication. Also, consult IRM 11.3.2.6.1, Leaving Information on Answering Machines/Voice Mail, for information regarding the dangers of leaving information on taxpayers' answering machines or voice mails.

3.11.25.1.2  (01-01-2014)
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 (see IRM 13.1.7, Taxpayer Advocate Service (TAS) Case Criteria) or has Form 911, Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order) attached, 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, and forward to TAS in accordance with your local procedures.

3.11.25.1.2.1  (01-01-2014)
TAS Service Level Agreements (SLAs)

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

  2. The SLAs are located at http://tas.web.irs.gov/policy/sla/default.aspx.

3.11.25.1.3  (01-01-2014)
Control of Returns

  1. There are certain restrictions imposed in the processing of NMF returns which are listed below.

  2. Do not withdraw any remittance return from the originally numbered block.

  3. Indicate misblocked returns by a notation on the Form 813, Document Register.

  4. Keep blocks intact for the Accounting operation, after which any needed correspondence or adjustment action will be taken. Move full-paid returns with Correspondence Action Sheet (CAS) or adjustment requests to top of the block of returns.

  5. Overpayments on returns will be processed from accounting records.

3.11.25.1.4  (01-01-2014)
Document Perfection

  1. This section includes general instructions to be used by examiners for processing all types of forms.

3.11.25.1.4.1  (01-01-2014)
Penalty and Interest Computation

  1. Instructions in this IRM usually require examiners to math verify and/or check for completeness when processing NMF returns. Document Perfection examiners are not required to compute penalties and/or interest. If, during examination, it is determined penalty and/or interest assessments are needed, see IRM 3.11.25.1.4.2, Form 3465, Adjustment Request, and route as directed for the appropriate action.

3.11.25.1.4.2  (01-01-2014)
Form 3465, Adjustment Request

  1. The form is prepared if adjustment action will be required on a return.

    1. Attach Form 3465 to the return and leave in the block for later adjustment action if the return involved was blocked and numbered.

    2. Use Form 3465 for routing to Accounts Management (AM) for necessary action if the return is not numbered (non-remittance).

  2. Complete the form as follows:

    1. Enter the taxpayer's name.

    2. Enter the Document Locator Number (DLN).

    3. Check Routing box for "Adjustments" .

    4. Enter the Employer Identification Number (EIN) or Social Security Number (SSN), if present.

    5. Enter the period ending, year and month.

    6. Enter the tax form number.

    7. In the "Remarks" area, enter a brief reason for routing to AM (e.g., "Amended return attached" ).

    8. Complete the blocks for Signature, Unit, Phone and Date.

    See Figure 3.11.25-1.

    Figure 3.11.25-1

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

    Completed Form 3465

3.11.25.1.5  (01-01-2014)
Amended Returns

  1. A claim for credit or refund must be filed within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever is later, or if no return was filed, within 2 years from the time the tax was paid.

    Exception:

    If the claim was filed by the taxpayer within 3 years of the time the return was filed, the amount of the credit or refund is limited to the portion of the tax paid within the period, immediately preceding the filing of the claim, equal to 3 years plus the period of any extension of time for filing the return. Any prior year return (amended or delinquent original) received more than 2 years 9 months from the due date should be forwarded to the Statute Unit for clearance. Also, refer to IRM 25.6.1, Statute of Limitations Processes and Procedures, for more information on the statute of limitations for assessing, refunding, and collecting of tax.

  2. Amended returns (including "Revised" , "Supplemental" , "Correcting" , "Duplicate" , etc.) must be associated with the original returns for reconciliation and adjustments. This reconciliation is the responsibility of AM. For remittance returns, no attempt to associate will be made prior to document analysis.

    1. Do not math verify amended returns.

    2. Re-enter the remittance amount and circle the edited amount.

    3. Prepare Form 3465, Adjustment Request, and attach it to the face of the return.

    4. Prepare Form 2275, Records Request, Charge and Recharge, and leave it with the return, in DLN sequence, within the block.

  3. Forward any unnumbered, no-remittance, amended returns to AM unless a specific part of this section prescribes different routing instructions.

  4. Forward any amended returns with remittance to NMF Accounting. NMF Accounting will forward them to AM after they complete their processing.

3.11.25.1.6  (01-01-2014)
Attachments to Returns

  1. Examine all attachments to returns being processed and take any action required by the attachments.

  2. Requests for forms - If the taxpayer states on the return or an attachment to the return that tax forms and/or schedules are requested, prepare Form 4190 for current year tax forms and Form 6112 for prior year tax forms. Forward to the Forms Distribution Center for processing.

    Note:

    Form 4190, Order Form for Tax Forms and Publications, and Form 6112, Prior Year Tax Products Order Form, are generally used in the Code and Edit function for IMF requests. Therefore, all BMF requests for forms and/or schedules should be entered in the write-ins portion of the forms.

  3. Enter on the attachment(s) the taxpayer's name, address, identifying number, and any other pertinent information. (If the document is numbered, enter the DLN on the attachment(s)). In addition, take the following actions as appropriate:

    If... Then...
    A remittance is discovered, Follow the procedures in IRM 3.8.46, Discovered Remittance.
    The attachment should be returned to the taxpayer, requires correspondence, or involves an adjustment, Detach it from the return and route it accordingly.
    The attachment contains information needed to process the return from which it was detached, Attach a copy of the information to the return and route the original to the appropriate function.
    The attachment does not require routing, Leave it attached to the return.

3.11.25.2  (01-01-2014)
Forms CT-2, Employee Representative's Quarterly Railroad Tax Return

  1. This subsection provides instructions for document perfection of Form CT-2, Employee Representative's Quarterly Railroad Tax Return.

  2. Forms CT-2 are filed at Cincinnati Submission Processing Campus. Forms CT-2 are processed to NMF with Master File Tax (MFT) 72, Tax Class 6, and Document (Doc) Code 02.

  3. See Exhibit 3.11.25-1 for an example of Form CT-2.

3.11.25.2.1  (01-01-2014)
Form CT-2 Due Dates

  1. Form CT-2 is a quarterly return which generally covers taxable compensation paid during a single quarter.

  2. Forms CT-2 are due on or before the end of the second month following the calendar quarter for which compensation is reported. The following table provides additional due date information for the quarters covered.

    Quarter Covered Due on or Before
    January, February, March May 31
    April, May, June August 31
    July, August, September November 30
    October, November, December Last Day of February

3.11.25.2.2  (01-01-2014)
Blocking of Forms CT-2

  1. Returns are sorted and blocked according to IRM 3.8.45, Manual Deposit Process.

  2. Returns blocked Full Paid by processing campus in series 600-619 are as follows:

    1. Tax due shown on returns of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ (including precomputed penalty and interest).

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ but penalty and interest precomputed and paid on return.

    3. Marked "Amended" , "Supplemental" , etc. (regardless of the amount of payment or date filed).

  3. Returns blocked Part Paid by processing campus in series 900-919 are as follows:

    1. Either overpaid or underpaid ≡ ≡ ≡ ≡ ≡ ≡ ≡ (except returns marked "amended" , "supplemental" , etc.).

    2. Delinquent without penalty and interest precomputed and paid on return.

3.11.25.2.3  (01-01-2014)
Duplicate Copies of Form CT-2

  1. Ensure that all duplicate copies of Form CT-2 have the entity and tax data entered.

  2. Label copy of the Form CT-2 as "Duplicate copy of Form CT-2" and make copies of attachments of the correspondence for transmittal to the Railroad Retirement Board at the following address:

    1. U.S. Railroad Retirement Board
      Chief Financial Officer, 5th Floor
      844 N. Rush St.
      Chicago, IL 60611

  3. Follow local procedures for disposal of all other copies of Form CT-2.

3.11.25.2.4  (01-01-2014)
Form CT-2 Tax Rates

  1. The Tier I tax rate is 12.4%. Previously, the Tier I tax rate was 10.4%. The Tier I compensation base has increased to $113,700. The Tier I Medicare tax rate is 2.9%, unchanged from 2012. There is no compensation base limit for Tier I Medicare tax. The Tier II tax rate on employee representatives is 12.6%. The Tier II compensation base has increased to $84,300. Tier I Additional Medicare Tax. In addition to the Tier I Medicare tax of 2.9%, employee representatives are subject to 0.9% Additional Medicare Tax beginning in the pay period in which the compensation for the calendar year exceeds $200,000.

3.11.25.2.5  (01-01-2014)
Math Verification of Form CT-2 (Rev 2013) and Rev 2012 and prior)

  1. Effective January 1, 2002, legislation repealed the Supplemental Annuity Work-hour Tax. Form CT-2 was updated to delete the tax on Line 1 "Total work hours for which compensation was paid during this quarter" . The current Form CT-2 has Tier I tax, Tier I Medicare tax, and Tier II tax.

  2. Compute Line 6 (Rev 2013) or Line 5 (Rev 2012 and prior), if blank. Compute Lines 1, 2, 3 and 4 if necessary to compute Line 6 (Rev 2013) or compute Lines 1,2 and 3 if necessary to compute Line 5 (Rev 2012 and prior). See Figure 3.11.25-2.

    Note:

    For Tax Year 2011 only - If the taxpayer used a Form CT-2 other than Form CT-2 (Rev. January 2011), recompute Line 1 using the rate of 10.4% (.104). Also, recompute Line 5.

    Figure 3.11.25-2
    This image is too large to be displayed in the current screen. Please click the link to view the image.

    Form CT-2, computation of Line 6(Rev 2013) and Line 5 (Rev 2012)

  3. For 2001 and prior returns, if there is an entry for taxable compensation paid, an entry must also be shown for work hours of services performed for the same period. If the entry is missing, refer to the return or attachments to determine the appropriate entry. If the entry cannot be determined, prepare Form 3696, Correspondence Action Sheet, to secure the required missing information from the taxpayer.

3.11.25.2.6  (01-01-2014)
Form CT-2 - Line 5 (Rev 2013) and Line 4 (Rev 2012) Adjustment

  1. An adjustment on Line 5 (Rev 2013) and Line 4 (Rev 2012) must have a supporting document. An adjustment for any amount identified as "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. Adjustments in wage information reported for prior quarters must be supported with a statement containing the following information:

    1. Explanation of the error which the entry intends to correct;

    2. The particular return period or periods to which the error relates; and

    3. The amount chargeable to each such period.

3.11.25.2.6.1  (01-01-2014)
Barred Periods

  1. Determination of "Barred Periods" for credit or adjustment on Line 5 (Rev 2013) or Line 4 (Rev 2012 and prior). By reference to the attached explanation, a tax examiner will determine whether any portion of the adjustment entered on Line 5 (Rev 2013) or Line 4 (Rev 2012) of the Form CT-2 is barred by the statute of limitations.

  2. See text under "Statute Awareness" in IRM 3.0.273, Administrative Reference Guide, for information regarding barred credits or claims for credit or refund of prepaid credits. Refer to IRM 25.6.1, Statute of Limitations Processes and Procedures, for more information on claims for refund on original delinquent filed returns and amended or supplemental returns.

3.11.25.3  (01-01-2014)
Forms 2438, Undistributed Capital Gains Tax Return Processing

  1. This subsection provides instructions for the examination of Forms 2438, Undistributed Capital Gains Tax Return, at the Submission Processing Campus.

  2. Taxpayers are required to file the original form with the Internal Revenue Service Center (201 W. Rivercenter Blvd., Covington, KY 41011), and to attach a copy of Form 2438 to the Form 1120-RIC (U.S. Income Tax Return for Regulated Investment Company) or Form 1120-REIT (U.S. Income Tax Return for Real Estate Investment Trusts).

  3. The following instructions are for processing the original Form 2438 filed independently of the Form 1120-REIT or Form 1120-RIC.

3.11.25.3.1  (01-01-2014)
Due Date

  1. Form 2438 must be filed on or before the 30th day after the close of the company's taxable year. Leave Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns, if attached to the Form 2438.

3.11.25.3.2  (01-01-2014)
Examination

  1. Examine the Form 2438 for completeness, timeliness, the name, address and EIN. There is no need to check for signature, as a copy of the Form 2438 is attached to Form 1120-REIT or Form 1120-RIC and serves as Schedule D.

3.11.25.3.3  (01-01-2014)
Mathematical Verification

  1. Compute the following lines, if blank:

    1. Line 4, Net Short-Term Capital Gain (or loss). (Combine the totals in Lines 1 through 3).

    2. Line 8, Net Long-Term Capital Gain. (Combine Lines 5 through 7).

    3. Line 10, Undistributed Capital Gains. (Subtract Line 9b from Line 9a).

  2. Verify Line 13, Capital Gains Tax, is 35% of Line 11, Amount of Undistributed Capital Gains on Line 10, Designated under Section 852(b)(3)(D). If different, edit the correct amount to Line 13.

3.11.25.3.4  (01-01-2014)
Federal Tax Deposits Credits

  1. Due to the limited number of Form 2438 filed, a distinctive MFT Code is not established for tax deposits of Form 2438. Master File Form 1120 modules for Form 2438 files must be identified and frozen from refund or offset by posting a Transaction Code (TC) 570 pending input of an Account Adjustment Voucher (Form 2424) to transfer any account applicable to Form 2438 to the NMF account. In order to assist Accounting in transferring the Federal Tax Deposit (FTD) credit to the accounts, flag all non-remittance Balance Due and Part-Paid returns, "Do not bill, check for FTD in BMF" .

  2. Route Forms 2438 to NMF Accounting for subsequent processing.

  3. See Exhibit 3.11.25-2 for an example of Form 2438, Undistributed Capital Gains Tax Return.

3.11.25.4  (01-01-2014)
Form 8404, Interest Charge on DISC-Related Deferred Tax Liability Processing

  1. This subsection contains instructions for Document Perfection handling of Form 8404, Interest Charge on DISC-Relation Deferred Tax Liability.

  2. Address - Ensure that a 5-digit ZIP Code is present. If it is not present, research the ZIP Code Directory and edit appropriate code.

  3. Tax Period - Ensure that the tax year is in YYMM format and edited under the Office of Management and Budget(OMB) number of the form.

  4. Verify the taxpayer's computation of the interest charge amount following the instructions below. Edit any corrections needed.

    1. Line 4 ("Combine lines…" ) - Should be the sum of Lines 1, 2, and 3. If the taxpayer has erroneously figured his income (sum of Lines 1, 2, and 3), prepare a Form 4227, Intra-SC Reject or Routing Slip, to route the Form 8404 to AM. Write "Taxable Income Erroneously Figured" on the Form 4227.

    2. Line 7 ("DISC related deferred tax liability" ) - Should be Line 6 minus Line 5.

    3. Line 8 - The base period T-Bill rate determined by the Secretary of the Treasury to be the equivalent to the average investment yield of the United States Treasury bills with maturities of 52 weeks which were auctioned during the one-year period ending September 30 of the calendar year ending with (or the most recent calendar year ending before) the close of the tax year of the shareholder for which the Form 8404 is being filed. The base period T-Bill rate factor for 2012 is .001596899 for a 365-day tax year and .001601277 for a 366-day tax year. Enter the appropriate factor on line 8 of Form 8404.

      Note:

      The entry on Line 8 of Form 8404 for a fiscal year filer is determined by Revenue Rulings issued each year. The fiscal year filer should use the factor shown in the Revenue Ruling for the ending date of their fiscal period.

    4. Line 9 ("Interest Charge Due… " ) - Multiply Line 7 by Line 8.

      Caution:

      SPECIAL TO LINE 9 (Interest Charge Due). If the amount on Line 9 exceeds the product of Line 7 multiplied by Line 8, it may be due to the inclusion of additional interest owed by the taxpayer to the Service. DO NOT "X" THIS AMOUNT. This might result in an erroneous refund to the taxpayer. Instead, do as follows:

      If... Then...
      Line 9 exceeds the product of Line 7 multiplied by Line 8,
      • Flag the return.

      • Make a notation in the bottom margin of Form 8404 alerting NMF Accounting that additional interest needs to be assessed. Include the following in the notation:

      1. Amount Line 9 would be by multiplying Line 7 by Line 8.

      2. The amount of additional interest paid (excess of the product of Lines 7 and 8).

  5. Check for signature, correspond if missing. See (6) below for correspondence instructions.

  6. When corresponding with the taxpayer, correspond for all missing information using Letter 118C, Corporate Return Incomplete for Processing: Form 1120, Form 1120 A/S, Letter 131C, Information Insufficient or Incomplete for Processing Inquiry or for missing signature-only, Letter 143C, Signature Missing (IMF/BMF), DO NOT CORRESPOND MORE THAN ONCE.

    Note:

    When corresponding for missing information only, advise the taxpayer the information requested is needed to complete processing of the return. Also, advise the taxpayer additional interest may be charged on the unpaid interest from the due date until the date the interest is paid.

  7. If the return is a non-remittance return, and there is no reply to correspondence, process the return, using the information provided.

  8. If the Form 8404 tax period exceeds 12 months, allow the excess by creating a dummy Form 8404 to cover the excess months. Attach the dummied Form 8404 to the original Form 8404 with a note explaining the circumstances and follow instructions in either (8) or (9), below, as appropriate. DO NOT IGNORE ANY TAXPAYER DATA.

  9. Forward all other edited non-remit Forms 8404 to the Numbering function.

  10. Forward numbered with-remit Form 8404 to NMF Accounting.

  11. See Exhibit 3.11.25-3 for an example of Form 8404.

3.11.25.5  (01-01-2014)
Form 8831, Excise Taxes on Excess Inclusions of REMIC Residual Interests

  1. This subsection provides background information and instructions for the handling, editing, and disposition of Form 8831, Excise Taxes on Excess Inclusions of REMIC Residual Interests. Forms 8831 related to Business Income Tax returns are processed at the Cincinnati Submission Processing Campus. They are processed to NMF with MFT 89, Tax Class 6, and Doc Code 21.

  2. A tax is imposed on any transfer of a residual interest in a REMIC (Real Estate Mortgage Investment Conduit) to a disqualified organization (IRC Section 860E(e)(1)) or on any transfers to a residual interest in a pass-through entity (IRC Section 860E(e)(6)). Taxpayers who are liable for the excise tax(es) due under this section are required to file Forms 8831, Excise Taxes on Excess Inclusions of REMIC Residual Interests. The tax applies to those transfers made after March 31, 1988 (unless the transfer was made under a binding contract in effect on that date).

  3. Forms 8831 are used to report and pay the following:

    1. The excise tax due under IRC 860E(e)(1) on any transfer of a residual interest in a REMIC to a disqualified organization.

    2. The amount due under 26 Code of Federal Regulations (CFR) 1.860E-2(a)(7)(ii) if the tax under IRC 860E(e)(1) is to be waived; or,

    3. The excise tax due under IRC 860E(e)(6) on pass-through entities with interests held by disqualified organizations.

  4. Disqualified organizations are defined as follows:

    1. The United States, any state or subdivision thereof, any foreign government, any international organization, or any of their agencies (except for certain taxable instrumentalities described in IRC 168(h)(2)(D) and the Federal Home Loan Mortgage Corporation),

    2. Any tax-exempt organization (other than a farmers' cooperative described in IRC 521), unless that organization is subject to the unrelated business income tax; and,

    3. Any cooperative described in IRC 1381(a)(2)(C).

  5. A "pass-through entity" is a regulated investment company, real estate investment trust, common trust fund, partnership, trust, estate, or a cooperative described in IRC Section 1381. A person holding an interest in a pass-through entity as a nominee for another person is also treated as a pass-through entity.

  6. See Exhibit 3.11.25-4 for an example of Form 8831.

3.11.25.5.1  (01-01-2014)
Due Date of Form 8831

  1. Taxpayers are required to file Form 8831 and pay the tax by April 15 of the year following the calendar year in which the residual interest is transferred to a disqualified organization. If the regular due date falls on a weekend or legal holiday, the due date is the next business day.

  2. A pass-through entity must file Form 8831 and pay the tax due under IRC Section 860E(e)(6) by the 15th day of the 4th month following the close of its tax year in which the disqualified person is a record holder.

  3. Taxpayers may file Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns, to request an extension of time to file Form 8831.

    Note:

    IMPORTANT - Form 7004 does not extend the time for payment of tax. All payment(s) of tax must be received by the original due date of the Form(s) 8831.

3.11.25.5.2  (01-01-2014)
Form 8831 General Procedures

  1. Document Perfection will process all full-paid Forms 8831. All refund claim Forms 8831 will be processed in AM. If refund claim Forms 8831 are received, DO NOT PROCESS. Forward to AM, using Form 4227.

  2. All edited full paid Forms 8831 will be forwarded to NMF Accounting via Form 2345, Batch Transmittal.

  3. If amounts are illegible or over 10 digits, examine the form for attachments and edit the correct amount above the taxpayer's figure. If an amount should be brought forward from an attachment, but it is illegible or cannot be determined, prepare Form 3696, Correspondence Action Sheet, indicating the information needed from the taxpayer. Attach it to the front of Form 8831 and forward to the Suspense Unit.

  4. An amended return will have "AMENDED" marked in the margin at the top of the form. If the return is identified as amended, DO NOT PROCESS. Use Form 4227, Intra-SC Reject or Routing Slip, to forward all amended Forms 8831 to AM.

  5. Forms 8831 received with remittance will be forwarded to Deposit Activity, using Form 4227. If the Form 8831 received with remittance is a copy of a previously filed return, DO NOT PROCESS. Forward to NMF Accounting, using Form 4227.

3.11.25.5.3  (01-01-2014)
Form 8831 Entity Perfection

  1. Tax Year - ensure the tax year is in YYMM format and edited under the Office of Management and Budget (OMB) number of the form.

  2. If the name, address, or Taxpayer Identification Number (TIN) is incomplete or missing, review any attachments to obtain necessary information, and edit on the return. If attachments are not available, and there is no other method of obtaining the necessary data, proceed as follows:

    1. Prepare a Form 3696, Correspondence Action Sheet, indicating the information needed from the taxpayer (i.e., missing information, signature).

    2. Attach it to the front of the Form 8831 and forward to the Suspense Unit.

    Note:

    If only the ZIP Code is missing, research the ZIP Code Directory and edit the appropriate code information.

3.11.25.5.4  (01-01-2014)
Correspondence on Form 8831

  1. Always check return attachments before corresponding for missing information.

  2. When corresponding for information, inform the taxpayer that penalties may be assessed (unless reasonable cause is shown) if the requested information is not provided.

  3. Correspondence is required if any of the following conditions apply:

    If... And... Then...
    Section A, Line 1 is blank,   Correspond.
    Section A, Line 2 "Yes" or "No" box is not checked,   Correspond.

    Note:

    Do not correspond if the taxpayer has completed either Section B or Section C.

    Section A, Line 2 "No" box is checked, Section B is not completed, Correspond.
    Section A, Line 2 "Yes" box is checked, Section C is not completed, Correspond.
    Part III (Tax and payments) information is missing,   Correspond.

  4. Attempt to obtain all missing information through one contact with the taxpayer, if possible. Allow 45 days suspense on all correspondence. After 45 days, proceed as follows:

    1. If the taxpayer responds and gives reasonable cause that meets the criteria in IRM 20.1, Penalty Handbook, attach the response to the back of the return and continue processing.

    2. If the taxpayer responds but does not meet criteria in IRM 20.1, Penalty Handbook, issue correspondence Letter 53C, ( Penalty and Interest Due: Taxpayer Needs Information (During Initial Processing), to inform the taxpayer their reply did not meet reasonable cause criteria. Also, advise taxpayer a penalty will be assessed if they do not provide the requested missing information. Allow 30 days suspense. If the taxpayer provides the requested information, continue processing the return.

    3. If the taxpayer does not reply or response is incomplete, follow procedures as directed under "d" through "f" , below.

    4. Photocopy the Form 8831, Excise Taxes on Excess Inclusions of REMIC Residual Interests.

    5. Prepare Form 3465 (Adjustment Request) and attach the Form 8831 photocopy. Notate on the Form 3465 that a penalty is to be assessed because the taxpayer did not provide the requested missing information.

    6. Route Form 3465 and attached photocopy to AM.

3.11.25.5.5  (01-01-2014)
Form 8831 - Part III - Tax and Payments

  1. If present, perfect as described in (2) through (4), below.

  2. If Line 11 is blank and there is an entry on any of Lines 5, 7, or 10, bring the amount forward to Line 11. See Figure 3.11.25-3.

    Figure 3.11.25-3
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    Form 8831, editing Line 11

  3. If Line 11 is greater than Line 12, verify Line 13 by subtracting Line 12 from Line 11. If the amount on Line 13 is different, edit the difference between Lines 11 and 12 to Line 13.

  4. If Line 11 is less than Line 12, delete Line 13, if an entry is present. Edit the difference between Lines 11 and 12 to Line 14 and route to AM.

3.11.25.5.6  (01-01-2014)
Form 8831 - Disposition of Documents

  1. All edited full paid Forms 8831 will be forwarded to NMF Accounting via Form 2345, Batch Transmittal.

Exhibit 3.11.25-1 
Form CT-2, Employee Representative's Quarterly Railroad Tax Return

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Exhibit 3.11.25-2 
Form 2438, Undistributed Capital Gains Tax Return

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Exhibit 3.11.25-3 
Form 8404, Interest Charge on DISC-Related Deferred Tax Liability

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Exhibit 3.11.25-4 
Form 8831, Excise Taxes on Excess Inclusions of REMIC Residual Interests

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