3.11.217  Form 1120S Corporation Income Tax Returns (Cont. 1)

3.11.217.5 
Tax Period

3.11.217.5.6  (01-01-2014)
Short Period Returns - Editing a Disapproved Application (Form 1128)

  1. If Form 1128 is disapproved, the return is considered unprocessable:

    1. Edit Action Code "211" or "215" and correspond.

    2. In the correspondence, instruct the taxpayer to file a return for the next regular full period due. Request a disposition of any remittance paid with the return or other credits which have posted to the short period module.

3.11.217.5.7  (01-01-2014)
Short Period Returns - Editing Form 1128 With No Indication of Approval or Disapproval

  1. When a Form 1128 is attached with no indication of approval or disapproval and no proof of entitlement is present, research IDRS using Command Code BMFOLE (or other applicable Command Code) for approval or disapproval and proceed as follows:

    If Then
    Command Code BMFOLE shows a Transaction Code 053 or 054,
    (This is an indication that the Form 1128 has been approved.)
    Edit CCC "Y" .

    Reminder:

    Edit the Tax Period Beginning on short period returns according to IRM 3.11.217.5.2, Tax Period Beginning - Final, Initial, or Short Period Return.

    Command Code BMFOLE shows a Transaction Code 058,
    (This is an indication that the Form 1128 has not been approved.)
    The return is unprocessable. Follow the instructions for "Short Period Returns - Editing a Disapproved Application" .
    See IRM 3.11.217.5.6, Short Period Returns - Editing a Disapproved Application (Form 1128).
    Command Code BMFOLE does not show Transaction Code 053, 054 or 058, Take the actions in (2) below.

  2. Forms 1128 with neither approval or disapproval, discontinue processing Form 1120S, U.S. Income Tax Return for an S Corporation. Route Form 1120S and Form 1128 to Entity Control as directed in the paragraphs below.

    1. If Form 1128 is attached to a numbered return, enter Action Code "320" . Attach Form 4227, Intra-SC Reject or Routing Slip, and check the box for Entity Control. Edit the Form 1120S Received Date to Form 1128. (Do not detach Form 1128.) Leave the return in the batch and continue processing.

    2. If Form 1128 is attached to an unnumbered return, edit the Form 1120S Received Date to Form 1128, attach Form 4227 and route the return to Entity Control. (Do not detach Form 1128.) See Figure 3.11.217-11 Example of Form 1128 Attached With No Indication of Approval or Disapproval.

    3. Entity will process the Form 1128 and route the return back to Code and Edit with a Form 4227 attached. The Form 4227 will indicate if the Form 1128 is approved, denied or returned and the words "Process Return" or "Let Unpost" .

    Figure 3.11.217-11

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    Example of Form 1128 Attached With No Indication of Approval or Disapproval

3.11.217.5.8  (01-01-2014)
Short Period Return with Prepaid Credits

  1. Route to Accounting for possible adjustment action any return meeting both conditions below.

    1. A prepaid credit, Lines 23a or 23b is claimed.

    2. The return is a short period (an initial return, a final return or one with a change of accounting period).

  2. Take the following action when routing these returns to Accounting. See Figure 3.11.217-12, Example of Short Period Return With ES Credits.

    1. Enter Action Code "342" on the return.

    2. Attach Form 4227, check the "Accounting" box and notate "Short period return with ES Credits" .

    3. Continue normal processing.

    4. If the return shows a refund, follow "Refund Returns" instructions in IRM 3.11.217.2.11, Refund Returns 45 Day Jeopardy and $10 Million or more Refunds.

    Figure 3.11.217-12

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    Example of Short Period Return With ES Credits

3.11.217.6  (01-01-2014)
♦Received Date♦

  1. The date a document is received in the Campus or IRS Office is the date stamped as the "IRS Received Date" .

  2. A Received Date is required on all Forms 1120S.

  3. A return is considered timely if it is postmarked on or before the due date.

    If And Then
    The return is received within ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ the extended due date ≡ ≡ ≡ ≡ ≡ ≡ ≡ , (See Exhibit 3.11.217-1, Due Date Chart)   The return is considered timely.
    The due date falls on a weekend or legal holiday,   The return is timely if postmarked by the first business day following the weekend or legal holiday.
    The IRS Received Date stamp is after ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ of the legal or extended due date, The postmark date or shipment date is on or before the legal or extended due date, Edit the Received Date to agree with postmark date or shipment date.

    Note:

    For certified mail only - If a postmark is not present, look for a "USPS.com Track & Confirm" record that has been attached to the return (should be before the envelope). Use the "Acceptance" date on the record to determine timeliness and follow normal editing procedures. See Exhibit 3.11.217-7, USPS.com Track & Confirm Record.
    If the "USPS.com Track & Confirm" record is not attached, no action is required.

  4. If Form 1120S is delinquent and the taxpayer explains the return is late due to the rejection of a timely filed electronic return, edit as follows:

    Note:

    Taxpayers are instructed to notate in red in the top margin of the return "REJECTED ELECTRONIC RETURN" to indicate the timely filed return cannot be filed electronically. Taxpayers should also attach a copy of the rejection notification to the return.

    If And Then
    The postmark date is less than 11 calendar days of the notification from the service that the electronic return has been rejected or cannot be accepted for processing, A copy of the rejection notification is attached, Edit CCC "R" .
    The postmark date is less than 11 calendar days of the notification from the service that the electronic return has been rejected or cannot be accepted for processing, A copy of the rejection notification is not attached, No action is required.
    The postmark date is more than 10 calendar days of notification from the service that the electronic return has been rejected or cannot be accepted for processing,   No action is required.

  5. The Received Date may or may not be stamped on the face of the return.

  6. A valid Received Date Stamp consists of the following:

    • The word "Received"

    • Month (alpha or numeric)

    • Day (for example "1" or "01" )

    • Year - four digits

    • "Area Office" , Campus, Field Office, "Taxpayer Assistance Center (TAC) Site" plus the city, location or functional area within one of these sites (e.g., CSCO, Exam, ICT, CIS, AM, etc.)

    Note:

    Not all IRS offices are designated places for filing, and not all IRS employees are authorized to accept a tax return for processing. If a return contains a received date stamp from an office that is not a proper place for filing, that date stamp is not the "IRS Received Date" , and you must circle out the invalid received date and edit the correct received date according to instructions below. For example, returns received by the Taxpayer Advocate Service (TAS) or the IRS Office of Chief Counsel are not properly filed and a received date by that office is not the "IRS Received Date" .

  7. If the Received Date stamp is not present or the date is illegible or invalid, edit the Received Date in "MMDDYY" format in the middle of Page 1 of the return. See Figure 3.11.217-13, Example of Editing the Received Date. Edit the Received Date according to the following priority:

    1. The earliest legible Postmark Date (U. S. Postal Service, foreign postmark or Private Delivery Service) on the envelope. Rules for using the U. S. Postal Service (USPS) Postmark or foreign postmark date are as follows:

      If Then
      An envelope is not attached, Use the postmark date stamped on the face of the return.
      The postmark is missing and the envelope is certified, Look for the "USPS.com Track & Confirm" record that has been attached to the return (should be before the envelope). Use the "Acceptance" date on the record to determine timeliness and follow normal editing procedures. See Exhibit 3.11.217-7, USPS.com Track & Confirm Record.
      If the "USPS.com Track & Confirm" record is not attached, no action is required.
      An envelope has both a USPS and private metered postmark, Always use the USPS postmark.
      An envelope has a foreign and private metered postmark, Always use the foreign postmark.
      An envelope has two private metered postmarks, Always use the latest private metered postmark.
      An envelope has only one private metered postmark, Use the private metered postmark.

      Note:

      A private metered postmark is to be considered timely ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    2. Service Center Automated Mail Processing System (SCAMPS) digital date.

    3. Revenue Officer's Signature date.

    4. Signature date. (Only if within current year.)

    5. Julian control date minus 10 days.

    6. Current date minus 10 days.

    Figure 3.11.217-13

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    Example of Editing the Received Date

  8. Edit the Received Date as follows:

    If And Then
    A timely Received Date is the only Received Date stamped on the return,   No editing is required.
    The IRS date stamp is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ examine the postmark on the envelope That date shows a legal timely mailing ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ but with regard to a due date falling on Saturday, Sunday or holidays, Change the received date to the postmark date.
    See Figure 3.11.217-14, Example of Editing a Timely Received Date .
    Two or more dates are stamped on the return,  
    1. Use the earliest IRS stamped Received Date.

    2. Circle all other dates (handwritten or stamped or multiples of the same date) not needed for transcription (e.g., One received date should be on the return for transcription).

    Note:

    Received Dates that have been circled out by another function should be treated as if they are not present.

    A Federal return is addressed to the IRS, Delivered to a State agency, Use the Postmark Date as the Received Date.
    A Federal return is addressed to a State agency,   Use the IRS date stamp as the Received Date.
    The only Received Date on the return is a Taxpayer Advocate Service (TAS) Received Date or Chief Counsel Received Date,   Circle out the TAS or Chief Counsel Received Date and edit the Received Date according to instructions.

    Reminder:

    If an envelope is attached to the return, check the envelope for remittance. If found, hand carry remittance to manager.

    Figure 3.11.217-14

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    Example of Editing a Timely Received Date

3.11.217.7  (01-01-2014)
North American Industry Classification System (NAICS) Code - Page 1, Box B

  1. The Principal Business Activity (PBA) Code is based on the North American Industry Classification System Code (NAICS). These codes are a high priority to the Service. It is critical data for Statistics of Income, Examination, Research and other Service organizations.

  2. The NAICS Code is a six-digit code on Page 1, Box B of Form 1120S. .

  3. A NAICS Code is required on all Forms 1120S.

    Exception:

    Do not edit a NAICS Code on "G" coded (amended) returns.

  4. Only one NAICS Code can be used on the return. Edit the NAICS Code as follows:

    If Then
    A legible six-digit NAICS Code is shown on Page 1, Box B,

    Note:

    The number may not contain all repeating numbers, e.g., "000000" , "333333" , "666666" , "999999" , etc.

    No editing is necessary.
    A legible four-digit NAICS Code is shown on Page 1, Box B, No editing is necessary.
    Page 1, Box B is blank and Schedule B, Line 2a has a legible four-digits or six-digits NAICS code, Edit the NAICS code to Page 1, Box B.
    There is more than one NAICS Code on Page 1, Box B, Circle all but the first NAICS Code listed.
    Page 1, Box B is blank or illegible, Refer to Page 2, Schedule B, Line 2a and/or Line 2b, if present. If the NAICS Code cannot be determined, then edit NAICS Code "999000" .
    The code is other than four-digits or six-digits, Refer to Page 2, Schedule B, Line 2a and/or Line 2b, if present. If the NAICS Code cannot be determined, then edit NAICS Code "999000" .
    A NAICS Code with all repeating number is present, e.g., "000000" , "333333" , "666666" , "999999" , etc., Refer to Page 2, Schedule B, Line 2a and/or Line 2b, if present. If the NAICS Code cannot be determined, then edit NAICS Code "999000" .

3.11.217.8  (01-01-2014)
Schedule M-3 Attached - Page 1, Box C (Box H for 2006)

  1. Edit Computer Condition Code "B" when the box on Form 1120S, Line C (Form 1120S, Box H for 2006), "Check if Schedule M-3 is attached" is marked or Schedule M-3 is attached to the return.

    Note:

    Edit Audit Code "8" if Schedule M-3 is attached. See IRM 3.11.217.12.1, Audit Codes.

3.11.217.9  (01-01-2014)
Total Assets - Page 1, Box F (Box E for 2006 and Prior)

  1. The first source for this entry is Box F, Total Assets, (Box E for 2006 and prior).

  2. Compare Box F amount with Schedule L, Line 15, Column (d), or an equivalent entry on a schedule(s) or attachment(s).

  3. If Box F and Schedule L, Line 15, Column (d), differ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , use the amount on Schedule L, Line 15, Column (d). Edit the amount to Box F. Bracket if negative.

  4. If Schedule L, Line 15, Column (d), is blank, then compute Lines 1 through 14, Column (d), and compare it with Box F. If there is only one entry in Column (d), Lines 1 through 14, use that figure to compare to Box F.

  5. If Box F is blank, enter the amount from Schedule L, Line 15, Column (d) to Box F, in dollars only. Bracket if negative.

  6. If the Balance Sheet is blank, or missing, and there is an amount in Box F, place an "X" to the left of the entry.

  7. If the amount in Box F (Box E for 2006 and prior) is for cents only (e.g., $.89, -$.99), place an "X" to the left of the entry.

3.11.217.10  (01-01-2014)
♦Initial Return Code - Page 1, Box G, Is the corporation electing to be an S corporation beginning with this tax year?
(Page 1, Box F(1), Initial Return for 2006 and Prior)♦

  1. Edit an Initial Return Code "2" in the margin to the right of Page 1, Box E, "DATE INCORPORATED" if any of the following conditions are met:

    1. Page 1, Box E, Date incorporated (Box D for 2006 and prior), has a date which is within 12 months from the Tax Period ending date.

      Reminder:

      Edit the Tax Period Beginning on initial returns according to IRM 3.11.217.5.2, Tax Period Beginning - Final, Initial, or Short Period Return.

    2. Page 1, Box G, "Is the corporation electing to be an S corporation beginning with this tax year?" is checked "Yes" (Box F(1), Initial Return for 2006 and prior is checked).

    3. There is a taxpayer notation of initial filing, such as, "First Return" , "New Corporation" , etc.

    4. The incorporation date is within 24 months from the Tax Period Ending (or is not shown) and the taxpayers' Balance Sheet, "Beginning of tax year" is blank or zeroes. See Figure 3.11.217-15, Example of Editing the Initial Return Code With 24 Month Rule.

      Note:

      Do not edit Initial Return Code "2" if the Balance Sheet is missing or the Balance Sheet has been dummied.

    Figure 3.11.217-15
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    Example of Editing the Initial Return Code With 24 Month Rule

3.11.217.11  (01-01-2014)
Number of Shareholders - Page 1, Line I (Line G for 2006 and Prior)

  1. Follow the instructions below for editing Page 1, Line I, Number of Shareholders.

    Note:

    If the entry on Line I is written in a non-numeric fashion ("two" instead of "2" ), edit the numeric equivalent on Line I and circle the non-numeric characters.

    If And Then
    Page 1, Line I, Number of Shareholders, is zero or blank, No Schedule(s) K-1 are attached and Schedules K-1 are required (see IRM 3.11.217.33, Schedule K-1, Leave zero or blank. Do not edit Line I, Number of Shareholders.
    Page 1, Line I, Number of Shareholders, is zero or blank, Schedule(s) K-1 are attached, Edit the number of Schedule(s) K-1 to Page 1, Line I, Number of Shareholders. See Figure 3.11.217-16, Example of Editing Number of Shareholders.
    Page 1, Line I, Number of Shareholders, is zero or blank, No Schedule(s) K-1 are attached and Schedules K-1 are not required (see IRM 3.11.217.33, Schedule K-1, Edit a "1" to Page 1, Line I, Number of Shareholders.

    Figure 3.11.217-16

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    Example of Editing Number of Shareholders

3.11.217.12  (01-01-2014)
Additional Form 1120S Perfection

  1. This subsection provides instructions for editing additional Form 1120S information.

  2. Edited information will be preceded by the applicable number as follows:

    If Then
    Editing an Audit Code, Edit "1 -" followed by the appropriate Audit Code(s). (e.g., "1 - 2" ).
    See IRM 3.11.217.12.1, Audit Codes.
    Editing a Penalty and Interest Code, Edit "2 -" followed by the Penalty and Interest Code. (e.g., "2 - 1" ).
    See IRM 3.11.217.12.2, Penalty and Interest Code.
    Editing an Installment Sale Indicator, Edit "3 -" followed by the appropriate Installment Sale Indicator. (e.g., "3 - 2" ).
    See IRM 3.11.217.12.3, Installment Sale Indicator.
    Editing a Tax Preference Code, Edit "4 -" followed by the Tax Preference Code. (e.g., "4 - 1" ).
    See IRM 3.11.217.12.4, Tax Preference Code.
    Editing Form 8586, Low Income Housing Credit, Edit "5 -" followed by the Form 8586 credit. (e.g., "5 - 357" ).
    See IRM 3.11.217.12.5, Low Income Housing Credit.
    Editing Form 8611, Recapture of Low-Income Housing Credit, Edit "6 -" followed by the Form 8611 credit. (e.g., "6 - 753" ).
    See IRM 3.11.217.12.6, Form 8611, Recapture of Low-Income Housing Credit and Form 8693, Low-Income Housing Credit Disposition Bond.

3.11.217.12.1  (01-01-2014)
Audit Codes

  1. Up to nine (9) Audit Codes may be used at one time.

    Note:

    Audit Codes do not need to be edited in a specific order on the return.

  2. Edit Audit Codes in the left margin near Line 9 of Form 1120S.

  3. Edit as "1 -" followed by the appropriate code(s).

  4. Audit Code "1" :

    1. Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request, is attached.

    2. Form 8275 or Form 8275R, Disclosure Statement, is attached or statement referring specifically to IRC 6662 (Disclosure).

    3. Form 8886, Reportable Transaction Disclosure Statement, is attached. See IRM 3.11.217.13.12, CCC "T" - Form 8886, Reportable Transaction Disclosure Statement.

  5. Audit Code "2" :

    1. Form 1120S, Schedule K, Line 14(l)*, Total Foreign Taxes, has an entry ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ (*Prior year line numbers: 2004: Line 14(l) or Line 14(m); 2003 - 2001: Line 15(g); 2000: Line 15(f); 1999 and prior: Line 15(e)).

    2. Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation, is attached.

    3. Schedule N (Form 1120), Foreign Operations of U.S. Corporations, is attached and any box other than Question 6a (foreign bank account) is checked "Yes" .

    4. Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, is attached or Schedule N (Form 1120), Foreign Operations of U.S. Corporations, Line 4a is checked "Yes" .

    5. Form 5472, Information Return of a Foreign Owned Corporation, is attached.

    6. Form 5713, International Boycott Report, is attached and both Questions in 7(f) are answered "Yes" .

    7. Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, is attached and Part V* (Distributions From and Dispositions of Stock of a Section 1291 Fund), Lines 15a through Line 16f has an entry ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . (*For 2011 and prior: Part IV, Lines 10a through Line 11f).

    8. Form 8832, Entity Classification Election, is attached and either Box 6 (d), (e) or (f) is checked (Box 2(d), (e) or (f) for January 2006 and prior revisions).

    9. Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), is attached.

    10. Form 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities, is attached or Schedule N (Form 1120), Foreign Operations of U.S. Corporations, Line 1a is checked "Yes" .

    11. Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships, is attached.

  6. Audit Code "3" :

    1. Form 8283, Noncash Charitable Contributions, is attached ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    2. Form 8283, Noncash Charitable Contribution, is attached ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    3. Form 8883, Asset Allocation statement under section 338, is attached ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    4. Form 8594, Asset Acquisition Statement, is attached ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

  7. Audit Code "4" :

    1. Entity Control Unpostable Unit determines that a valid Form 2553, Election by a Small Business Corporation, is on file, the Form 1120, U.S. Corporation Income Tax Return, must be converted to Form 1120S, U.S. Income Tax Return for an S Corporation.

      Caution:

      If you receive a Form 1120S converted from Form 1120 and the Form 13596, Reprocessing Returns, is attached for reprocessing, see IRM 3.11.217.2.8.2, Form 13596 - Reprocessing Returns, for additional information.

  8. Audit Code "5" :

    1. Form 1120S, Schedule K, Line 10, Other Income (Loss), reflects a loss ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

  9. Audit Code "6" :

    1. Presence of Form 3115, Application for Change in Accounting Method.

  10. Audit Code "7" :

    1. Form 1120S, Schedule K, Line 14(l), Total Foreign Taxes, has an entry ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    2. Form 5713, International Boycott Report, is attached and both questions in 7(f) are not answered "Yes" .

    3. Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, is attached and Part V* (Distributions From and Dispositions of Stock of a Section 1291 Fund), Lines 15a through Line 16f has an entry ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . (*For 2011 and prior: Part IV, Lines 10a through Line 11f).

  11. Audit Code "8" :

    1. Schedule M-3 is attached.

  12. Audit Code "9" :

    1. The date shown in Box A falls during the tax year for which the S Corporation return is being filed and the Date Incorporated in Box E (Box D for 2006 and prior) is more than one year earlier than the Date of Election as an S Corporation in Box A. See Figure 3.11.217-17, Example of Editing Audit Code 9.

    Figure 3.11.217-17

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    Example of Editing Audit Code 9

3.11.217.12.2  (01-01-2014)
Penalty and Interest Code

  1. Edit the Penalty and Interest Code in the left margin near Line 9 of Form 1120S.

  2. Edit as "2 - 1" if precomputed delinquency penalty and/or interest is shown on a return with a Received Date ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

  3. This code is valid only within the unextended (original) ≡ ≡ period. When the precomputed interest does not pertain to the ≡ ≡ ≡ ≡ period but to some other situation, such as an underestimated Tax Penalty, do not code "1" and do not insert Computer Condition Code "R" . If only interest is shown, edit CCC "R" . .

    Note:

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

3.11.217.12.3  (01-01-2014)
♦Installment Sale Indicator♦

  1. Form 6252, Installment Sale Income, is used to report the sale of property on the installment plan.

  2. Codes are based solely on the S Corporation's response to Question 3 on Form 6252.

  3. Edit the Installment Sale Indicator in the left margin near Line 9 of Form 1120S.

  4. Edit as "3 -" followed by the appropriate code.

  5. Valid codes for installment Sale Indicator are as follows:

    Code One Form 6252 Multiple Forms 6252
    1 "Yes" response to Question 3 At least one form has a "Yes" response.
    2 "No" response to Question 3 All "No" responses, or a combination of "No" and/or blank responses.
    3 "Yes" and "No" are checked or Question 3 is blank Question 3 is blank on all returns.

3.11.217.12.4  (01-01-2014)
Tax Preference Code

  1. Edit the Tax Preference Code in the left margin near Line 9 of Form 1120S.

  2. Edit as "4 - 1" .

  3. Enter "1" if:

    1. Form 4626, Alternative Minimum Tax - Corporations, is attached and an amount is present on Lines 3, 6 and/or 11 (Prior years 2002 - 1994: Lines 3, 6 and/or 12).

    2. Schedule K-1, Line 15*, Alternative Minimum Tax Items, sum equals an amount of more than ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ after computing positive and/or negative amounts (*Items of Tax Preference, Page 2, prior year line numbers: Lines 14a through Line 14e). See Figure 3.11.217-18, Example of Editing the Tax Preference Code.

      Note:

      Entries on Form 1120S, Page 3, Schedule K, Lines 15a through Line 15f* are an indication that the Schedule K-1 may have Tax Preference Items (*Page 2, Schedule K, prior year line numbers: Lines 14a through Line 14e).

    Figure 3.11.217-18

3.11.217.12.5  (01-01-2014)
Form 8586, Low-Income Housing Credit

  1. Edit the Form 8586, Low-Income Housing Credit, in the left margin near Line 9 of Form 1120S.

  2. Edit as "5 -" followed by the credit amount.

  3. When editing Form 1120S, Schedule K, Lines 13a or 13b for Form 8586, Low-Income Housing Credit, take the following actions:

    If Then
    Form 8586
    - Form 8586 is attached with an entry on Lines 1 through Line 3 (prior year Lines 1 through Line 4), or

    Form 8609
    - Form 8609, is attached or

    Form 8609-A
    - Form 8609-A (prior year Schedule A (Form 8609)) is attached,
    Enter CCC "9" .
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Form 8586 is not attached, Correspond for the missing Form 8586.
    Form 8586 is attached, In the left margin near Line 9 of Form 1120S, edit "5 -" followed by the amount on Line 5*, Form 8586, plus Line 12, Form 8586, in dollars only (*Form 8586 prior year line numbers: 2005: Line 17; 2004 and prior: Line 18). See Figure 3.11.217-19, Example of Editing Low-Income Housing Credit (Form 8586).

    Note:

    If the taxpayer attaches Form 8586 or indicates the credit on Schedule K, but has not entered a significant amount on Lines 13a or 13b, do not enter the amount from the Form 8586 in the left margin.

    Figure 3.11.217-19

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

    Example of Editing Low-Income Housing Credit (Form 8586)

3.11.217.12.6  (01-01-2014)
Form 8611, Recapture of Low-Income Housing Credit and
Form 8693, Low-Income Housing Credit Disposition Bond

  1. Edit the Form 8611, Recapture of Low-Income Housing Credit, in the left margin near Line 9 of Form 1120S.

  2. Edit as "6 -" followed by the credit amount.

  3. Form 8611 is required if Schedule K-1, Line 13, Code A or B indicates a Form 8611 credit ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

  4. Edit Form 8611 as follows:

    If Then
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Form 8611 is not attached, Correspond for the missing Form 8611.
    Form 8611 is attached, In the left margin near Line 9 of Form 1120S, edit "6 -" followed by the Line 14*, Form 8611 amount (dollars only) (*Form 8611 January 1999 revision, Line 12).
    Multiple Forms 8611 are attached, In the left margin near Line 9 of Form 1120S, edit "6 -" followed by the total amount (dollars only) of all Forms 8611, Line 14* (*Form 8611 January 1999 revision, Line 12).
    Form 8611 is reported on Schedule K-1, Line 13, Code A or B or Form 8611 is attached, Enter CCC "9" .

  5. If Form 8693, Low-Income Housing Credit Disposition Bond, is attached to Form 1120S, enter CCC "9" .

3.11.217.13  (01-01-2014)
♦Computer Condition Codes - General♦

  1. Computer Condition Codes (CCCs) 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 the Form 1120S.

3.11.217.13.1  (01-01-2014)
♦CCC "B" - Schedule M-3♦

  1. Edit CCC "B" when any of the following conditions are met:

    1. Schedule M-3 box on Form 1120S, Page 1, Box C (Box H for 2006) is checked, or

    2. Schedule M-3 is attached.

  2. Edit Audit Code "8" if Schedule M-3 is attached. See IRM 3.11.217.12.1, Audit Codes.

3.11.217.13.2  (01-01-2014)
♦CCC "D" - Reasonable Cause for Failing to Pay Timely♦

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

  2. Edit CCC "D" when the return is stamped: "DO NOT ASSESS FAILURE TO PAY PENALTY" .

  3. Edit CCC "D" on a "Final" , Balance Due return if the Received Date is after the short period due date but before the regular Tax Period due date ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

  4. Edit CCC "D" if a S Corporation attaches a statement indicating the S Corporation qualifies for an automatic 3-month extension under Regulations section 1.6081-5 or indicates one of the following:

    • The foreign S Corporation maintains an office or place of business in the United States, or

    • The domestic S Corporation transacts its business and keeps its books and records of account outside the United States and Puerto Rico, or

    • The domestic S Corporation's principal income is from sources within the possessions of the United States

      Exception:

      Do not edit CCC "D" if the balance due is paid after the 15th day of the 6th month following the Tax Period ending date.

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

3.11.217.13.3  (01-01-2014)
♦CCC "F" - Final Return♦

  1. Edit CCC "F" when the "Final Return" box is checked or there is another indication the S Corporation is not liable for filing future returns. Notations such as (but not limited to):

    • Final

    • Deceased

    • Out-of-Business

    • Liquidation

    • Exempt under IRC 501(c)(3)

    • Dissolved

    • Cites IRC 708(b)(1)(B)

    • Notates "Filed in accordance with Rev. Proc. 2003-84"

  2. The presence of Form 966, Corporate Dissolution or Liquidation, is an indication of a possible dissolution. If Form 966 is attached, compare Tax Periods in Box 7a to the Form 1120S being edited. If the Tax Periods are the same and the Entity section of Form 966 is for the S Corporation, edit CCC "F" .

    Exception:

    If "Filed Pursuant to Notice 97-4" is written on Form 966, do not use Form 966 as an indication that this is a final return.

  3. If a prepaid credit is claimed (Lines 23a and 23b) on a short period "Final" return, enter Action Code "342" on the return. See IRM 3.11.217.5.8 , Short Period Return with Prepaid Credits.

  4. Edit the Tax Period Beginning on final returns according to IRM 3.11.217.5.2 , Tax Period Beginning - Final, Initial, or Short Period Return.

3.11.217.13.4  (01-01-2014)
♦CCC "G" -
Amended Returns♦

  1. See IRM 3.11.217.2.9, Amended Returns.

3.11.217.13.5  (01-01-2014)
CCC "I" -
Tax Straddles
and Future
Contracts
(Form 6781)

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

    Note:

    CCC "I" should be edited as a capital in block style to distinguish it from CCC "1" .

3.11.217.13.6  (01-01-2014)
CCC "L" -
Treaty Based
Positions

  1. Edit CCC "L" when:

    1. Form 8833, Treaty-Based Return Position Disclosure Under IRC Section 6114 or IRC Section 7701(b), is attached.

      Note:

      Edit Audit Code "2" if Form 8833 is attached to Form 1120S. See IRM 3.11.217.12.1, Audit Codes.

3.11.217.13.7  (01-01-2014)
CCC "O" -
Module Freeze

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

    1. Research to determine if "TC 840" (Manual Refund Transaction) has posted:

    If Then
    "TC 840" has posted, Enter CCC "O" and continue processing.
    "TC 840" has not posted, Enter Action Code "341" to issue Manual Refund.

  2. TAS manual refund returns, see IRM 3.11.217.2.11, Refund Returns 45 Day Jeopardy and $10 Million or more Refunds, for processing instructions.

3.11.217.13.8  (01-01-2014)
CCC "P"

  1. No editing required.

3.11.217.13.9  (01-01-2014)
CCC "Q" -
Return Filed Claiming TETR Only
(Credit for Federal Telephone Excise Tax Paid, Form 8913)

  1. No editing required.

3.11.217.13.10  (01-01-2014)
♦CCC "R" -
Reasonable Cause for Failing to Timely File Return♦

  1. CCC "R" is no longer edited when a reason is given for the delay in filing a return (or if the taxpayer requests abatement). Issue Letter 1382C and continue editing the return.

  2. Edit CCC "R" if a S Corporation attaches a statement indicating the S Corporation qualifies for an automatic 3-month extension under Regulations section 1.6081-5 or indicates one of the following:

    • The foreign S Corporation maintains an office or place of business in the United States, or

    • The domestic S Corporation transacts its business and keeps its books and record of account outside the United States and Puerto Rico, or

    • The domestic S Corporation's principal income is from sources within the possessions of the United States

      Exception:

      Do not edit CCC "R" if the return is filed after the 15th day of the 6th month following the Tax Period ending date.

  3. Edit CCC "R" on a "Final" return if the Received Date is after the short period due date but before the regular Tax Period due date ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

  4. Edit CCC "R" on the return when there is an indication such as "DO NOT ASSESS FAILURE TO FILE PENALTY" on a secured return annotated with "599" .

    Note:

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

3.11.217.13.11  (01-01-2014)
CCC "S" -
Form 8883, Asset Allocation Statement Under Section 338

  1. Edit CCC "S" when Form 8883, Asset Allocation Statement Under Section 338, is attached to Form 1120S.

3.11.217.13.12  (01-01-2014)
CCC "T" -
Form 8886, Reportable Transaction Disclosure Statement

  1. Edit CCC "T" when Form 8886, Reportable Transaction Disclosure Statement, is attached to Form 1120S. See IRM 3.11.217.12.1, Audit Codes.

    Note:

    CCC "T" was previously used when Form 8271, Investor Reporting of Tax Shelter Registration Number, was attached to a 200709 and prior return.

3.11.217.13.13  (01-01-2014)
♦CCC "W" -
" Cleared by Statute"
Stamped On
Return♦

  1. CCC "W" is used when the return has been cleared by Statute Control. See IRM 3.11.217.2.7, Statute Returns.

3.11.217.13.14  (01-01-2014)
CCC "X" -
REFUND/SETTLEMENT
FREEZE

  1. Edit CCC "X" when the taxpayer indicates on the tax return a request that any balance left over after paying tax and/or penalties to be applied to another account. Take the following actions to route the request to Accounts Management.

    1. Prepare Form 3465 and indicate in the "Routing" box "Adjustments" .

    2. Notate the requested action in the "Remarks" box.

    3. Attach a photocopy of Page 1 of the tax return to Form 3465.

    Reminder:

    Subtract the tax, penalties and interest amounts from the remittance amount if available.

3.11.217.13.15  (01-01-2014)
CCC "Y" -
Short Period Return
for Change of
Accounting
Period

  1. Edit CCC "Y" for Change of Accounting Period. Enter only for short period returns due to change of accounting period (not due to initial or final filing). See "Short Periods" in IRM 3.11.217.5.4, Short Period-Editing Proof of Entitlement, through IRM 3.11.217.5.8, Short Period Return with Prepaid Credits.

  2. Edit CCC "Y" on a Short Period Form 1120S when the taxpayer states the Form 1120S status is being terminated or Form 1120S, Page 1, Item H(5) is checked.

  3. If a prepaid credit is claimed on a short period return (Lines 23a and 23b), enter Action Code "342" on the return. See IRM 3.11.217.5.8, Short Period Return with Prepaid Credits.

  4. Edit the Tax Period Beginning on short period returns according to IRM 3.11.217.5.2, Tax Period Beginning - Final, Initial, or Short Period Return.

3.11.217.13.16  (01-01-2014)
CCC "1" -
Like-Kind
Exchanges

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

3.11.217.13.17  (01-01-2014)
Reserved

  1. This subsection is Reserved.

3.11.217.13.18  (01-01-2014)
♦CCC "3" -
No Reply to
Correspondence♦

  1. Edit CCC "3" if the return is unprocessable.

3.11.217.13.19  (01-01-2014)
CCC "8" -
Waiver of
Estimated
Tax Penalty

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

    1. Form 2220, Underpayment of Estimated Tax by Corporations, is attached and Part II, Box 6 or Box 7 (prior year Part I, Box 1 or Box 2) is checked.

    2. Form 2220 is attached and Page 2, Schedule A (2010 and prior revisions), Line 38* any of the columns are computed (*2006 and prior: Line 40).

3.11.217.13.20  (01-01-2014)
CCC "9" -
Low-Income
Housing Forms

  1. Edit CCC "9" when any of the following are attached:

    • Form 8611

    • Form 8693

    • Form 8609

    • Form 8609-A (prior year Form 8609, Schedule A)

    • Form 8586 with entries on any of Lines 1 through Line 3 (prior year Lines 1 through Line 4)

  2. Edit CCC "9" whenever recapture tax for Low-Income Housing Credit is reported on Schedule K-1, Line 13, Code A or B.

3.11.217.14  (01-01-2014)
Return Processing

  1. This subsection provides instructions for processing Form 1120S, U.S. Income Tax Return for an S Corporation. Form 1120S can be filed for a calendar year or a fiscal year.

3.11.217.14.1  (01-01-2014)
Sequencing of Return

  1. Document Perfection is responsible for arranging Form 1120S in the following order when transcription line entries are present:

    • Pages 1, 2, 3, 4, 5

    • Schedule N

    • Form 8825

    • Schedule D

    • Form 8050

    • Form 1125-A

    • Form 4136

    • Form 8913

    • Form 8941

    • Form 5884-B

    Note:

    It is not necessary to sequence Form 8050 if blank or Schedule N, Form 8825, Schedule D, Form 1125-A, Form 4136, Form 8913, Form 8941, or Form 5884-B if there are no transcription line entries.

3.11.217.14.2  (01-01-2014)
Positive/Negative Figures

  1. Income Items - Lines 1a, 1b, 1c, 2, 4, 5, and 6 can contain positive or negative amounts.

  2. Deduction Items - All lines in the deduction section can contain positive or negative amounts.

  3. Tax and Payment Items - Following lines are positive only amounts:

    • Line 22c - Total tax

    • Line 23a - Estimated tax payments applied from prior year

    • Line 23b - Tax Deposit with Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns

    • Line 23c - Credit for Federal Tax on Fuels, Form 4136

    • Line 23d - Federal telephone excise tax paid (2006 tax return)

    • Line 23d (Line 23e for 2006) - Total Payments

    • Line 24 - Estimated Tax Penalty

  4. Do not bracket any negative entries on Lines 25, 26 and 27.

3.11.217.15  (01-01-2014)
Income Items - Lines 1 through 6, Page 1

  1. All line items are edited in dollars only and all the line items are either positive or negative.

3.11.217.15.1  (01-01-2014)
Line 1 - Gross Receipts or Sales

  1. Line 1a is Gross Receipts or Sales and Line 1b is Returns and Allowances. Do not bracket or "X" amount on Line 1b if negative.

  2. Edit Lines 1a, 1b, and 1c as follows:

    If And Then
    Line 1a is blank, Amounts are present on Line 1b and/or Line 1c, Add Line 1b and Line 1c and edit the total amount to Line 1a. Bracket if negative.
    Lines 1a, 1b and 1c are blank, The taxpayer indicates “Gross Profit” on Line 3, Add Lines 2 and 3 and edit the amount to Line 1a. Bracket if negative.

    Exception:

    If Line 2 is blank, determine from Form 1125-A, Line 8 amount (2010 and prior revisions - Page 2, Schedule A, Line 8), before computing Line 1a. If cost of goods sold is zero or blank on Form 1125-A (2010 and prior revisions - Page 2, Schedule A, Line 8), edit the Line 3 amount to Line 1a. Bracket if negative.

    Line 1b is blank, check attachments. If found,   Edit the amount to Line 1b. Do not bracket if negative.
    Line 1b is blank, check attachments. If not found, Line 1a is greater than Line 1c, Compute Line 1b (Line 1a minus 1c) and edit the amount to Line 1b. Do not bracket if negative.

3.11.217.15.2  (01-01-2014)
Line 2 - Cost of Goods Sold

  1. Follow instructions below for editing Cost of Goods Sold (Line 2):

    If And Then
    Line 2 is blank, An amount is present on Form 1125-A (2010 and prior revisions - Page 2, Schedule A, Line 8) Line 8, Edit the amount from Form 1125-A (2010 and prior revisions - Page 2, Schedule A, Line 8) Line 8. Bracket if negative.
    Line 2 is blank, Form 1125-A (2010 and prior revisions - Page 2, Schedule A, Line 8) Line 8 is blank and Line 6 contains an entry, Edit the amount from Line 6, minus any amount on Line 7. Bracket if negative.
    Line 2 is blank, Form 1125-A (2010 and prior revisions - Page 2, Schedule A, Lines 6 and 8) Lines 6 and 8 are blank and there are entries on Lines 1 through 5, Edit the total of Lines 1 through 5 minus any amount on Line 7. Bracket if negative.

3.11.217.15.3  (01-01-2014)
Line 4 - Net Gain (Loss)

  1. Correspond for missing Form 4797, Sales of Business Property, if there is an entry ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ on Line 4, Page 1 and Form 4797 is not attached.

    Exception:

    Do not correspond if "Form 4684" is notated on Line 4.

3.11.217.15.4  (01-01-2014)
Line 5 - Other Income (Loss)

  1. Accept taxpayer's entry.

3.11.217.15.5  (01-01-2014)
Line 6 - Total Income (Loss)

  1. Edit Line 6 as follows:

    If Then
    Line 6 is blank, Compute Lines 3 through 5 and edit to Line 6.

    Note:

    If Line 3 is blank, compute Line 3 by subtracting Line 2 from Line 1c.


    Bracket if negative.
    Line 6 is the only entry, Enter the amount from Line 6 to Line 5.
    Bracket if negative.

3.11.217.16  (01-01-2014)
Deduction Items and Computation of Ordinary Income - Lines 7 through 21, Page 1

  1. This subsection contains editing instructions for the Deduction section of Form 1120S, including the Salary and Wage Code. All line items are edited in dollars only and all the line items are positive or negative unless otherwise stated.

3.11.217.16.1  (01-01-2014)
Line 7 - Compensation of Officers

  1. Accept taxpayer's entry.

3.11.217.16.2  (01-01-2014)
Line 8 - Salaries and Wages

  1. Accept taxpayer's entry.

3.11.217.16.3  (01-01-2014)
Salary and Wage Code

  1. Edit a "1" in the right margin of Line 8, Page 1, Form 1120S if an entry greater than zero is present on any of the following:

    1. Line 8, Page 1, Form 1120S,

    2. Line 3, Form 1125-A (2010 and prior revisions: Page 2, Schedule A, Line 3). See Figure 3.11.217-20, Example of Editing Salary and Wage Code from Form 1125-A,

    3. Form 8825, Page 1, Line 13, Columns A through D or Page 2, Line 13, Columns E through H,

    4. Schedule F, Line 22 (2010 and prior revisions: Schedule F, Line 24),

    5. Form 4835, Farm Rental Income and Expenses, Line 20, or

    6. An attachment shows an entry for salaries, wages, labor, or payroll. See Figure 3.11.217-21, Example of Editing Salary and Wage Code from an Attachment.

  2. Do NOT code for any of the following entries:

    • Contract, outside, custom or miscellaneous labor

    • Temporary help

    • Management fees

    • Janitorial services

    • Maintenance fees

    • Commissions

    • Payroll taxes

    • Casual labor

    Figure 3.11.217-20

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

    Example of Editing Salary and Wage Code from Form 1125-A

    Figure 3.11.217-21
    This image is too large to be displayed in the current screen. Please click the link to view the image.

    Example of Editing Salary and Wage Code from an Attachment

3.11.217.16.4  (01-01-2014)
Line 9 - Repairs

  1. Accept taxpayer's entry.

3.11.217.16.5  (01-01-2014)
Line 10 - Bad Debts

  1. Accept taxpayer's entry.

3.11.217.16.6  (01-01-2014)
Line 11 - Rents

  1. Accept taxpayer's entry.

3.11.217.16.7  (01-01-2014)
Line 12 - Taxes

  1. Accept taxpayer's entry.

3.11.217.16.8  (01-01-2014)
Line 13 - Interest

  1. Accept taxpayer's entry.

3.11.217.16.9  (01-01-2014)
Line 14 - Depreciation
(Line 14c for 2005 and prior)

  1. Accept taxpayer's entry.

  2. For 2005 and prior year returns: if Line 14c is blank and there is a significant entry on either Line 14a or Line 14b, compute and edit the amount to Line 14c. Renumber Line 14c to Line 14. Bracket if negative.

3.11.217.16.10  (01-01-2014)
Line 15 - Depletion

  1. Accept taxpayer's entry.


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