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Part 3. Submission Processing

Chapter 11. Returns and Documents Analysis

Section 217. Form 1120S Corporation Income Tax Returns (Cont. 1)

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

3.11.217.8  (01-01-2009)
Schedule M-3 Attached — Page 1, Box C (Box H for 2006)

  1. Edit Computer Condition Code "B" when the box on Line C (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.

  2. Schedule M-3 is required for returns with assets of $10,000,000 or more. Do not correspond for Schedule M-3 if Box C is checked and Schedule M-3 is not attached.

3.11.217.9  (01-01-2009)
Total Assets — Page 1, Box F (Box E for 2006 and Prior)

  1. The first source for this entry is Box F (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  (01-01-2009)
♦ Initial Return Code — Page 1, Box G, Is This The Corporations First Year As An S Corporation?
(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.

    2. Page 1, Box G, "Is this the corporations first year as an S Corporation?" 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 3.11.217–16.

      Note:

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

    Figure 3.11.217-16
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3.11.217.11  (01-01-2010)
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.

    If... And... Then...
    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.
    Page 1, Line I, Number of Shareholders is zero or blank, No Schedule(s) K-1 are attached and Schedule K-1 correspondence criteria is not met (see IRM 3.11.217.29, Schedule K-1), Edit a "1" to Page 1, Line I, Number of Shareholders.
    Page 1, Line I, Number of Shareholders is zero or blank, No Schedule(s) K-1 are attached and Schedule K-1 correspondence criteria is met (see IRM 3.11.217.29, Schedule K-1), Leave blank.

3.11.217.12  (01-01-2009)
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 Sales Indicator, Edit "3 –" followed by the appropriate Installment Sales 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 (Form 8586, 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  (01-01-2010)
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 next to 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 Section 6662 (Disclosure).

    3. Form 8886, Reportable Transaction Disclosure Statement, is attached.

  5. Audit Code "2" :

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

    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 "≡ ≡ ≡ " .

    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 "≡ " .

    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 "≡ ≡ ≡ ≡ " .

    7. Form 8621, Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, is attached and Part IV, Lines 10a through 11f has an entry ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    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 "≡ ≡ ≡ " .

    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 (Small Business Election) is on file, the Form 1120 must be converted to Form 1120S.

  8. Audit Code "5" :

    1. Schedule K, Line 10 reflects a ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

  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 "≡ ≡ ≡ ≡ " .

    3. Form 8621, Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, is attached and Part IV, Lines 10a through 11f has an entry ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

  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. See Figure 3.11.217-17.

    Figure 3.11.217-17

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3.11.217.12.2  (01-01-2009)
Penalty and Interest Code

  1. Edit the Penalty and Interest Code in the left margin next to 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 within the grace period.

  3. This code is valid only within the unextended (original) grace period. When the precomputed interest does not pertain to the grace period but to some other situation, such as an underestimated Tax Penalty, do not Code "1" and do not insert Condition Code "R" . If only interest is shown, edit CCC "R" . See Figure 3.11.217–18

    Note:

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

    Figure 3.11.217-18
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3.11.217.12.3  (01-01-2009)
♦ Installment Sale Indicator ♦

  1. Form 6252, Computation of 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 next to 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  (01-01-2010)
Tax Preference Code

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

  2. Edit as "4 –1" .

  3. Enter "1" if:

    1. Form 4626 is attached and an amount is present on Line 3, 6 or 11 (Prior year 2002-1994 Lines 3, 6 or 12).

    2. On Schedule K-1, Line 15*, Alternative Minimum Tax Items, the sum of positive and negative amounts on Line 15, 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 14e). See Figure 3.11.217-19.

      Note:

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

    Figure 3.11.217-19

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3.11.217.12.5  (01-01-2010)
Form 8586, Low Income Housing Credit

  1. Edit the Form 8586, Low Income Housing Credit in the left margin next to 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 is attached with an entry on any of Lines 1 or 3 (prior year Lines 1 through 4), or
    - Form 8609, is attached or
    - Form 8609-A (prior year Schedule A (Form 8609)) is attached,     		Enter CCC "9" .
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    Form 8586 is attached, In the left margin next to 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; all others Line 18).
    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.

3.11.217.12.6  (01-01-2010)
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 next to 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 next to Line 9 of Form 1120S, edit "6 –" followed by the Line 14*, Form 8611 amount (*Form 8611 January 1999 revision, Line 12).
    Multiple Forms 8611 are attached, In the left margin next to Line 9 of Form 1120S, edit "6 –" followed by the total amount 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  (01-01-2009)
♦ Computer Condition Codes — General ♦

  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 the Form 1120S.

3.11.217.13.1  (01-01-2009)
♦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  (01-01-2010)
♦ 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 (including grace period).

  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,

    • 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  (01-01-2010)
♦ 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 Section 501(c)(3)

    • Dissolved

    • Cites IRC Section 708(b)(1)(B)

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

  2. The presence of Form 966 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) .

3.11.217.13.4  (01-01-2010)
♦ CCC "G" –
Amended Returns ♦

  1. See IRM 3.11.217.2.9 (Amended Returns).

3.11.217.13.5  (01-01-2009)
CCC "I" –
Tax Straddles
and Future
Contracts
(Form 6781)

  1. Edit CCC "I" when Form 6781 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  (01-01-2009)
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  (01-01-2009)
CCC "O" –
Module
Freeze

  1. CCC "O" is entered when a Pre-Settlement Manual Refund will be made and a Form 3753, Form 5792, or Form 12857 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 3.11.217.2.11 for processing instructions.

3.11.217.13.8  (01-01-2009)
CCC "P" – BMF Mail Indicator

  1. Edit CCC "P" on a Form 1120S if:

    1. The return has a unique identifier "(77)" in the top left margin next to the literal "Internal Revenue Service" , or

    2. The taxpayer is requesting a tax package. (Do not edit CCC "P" if the request is for a form other than the return being filed.)

    Note:

    CCC "P" is not required on final or amended returns.

3.11.217.13.9  (01-01-2009)
♦CCC "Q" Return Filed Claiming TETR Only (Credit for Federal Telephone Excise Tax Paid, Form 8913)♦

  1. CCC "Q" is edited on Form 1120S when Form 8913, Credit for Federal Telephone Excise Tax Paid is attached and the only entry on the 2006 tax return is shown on Line 23d.

    Caution:

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

3.11.217.13.10  (01-01-2010)
♦ 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. 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,

    • 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 "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  (01-01-2009)
CCC "T" –
Investor
Reporting of
Tax Shelter
Registration
Form 8271

  1. Edit CCC "T" when the taxpayer has attached a Form 8271, Investor Reporting of Tax Shelter Registration Number, to Form 1120S.

3.11.217.13.12  (01-01-2009)
♦ 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).

3.11.217.13.13  (01-01-2010)
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.

3.11.217.13.14  (01-01-2009)
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 3.11.217.5.3 (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).

3.11.217.13.15  (01-01-2010)
CCC "1" –
Like-Kind
Exchange

  1. Edit CCC "1" if Form 8824 is attached.

3.11.217.13.16  (01-01-2010)
♦ CCC "3" –
No Reply
to Correspondence ♦

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

3.11.217.13.17  (01-01-2010)
CCC "8" –
Waiver of
Estimated
Tax Penalty

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

    1. Form 2220 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 Schedule A, Line 38* any of the columns are computed (*2006 and prior– Line 40).

3.11.217.13.18  (01-01-2009)
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 or 3 (prior year Lines 1 through 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  (01-01-2009)
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  (01-01-2009)
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

    • Schedule N

    • Form 8825

    • Form 8050

    • Form 4136

    • Form 8913

    Note:

    It is not necessary to sequence Form 8050 if blank or Schedule N, Form 8825, Form 4136 or Form 8913 if there are no transcription line entries.

3.11.217.14.2  (01-01-2010)
Positive/Negative Figures

  1. Income Items—Lines 1a, 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 apply 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  (01-01-2009)
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  (01-01-2010)
Line 1 – Gross Receipts or Sales

  1. Edit Lines 1a and 1c as follows.

    If... And... Then...
    Line 1a is blank, An amount is present on Lines 1b and/or 1c, Add Lines 1b and 1c and edit the total amount to Line 1a. Bracket if negative.
    Lines 1a, 1b and 1c are blank,   Add Lines 2 and 3 and edit the amount to Lines 1a and 1c. Bracket if negative.

    Exception:

    If Line 2 is blank, determine from the Schedule A, Line 8 amount before computing Lines 1a and 1c. If cost of goods sold is zero or blank on Schedule A, edit the Line 3 amount to Lines 1a and 1c.

3.11.217.15.2  (01-01-2009)
Line 2 – Cost of Goods Sold

  1. If Line 2 is blank, edit the sum from Page 2, Schedule A, Line 8. Bracket if negative.

    1. If Schedule A, 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.

    2. If Schedule A, Line 6 is 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  (01-01-2009)
Line 4 – Net Gain (Loss)

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

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

3.11.217.15.4  (01-01-2009)
Line 5 – Other Income (Loss)

  1. Accept taxpayer's entry.

3.11.217.15.5  (01-01-2009)
Line 6 – Total Income (Loss)

  1. Edit Line 6 as follows:

    If... Then...
    Line 6 is blank, Compute Lines 1c through 5 and edit to Line 6.
    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  (01-01-2009)
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  (01-01-2009)
Line 7 – Compensation of Officers

  1. Accept taxpayer's entry.

3.11.217.16.2  (01-01-2009)
Line 8 – Salaries and Wages

  1. Accept taxpayer's entry.

3.11.217.16.3  (01-01-2009)
Salary/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, Page 2, Schedule A, Form 1120S. See Figure 3.11.217-20 .

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

    4. Schedule F, Line 24.

    5. An attachment shows an entry for salaries, wages, labor, or payroll.

  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

    No short description is available for this image.
    Please click here for the text description of the image.

3.11.217.16.4  (01-01-2009)
Line 9 – Repairs

  1. Accept taxpayer's entry.

3.11.217.16.5  (01-01-2009)
Line 10 – Bad Debts

  1. Accept taxpayer's entry.

3.11.217.16.6  (01-01-2009)
Line 11 – Rents

  1. Accept taxpayer's entry.

3.11.217.16.7  (01-01-2009)
Line 12 – Taxes

  1. Accept taxpayer's entry.

3.11.217.16.8  (01-01-2009)
Line 13 – Interest

  1. Accept taxpayer's entry.

3.11.217.16.9  (01-01-2009)
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 of Lines 14a or 14b, compute and edit the amount to Line 14c. Renumber Line 14c to 14. Bracket if negative.

3.11.217.16.10  (01-01-2009)
Line 15 – Depletion

  1. Accept taxpayer's entry.

3.11.217.16.11  (01-01-2009)
Line 16 – Advertising

  1. Accept taxpayer's entry.

3.11.217.16.12  (01-01-2009)
Line 17 – Pension Profit Sharing Plan

  1. Accept taxpayer's entry.

3.11.217.16.13  (01-01-2009)
Line 18 – Employee Benefit Plan

  1. Accept taxpayer's entry.

3.11.217.16.14  (01-01-2009)
Line 19 – Other Deductions

  1. Edit Page 1, Line 19 as follows:

    If... Then...
    If the taxpayer uses "Other Deduction" items on Lines 7 through 18, Add the "Other Deduction" items and edit the total to Line 19. Bracket if negative.
    "X" the Other Deductions items from Lines 7 through 18.

3.11.217.16.15  (01-01-2009)
Line 20 – Total Deductions

  1. Edit Page 1, Line 20 as follows:

    If... Then...
    Line 20 is blank, Add Lines 7 through 19 and edit this amount to Line 20. Bracket if negative.
    If Line 20 is the only entry in the "Deduction" section (Lines 7 through 20), Edit the Line 20 amount to Line 19. Bracket if negative.


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