3.21.110  Chapter Three Withholding Returns - Form 1042

Manual Transmittal

November 15, 2013

Purpose

(1) This transmits revised IRM 3.21.110, International Returns and Document Analysis - Chapter Three Withholding Returns Form 1042.

Material Changes

(1) Various editorial changes made throughout IRM

(2) Various updates in Consistency Sections

(3) IRM 3.21.110.12.5(4) Revised received date format to MMDDYY

(4) IRM 3.21.110.11.11 Clarified Instructions in the table

(5) IRM 3.22.110.14.6.8(3) Updated correspondence codes

(6) IRM 3.21.110.19 Clarified instructions for correcting lines 61a and 61b with Form 1042-T

(7) IRM 3.21.110.19(3) Further clarified verification of amounts on lines 61a and 61b on Form 1042.

(8) IRM 3.21.110.33(3) Revised correspondence codes.

Effect on Other Documents

IRM 3.21.110 dated January 1, 2012 is superseded.. This IRM also incorporates the following Interim Procedural Updates (IPUs) - IPU 13U0965 dated 05-21-2013,13U1127 dated 06-21-2013;13U1143 dated 06–25–2013; 13U1394 dated 08/27/2013

Audience

Wage and Investment - Document Perfection Branch of the Ogden Submission Processing Campus (OSPC Only)

Effective Date

(01-01-2014)

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

3.21.110.1  (01-01-2014)
Overview - Chapter Three Withholding (CTW) Legislation

  1. IRC 1441 - IRC 1464, Chapter Three Withholding Changes to IRC 1441 and IRC 1442, states that, a person who makes a payment of U.S. source interest, dividends, royalties, and certain other types of income to a foreign person must generally deduct and withhold 30 percent from the payment. A lower rate of withholding may apply under IRC, the regulations, or an income tax treaty. Generally, a payor of these types of income must also report the payments on Form 1042-S.

  2. Beginning January 1, 2001, the regulations under Chapter 3 (IRC 1441 - IRC 1464) and Chapter 61 (IRC 6041 - IRC 6050N) of the IRC are affected by these changes. These regulations, together with Revenue Procedure 2000-12, Qualified Intermediary (QI) Revenue Procedure, represent the culmination of a major effort that began in 1992 to revamp the withholding and reporting on payments of U.S. source income to foreign persons.

  3. The regulations and the revenue procedure represent a significant change in the way withholding taxes are collected and information is reported.

  4. The new regulations require both U.S. and foreign financial institutions to change their tax withholding and information reporting systems.

  5. The 911 Healthcare Bill signed January 2, 2011 (Public Law 111-347) introduced the paying, reporting and collection of a two percent (2 percent) excise tax on payments made for goods and services provided under a specified foreign procurement contract entered into after January , 2011. Beginning with tax year 2011, this tax is paid via the Electronic Federal Tax Payment System (EFTPS) and reported on the Form 1042"Record Of Federal Tax Liability" (ROFTL) section of the return and on new Line 71. Once a Form 1042 reporting the 2 percent excise tax payment is processed to the Business Master File (BMF) the amount from line 71 will appear on the Integrated Data Retrieval System (IDRS) (under the transaction code (TC) 150 document locator number (DLN) next to the field name "F1042-EXCISE-TAX-AMT." This amount is an adjustable amount using Item Reference Number 198. If the withholding agent files an amended or supplemental return then the Accounts Management (AM) employees in Ogden will make the tax adjustment and update the two percent excise amount with item reference number 198.

3.21.110.1.1  (01-01-2014)
Purpose of Section

  1. This section of the IRM provides procedures for reviewing and processing Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, see Exhibit 3.21.110-1.

  2. This IRM is designed to be used by Ogden Code and Edit Tax Examiners.

    Note:

    Form 1042 is filed at the Ogden Submission Processing Center (OSPC) only. Those erroneously filed at other locations are to be forwarded to OSPC daily .

  3. The Form 1042 is processed under:

    • Program Code: 12500

    • File Source: BMF

    • Tax class: 1

    • Master File Transaction Code (MFT): 12

    • Document Code: 25

    • DLN: XX125-ddd-501-999

    • File Location Code (FLC) 29 (Domestically filed), 60 (Internationally filed) and 78 (filed from a U.S. Possession).

3.21.110.2  (01-01-2014)
♦Restructuring and Reform Act of 1998♦

  1. Background: Section 3705 of the Restructuring and Reform Act of 1998, IRC 3705 provides identification requirements for all IRS employees working tax related matters.

  2. IRS employees are required to give their name and unique identification (ID) number during taxpayer telephone, face to face, and written contact. Refer to IRM 21.1.1.7 (Communication Skills) for additional information.

    Note:

    As a general rule, do not give out another employee's name or telephone number. If the taxpayer or representative needs to speak to another employee or manager, offer to take the taxpayer's/representative's number and have the requested employee call them back.

  3. Contact Procedures are contained in the following eight paragraphs.

  4. All IRS employees who communicate by telephone, correspondence, face to face with taxpayers or their personal representatives on tax-related matters are required to provide (at a minimum) the following information:

    • Your title (e.g., Mr., Mrs., Ms., Miss)

    • Your last name

    • Your Identification Card (badge) Number

  5. All correspondence must include a telephone number where the taxpayer’s question can be answered. In addition, manually generated and handwritten correspondence must include:

    • Your title (e.g., Mr., Mrs., Ms., Miss)

    • Your last name

    • IDRS, letter system, or ID card (badge) number

  6. 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 ID card (badge) number must be used.

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

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

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

  10. It is not necessary to repeat the ID card number (badge) 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) their ID card (badge) number on the first contact.

  11. When contacting taxpayers by telephone, you must be sure you are speaking with the taxpayer or authorized representative before disclosing tax information. See the Required Taxpayer Authentication in IRM 21.1.3.2.3 (Required Taxpayer Authentication ) and Additional Taxpayer Authentication in IRM 21.1.3.2.4. Also, before leaving a message on a taxpayer’s answering machine, review Leaving Information on Answering Machines/Voice Mail IRM subsection 11.3.2.6.1.

3.21.110.3  (01-01-2014)
♦Taxpayer Advocate Service (TAS) Case Criteria♦

  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, TAS Case Criteria) or has Form 911 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, Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order), and forward to TAS in accordance with your local procedures.

3.21.110.3.1  (01-01-2014)
♦TAS Service Level Agreements (SLA)♦

  1. The National Taxpayer Advocate has reached agreements with the Commissioners of the Wage and Investment (W I) Division, Small Business and Self-Employed (SB/SE) Division, Tax Exempt and Government Entities (TE/GE) Division, Criminal Investigation (CI), Appeals and Large Business and International (LB I) Division, 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. http//tas.web.irs.govhttp://tas.web.irs.gov/policy/sla/default.aspx under the heading Policy/Procedures/Guidance..

3.21.110.4  (01-01-2014)
♦Use of FAX for Taxpayer Submissions♦

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

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

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

    Caution:

    Before disclosing any tax information, you must be sure you are speaking with the taxpayer or authorized representative. See the Taxpayer Authentication guidelines in IRM 21.1.3.2.3 , Required Taxpayer Authentication and IRM 21.1.3.2.4,Additional Taxpayer Authentication. Also, before leaving any messages on a taxpayer’s answering machine, review IRM 11.3.2.6.1,Leaving Information on Answering Machines/Voicemails. Fax procedures contained in IRM 11.3.1.11Facsimile Transmission of Tax Information,must be reviewed prior to faxing confidential information to the taxpayer.

3.21.110.5  (01-01-2014)
Purpose of Document Perfection

  1. The purpose of Document Perfection is to code and edit (perfect) returns and other documents for input through the Integrated Submissions and Remittance Processing (ISRP) System.

  2. In addition, Document Perfection forwards any other documents or attachments not related to the processing of the return to the function responsible for handling it.

  3. Document Perfection is not responsible for the mathematical verification of the return or for checking the validity of the documents being processed.

  4. The computer will perform math verification and validity and consistency checks after the returns and other documents are coded and edited as prescribed in this Section.

3.21.110.6  (01-01-2014)
♦BMF Consistency♦

  1. The purpose of the BMF Consistency initiative is to achieve consistency in the BMF processing IRMs.

  2. Topics for BMF Consistency have been identified and developed as a coordinated effort between Cincinnati, Ogden and SB/SE (BMF Policies, Procedures, and Guidance Branch).

  3. BMF Consistency Subsections are identified by a (diamond) before and after the subsection title.

  4. The text in normal print within a consistency subsection signifies the common processes to be used for all BMF returns. The text in bold print is form specific and applies to this IRM only.

3.21.110.6.1  (01-01-2014)
♦Foreign Currency♦

  1. For returns completed in other than U.S. currency, process as filed. However, if corresponding for missing/incomplete item(s), include in Letter 1791C to resubmit in U.S. currency.

3.21.110.6.2  (01-01-2014)
♦Protective Claims♦

  1. Returns marked as "Protective Claim," "Protective Refund," "Protective Claim for Refund," or similar statement will be removed from the batch and routed to Accounts Management. Notate "Protective Claim" in the remarks box of Form 4227.

    Exception:

    If the return is amended, do not remove from batch. Edit Computer Condition Code (CCC) "G" and follow normal processing procedures.

3.21.110.7  (01-01-2014)
♦Edit Marks♦

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

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

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

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

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

    Note:

    If the taxpayer circles an entry, edit the entry.

    Underline Indicates that an entry is to be transcribed. Examples are: Name Control; Tax Period; and a Received Date that is other than IRS Stamped Date.
    Arrow Indicates the correct placement of a misplaced entry. An arrow may be used if the misplaced item is close to the correct line and there is no question where the entry belongs.

    Note:

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

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

    Note:

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

    Vertical Line or Decimal Point Indicates the separation of dollars and cents if no distinction has been made by the taxpayer.

    Note:

    Code and Edit is no longer required to edit a vertical line, 00, dash, or decimal point in dollars and cents fields when taxpayer has entered dollars only.

    Zero, Dash or None Zero, dash or none are considered valid entries except when specific instructions require editing of an entry.
    Edit Marks Made by Other IRS Functions Edit marks entered by another area (such as Collections or Adjustments) are not to be reedited except to place the marks in the correct area.
    Rocker Indicates the amount paid when drawn under a remittance amount.

3.21.110.8  (01-01-2014)
Unprocessable Conditions

  1. A return must contain the following specific items before it is considered processable:

    1. A Taxpayer Identification Number (TIN)

    2. A legible name (for the Name Control)

    3. A valid Tax Period

    4. Legible tax data (if tax liability is indicated)

    5. Jurat and Signature

  2. Perfect all documents to the extent possible from schedules and other attachments.

  3. Conditions which make a document unprocessable are:

    1. The name is so illegible or incomplete that the Name Control cannot be determined.

    2. A social security number (SSN) or individual taxpayer identification number (ITIN) is used instead of the withholding agent's EIN and cannot be perfected from information on the return or attachments.

    3. The TIN is other than nine numeric digits and cannot be perfected from information on the return or attachments.

    4. The document has two or more different TINs.

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

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

    7. The document has been mis-blocked.

    8. The return is unsigned.

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

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

  4. All Other Unprocessable Conditions — Initiate correspondence with Letter 1791C, U.S. Annual Return Of Income Paid at Source Incomplete for Processing Form 1042, where applicable, unless other instructions are given in the IRM.

    Note:

    Service Centers will retain all refund, credit-elect, and zero balance returns in-house instead of sending the return back to the taxpayer when corresponding for signature, missing information, and supporting schedules and documentation. Document Analysis, Code and Edit should follow the instructions they currently use for correspondence when the return cannot be sent back to the taxpayer.

3.21.110.9  (01-01-2014)
♦Correspondence♦

  1. There are unprocessable conditions that require corresponding with the taxpayer to resolve.

  2. Do not correspond or send back returns prepared by compliance 6020(b) and Substitute for Return (SFR).

  3. Do not send back returns when corresponding on those secured by Compliance (notated as Process as original, or TC 59X, Integrated Collection System (ICS).

  4. Examine the return so that all of the conditions can be included in the same correspondence. If additional information is needed, the second correspondence must include a letter of apology for any inconvenience.

  5. Service Centers will RETAIN all refund, credit-elect and zero balance returns In-House instead of sending the return back to the taxpayer when corresponding for signature, missing information and supporting schedules and documentation. This change requires Code and Edit to follow the instructions currently used for correspondence when the return cannot be sent back to the taxpayer.

    • Form 3696, Correspondence Action Sheet, (Letter 1791C) is used to correspond on numbered returns, unnumbered balance due returns, delinquent returns, and secured returns.

      Note:

      It is now acceptable to receive missing signatures as well as missing schedules, etc. via fax. Be sure to include the letter paragraph advising the taxpayer of this option when completing Form 3696.

      Note:

      Use the chart below when you must initiate correspondence to the Taxpayer.

    If And Then
    Timely Unnumbered refund or Zero-Balance returns Correspondence requires a response
    1. Correspond using 1791C Letter.

    2. If a form or schedule needs to be completed, include a blank copy for the taxpayer's use.

    Timely Numbered returns and Unnumbered Balance Due returns Correspondence requires a response
    1. Complete Form 3696 indicating the Letter 1791C, MFT, and the appropriate paragraphs. See note at end of table.

    2. Attach Form 3696 to the front of the return below the Entity area.

    3. Edit Appropriate Action Code on the return.

    4. Continue editing the return.

    5. leave the return in the batch.

    Delinquent Numbered returns and unnumbered Balance Due returns Correspondence does not require a response
    1. Complete Form 3696 indicating the letter number i.e. 86C, MFT, and the appropriate paragraphs.

    2. Photocopy Form 3696 below the Entity area on the front of the return. Be sure the name and address show clearly above the Form 3696.

    3. Complete the copy of the Form 3696.

    4. Forward the copy to the correspondence area.

    5. Edit an Action Trail (e.g. 142C sent) in the lower corner going vertically up the side of the return.

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

    7. Continue processing the return.

    Note:

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

    Note:

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

3.21.110.9.1  (01-01-2014)
Fact of Filing

  1. Whenever an unnumbered return is withdrawn from the work flow for correspondence, input TC 59X no later than three weeks before the Program Completion Date. This will alter the normal delinquency check.

    1. The Form 1042 PCD are shown in IRM 3.30.123, Processing Timeliness: Cycles, Criteria and Critical Dates.

  2. Annotate the transaction and closing codes input in the upper left corner of the return. The codes to be entered are as follows:

    1. TC 599 17 — Unprocessable tax return (timely)

    2. TC 599 18 — Return in progress on or after the Program Completion Date (PCD), e.g. untimely.

    Exception:

    These instructions do not apply if the return is being sent back to the taxpayer.

  3. Whenever a return requires correspondence using Form 3696A, IDRS Correspondence Action Sheet, enter a TC 599 with proper closing code to indicate fact of filing.

  4. For returns processed through the Remittance Processing System (RPS), a TC 599 is not necessary. The payments have already posted as a TC 610 and this satisfies the BMF delinquency check.

    Exception:

    If the RPS return is unprocessable because it has been misblocked and processed under the wrong MFT, input TC 599 with Closing Code 17, for the correct MFT.

  5. Returns processed through a Compliance function will show a TC 59X in the middle of the left margin. Document Perfection will not be required to input a TC 599.

3.21.110.9.2  (01-01-2014)
♦Correspondence Imaging System (CIS) Returns♦

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

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

  3. Verify all edit marks on a "CIS" return.

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

  4. Follow the instructions below for processing "CIS" returns:

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

    Note:

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

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

    Note:

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

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

3.21.110.10  (01-01-2014)
♦Routing Guide for Attachments♦

  1. All attachments to the return must be reviewed before the return can be considered processable.

    1. Attachments should only be detached when specifically instructed.

    2. Attachments must contain Name, Address, EIN and Received Date. Enter if missing.

    3. Edit Action Trail(s) (e.g., 2848 DETACHED) in the lower left margin of the return.

  2. Follow the general guidelines below for each attachment:

    Document Detach Action
    CP -504/504B NO Pull CP to the front of the tax form and route the CP notice and entirely edited return to the Collections Function and Accounts Management
    CP 259, 515-518 NO Route notice and return to Collections.

    Exception:

    Do not route to Collections if "599" is notated.

    Includes Tax Liability for Multiple Tax Periods or Types of Tax . NO
    • Numbered Returns--Route to Rejects.

    • Unnumbered Returns-- Prepare a dummy return if possible; otherwise correspond.

    Other Tax Returns (original signature). YES Route to the appropriate function unless specifically directed otherwise.

    Example:

    Returns such as those attached to a consolidated return.

    State Tax Returns (Original or Copy With Original Signature). YES Route to Receipt and Control and notate RETURN TO TAXPAYER.
    State Tax Returns (Photocopy, facsimile, or no signature) NO Leave attached.
    Statement Establishing Reasonable Cause for Delinquent Filing. NO
    1. Issue 1382C letter.

    2. Continue editing the return.

    3. See IRM 3.21.110.11.8(6).”

    Remittance Found. NO Immediately hand carry the return and remittance to supervisor.
    Request for Acknowledgement NO No action required
    Request for information or inquiries. YES
    1. Photocopy the attachment if it contains any data necessary to continue processing the return.

    2. Attach the copy to the return.

    3. Route the original attachment to the proper office for necessary action.

    Request for Adjustment to another document. YES Route to the appropriate function. The attachment must contain a Name, Address, EIN, and Received Date. Enter if missing.
    Request for money transfer. YES If the taxpayer notates transfer of money to the return you are processing:
    1. Prepare Form 3465 to route the request to Accounts Management .

    2. Hold the return for 2 cycles before processing.


    If the taxpayer notates transfer of money from the return you are processing:
    1. Prepare Form 3465 to route the request to Accounts Management .

    2. Edit CCC X to freeze overpayment.

    3. Continue processing return.

    Request for Forms or Schedules. NO Current Year Forms--Prepare Form 4190 and forward to the Forms Distribution Center for processing.
    Prior Year Forms--Prepare Form 6112 and forward to the Forms Distribution Center for processing.

    Note:

    Form 4190 and Form 6112 are generally used for Individual Master File (IMF) requests. Therefore, enter all BMF requests for forms and/or schedules in the WRITE-IN portions of the form.

    A General Power of Attorney or a Durable Power of Attorney or Tax Information Authority is submitted on any document other than Form 2848 or Form 8821 No Take no action. Leave the Power of Attorney or Tax Authorization attached to the return. Do not route to the Centralized Authorization File (CAF) function.
    W-8, Certificate of Foreign Status, Series or a substitute thereof (in the form of a statement) No Leave attached to Form 1042.
    Form 1000, Ownership Certificate No Leave attached to Form 1042.
    Form 1001, Ownership, Exemption, or Reduced Rate Certificate No Leave attached to Form 1042.
    Form 1042-S Copy A/Form 1042-T Yes Prior to detaching Copy A , verify entity and lines 61-63; Do not separate Form 1042-T from associated Form(s) 1042-S. Route to Receipt and Control for rebatch.
    Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, Copy B ONLY No Leave attached to Form 1042 for verification of Line 66. See IRM 3.21.110.27(9 -11)”
    Form 2848 Yes
    • Edit taxpayer name and EIN on Form 2848 if missing.

    • Edit received date on Form 2848.

    • Route Form 2848 to CAF function (Ogden - route to Stop 6737.

    • Edit action trail on tax return.

    Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts Yes Route to Receipt and Control for rebatch, if original signature is on Forms.
    Form 3520A, Annual Return of Foreign Trust With a U.S. Owner Yes Route to Receipt and Control for rebatch, if original signature is on Forms..
    Form 4224, Exemption from Withholding of Tax Income Effectively Connected with the Conduct of Business in U.S. No Leave attached to Form 1042.
    Form 8233, Exemption from Withholding on Compensation for Independent ( and Certain Dependent) Personal Service of a Nonresident Alien Individual No Leave attached to Form 1042.
    Form 8288, U.S. Withholding Tax Return for Disposition by Foreign Persons of U.S. Real Property Interests Yes Route to the International BMF Accounts Managements (FIRPTA) Unit
    Form 8288A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests Yes Route to the International BMF Accounts Managements Foreign Investment Real Property Tax Act (FIRPTA) Unit
    Form 8300, Report of Cash Payments over $10,000 Received in a Trade or Business Yes Route to the Detroit Computer Center (DCC). This form is used to report cash payments in excess of $10,000.
    Form 8804, Annual Return for Partnership Withholding Tax (Section 1446) Yes Route to Receipt and Control for rebatch.
    Form 8813, Section 1446 Payments Yes Route to the International BMF Accounts Managements (FIRPTA Unit)
    Form 8821, Tax Information Authorization Yes
    • Edit taxpayer name and EIN on Form 8821 if missing.

    • Edit received date on Form 8821.

    • Route Form 8821 to CAF function (Ogden - route to Stop 6737).

    • Edit action trail on tax return.

3.21.110.11  (01-01-2014)
Form 1042 - Special Conditions

  1. For procedures when processing unusual Form 1042 conditions, This section covers the following topics:

    1. Early-Filed Returns

    2. Non-Taxable Returns With No Line Entries

    3. Fiscal Year Returns

    4. Voluntary Compliance Program (VCP)

    5. Statute Returns

    6. Re-Entry Returns

    7. Amended Returns

    8. Delinquent Returns

    9. Compliance Secured/Prepared Returns

    10. IRC 6020(b) - Prepared by Collection

    11. Collection Secured

    12. Examination Prepared

    13. Examination Secured

    14. Frivolous Argument

    15. Refund Returns (180-Day Jeopardy and Refunds $500,000 or more)

    16. Form 1042 - Prior Year Returns Processing

3.21.110.11.1  (01-01-2014)
Early-Filed Returns

  1. Early-filed returns must be held for processing at the beginning of the appropriate processing year, Figure 3.21.110-1.

  2. An early-filed Form 1042 for Tax Period 201412 (that is, filed before January 1, 2014) must be held for processing until January, 2015.

  3. Edit Action Code 480 on early filed returns so they can be suspended to Rejects to hold until the returns can be processed.

    Figure 3.21.110-1

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

3.21.110.11.2  (01-01-2014)
Non-Taxable Returns With No Line Entries

  1. Process a signed return containing no line entries as a non-taxable return. This includes a signed return with notations such as Not Liable, etc.

  2. Process as final any return that states Final, No longer in business, Do not file this form, etc. as long as the required signature is shown. A signature is not required if the taxpayer indicates that he/she received the wrong type of return, and that another type of return is filed provided the following actions are taken before CCC F is entered:

    1. Prepare Form 4227 (or Form 6882, IDRS/Master File Information Request, if your Center prefers), for research to be performed to determine whether the proper filing requirement has been established for the return the taxpayer states was filed. Notate in the remarks area, research for the entity and MFT of the appropriate return.

    2. If research shows that the taxpayer has a filing requirement for the appropriate return, process the incorrect return as final to turn off the filing requirement.

    3. If research shows that the taxpayer does not have a filing requirement for the return he/she states should be filed, attach the research papers to the invalid return and forward to Entity Control on Form 4227 for filing requirement determination. If the filing requirement is incorrect, Entity Control will change it and notate the change on Form 4227. The return will be sent back to Document Perfection to be converted to the proper return.

3.21.110.11.3  (01-01-2014)
Fiscal Year Returns

  1. If the Form 1042 indicates that it is a Fiscal Year return:

    1. Change the return to show the current calendar year.

    2. Send Letter 1791C to the withholding agent informing them that Form 1042 must be filed on a calendar year basis.

  2. If the Fiscal Year Form 1042 reflects monies paid during 2 calendar years, prepare Form 13653 notating that the withholding agent must submit a return for each year.

    Note:

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

3.21.110.11.4  (01-01-2014)
Voluntary Compliance Program (VCP)

  1. The Voluntary Compliance Program (VCP) was established by the Service to encourage tax compliance by withholding agents that may not be conforming with existing tax regulations regarding payments to aliens.

  2. The VCP program was administered by the Manhattan district and applies to Form 1042 and Form 945 only.

  3. The instructions that follow apply only to the processing of Form 1042 identified as secured under the VCP program.

  4. Beginning January 2005 for tax year 2001, 2002 and 2003 the Manhattan district began to secure and forward original and amended Form 1042 to OSPC.

    Note:

    Examination Prepared (EP)/ Examination Only (EO) work papers and/or a copy of the AIMS record may be attached to the returns secured by EP/EO.

  5. EP/EO will notate TC 59X in the bottom margin of the Form 1042 to designate a secured return. Process these returns as follows:

    1. Edit the Form 1042 VCP return with the ultimate purpose of having the return post to the BMF.

    2. Ensure that the received date is present on the return.

  6. EP/EO will either stamp the received date on the Form 1042 or will write the received date in the upper left corner of the return.

  7. To determine Received Date, See IRM 3.21.110.12.5.1.

  8. Enter CCC J and R (Reasonable Cause for Late Filing of the Return) in the For IRS Use Only box in the upper right corner of the Form 1042.

  9. Do not:

    1. send the return back or correspond with the withholding agent for any unprocessable condition.

    2. instead, give the return to your manager for possible referral back to EP/EO if an unprocessable condition exists.

3.21.110.11.5  (01-01-2014)
♦Statute Returns♦

  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. Statute returns must be routed to the Statute Control Unit daily or more often if needed.

    Exception:

    Edit CCC W, continue processing and do not route to the Statute Control Unit for clearance if any of the following conditions are present:
    • Compliance (6020(b)) returns.
    • Returns with TC 59X or ICS notated on the face of the return.
    • Returns that are substitute returns prepared by Examination , Substitute for Return (SFR in top margin).

  3. Statute returns are unprocessable until they are cleared by Statute Control.

  4. Use the following chart for Numbered and Unnumbered Statute Returns.

    If... Then...
    Numbered Returns. 1. SSPND 310.
    2. Attach Form 4227 and check the box for Statute Control Unit.
    3. Leave the return in the batch and continue processing.
    Unnumbered Returns. 1. Do not continue processing.
    2. Pull the return from the batch.
    3. Attach Form 4227 and check the box for Statute Control Unit.

  5. Edit CCC W if the return has been cleared by Statute Control Unit. Statute will stamp or indicate clearance on the front of the return. If the statute cleared date is more than 90 days old, return the document to the Statute Function for clearance.

  6. Statute may stamp a return as "No Statute Issue." Follow the chart below to determine if a CCC "W" is needed: .

    If... And... Then...
    The return received date is 2 years and 9 months or more after the Return Due Date The return is stamped, “No Statute issue” Edit a CCC W
    The return received date is less than 2 years and 9 months from the Return Due The return is stamped, “No Statute issue” Do not edit a CCC W

3.21.110.11.6  (01-01-2014)
♦Re-Entry Returns♦

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

  2. Each re-entry return must have a Form 3893 (Re-Entry Document Control)

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

  4. Examine Form 3893 to determine the action needed to make the return processable: See Figure 3.21.110-2.

    Exception:

    If the return is more than 2 years and 9 months from the Return Due Date, do not use Form 3893 reprocessing procedures. Instead, route the return to the Statute Control Unit following Statute procedures.

    If... Then...
    Form 3893 is missing. 1. SSPND 610 to post the return to the proper account or module.
    2. Route to Receipt and Control using Form 4227.
    3. Leave the return in the batch.
    Form 3893 is attached. 1. Determine if the return was edited according to current processing instructions.

    Note:

    If more than one return is in the batch and only the top Form 3893 has an entry in Box 1 (Alpha/Numeric Block Control Number), edit all returns using current processing instructions and keep all returns clipped together.

  5. If it is determined an unprocessable condition exists, edit the appropriate CCC. Circle out any incorrect CCC(s) and any other edit marks that are no longer applicable. Re-edit according to current processing instructions.

    Figure 3.21.110-2

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

    Re-Entry

  6. Line through DLN

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

    Form 3893 Action Taken
    Box 14 (Remarks). 1. Ensure that the information is edited to the return.
    Box 15 (Process As). 1. Circle-out any green rockered money amounts and edit marks that may indicate a receipt of remittance.
    2. Do not change any Tax due amounts.

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

    If... Then...
    Improper perfection. 1. Edit the same correction in red to the appropriate area.
    Taxpayer error. 1. Leave the entries as shown on the document.

  9. A Received Date must be present on all Re-Entry returns:

    If... Then...
    Received Date is not present. 1. Edit a Received Date to the Dotted Portion of Line 63c on the 1042 Return.
    Multiple Received Dates are present. 1. Circle-out all but the earliest date.

  10. When additional information is still needed to make the return processable, prepare Form 3696 or Form 4227 for the appropriate action (e.g., correspondence, research, etc.).

  11. When perfection is not possible, edit SSPND 610 on the return and attach Form 4227 noting PERFECTION NOT POSSIBLE and return to the initiator.

3.21.110.11.7  (01-01-2014)
♦Amended Returns♦

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

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

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

    If Then
    TC 59X or ICS was entered on the return by Compliance Services Do not edit CCC G. Process the return as an original.
    The return is stamped Delinquent Original Cleared for Processing by Statute. Do not edit CCC G. Process the return as an original.
    None of the above is present Edit CCC G. No other codes may be used with CCC G except CCC W, or 3.

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

    1. Name Control.

    2. EIN.

    3. Tax Period.

    4. CCC G.

    5. Received Date.

    6. Signature.

3.21.110.11.8  (01-01-2014)
Delinquent Returns

  1. A return is normally delinquent if it is not received on or before the Return Due Date (RDD). However, accept the return as timely filed if the received date is within the ≡ ≡ ≡ ≡ ≡ ≡ ≡ . See IRM 3.10.72,Receiving, Extracting, and Sorting or IRM 3.10.73,Batching and Numbering.

  2. Accept a return as timely if:

    1. The return was mailed in time to reach the Service through normal handling within the legal period but,

    2. Through no fault of the taxpayer, it was not delivered.

  3. Consider a return timely if it appears that the Post Office might have sent it to another government agency in error, or if the original envelope bears a timely postmark or a timely date stamp by that agency. However, if the return was erroneously addressed to another agency, it will be date stamped with the current date when the IRS received it.

  4. See IRM 3.21.110.12.5.1, Received Date Chart for information on the due date of Form 1042.

  5. If a return is delivered to the IRS after the date prescribed for filing, consider the following:

    • The postmark date stamped on the envelope as the date of delivery.

      Note:

      If the postmark date falls on or before the prescribed date for filing the return, then consider the return timely and edit the timely postmark date in MMDDYYYY format.

  6. If the return (Form 1042) is truly delinquent, check the return for an explanation of late filing. If the taxpayer attaches correspondence with a reasonable cause explanation for failure to file a timely return, take the following action:

    1. Detach the reasonable cause explanation correspondence from the return.

    2. Complete Form 3499, "Informational Transmittal," and forward to Ogden International Accounts Management Campus (OAMC), BMF INT'L unit 1973 N Rulon White Blvd, Ogden, Utah 84404 M/S 6552, . In the remarks area write "Process attached Reasonable Cause Correspondence. TC 150 to post in 4 weeks."

    3. Prepare correspondence action sheet for IDRS Letter 1382C (use paragraphs "A, N and V" ) and assign it to a clerk for input to IDRS, or follow local procedures. It may or may not include the Rejects function. Photo, LTR and attach to 1382C.

      Note:

      Do not edit CCC "U, R, or 7" on the return. OAMC will address the taxpayers reasonable cause letter.

    4. Continue processing Form 1042. Do not attach the correspondence action sheet 1382C to the return.

3.21.110.11.9  (01-01-2014)
♦Compliance Secured/Prepared Returns♦

  1. Compliance functions secure returns from the taxpayer and also prepare returns if the taxpayer does not provide them.

    1. Prepared tax returns are notated with "6020(b)" or "SFR" (Substitute for Return).

    2. Secured tax returns are notated with "TC 59X" or "ICS" or notated "Process as Original" with an attached Form 13133, Expedite Processing Cycle. The "Delinquent Return" box on Form 13133 should be checked. If Form 13133 is attached, edit the CCC that are checked on the form.

      Note:

      If Received Date (RD) is notated on the front of the return and not circled, remove from the batch and route to Collections.

3.21.110.11.9.1  (01-01-2014)
♦IRC 6020(b) - Prepared by Collection♦

  1. When the taxpayer fails to file a required return, IRC § 6020(b) is the authority for the IRS to prepare the return.

  2. These returns are identified by the notation: "PREPARED AND SIGNED UNDER THE AUTHORITY OF IRC REGULATION 6020(b) OF THE INTERNAL REVENUE CODE" which is located in the center bottom of Page 1 of the return.

    1. Returns must have a Received Date. If no Received Date is present per the Compliance Function, follow the normal procedures for editing the Received Date.

    2. Returns must be signed by Compliance Function representative. If not signed, route to Compliance using Form 4227.

      Note:

      Starting July 1, 2013 we will accept the Revenue Officers (RO) electronic signature or typed signature as a valid signature on the return.

    3. Edit CCC "4" .

      Note:

      CCC "R" should not be used with CCC "4" .

    4. Do Not correspond with the taxpayer for unprocessable conditions. If the return is completely unprocessable, edit CCC "3" and continue processing.

    5. Edit CCC "W" if the Received Date is more than 2 years and 9 months after the Return Due Date. Do Not send the return to Statute Control.

3.21.110.11.9.2  (01-01-2014)
♦Collection Secured♦

  1. These returns are identified by the notations: "TC 59X" or "ICS" .

    1. Do Not edit CCC "G" on these returns.

    2. Use approved Correspondence Action Sheet to correspond for conditions that cannot be processed (e.g., missing signatures, missing schedules, etc.).

    3. Edit CCC "W" if the Received Date is more than 2 years and 9 months after the Return Due Date. Do Not send the return to Statute Control.

3.21.110.11.9.3  (01-01-2014)
♦Examination Prepared♦

  1. These returns are identified by the notation: "SFR" or "SUBSTITUTE FOR RETURN" on Page 1.

    1. Return must have a Received Date. If no Received Date is present, follow the normal procedures for editing the Received Date.

    2. Do Not correspond with the taxpayer for unprocessable conditions. If the return is completely unprocessable, use No Reply procedures and edit CCC "3" and continue processing.

    3. If Form 13133 is attached, edit the CCC that are checked on the form.

      Note:

      CCC "R" should not be used with a CCC "4" .

    4. Edit CCC "W" if the Received Date is more than 2 years and 9 months after the Return Due Date. Do Not send the return to Statute Control.

3.21.110.11.9.4  (01-01-2014)
♦Examination Secured♦

  1. These returns are identified by the notation: "Process as Original" on Page 1 of the return and a Form 13133, Expedite Processing Request, attached with the "Delinquent Return" box checked..

    1. Use approved Correspondence Action Sheet to correspond for conditions that cannot be processed (e.g., missing signatures, missing schedules, etc.).

    2. Edit the Computer Condition Codes that are checked on Form 13133.

    3. Edit CCC "W" if the received date is more than 2 years 9 months after the Return Due Date. Do Not send to Statute Control function.

3.21.110.11.10  (01-01-2014)
♦Frivolous Argument♦

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

  2. Caution: Ignore frivolous correspondence attached to an accurate return. The return is not frivolous, and the return should be processed in the normal manner. Sent the frivolous correspondence to: Internal Revenue Service Attn: FRP M/S 4450 1973 N. Rulon White Blvd. Ogden, UT 84404

  3. Review the return to determine whether it appears to be a frivolous return. See Exhibit 3.21.110-5.

    If... Then...
    The return meets any of the conditions identified as a frivolous return.

    Caution:

    If the return shows Action Code 331 , and has a Form 4227 attached with the remarks, "Refer to Exam FRP for audit after processing," continue to next procedure.

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

    Note:

    IRM 4.10.12.1.3.3, Campus FRP Coordinators, requires Examination to expedite the return and make a determination whether it qualifies as a frivolous return within two (2) business days.


    If a determination is not made within the allowed time frame, the Examination examiner will edit Action Code 331 in the lower left margin of the Form.
    Examination has selected the return as frivolous,

    Example:

    Indicated by an Action Code 331), and a Form 4227 with the remarks, "Refer to Exam FRP for audit after processing," but sends the return for processing,

    Continue processing the return using procedures in IRM. However, do not circle or void the Action Code indicating a frivolous return.

    Note:

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

3.21.110.11.10.1  (01-01-2014)
≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡

  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "
    "≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
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    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

3.21.110.11.10.2  (01-01-2014)
≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ "

  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

3.21.110.11.11  (01-01-2014)
♦Refund Returns (180-Day Jeopardy and Refunds $500,000 or more)♦

  1. Document Perfection is responsible for identifying refunds and for initiating requests for manual refunds. Use the chart below for manual refund procedures.

    Note:

    Expeditious processing of refund returns is critical if the 180-day period is about to expire.

    If ... Then ...
    A refund return is batched in a non-refund batch,
    1. Completely edit the return.

    2. Pull the return from the nonrefund batch using local procedures.

    Note:

    Pull the return from the nonrefund batch using local procedures. Note: Follow the instructions below when the processing date is more than 155 days after the Received Date or the return due date OR the refund is $1,000,000 or more.

    The processing date is more than 155 days after Received Date or the Return Due Date (whichever is later) and the 180-day interest free period is in jeopardy and the refund amount is ≡ ≡ ≡ ≡ ≡ ≡ or more.

    Note:

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


    1. SSPND with Action Code 341.
    2. Attach Form 4227 and give the return to the manager.
    The refund is $1,000,000 or more, Note: Refund in this instruction means only the amount requested to be refunded to the taxpayer, not overpayments transferred to other periods.
    1. Do not leave the return in the block

    2. Edit CCC “U” on numbered and unnumbered returns.

    3. Give the return to the manager.

    The W and I Submission Processing Liaison for TAS issues, walks a return through Code & Edit, In addition to normal editing, perform the actions below:
    1. Edit CCC “O” to freeze the refund only if TAS is issuing a manual refund.

    2. Edit CCC “Y” to send the return to Error Correction Unit (ERS).

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    1. Do not leave the return in the block.
    2. SSPND with Action Code 341, attach Form 12230 and give the return to the manager.

3.21.110.11.12  (01-01-2014)
Form 1042 - Prior Year Returns Processing

  1. Upon receipt of a prior year Form 1042 return with a tax year prior to the current processing tax year, first determine if the return is for the year indicated on the return or for the current year.

  2. If the return is for the current processing tax year, change the line numbers on the return to conform to the current year version, if possible. if not possible, dummy the current year form.

    1. Edit the prior year return to conform to current year line format

    2. If no entries on the change lines, then simply line out those lines

    3. If entries, then edit line numbers onto return to conform to current year format

3.21.110.11.13  (01-01-2014)
♦Action Codes♦

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

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

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

  4. Assign Action Codes in the following priority order:

    1. Action Code 310 (Statute Control)

    2. Action Code 320 (Entity Control)

    3. Action Code 4XX.

    4. Action Code 6XX

    5. Action Code 3XX

    6. Action Code 2XX (Correspondence).

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

  5. Attach Form 4227 when more than one Action Code is needed. Edit the Action Code with the shortest suspense period on the form and edit the second Action Code on Form 4227.

  6. Edit the following Action Codes when a return cannot be perfected:

    Action Code Description
    211 (First Correspondence)
    • The return is so illegible, incomplete, or contradictory that it is not acceptable for computer processing.

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

    • Clarify if address is domestic, edit 211 - All 1042 returns are considered Foreign if address is foreign.

    215 (First Correspondence- International)
    • The return is so illegible, incomplete, or contradictory that it is not acceptable for computer processing.

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

    • All 1042 returns are considered Foreign if address is foreign.

    225 (Missing Signature Correspondence)
    • Unsigned returns (only issue for correspondence)

    • Clarify if address is domestic, edit 225 - All 1042 returns are considered Foreign if address is foreign.

    226 (Missing Signature International Correspondence)
    • Unsigned foreign return (only issue for correspondence).

    • All 1042 returns are considered Foreign if address is foreign.

    610 (Renumbered Non-Remittance) or 611 (Renumbered With Remittance)
    • The return is mis-blocked (e.g., Form 1065 found in a Form 1042 batch of work).

    650 (AC International)
    • The return is an International return and must be forwarded to OSPC.

    480 (Early Filed - Suspense)
    • The return is an early filed current year return.

    640 (Void)
    • To delete the assigned DLN on the return (e.g., Re-Entry Returns).

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

  8. Valid Action Codes are listed below:

    Action Code Description Workday Suspense Period
    211 First Taxpayer Correspondence 40
    212 Second Correspondence 25
    215 International Correspondence 45
    225 Taxpayer Correspondence (Signature Only) 40
    226 International Correspondence (Signature Only) 40
    310 Statute Control 10
    320 Entity Control 10
    331 Frivolous Review 10
    341 Manual Refund 10
    342 Credit Verification 10
    343 Black Liquor 10
    352 Name Research 3
    360 Other-in-House Research 10
    420 Management Suspense A 5
    440 Managers Suspense 15
    480 Early Filed Suspense 150
    610 Renumber - Non-remit 0
    611 Renumber – Remit 0
    640 Void 0
    650 International 0

3.21.110.11.14  (01-01-2014)
♦Statute of Limitation♦

  1. Any return with a received date that is 2 years and 9 months or more after the Return Due Date is a potential statute control return. A Statute return must be routed to the Statute Control Unit daily or more often if needed.

    Note:

    The 1042 return is considered unprocessable until it has been cleared by Statute Control.

    Exception:

    If the return has already been cleared by statute, edit CCC "W" and continue processing. However, if the statute clearance date shows a date cleared more than 90 days earlier, send return back to Statute function for clearance.

  2. Do not route to the Statute Control Unit for clearance if any of the following conditions are present:

    • Compliance IRC Regulation 6020(b) returns.

    • Returns with "TC 59X" or "ICS" notated on the face of the return.

    • Returns that are substitute returns prepared by Examination (SFR) in top margin of the return.

    • Returns with a stamp indicating a previous clearance by Statute Control within the last ninety days.

  3. Statute returns are unprocessable until they are cleared by Statute Control.

    If... Then...
    The return is numbered,
    1. Edit CCC "U" on the return.

    2. Leave the return in the batch and continue processing.

    The return is unnumbered,
    1. Do not continue processing.

    2. Pull the return from the batch.

    3. Attach Form 4227 and route to Statute Control Unit.

  4. Once the document is returned by Statute, and it has been cleared by Statute, edit CCC "W."

    Note:

    Statute will stamp or indicate clearance on the front of the return.

  5. The IRC states that the IRS will assess, refund credit, and collect taxes within specific time limits. These limits are known as Periods of Limitations. When they expire, we can no longer assess additional tax, allow a claim for refund by the taxpayer, nor take collection action. There are different periods of limitations for Assessment, Refund, and Collection Statutes. The expiration of these periods is tracked separately.

  6. The different periods of limitations expiration dates that are tracked are:

    • Assessment Statute Expiration Date (ASED): Return filed early - 3 years from the RDD or 3 years from approved extended date; Returns filed late - 3 years after the return was filed; No return filed - assessment may occur at anytime. See IRC 6501(a) and (c)(3).

    • Refund Statute Expiration Date (RSED): 3 years from the time the return was filed or, if later, 2 years from the date after the tax was paid. See IRC 6511(a) and (b)(2)(A).

    • Collection Statute Expiration Date (CSED) is generally 10 years from the 23-C date or 10 years from the date of the TC 29X or 30X adjustment. See IRC 6502(a).

    Note:

    Exceptions may apply to change the periods of limitations.

  7. There are several conditions that may change the general Assessment Statute Expiration Date (ASED). They include:

    • IRC 6501 (c) (1) - False Return

    • IRC 6501 (c) (4) - Extensions by Agreement

    • IRC 6501 (b) (3) - Substitute for Return by Authority of IRC 6020(b)

      Caution:

      IRC 6020(b) is not a tax return that triggers the period of limitations on assessment under IRC 6501(a). If the taxpayer subsequently files a return reporting an additional liability, that return constitutes an original tax return allowing for the assessment of any additional amount not already assessed under the Substitute for Return program and triggering the running of the period of limitations on assessment for the tax year.

    • IRC 6501 (d) - Is request for Prompt Assessments, which shortens the Assessment Period

    • IRC 6501 (e) - Substantial Understatement (in excess of 25 percent ) Omission of Income provides for a 6 year period of limitations.

    • IRC 6503 (a) - Issuance of Statutory Notice of Deficiency (90-day Letter, which suspends the running of the period of limitations.)

    • IRC 6503 (h) - Bankruptcy

    • IRC 6229 (a) through (h) Partnership Items

  8. In the case of a partnership subject to the unified partnership audit and litigation procedures of IRC 6221 - 6234, the issuance of a notice of final partnership administrative adjustment suspends the statute under IRC 6229 (d). The partnership can also extend its statute through a Form 872-I signed by a general partner on behalf of the partnership, or through a Form 872-P signed by the tax matters partner.

  9. Once a partnership issues Form 1042-S to its partners, the partnership may not claim a refund for any amount of tax shown on the Form 8805s as paid on behalf of the partners. Treasury IRC Regulation 1.1446-3(d)(2)(iv).

  10. If a partnership subject to the unified partnership audit and litigation procedures of IRC 6221 - 6234 is entitled to a refund, it must file a refund request (Request for Administrative Adjustment - (RAA)) within 3 years of the filing of the partnership return. Under IRC 6227(a), the RAA must be filed using a Form 8082. If a Form 872-P or Form 872-I statute extension is secured from the partnership, the RAA can be filed within this extended period according to IRC 6227.

  11. Refer to IRM 25.6, Statute of Limitations for additional Statute instructions.

3.21.110.12  (01-01-2014)
Form 1042 - Annual Withholding Tax Return for U.S. Source Income of Foreign Persons

  1. Form 1042 is the annual taxable return used by withholding agents to report tax withheld on U.S. source income paid to certain nonresident alien individuals, foreign partnerships and corporations, etc. See Exhibit 3.21.110-1.

  2. Form 1042 is to be filed by all individuals, corporations, and partnerships having the control, receipt, custody, disposal, or payment of interest, dividends, rent, salaries, etc., to the extent that any such items constitute gross income from sources within the United States to nonresident alien individuals, foreign partnerships, or foreign corporations.

  3. Form 1042, must be filed whether or not any tax was withheld or was required to be withheld (i.e., income was exempt from withholding).

  4. Payment of Taxes - Effective January 1, 2011, taxpayers must deposit tax withheld using the EFTPS. Form 8109, Federal Tax Deposit Coupon, can no longer be used.

  5. The amount of taxes withheld determines the frequency of deposits.

    1. If at the end of any quarter-monthly period, the total amount of undeposited taxes is $2,000 or more, the taxes must be deposited within three banking days after the end of the quarter-monthly period. A quarter-monthly period ends on the 7th, 15th, 22nd and the last day of each month.

    2. If at the end of any month, the total amount of undeposited taxes is $200 or more but less than $2,000, taxes must be deposited by the 15th day of the following month.

    3. If at the end of the year, the total amount of undeposited taxes is less than $200, the entire amount must be deposited via EFTPS or remitted with Form 1042 on or before March 15 of the current tax year.

3.21.110.12.1  (01-01-2014)
Form 1042 - Field Definitions and Processing Instructions

  1. Use the following instructions to edit Form 1042. See Exhibit 3.21.110-2 for transcription lines.

3.21.110.12.2  (01-01-2014)
Amended Return Checkbox

  1. Identifies whether the return is an amended return or original. See IRM 3.21.110.11.7 Amended Returns.

3.21.110.12.3  (01-01-2014)
For IRS Use Only Box

  1. –“The IRS Use Only Box is used to list Computer Condition Codes. See IRM 3.21.110.12.4., Computer Condition Codes (CCC)”.

3.21.110.12.4  (01-01-2014)
♦Computer Condition Codes (CCC)♦

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

  2. Edit Computer Condition Code on the CC line of the For IRS Use Only box in the upper right corner of Form 1042.

3.21.110.12.4.1  (01-01-2014)
♦CCC D – Reasonable Cause For Waiver of Failure To Pay Penalty♦

  1. Edit CCC D on the return if the following are present:

    1. The return is stamped by the IRS: DO NOT ASSESS FAILURE TO PAY PENALTY.

    2. The return is a short period final return with a balance due.

  2. Do not edit CCC D in the following instances:

    1. A pre-computed Penalty is shown on the return; and/or

    2. CCC 7 (Reasonable Cause Denied) is present.

  3. If the taxpayer attaches a letter to their return asking that Penalties be abated follow the step list instructions in IRM 3.21.110.11.8 (6)., Delinquent Returns.

3.21.110.12.4.2  (01-01-2014)
♦CCC E – Credit Election♦

  1. Edit CCC E as follows:

    If And Then
    The taxpayer has checked the credit elect box on Line 70, Form 1042 The overpayment is $1.00 or more Edit CCC E
    The taxpayer has attached a statement requesting a credit election. The overpayment is $1.00 or more Edit CCC E
    Neither the Credit Elect or Refund box is checked on Line 70. The overpayment is $1.00 or more Edit CCC E
    Both the Credit Elect and the Refund box is checked on Line 70. The overpayment is $1.00 or more Edit CCC E
    An overpayment is to be applied to another type of tax   Do not edit CCC E, edit CCC X. See IRM 3.21.110.12.4.12,CCC X – Refund/Credit Freeze .
    An overpayment is the result of excess remittance paid with the return,   Do not edit CCC E
    Only Refund box is checked,   Do not edit CCC E

    Note:

    If CCC F is edited, do not edit CCC E, instead edit CCC S.

3.21.110.12.4.3  (01-01-2014)
♦CCC F – Final Return♦

  1. Edit CCC F when the taxpayer checks the Final Return box, or gives a positive indication that they are not liable of filing future returns. This includes notations such as (but not limited to) the following:

    • 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

    Note:

    Do not edit CCC F If the date of the final income paid is after the tax period. “For example: If the tax form is submitted on a printed TP 2013, but the taxpayer made a hand written entry of paying their last income paid on March 5, 2014. It is not a final return.”

3.21.110.12.4.4  (01-01-2014)
♦CCC G – Amended Return♦

  1. Edit CCC G if there is a clear indication on the return or on an attachment that the return being processed is not the first return filed for the tax period. See IRM 3.21.110.11.7, Amended Returns for instructions.

3.21.110.12.4.5  (01-01-2014)
♦CCC J – Reasonable Cause for Failing to Make Timely Deposits♦

  1. Edit CCC J when a notation of 3121 Agreement or VCP is on the return. Also enter a Schedule Indicator Code (SIC) of 1.

  2. No longer edit CCC J if the taxpayer requests abatement for Failing to Make Timely Deposits. Instead, follow the step list instructions in IRM 3.21.110.11.8 (6), Delinquent Returns.


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