3.22.3  Individual Income Tax Returns

Manual Transmittal

October 10, 2014

Purpose

(1) This transmits revised IRM 3.22.3, International Error Resolution-Individual Income Tax Returns.

Material Changes

(1) Updated Maximum Foreign Earned Income Exclusion throughout

(2) Updated line numbers throughout due to form changes.

(3) Updated standard deduction amounts, exemption amounts, self employment income limits and tax periods throughout.

(4) Changed Field 0324 to Field 03EDU throughout.

(5) Renamed Field 04DC to 04DCH throughout.

(6) Removed all references to Field 05RAD, Refundable Adoption credit throughout.

(7) Deleted references to TPNCs 315,316,320,323,327,335,336,342, 344,387,405, 407, 411,412, 417 and 431 throughout.

(8) Added TPNCs 357,363,364, 370,371,372,373,378,388,389,390,391,392,393,440, 481,482,483 and 484 to various ECs as well as the complete TPNC listing.

(9) Added new ACA fields throughout.

(10) Added new ACA validation fields throughout in EC 011.

(11) Added new Sections 72, 73 and 74.

(12) Added EC 027 to Form 1040NR per request of SAT.

(13) Added new consistency Error Codes: EC 100, 101, 190, 191, 192, 193, 194, 195, 196, 197,198, 199 , 250 and 750.

(14) Renumbered previous EC 198 to EC 157.

(15) Renumbered previous EC 190 to EC 158.

(16) Renumbered previous EC 192 to EC 159.

(17) Renumbered previous EC 197 to 289.

(18) Updated screen display for EC 208, EC 226, 291 per request of SAT.

(19) Renumbered previous EC 268 to EC 267.

(20) Renumbered previous EC 270 to EC 268.

(21) Added new EC 270, EC 271, EC 272, EC 273, EC 274, EC 275, EC 276, 332, 344, 345 and 346.

(22) Renumbered previous EC 274 to EC 277.

(23) Renumbered previous EC 276 to EC 278.

(24) Renumbered previous EC 278 to EC 279.

(25) Renumbered previous EC 197 to EC 289.

(26) Renumbered previous EC 349 to EC 311.

(27) Renumbered previous EC 259 to EC 330.

(28) Renumbered previous EC 344 to EC 347.

(29) Removed previous EC 345 pertaining to Refundable adoption credit.

(30) IRM 3.22.3.3 updated Income Code table.

(31) IRM 3.22.3.4.1, IRM 3.22.3.4.1.1, IRM 3.22.3.4.1.2, IRM 3.22.3.4.1.3 and IRM 3.22.3.4.1.3.1 updated to reflect instructions for the revised Streamlined program effective July 2014.

(32) IRM 3.22.3.4.1.2.2 added new subsection to cover Streamlined replies.

(33) IRM 3.22.3.4.2, IRM 3.22.3.4.2.1, IRM 3.22.3.4.2.2, IRM 3.22.3.4.2.3 and IRM 3.22.3.4.2.3.1 added new subsections to cover the September 2012 Streamlined project.

(34) IRM 3.22.3.6.5.2 added US Government employees to the exception.

(35) IRM 3.22.3.8 removed reference to Rebate Recovery Credit.

(36) IRM 3.22.3.9.1 added a note for missing signature on Streamlined returns.

(37) IRM 3.22.3.11.1 added procedures for Article 15.

(38) IRM 3.22.3.11.1 updated information on refund schemes.

(39) IRM 3.22.3.12.17 updated instructions for Audit Code R.

(40) IRM 3.22.3.12.15 updated list of valid Return Processing Codes.

(41) IRM 3.22.3.13.3.1 updated description of Unallowable 75.

(42) IRM 3.22.3.15.33, IRM 3.22.3.118.2 and IRM 3.22.3.151.3 added information regarding totalization agreements under Field 0457, EC 088 and EC 209.

(43) IRM 3.22.3.15.33 corrected field designator for SE tax reported on Form 1040 and removed exception for joint filing status.

(44) IRM 3.22.3.15.34 updated domestic IRM reference to EC 334.

(45) IRM 3.22.3.15.44 updated line number for total tax on Form 1040-SS to Line 6.

(46) IRM 3.22.3.18.11 and IRM 3.22.3.18.12 updated AGI limitations information for Schedule A

(47) IRM 3.22.3.39.17 updated housing expense limitations.

(48) IRM 3.22.3.77.2.1

  • added instructions for a dependent who was born and died during the tax period

  • (1) updated field listed in 2nd row in table to 01EXV

(49) IRM 3.22.3.93.1 Updated screen display for EC 029.

(50) IRM 3.22.3.120 and IRM 3.22.3.122 new subsections added as a result of the addition of the new EC 094 instructions.

(51) IRM 3.22.3.121 added new subsection to include instructions for EC 094 when a Form 1040-SS or Form 1040-PR return filers reporting income belonging to someone other than the taxpayer.

(52) IRM 3.22.3.128.3.1 updated the table with countries that are not subject to U.S. tax on survivor benefit annuities (SBAs) using current treaties under EC 118.

(53) IRM 3.22.3.139.2 updated lines to include foreign earned income and added instructions for no wage entries on Form 2555 under EC 156.

(54) IRM 3.22.3.145 and IRM 3.22.3.150 unrestricted NAICS information under EC 202 and 208.

(55) IRM 3.22.3.147.5 added TPNC 486 as valid under EC 360.

(56) IRM 3.22.3.157 - EC 218

  • IRM 3.22.3.157.2.1 added exception for professional gamblers

  • IRM 3.22.3.157.2.1 added instructions for TPNC 114

  • IRM 3.22.3.157.2.1(9) Added a new row and new columns to address procedures for taxpayers who erroneously report their effectively connected income on page 4

  • IRM 3.22.3.157.2.2.1 added waiver counties for TY 2008

  • 3.22.3.153.2.2.3 added instructions for W-2 income being excluded

  • IRM 3.22.3.153.2.2.4 removed instruction to issue TPNC 100 and changed to TPNC 494

  • IRM 3.22.3.153.3 removed TPNC 408 form the valid TPNC table and corrected verbiage for TPNC 305 to include Form 2555-EZ

(57) IRM 3.22.3.167.3 and IRM 3.22.3.172.3 added new subsections to include instructions for foreign taxes paid reported on Form 1040 under EC 236 and EC 246.

(58) IRM 3.22.3.169.2 added new subsection to include correction procedures for EC 540.

(59) IRM 3.22.3.174.2.1.1 updated OUO information.

(60) IRM 3.22.3.174.2.2.2 and IRM 3.22.3.174.2.3.1 added information regarding state taxes withheld on Form 1042-S under EC 252.

(61) IRM 3.22.3.175.1 add Section 07 Not Present to the screen display for EC 256.

(62) RM 3.22.3.182.2 updated Article XXV correction procedures under EC 265.

(63) IRM 3.22.3.205.1 removed a row from the screen display for EC 296.

(64) IRM 3.22.3.208.2 added a note for dual status taxpayers filing Form 8863 under EC 299.

(65) IRM 3.22.3.215 - EC 311:

  • IRM 3.22.3.215.1 updated names in screen display

  • IRM 3.22.3.215.3 corrected line number

  • IRM 3.22.3.215.3 added instructions for professional gamblers and pension income

  • IRM 3.22.3.215.3 corrected fields listed on first row of table

(66) IRM 3.22.3.223.1 and IRM 3.22.223.2 removed Form 1040-PR/Form 1040-SS from the screen display and added correction procedures under EC 328.

(67) IRM 3.22.3.224.2 corrected Line number in TPNC 348 under EC 329.

(68) IRM 3.22.3.228 and IRM 3.22.3.228.2 updated invalid conditions, correction procedures and valid TPNCs under EC 333.

(69) IRM 3.22.3.229.1 - EC 334

  • IRM 3.22.3.229.1 corrected screen displays

  • IRM 3.22.3.229.2 added exception for professional gamblers and added procedures for missing page 4 of Form 1040NR

  • IRM 3.22.3.229.2 added new paren to cover 1040NR filers who attempt to pay the shared responsibility penalty

  • IRM 3.22.3.229.4 added instructions on how to handle additional tax reported from Form 8960 on a dual status return

  • IRM 3.22.3.229.6 updated to breakout different types of additional taxes on Form 1040-PR and Form 1040-SS and updated line number for total tax on Form 1040-SS to Line 6

  • IRM 3.22.3.229.6.1 and IRM 3.22.3.215.6.2 added new subsections to address those additional taxes

  • IRM 3.22.3.229.6.2 added verbiage for missing 8959 for Form 1040-PR filers

  • IRM 3.22.3.229.8 updated valid TPNCs

(70) IRM 3.22.3.230.1 Added note to the table to address Schedule C-EZ without an address and clarified the instruction in the table referring determining eligibility for EIC under EC 336.

(71) IRM 3.22.3.232.2 revised invalid conditions and IRM 3.22.3.232.3 added literal to be used when corresponding for paper W-2 updated procedures for residents who moved to or from the U.S. added literal to be used when corresponding for paper W-2 updated procedures for residents who moved to or from the U.S. for EC 339.

(72) IRM 3.22.3.233.3 - EC 340:

  • updated title of subsection under EC 340

  • clarified correction procedures for residents of PR and US military

  • clarification to para 4 for US government employees

  • new para 6 to specifically address US government employees

  • added some clarification to para 8 regarding State and Local Taxes as well as Sch C-EZ filers

  • updated line number for ACTC claimed on Form 1040A

(73) IRM 3.22.3.233.4 updated line number for ACTC claimed on Form 1040A and IRM 3.22.3.233.6 Added para 2 to address ACTC claimed for exemptions disallowed due to country of residence under EC 340 .

(74) IRM 3.22.3.200.2 updated Note to TY03 and later under EC 289.

(75) IRM 3.22.3.225.1 updated Form name on screen display under EC 330.

(76) IRM 3.22.3.240 - EC 350

  • updated excess social security amounts

  • IRM 3.22.3.240.5.1, IRM 3.22.3.226.5.5 and IRM 3.22.3.226.5.9 removed 1042-S tolerance

  • IRM 3.22.3.240.5.4 added instructions for IRPTR research for Form 8288-A credits

  • IRM 3.22.3.240.5.5 removed rows from table pertaining to Code & Edit "X" ing Form 1042-S withholding

  • IRM 3.22.3.240.6.4 added TPNC to send when Form 8959 is attached on From 1040-PR/Form 1040-SS returns and the income is under the threshold amount and added new subsection to include instructions for Additional Medicare Tax claims made on Form 1040-PR or Form 1040-SS.

  • IRM 3.22.3.240.6.4 added instructions to enter a "Z" in Field 05TYP under EC 350

  • IRM 3.22.3.240.6.4 updated TPNC listed in last row of table

  • IRM 3.22.3.240.7 added TPNC 340 as valid and removed row referring to TPNC 504

(77) IRM 3.22.3.243 - EC 360

  • IRM 3.22.3.243.3.1 removed 1042-S tolerance

  • IRM 3.22.3.243.4.2 updated TPNCs to issue on Form 1040-PR and Form 1040-SS

  • IRM 3.22.3.243.5 added TPNC 340 as valid

(78) IRM 3.22.3.260 added an additional second correspondence criteria for page 4, Form 1040NR.

(79) Exhibit 3.22.3-7 - No reply

  • corrected verbiage for TPNC 305 to include Form 2555-EZ

  • corrected verbiage for TPNC 314

  • changed TPNC 357 to 356

.

(80) Exhibit 3.22.3-8 - TPNCs

  • removed 1042-S tolerance

  • added no reply procedures for missing SSN

  • updated TPNC to send when Question L is not answered

  • added TPNC to issue for no reply to request for Form 8812 on an Form 1040NR

  • replaced instruction to send TPNC 100 for no reply on 1040NR-EZ returns for state and local taxes to TPNC 478

  • updated no reply procedures for itemized deductions claimed on Form 1040NR-EZ

  • added no reply procedures for missing page 4, Form 1040NR as well as updated procedures for missing treaty article

  • added Streamlined no reply procedures

Effect on Other Documents

IRM 3.22.3 dated November 7, 2013 (effective January 1, 2014) is superseded. The following IRM Procedural Updates (IPUs), issued between January 21, 2014 through July 7, 2014 have been incorporated into this IRM: 14U0134,14U0313,14U0342,14U0369,14U0612,14U0745,14U0830,14U0900,14U1110, 14U1158, 14U1193

Audience

Wage and Investment International Error Resolution

Effective Date

(01-01-2015)

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

3.22.3.1  (01-01-2015)
Overview

  1. This section of IRM contains special instructions for correcting errors on International returns.

    1. IRM 3.12.3 must be used when specific instructions are not outlined in IRM 3.22.3.

    2. When needing specific instructions relating to Taxpayer Advocate Service (TAS), Security, Hardship, Disaster, etc., use IRM 3.0.273, Administrative Reference Guide.

3.22.3.2  (01-01-2015)
International Returns

  1. International tax returns are identified by the presence of one of the following:

    • An address outside the 50 United States and Washington D.C. (This does not include Army/Air Force Post Office/Fleet Post Office Post Office (APO/FPO) addresses.)

    • Form 1040 GUAM

    • Form W-2 from American Samoa (W-2AS)

    • Form W-2 from Commonwealth of Northern Mariana Islands (W-2CM)

    • Form W-2 from Guam (W-2GU)

    • Form W-2 from Puerto Rico (499R-2/ W-2 PR)

    • Form W-2 from United States Virgin Islands (W-2VI)

    • Form 1040NR, U.S. Nonresident Alien Income Tax Return

    • Form 1040NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents

    • Form 1040-PR - U. S. Self-Employment Tax Return (Including the Additional Tax Credit for Bona Fide Residents of Puerto Rico) (Spanish version)

    • Form 1040-SS - U. S. Self-Employment Tax Return (Including the Additional Tax Credit for Bona Fide Residents of Puerto Rico)

    • Form 1042-S, Form SSA 1042-S or Form RRB 1042-S

    • Form 2555, - Foreign Earned Income

    • Form 2555-EZ, - Foreign Earned Income Exclusion

    • Form 4563, - Exclusion of Income for Bona Fide Residents of America Samoa

    • Form 5074, - Allocation of Individual Income Tax to Guam or the Commonwealth of Northern Mariana Islands

    • Form 8288-A, -, - Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests

    • Form 8689, -Allocation of Individual Income Tax to the United States Virgin Islands

    • Form 8804, - Annual Return for Partnership Withholding Tax Under Section 1446

    • Form 8805, - Foreign Partner's Information Statement of Section 1446 Withholding Tax

    • Form 8813, - Partnership Withholding Tax Payment

    • Form 8833, - Treaty-Based Return Position Disclosure

    • Form 8854 - Initial and Annual Expatriation Information Statement

    • Form 8891 - U.S. Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans

    • Form 8898, - Statement for Individuals Who Begin or End Bona Fide Residency in a United States Possession

    • Dual-status - Form 1040 and IRC 1040NR filed together for the same tax year; "Dual-status" or "D/S" indicated on the return

    • Nonresident Alien (NRA), primary or both taxpayers are NRA

      Exception:

      Primary taxpayer is a nonresident alien (NRA) without a social security number (SSN) or an individual taxpayer identification number (ITIN) however, the secondary taxpayer has an SSN/ITIN and reporting income.

    • International Tax Treaty - taxpayer indicating exemption or exclusion of tax and/or income due to an International tax treaty

      Note:

      "American Indian " treaty returns are not considered International returns. They must be renumbered as a domestic return.

    • Treaty Trader

    • Fulbright Grantee

    • IRC 871, IRC 893, IRC Section 911, IRC Section 913, IRC Section 931, IRC 932, IRC Section 933, IRC 934 or IRC 935 of the Internal Revenue Code (IRC) is notated anywhere on the return.

    Exception:

    For electronically filed returns, if the amount of the exclusion is $0 and there are no other indications of international criteria, DO NOT send to Austin for processing as an international return.

  2. International returns are assigned the following File Location Codes (FLC):

    1. FLC 20 other than a United States Possession/Territory return.

      Note:

      ALL valid Form 2555/Form 2555-EZ MUST be processed under FLC 20.

    2. FLC 21 for United States Possession/Territory returns

3.22.3.3  (01-01-2015)
Form 1042/Form 1042-S

  1. Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons and Form 1042-S, Foreign Persons United States Source Income Subject to Withholding are used by Withholding Agents to report tax withheld at source on certain income paid to nonresident aliens, Foreign Partnerships or Corporations not engaged in trade or business in the United States. Below is a listing of income codes, description (type) of income, and where the income should be reported on Form 1040NR or Form 1040NR-EZ.

    Form 1042-S, Column A Income Code Description (Type) of Income Where Income is Reported on Form 1040NR or Form 1040NR-EZ (unless specified on Form 1040NR)
    01 Interest paid by United States Obligor Page 1, Line 9a or Page 4, Line 2c
    02 Interest on Real Property Mortgages Page 1, Line 9a or Page 4, Line 2a
    03 Interest Paid to Controlling Foreign Corporations Page 1, Line 9a or Page 4, Line 2c
    04 Interest Paid By Foreign Corporations Page 1, Line 9a or Page 4, Line 2b
    05 Interest On Tax-Free Covenant Bonds No reporting required
    06 Dividends Paid By United States Corporations - general Page 1, Line 10 or Page 4, Line 1a
    07 Dividends Qualifying for Direct Dividends Rate Page 1, Line 10 or Page 4, Line 1b
    08 Dividends Paid by Foreign Corporations Page 1 Line 10 or Page 4 Line 1b
    09 Capital Gains Page 1, Line 14 or Page 4, Lines 9 and 18
    10 Industrial Royalties Page 1, Line 18 or Page 4, Line 3
    11 Motion Picture or Television Copyright Royalties Page 1 Line 18 or Page 4 Line 4
    12 Other Royalties (e.g., Copyright, Recording, Publishing) Page 1, Line 18 or Page 4, Line 5
    13 Real Property Income and Natural Resources Royalties Page 1, Line 18 or Page 4, Line 6
    14 Pensions, Annuities Alimony, and/or Insurance Premiums Page 1, Line 17b or Page 4, Line 7

    Note:

    Pension income reported on Form 1042-S should be reported on page 4, line 7.

    15 Scholarship or Fellowship Grants Page 1, Line 12 or 22 (Form 1040NR ) or Page 1, Line 5 or 6 (Form 1040NR-EZ)
    16 Compensation for Independent Personal Services Page ,1 Line 13, 21 or 22

    Exception:

    If the income is earned by a nonresident alien for services performed outside the U.S., the income is NOT taxable. Follow the taxpayer's intent if they do not claim the income and the address on the 1040NR is outside of the U.S.

    17 Compensation for Dependent Personal Services Page 1, Line 8 or 22 (Form 1040NR) or Page 1, Line 3 or 6 (Form 1040NR-EZ)
    18 Compensation for Teaching Page 1, Line 8 or 22 (Form 1040NR) or Page 1, Line 3 or 6 (Form 1040NR-EZ)
    19 Compensation during Studying and Training Page 1, Line 8 or 22 (Form 1040NR ) or Page 1, Line 3 or 6 (Form 1040NR-EZ)
    20

    Note:

    This income code should only be used for years prior to 2012

    Note:

    If a 1042-S for 2012 or subsequent shows Income Code 20, refer to Income Code 42 below.

    Earnings as an Artist or Athlete Page 1, Line 8, 13 or 22 (Form 1040NR ) or Page 1, Line 3 or 6 (Form 1040NR-EZ)
    24 Real Estate Investment Trust (REIT) Distributions of Capital Gains Page 1, Line 14 or Page 4, Lines 9 and 18
    25 Trust Distributions Subject to IRC Section 1445 Page 1, Line 21 or Page 4, Line 12
    26 Unsevered Growing Crops and Timber Distributions By a Trust Subject to IRC Section 1445 Page 1, Line 21 or Page 4, Line 12
    27 Publicly Traded Partnership Distributions Subject to IRC Section 1446 Page 1, Line 21 or Page 4, Line 12
    28 Gambling Winnings Page 4, Line 10a
    29 Deposit Interest Page 4 Line 12
    30 Original Issue Discount (OID) Page 4, Line 12
    31 Short-Term OID Page 4, Line 9
    32 Notional Principal Contract income Page 1 Line 21 or Page 4 Line 12
    33 Substitute Payment - Interest Page 1, Line 9a or Page 4, Line 2c
    34 Substitute Payment - Dividends Page 1, Line 10 or Page 4, Line 1a
    35 Substitute Payment - Other Page 1, Line 22 or Page 4, Line 12
    36 Capital Gains Distributions Page 1, Line 14 or Page 4, Lines 9 and 18
    37 Return of capital Generally not reported
    38 Eligible deferred compensation Page 1, Line 8
    39 Distribution from a nongrantor trust Page 4, line 12
    40 Other U.S. source dividend equivalent Page 1, Line 21 or Page 4, Line 12
    41 Guaranteed of Indebtedness Page 1, Line 21 or Page 4 line 12
    42

    Note:

    This was formerly income 20.

    Earnings as an Artist or Athlete without a central withholding agreement Page 1, Line 8, 13 or 22 (Form 1040NR ) or Page 1, Line 3 or 6 (Form 1040NR-EZ)
    43 Earnings as an Artist or Athlete with a central withholding agreement Page 1, Line 8, 13 or 22 (Form 1040NR ) or Page 1, Line 3 or 6 (Form 1040NR-EZ)
    44 Specified federal procurement payments Page 1, Line 21
    50 Income previously reported under escrow procedure Page 1, Line 21
    51 Other Income Page 1, Line 21
  2. When the taxpayer files a Form 1040 or Form 1040A return and the only income reported is from Form 1042-S, Code & Edit (C&E) is instructed to correspond for the filer's U.S. status. If C&E did NOT correspond, ERS should do so.

    Note:

    If the taxpayer is reporting worldwide income on a Form 1040 , enter the Form 1042-S withholding in Field 0571A.

    Note:

    If the taxpayer is reporting worldwide income on a Form 1040A, convert the return to a Form 1040 and enter the Form 1042-S withholding in Field 0571A.

3.22.3.4  (01-03-2012)
United States Income Reporting Requirements

  1. United States Citizens and Resident Aliens (green card holders) are required to file Form 1040, Form 1040A or Form 1040EZ and must report 100 percent of their worldwide income. worldwide income is income from all sources and includes foreign and United States income reported as follows:

    1. Form 1040 Lines 7 - 21

    2. Form 1040A Lines 7 - 14b

    3. Form 1040EZ Lines 1, 2 and 3

  2. Nonresident Aliens are generally required to report ONLY U.S. source income and income that is effectively connected to a U.S. trade or business on Form 1040NR or Form NR-EZ. A nonresident alien is not required to report U.S. source income that has been withheld properly at the source or any foreign source income received unless the nonresident alien is entitled to a claim for a refund for overpaid taxes. Income received from U.S. payers will in most cases constitute U.S. source income. In addition, income received from foreign payers may also constitute U.S. source income in certain circumstances such as income received for services performed in the U.S. and income received for the use of intangibles in the U.S.

    Note:

    However, if the foreign individuals perform their services entirely outside of the United States, the income they receive from U.S. payors is not subject to withholding or U.S. income taxes. If the payors did withhold, then the nonresident aliens are required to file Form 1040NR to receive refunds of the taxes withheld.

3.22.3.4.1  (07-17-2014)
Streamlined Procedures for Non-filers - returns received after July 1, 2014

  1. Streamlined returns postmarked on or after July 1, 2014 must follow the new enhanced Streamlined procedures which supersedes the September 1, 2012 Streamlined program. Those procedures are listed at http://www.irs.gov/Individuals/International-Taxpayers/Streamlined-Filing-Compliance-Procedures. For correspondence procedures, see IRM 3.22.3.4.1.3.1

  2. Streamlined returns will have blocking series from 850 - 899 and specific program numbers: 46117 (Form 1040), 46137 (Form 1040A) and 46157 (Form 1040EZ).

  3. Each taxpayer's submission must be kept together.

    Example:

    If one return needs to be cleared by Statute, send all returns, do not separate. A Form 3210 will be used initially to control which returns are being sent to Statute.

  4. These returns should also be coded with a CCC "M" ; and "R" . . If any of these codes are missing ERS is to enter them on the return and in Field 01CCC.

  5. Do Not Remove any Form TDF 90–22.1, FBAR - Report of Foreign Bank & Financial Accounts, if attached.

3.22.3.4.1.1  (09-05-2014)
Form 1040NR/Form 1040-PR/ Form 1040-SS Submitted for Streamlined Processing submitted after July 2014

  1. These filings need to be reviewed by Large Business and International (LB&I). Route to MS 4300 AUSC.

  2. Upon receipt of the returns back from LB&I, follow the procedures outlined by LB&I.

3.22.3.4.1.2  (07-17-2014)
Amended/Duplicate Returns Submitted under July 2014 Streamlined Project

  1. Streamlined amended returns postmarked on or after July 1, 2014 will be processed by Philadelphia Accounts Management.

    1. Each taxpayer's submission must be kept together even if it is a package of original and amended returns.

    2. If a 1040X is in a package with original returns, the 1040X must stay with the original returns until processing is complete.

    3. If no correspondence is required, the package can be separated and the Form 1040X(s) need to be routed to Image Control Team (ICT), MS 6567 Austin Submission Processing (AUSC) with a Streamlined Accounts Management cover sheet. Be sure to keep all 1040X returns being routed to ICT together using one cover sheet.

      Note:

      A copy of the certification must be attached to each 1040X before routing to ICT.

    4. If correspondence is required keep the package together until reply is received or suspense period has expired.

3.22.3.4.1.3  (07-17-2014)
Corresponding on Streamlined Returns Submitted under July 2014 Streamlined Project

  1. If correspondence is necessary for any return submitted as part of the 'Streamlined' process, it is important to ensure that all returns submitted by each taxpayer be kept together. This means that if one return needs correspondence that all returns in the submission must be kept with the suspended return(s) and held together in the Suspense area.

  2. If correspondence is needed for Streamlined issues as listed in IRM 3.22.3.4.1, use Letter 4087 and correspond for ALL issues.

    Note:

    If a signature is missing, DO NOT send the return back to the taxpayer. Use the 4087C letter to ask for the taxpayer's signature.

3.22.3.4.1.3.1  (07-28-2014)
Types of Correspondence for Streamlined Returns Submitted under July 2014 Streamlined Project

  1. If the items in para 2 below (with the exception of the questionnaire) are not submitted with a Streamlined package, correspond using Letter 4087.

    • Check all appropriate boxes.

    • Attach Letter 4087 below the caption area.

  2. The following items are required on a Streamlined return:

    • The TP is required to submit delinquent tax returns for the last three years for which a U.S. tax return is due. However, it is acceptable for TPs to submit more or less than 3 years returns.

      Caution:

      Use the certification as a guide to how many returns are required. The years listed on the certification are the years returns are required to be filed to be considered for the Streamlined project.

      Note:

      It the taxpayer submits less than 3 years returns but attaches copies of returns or a statement indicating that the other years were already filed, DO NOT correspond for the missing years.

    • Complete,signed self-certification. Items required:
      1- check a box certifying your eligibility that you meet the eligibility requirements for the Streamlined Filing Compliance.
      2- information pertaining to your financial interests in foreign financial accounts for six (6) years
      3- computation and amount of your miscellaneous offshore penalty (only packages with 1040X require a penalty computation)
      4- explanation of your specific reasons for the failure to comply with tax and financial account reporting obligations

      Note:

      A substitute certification form is acceptable as long as it contains all of the relevant information listed above including a signature under the jurat.

3.22.3.4.1.3.2  (07-28-2014)
Replies to Correspondence for Returns Submitted under July 2014 Streamlined Project

  1. If the correspondence was issued for incomplete certification and all required information is now complete do the following:

    If Then
    Package contains only original 1040 family returns
    1. Edit CCC "M" and CCC "R" on each return in the package

    2. Ensure a copy of the completed certification is attached to each tax return

    3. Take original certification and place in bucket to be routed to LB&I MS 4305 AUSC

    Package contains both original and amended returns (Form 1040X)
    1. Separate package between original and amended returns.

    2. Edit CCC "M" and CCC "R" on all original returns in the package

      Note:

      Do not edit CCCs on 1040X returns

    3. Place an AM Streamlined cover sheet along with a copy of the completed certification on each Form 1040X and route to AM. Be sure to indicate in the CSR instructions section that SP corresponded and that the TP did not reply.

      Example:

      Answer "Yes" to Corresponded for Certification Issue and "No" for Complete Reply Received.

    4. Take original certification and place in bucket to be routed to LB&I MS 4305 AUSC

  2. For incomplete replies or no replies see Exhibit 3.22.3-8.

3.22.3.4.2  (07-17-2014)
September 1, 2012 Streamlined Project

  1. Effective September 1, 2012, the IRS announced a new program for US citizens living abroad to file delinquent tax returns without being charged failure to file or failure to pay penalties.

  2. Qualified taxpayers are required to follow procedures listed on irs.gov using the following link: http://www.irs.gov/uac/Instructions-for-New-Streamlined-Filing-Compliance-Procedures-for-Non-Resident-Non-Filer-US-Taxpayers.

  3. Streamlined returns will have blocking series from 850 - 899 and specific program numbers: 46117 (Form 1040), 46137 (Form 1040A) and 46157 (Form 1040EZ).

  4. Each taxpayer's submission must be kept together.

    Example:

    If one return needs to be cleared by Statute, send all returns, do not separate. A Form 3210 will be used initially to control which returns are being sent to Statute.

  5. These returns should also be coded with a CCC"M" ; and "R" . If any of these codes are missing ERS is to enter them on the return and in Field 01CCC.

  6. Do Not Remove any Form TDF 90–22.1, FBAR - Report of Foreign Bank & Financial Accounts, if attached.

3.22.3.4.2.1  (07-17-2014)
Form 1040NRs Submitted under September 2012 Streamlined Project

  1. Form 1040NR filings need to be reviewed by LB&I. Route to MS 4300 AUSC.

3.22.3.4.2.2  (07-17-2014)
Amended/Duplicate Returns Submitted under September 2012 Streamlined Project

  1. Any Form 1040X or any return marked amended/duplicate/copy submitted under this program should be routed to LB&I at MS 4300 AUSC for review.

  2. LB&I will review the returns and determine the actions that need to be taken by SP. Follow the directives provided by LB&I when the return is received back from LB&I review. LB&I will review the returns and determine the actions that need to be taken by SP. Follow the directives provided by LB&I when the return is received back from LB&I review.

3.22.3.4.2.3  (07-07-2013)
Corresponding on Streamlined Returns Submitted under September 2012 Streamlined Project

  1. If correspondence is necessary for any return submitted as part of the 'Streamlined' process, it is important to ensure that all returns submitted by each taxpayer be kept together. This means that if one return needs correspondence that all returns in the submission must be kept with the suspended return(s) and held together in the Suspense area.

  2. If correspondence is needed for Streamlined issues as listed in IRM 3.22.3.4.1, use Letter 4087C and correspond for ALL issues.

3.22.3.4.2.3.1  (07-17-2014)
Correspondence Criteria for Streamlined Returns Submitted under September 2012 Streamlined Project

  1. If the items in para 2 below are not submitted with a Streamlined package, correspond using Letter 4087C.

  2. The following items are required on a Streamlined return postmarked prior to July 1, 2014:

    • The TP is required to submit delinquent tax returns for the last three years for which a U.S. tax return is due. However, it is acceptable for TPs to submit more than 3 years returns.

      Note:

      It the taxpayer submits less than 3 years returns but attaches copies of returns or a statement indicating that the other years were already filed, DO NOT correspond for the missing years.

    • Completed questionnaire signed under penalty of perjury.

    • Signed and dated delinquent Form TDF 90–22.1, FBAR - Report of Foreign Bank & Financial Accounts, for the past 6 years. This only applies to FBARs submitted with returns dated after July 1, 2013. As of that date the taxpayers are required to only submit copies of FBARS. Therefore, DO NOT correspond for a signature if the return was submitted after July 1, 2013.

      Note:

      If the taxpayer indicates that they were not required to file FBARs because their aggregate value of the foreign financial accounts did not exceed $10,000 OR the taxpayer states they already mailed their FBARs to Detroit, DO NOT CORRESPOND.

    • If a Form 8891, U.S. Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans, is included with the submission, the following should be included with that form;
      - A statement requesting an extension of time to make the election
      - A dated statement signed under penalty of perjury describing the events that led to the failure to file Form 8891, how they discovered that failure and if they relied on a tax professional.

3.22.3.5  (01-01-2015)
Form 1040 With Form 2555 or Form 2555-EZ Attached - Purpose of Form

  1. Form 2555 must be attached if any of the following indications are on Form 1040:

    • IRC Section 911

    • A notation to see Form 2555/Form 2555-EZ

    • Overseas Housing Exclusion, Line 21 Form 1040 (negative amount)

    • Overseas Earned Income Exclusion, Line 21 of Form 1040 (negative amount)

    • Overseas Housing Deduction, dotted portion of Line 36 Form 1040

  2. A taxpayer with foreign earned income is entitled to claim the following exclusions and/or deductions on Form 2555 or Form 2555 EZ:

    • Foreign-Earned Income Exclusion (Part VII) and/or

    • Housing Deduction, if housing is provided by the employer (Part VI and IX) or,

    • Housing Exclusion, if housing is provided by the employer (Part VI and VII).

  3. A United States citizen, or resident alien living in the United States may use Form 2555 to exclude a limited amount of their foreign earned income and claim housing exclusion or deduction:

    Tax Year Maximum Foreign Earned Income Exclusion
    2014 $99,200
    2013 $97,600
    2012 $95,100
    2011 $92,900
    2010 $91,500
    2009 $91,400
    2008 $87,600
    2007 $85,700
    2006 $82,400
    2002 through 2005 $80,000
  4. A United States citizen or resident alien living in United States, may use Form 2555-EZ to exclude a limited amount ($99,200 for 2014) of their foreign earned income. However, if any of the below conditions apply, correspond for Form 2555:

    1. Foreign earned income is from self-employment

    2. The total foreign earned income exclusion exceeds $99,200 for 2014

    3. Form 2555-EZ includes business or moving expenses or

    4. Form 2555-EZ is used to claim housing exclusion or deduction

  5. Foreign earned income from a foreign country is wages or compensation for any personal services earned in any foreign country.. It does not include United States Possessions or territories

    Caution:

    Federated States of Micronesia, Marshall Islands, and Palau Island are treated as foreign countries for tax purposes and are eligible for the foreign earned income exclusion. These returns must be processed as FLC 20.

  6. Unearned income may not be excluded on Form 2555/Form 2555-EZ. To avoid double taxation, foreign taxes paid on unearned income can be:

    1. Claimed as a credit on Form 1116OR

    2. Reported as a deduction on Line 8 Schedule A

  7. United States Citizens living or travelling outside the United States are generally required to file United States income tax returns on which they must report worldwide income.

  8. A taxpayer qualifies for Foreign Earned Income Exclusion under IRC section 911, if the taxpayer meets the requirements of a "tax home" and is either:

    1. A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period (regardless of physical presence) which includes an entire taxable year, or

    2. A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty with an applicable nondiscrimination clause and who is a bona fide resident of a foreign country for an uninterrupted period that includes an entire taxable year; or

    3. A U.S. citizen or resident alien who has been physically present in a foreign country or countries for at least 330 days during any period of 12 consecutive months

      Note:

      If the taxpayer has a partial tax year that falls within the qualifying period, the exclusion must be prorated for the partial year.

  9. When a valid Form 2555/Form 2555-EZ is attached, and a previous math error exists, manually compute tax for (TY) 2011 and prior only.

3.22.3.6  (01-07-2013)
United States Possessions/Territories - General Information

  1. The following are U. S. Possessions/Territories

    • American Samoa - AS

    • Commonwealth of the Northern Mariana Islands - CNMI

    • Guam - GU

    • Puerto Rico - PR

    • United States Virgin Islands - USVI

  2. To qualify for certain tax benefits, the taxpayer must be a United States citizen or resident alien AND a bona fide resident of AS, CNMI, Guam, PR or the USVI for the entire tax year. A bona fide resident of one of these possessions/territories is an individual taxpayer who:

    • Does not have a tax home outside the relevant possession/territory,

    • Does not have a closer connection to the United States or to a foreign country.

    • Meets the presence test. To satisfy the presence test for the entire year, the taxpayer must meet ONE of the conditions in the table below.

    Bona Fide Residence Presence Test for United States Possessions/Territories
    Present in the relevant possession/territory for at least 183 days during the tax year,
    Present in the relevant possession /territory for at least 549 days during the three year period consisting of the current taxable year and the preceding two tax years, provided the taxpayer was also present in the possession/territory for at least 60 days during each tax year of the three-year period,
    Present in the United States for no more than 90 days during the tax year,
    Earned income (pay for personal services performed, such as wages, salaries or professional fees) from the United States of no more than $3,000 and was present for more days in the possession/territory than the U.S. during the tax year.
    No significant connection to the United States during the tax year, such as a permanent home, voter registration or spouse/minor child in the United States.

    Note:

    It is often difficult to determine bona fide residency based on the test above. Therefore, for the purpose of processing income tax returns the following additional guidance is being given. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Exception:

    For members of the U.S. Armed Forces see IRM 3.22.3.6(5).

  3. For TY08 only: Taxpayers who reside in one of the U.S. Possessions/Territories cannot claim the Recovery Rebate Credit with the IRS. If a taxpayer resides in one of the U.S. Possessions/Territories listed above and files a return only to claim the Recovery Rebate credit:

    1. SSPND 640 to Rejects to have the DLN rejected out of the system

    2. Attach Form 3531-B and check the box that applies

    3. Rejects will delete the document locator number (DLN) and mail the return back to the taxpayer

  4. Taxpayers that reside in any of the United States Possessions/Territories cannot claim the Earned Income Credit except in limited circumstances. Refer to IRM 3.22.3.230.1 and IRM 3.12.3.

  5. The Servicemembers Civil Relief Act of 2003 (SCRA) provides special rules relating to a servicemember's residence for tax purposes. Under SCRA, a servicemember retains his or her jurisdiction of residence with the Department of Defense or equivalent for income tax purposes. A servicemember's such residence is his or her "state of legal residence" (SLR), which is also known as home state, home of record, state of domicile, or state of residence. When a servicemember's state of legal residence (SLR) is not a U.S. territory and he or she resides in a U.S. territory solely in compliance with military orders, he or she should file an income tax return with the IRS. Also, when a servicemember's SLR is a U.S. territory and he or she resides outside that territory soleley in complinance with military orders, he or she should file an income tax return with the SLR territory. For further information, see Publication 570, Tax Guide for Individuals With Income from U.S. Possessions.

  6. The Military Spouses Residency Relief Act of2009 (MSRRA) provides special rules relating to civilian spouses of U.S. servicemembers for tax purposes. Under MSRRA, a civilian spouse of an active duty servicemember can choose to keep his or her prior residence or domicile for income tax purposes when accompanying the servicemember spouse who is relocating under military orders to a new military duty station in one of the 50 states, the District or Columbia, or a U.S. territory. Before relocating, the civilian and military spouse must have the same tax residence. For further information, See Publication 570, Tax Guide for Individuals With Income From U.S. Possessions

    1. Bona Fide residents of American Samoa and Puerto Rico who are civilian spouses of servicemembers who are stationed in one of the 50 states or the District of Columbia in compliance with military orders, have non-U.S. government income, were subject to U.S. withholding, and are claiming a refund of federal income taxes should follow the following procedures::
      - (i) Complete the appropriate Form 1040 and mark "MSRRA" in red ink at the top of their return.
      - (ii) Attach a statement made under Penalties of Perjury that they are eligible for relief under MSRRA.
      - (iii) Mail the Form 1040 and attachments to the IRS Service Center for the spouse's state of residence as listed in the Form 1040 instructions.

    2. Bona Fide residents of Guam, CNMI or VI living in the U.S. due to military orders but have non U.S. government income from Guam, CNMI or VI will be able to claim their withholding on their possession/territory tax return.

3.22.3.6.1  (01-07-2013)
The American Jobs Creation Act of 2004

  1. The American Jobs Creation Act of 2004 (AJCA) clarified and supplemented the United States tax rules dealing with United States Possessions/Territories for determining if a taxpayer is a bona fide resident of a possession/territory and whether income is possession/territory source or effectively connected with the conduct of a possession/territory trade or business.

  2. Residence Rules - In general, IRC Section 937(a) provides rules for determining whether a taxpayer is a bona fide resident of a United States possession/territory.

  3. Source Rules - In general, IRC Section 937(b) provides that the principles for determining whether income is U.S. source and whether income is effectively connected with the conduct of a United States trade or business are applicable for purposes of determining whether income is possession/territory source and whether income is effectively connected with the conduct of a trade or business in a United States possession/territory. The regulations also generally provide that under the "U.S. Income Rule" of IRC Section 937(b)(2):

    • Income from United States sources is not treated as income that is possession/territory source or effectively connected with the conduct of a possession/territory trade or business, and

    • Income that is effectively connected with the conduct of a United States trade or business is not treated as possession/territory source or effectively connected with conduct of a trade or business in a United States possession/territory.

  4. The regulations provide the following exceptions to these rules:

    • The regulations preserve the existing treatment of income from the sale of goods manufactured in a possession/territory, which provides for the allocation of this income between United States and possession/territory sources.

    • The regulations provide that gains from the disposition of certain property by a United States citizen or resident who owned the property on the date they became a bona fide resident of the United States possession/territory may not be treated as from sources within a possession/territory. This special gain rule applies to the disposition of certain property such as stocks, bonds, debt instruments, and other property that is held for investment. However, the taxpayer may elect to split the source of gains from the disposition of appreciated property subject to this rule by using a market-to-market allocation for marketable securities and a time-based allocation for other property.

    • The regulations also provide certain anti-abuse rules for determining the source of dividends and interest from possession/territory corporations.

    Note:

    These regulations are generally effective for income earned after April 9, 2008. Taxpayers may choose to apply the United States income rule to income earned in open taxable years ending after October 22, 2004. Taxpayers may choose to apply the exception for gains on sales of appreciated property to dispositions made after April 11, 2005.

3.22.3.6.1.1  (01-01-2013)
Form 8898 - Statement for Individuals Who Begin or End Bona Fide Residence in a United States Possession/Territory

  1. Form 8898, Statement for Individuals Who Begin or End Bona Fide Residence in a United States Possession/Territory, was created as a result of the American Jobs Creation Act of 2004.

  2. The Form 8898 is used to notify the IRS that an individual became or ceased to be a bona fide resident of a United States possession/territory.

  3. The form must be filed beginning with tax year 2001 by individuals who have worldwide gross income in the tax year greater than $75,000 and who:

    1. Take a position for United States tax purposes that they became a bona fide resident of a United States possession/territory after a tax year for which they filed a United States tax return as a citizen or resident of the United States, but not as a bona fide resident of the possession/territory,

    2. Are a citizen or resident of the United States and take the position for United States tax purposes that they ceased to be a bona fide resident of a United States possession/territory after a tax year for which they filed an income tax return as a bona fide resident of a possession/territory,

    3. Take a position for United States tax purposes that they became a bona fide resident of Puerto Rico or American Samoa after a tax year for which they were required to file an income tax return as a bona fide resident of the United States Virgin Islands, Guam or the CNMI.

3.22.3.6.2  (01-01-2013)
American Samoa - General Information

  1. American Samoa has its own separate and independent income tax system.

  2. Bona fide residents of American Samoa are generally exempt from United States tax on their American Samoa source income.

  3. United States Armed Forces - Bona fide residents of American Samoa include military personnel whose official home of record (i.e., SLR) is American Samoa. See instructions at IRM 3.22.3.6 above.

3.22.3.6.2.1  (01-01-2013)
American Samoa (AS) - Which Returns To File

  1. Generally, returns will be filed with both the American Samoa and the United States. The income reported on each return depends on the taxpayer's residency status in American Samoa.

    1. Bona Fide residents may have to file 2 returns:
      • AS with worldwide income
      • U.S. with worldwide income excluding AS income

    2. Non Bona Fide residents may have to file 2 returns:
      • AS with only AS income
      • U.S. with worldwide income

  2. If the taxpayer is a United States citizen, resident alien or nonresident alien and a bona fide resident of AS during the entire tax year, they generally must file the following returns:

    1. An AS tax return to report gross income from worldwide sources.

    2. A United States tax return to report income from worldwide sources, but exclude income from sources within AS (IRC Section 931). Form 4563 can be attached. See IRM 3.22.3.6.2.1.2

      Note:

      A taxpayer who is a bona fide resident of AS and has only income derived from sources in AS, does NOT have a United States income tax filing obligation.

      Exception:

      Income received for services performed as an employee of the United States Government or any of its agencies cannot be excluded from the United States tax return. If the United States Government wages are reported on both the United States and AS tax returns, Form 1116 can be attached to the United States tax return to claim credit for the taxes paid to AS.

  3. If the taxpayer is a United States citizen, resident alien or nonresident alien and not a bona fide resident of AS during the entire tax year, they generally must file the following returns:

    1. An AS tax return and report only income from sources within AS.

    2. A United States tax return and report income from worldwide sources. Form 1116 can be used to claim a credit paid to American Samoa on American Samoa source income subject to double taxation for income taxes
      Exception: Nonresident aliens report only U.S. source and U.S. effectively connected income

3.22.3.6.2.1.1  (02-04-2013)
Processing Form 1040/Form 1040A/Form 1040EZ With Income or Address From American Samoa

  1. If it appears the taxpayer is a bona fide resident of AS ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ all income is from AS:

    1. SSPND 640 to send the return to Rejects to delete the DLN out of the system.

    2. Prepare Form 3696A to initiate Letter 86-C to inform the taxpayer that his/her return has been transhipped to the Tax Division Government of American Samoa for processing

    3. Send the return to :


    Tax Office
    Executive Office Building
    First Floor
    Pago Pago AS 96799

  2. If there is no indication that the taxpayer is a bona fide resident of American Samoa, continue processing the return.

  3. For TY08 only: If the taxpayer resides in American Samoa (AS) and files a return only to claim the Recovery Rebate Credit:

    1. SSPND 640 to Rejects

    2. Attach Form 3531-B

    3. Rejects will mail the return back to the taxpayer

3.22.3.6.2.1.2  (01-01-2013)
Form 4563 - Exclusion of Income for Bona Fide Residents of American Samoa

  1. Form 4563 - Exclusion for Bona Fide Residents of American Samoa is used to figure the amount of income from sources within American Samoa that may be excluded in accordance with IRC Section 931 from gross income on Form 1040.

  2. This exclusion generally may be claimed if a taxpayer is a United States citizen, resident alien or nonresident alien and a bona fide resident of AS. Eligible taxpayers will file Form 1040 and:

    • Attach Form 4563, and

    • Report worldwide income

  3. Income that can be excluded in accordance with IRC Section 931:

    • Income received from sources in AS, and

    • Income effectively connected with the conduct of a trade or business in AS.


    Note:

    Caution: Income received for services performed as an employee of the United States Government or any of it's agencies is not excluded from gross income under IRC Section 931.


  4. If the taxpayer claims the exclusion in accordance with IRC Section 931, the following are examples of deductions and credits that will be limited on Form 1040:

    • The standard deduction

    • Certain itemized deductions such as medical and dental expenses, gifts to charity, and real estate taxes and mortgage interest on personal residence.

3.22.3.6.3  (01-01-2013)
Commonwealth of the Northern Mariana Islands (CNMI) - General Information

  1. The CNMI has its own income tax system based partly on the same tax laws and tax rates that apply to the United States, and partly on local taxes imposed by the CNMI government.

  2. In general, all individuals with income from the CNMI will file only one return, either with CNMI or the United States. The taxpayer's residency status under IRC Section 937(a) with respect to the CNMI determines which return they will file.

    Exception:

    See below for procedures for active and reserve military members.

    1. Bona Fide residents with worldwide income -- if properly filed with CNMI, a taxpayer will not have to file a return with the U.S.

    2. Non Bona Fide residents with worldwide income -- taxpayer is instructed to claim withholding from both U.S. and CNMI on a U.S. income tax return.

  3. Taxpayers that reside in any of the United States Possessions/Territories cannot claim Earned Income Credit except in limited circumstances. Refer to IRM 3.22.3 and IRM 3.12.3.

  4. Members of the U. S. Armed Forces who:

    1. Qualify as a bona fide resident of the CNMI in a prior tax year, and are absent from the CNMI solely in compliance with military orders must file with CNMI

    2. Did not qualify as a bona fide resident of the CNMI in a prior tax year, and are present in the CNMI solely in compliance with military orders must file with the IRS.

3.22.3.6.3.1  (01-01-2013)
CNMI - Which Returns To File

  1. If the taxpayer is a United States citizen, resident alien or nonresident alien and a bona fide resident of the CNMI during the entire tax year, they must file their income tax return with the CNMI.

  2. If the taxpayer is a United States citizen or resident alien and not a bona fide resident of the CNMI during the entire tax year, they must file their income tax return with the United States. The tax return will include:

    1. Form 1040 reporting income from worldwide sources

    2. All income tax withheld by either the United States or CNMI

    3. Any credit for overpayment of income tax to either the United States or CNMI

    4. Any payments of estimated tax to either the United States or CNMI

    5. Payment of any balance of tax due

    6. Form 5074 if the adjusted gross income is $50,000 or more for the tax year and gross income of $5,000 or more is from sources within the CNMI.

      Exception:

      Military employees do not require a Form 5074.

  3. If the taxpayer is a nonresident alien of the United States and not a bona fide resident of CNMI during the entire tax year, they must do the following:

    1. File a CNMI income tax return to report only their CNMI source income.

      Note:

      In this situation CNMI source income is any income received for services performed in CNMI, even if they were paid by the U. S. Government.

    2. A United States tax return (Form 1040NR), to report U.S. source income.

3.22.3.6.3.1.1  (01-07-2013)
Processing Form 1040/Form 1040A/Form 1040EZ With Income or Address From CNMI

  1. If there is an indication that the taxpayer is a bona fide resident of CNMI ,see IRM 3.22.3.6 and follow the instructions below:

    1. SSPND 640 to send the return to Rejects to delete the DLN out of the system.

    2. Prepare Form 3696A to initiate Letter 86-C to inform the taxpayer that his/her return has been transhipped to the Division of Revenue and Taxation of CNMI for processing.

    3. Send return to:


    Division of Revenue and Taxation
    P.O. Box 5234, CHRB
    Saipan, MP 96950

  2. If there is no indication that the taxpayer is a bona fide resident of CNMI, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ continue processing the return allowing any withholding from CNMI.

  3. For TY08 only: If a taxpayer resides in the Commonwealth of Northern Mariana Islands (CNMI) and files a return only to claim the Recovery Rebate Credit:

    1. SSPND 640

    2. Attach Form 3531-B

    3. Rejects will mail the return back to the taxpayer.

3.22.3.6.3.1.2  (01-07-2013)
Form 5074 - Allocation of Individual Income Tax to Guam or the Commonwealth of the Northern Mariana Islands (CNMI)

  1. Form 5074 - Allocation of Individual Income Tax to Guam or the Commonwealth of the Northern Mariana Islands (CNMI) provides information to the United States so that the IRS can figure the individual income tax that is due to Guam or CNMI.

  2. Taxpayers must file Form 5074 when all three of the following apply:

    • Taxpayer files a United States income tax return on Form 1040,

    • Taxpayer reports adjusted gross income of $50,000 or more, and

    • At least $5,000 of the gross income on their return is from Guam or CNMI sources

  3. When Form 5074 is attached, C&E will enter Audit Code "L" on the return.

    If Then
    C&E did not edit Audit Code "L" , Enter "L" in Field 01ACD.
    Section 02 is present, Delete the entries in the unallowable fields and make the necessary adjustments to prevent the computer from generating unallowable codes.

    Note:

    When Form 5074 is attached, all amounts on it must be included on the Form 1040. Enter amounts in appropriate fields as necessary. Form 5074 is not filed with the U.S. possessions/territories per form instructions.

3.22.3.6.4  (01-01-2013)
Guam - General Information

  1. Guam has its own income tax system based partly on the same tax laws and tax rates that apply to the United States

  2. In general, all individuals with income from Guam will file only one return, either with Guam or the IRS. The taxpayer's residency status with regard to Guam determines which return they will file.

  3. Members of the U. S. Armed Forces who:

    1. Qualify as a bona fide resident of Guam in a prior tax year, and are absent from Guam solely in compliance with military orders, must file with Guam

    2. Did not qualify as a bona fide resident of Guam in a prior tax year, and are present in the Guam solely in compliance with military orders, must file with the IRS.

3.22.3.6.4.1  (01-01-2013)
Guam - Which Returns To File

  1. If the taxpayer is a United States citizen, resident alien or nonresident alien and a bona fide resident of Guam during the entire tax year, they must file their income tax return with Guam.

  2. If the taxpayer is a United States citizen or resident alien and not a bona fide resident of Guam during the entire tax year, they must file their income tax return with the IRS. The tax return will include:

    1. Form 1040 reporting income from worldwide sources

    2. All income tax withheld by either the United States or Guam

    3. Any credit for overpayment of income tax to either the United States or Guam

    4. Any payments of estimated tax to either the United States or Guam

    5. Payment of any balance of tax due

    6. Form 5074 if the adjusted gross income is $50,000 or more for the tax year and gross income of $5,000 or more is from sources within Guam.

      Exception:

      Military employees do not require a Form 5074.

  3. If the taxpayer is a nonresident alien of the United States and not a bona fide resident of Guam during the entire tax year, they must do the following:

    1. File a Guam income tax return to report only their Guam source income.

      Note:

      In this situation Guam source income is any income received for services performed in Guam, even if they were paid by the U. S. Government.

    2. A United States tax return (Form 1040NR ), to report U.S. source income.

3.22.3.6.4.1.1  (01-07-2013)
Processing Form 1040/Form 1040A/Form 1040EZ With Income or Address From Guam

  1. If there is an indication that the taxpayer is a bona fide resident of Guam, see IRM 3.22.3.6 and follow instructions below:

    1. SSPND 640 to send the return to Rejects to delete the DLN out of the system.

    2. Prepare Form 3696A to initiate Letter 86-C to inform the taxpayer that his/her return has been transhipped to the Department of Revenue and Taxation of Guam

    3. SSPND 640

    4. Send the return to:


    Department of Revenue and Taxation
    Government of Guam
    P.O. Box 23607
    GMF, GU 96921

  2. If there is no indication that the taxpayer is a bona fide resident of Guam, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ continue processing the return.

  3. For TY08 only: If a taxpayer resides in Guam and files a return only to claim the Recovery Rebate Credit:

    1. SSPND 640

    2. Attach Form 3531-B

    3. Rejects will mail the return back to the taxpayer.

3.22.3.6.4.1.2  (01-01-2015)
Form 5074 - Allocation of Individual Income Tax to Guam or the Commonwealth of the Northern Mariana Islands (CNMI)

  1. Form 5074 - Allocation of Individual Income Tax to Guam or the Commonwealth of the Northern Mariana Islands (CNMI) provides information to the United States so that the IRS can figure the individual income tax that is due to Guam or CNMI.

  2. Taxpayers must file Form 5074 when all three of the following apply:

    • Taxpayer files a United States income tax return on Form 1040,

    • Taxpayer reports adjusted gross income of at least $50,000 or more, and

    • At least $5,000 of the gross income on their return is from Guam or CNMI sources

  3. When Form 5074 is attached, C&E will enter Audit Code "L" on the return.

    If Then
    C&E did not edit Audit Code "L" , Enter "L" in Field 01ACD.
    Section 02 is present, Delete the entries in the unallowable fields and make the necessary adjustments to prevent the computer from generating unallowable codes.

3.22.3.6.5  (01-01-2013)
Puerto Rico (PR) - General Information

  1. The Commonwealth of Puerto Rico has its own separate independent income tax system.

  2. Generally the taxpayer will file returns with both Puerto Rico and the IRS. The income reported on each return depends on the taxpayer's residency status in Puerto Rico. See IRM 3.22.3.6 for instructions in determining if the taxpayer is a bona fide resident of Puerto Rico.

3.22.3.6.5.1  (01-01-2013)
Puerto Rico (PR) - Which Returns To File

  1. Generally, returns will be filed with both Puerto Rico and the United States. The income reported on each return depends on the taxpayer's residency status in Puerto Rico.

    1. United States citizens or resident aliens who are also bona fide residents of PR during the entire tax year MAY have to file 2 returns:
      • PR with worldwide income
      • U.S. with world wide income, excluding PR income

      Note:

      If all the income is from PR sources, a U.S. tax return is NOT required. However, taxpayers who have effectively connected net business income of more than $400 from a trade or business in PR must file a Form 1040-PR/Form 1040-SS to pay self-employment tax.

    2. U.S. citizens or resident aliens who are NOT bona fide residents MAY have to file 2 returns
      • PR with only PR income
      • U.S. with worldwide income, claiming a foreign tax credit for income taxes paid to PR.

  2. If the taxpayer is a United States citizen or resident alien and a bona fide resident (as explained in IRM 3.22.3.6) of Puerto Rico during the entire tax year, they must do the following:

    1. File a Puerto Rican return to report income from worldwide sources.

    2. If the taxpayer has income from other than PR sources, they must also file a United States tax return to report income from worldwide sources, but exclude Puerto Rico source income (IRC Section 933). The taxpayer will not be allowed any deductions or credits that are directly or indirectly allocable to exempt income.

      Exception:

      Income received for services performed as an employee of the United States Government or any of its agencies cannot be excluded from the IRS tax return. If United States Government wages are reported on both the IRS and Puerto Rican tax returns, Form 1116 can be attached to the IRS tax return to claim a credit for income taxes paid to Puerto Rico.

      Note:

      U. S. government cost of living allowances are excludable from U. S. income tax.

    3. If the taxpayer does NOT have any income other than PR source income, they are ONLY required to file a Puerto Rican return.

  3. If the taxpayer is a nonresident alien of the United States and a bona fide resident of Puerto Rico during the entire tax year, they must file the following returns:

    1. A Puerto Rican tax return to report income from worldwide sources.

    2. A United States tax return to report income from worldwide sources, but exclude Puerto Rican source income (IRC Section 933). The taxpayer will not be allowed the standard deduction, cannot file a joint return, and is not allowed deductions for dependents unless the person is a citizen or national of the United States, a resident of the United States, or a resident of a country contiguous to the United States.

      Exception:

      Income received for services performed as an employee of the United States Government or any of its agencies cannot be excluded. If United States Government wages are reported on both the IRS and Puerto Rican tax returns, Form 1116 can be attached to IRS tax return to claim a credit for the taxes paid to Puerto Rico.

  4. If the taxpayer is a United States citizen or resident AND not a bona fide resident of Puerto Rico during the entire tax year, they must file the following returns:

    1. A Puerto Rican tax return to report income from Puerto Rican sources.

    2. A United States tax return to report income from worldwide sources. Form 1116 can be attached to claim credit for income taxes paid to Puerto Rico or Puerto Rico source income subject to double taxation.

  5. If the taxpayer is a nonresident alien of the United States AND does NOT qualify as a bona fide resident of Puerto Rico, the must file the following returns:

    1. A Puerto Rican tax return to report income from Puerto Rican sources.

    2. A United States tax return, Form 1040NR , according to the rules for a nonresident alien, reporting only U.S. source and U. S. effectively connected income.

3.22.3.6.5.2  (02-11-2014)
Processing Form 1040/Form 1040A/Form 1040EZ With Income or Address From Puerto Rico

  1. If it appears the taxpayer is a bona fide resident of PR ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , follow the steps below:

    Exception:

    If the taxpayer is a U.S. Government employee or notates IRC Section 933 anywhere on the return allow the Form 1040/Form 1040A filing. DO NOT reject.

    1. SSPND 640 to send the return to Rejects to delete the DLN out of the system.

    2. Prepare Form 9143 and mail the return back to the taxpayer with the following narrative: "Since you appear to be a bona fide resident of PR with only PR income, you do not have a U.S. tax filing obligation. However, if you have self employment income from Puerto Rico and or you wish to claim the Additional Child Tax Credit you must do so on a Form 1040-PR/Form 1040-SS. Otherwise, if you have not already done so, you should file a return with the Departamento de Hacienda, PO Box 9022501, San Juan, PR 00902-2501"

      Note:

      If the return was filed electronically, DO NOT print out copy of the return for the taxpayer. Prepare Form 9143 as indicated above.

  2. If the return was previously rejected per (1) above and the taxpayer resubmits his/her return with no changes or indications as to why they are filing a Form 1040/Form 1040A, follow the steps below:

    1. SSPND 640 to send the return to Rejects to delete the DLN out of the system.

    2. Prepare Form 9143 and mail the return back to the taxpayer with the following narrative: Usted no está obligado a radicar una planilla de impuestos de los EE.UU, ya que usted parece ser residente bona fide de PR y tiene ingresos solamente de PR. Sin embargo, si tiene ingresos del trabajo por cuenta propia de Puerto Rico y/o usted desea reclamar el Crédito tributario adicional por hijos, usted tiene que completar el Formulario 1040-PR/SS. De lo contrario, si usted no lo ha hecho, debe radicar una planilla con el Departamento de Hacienda, PO Box 9022501, San Juan, PR 00902-2501.

  3. If there is no indication that the taxpayer is a bona fide resident of Puerto Rico (as indicated above), continue processing the return.

  4. For TY08 only: If the taxpayer resides in Puerto Rico and files a return only to claim the Recovery Rebate Credit:

    1. SSPND 640

    2. Attach Form 3531-B

    3. Rejects will mail the return back to the taxpayer

3.22.3.6.6  (01-01-2013)
United States Virgin Islands (USVI) - General Information

  1. The USVI system of income taxation is based upon the United States Internal Revenue Code as amended. An important factor in USVI taxation is whether, during the entire taxable year, the taxpayer is a bona fide resident of USVI.

  2. In general, a bona fide resident of the USVI pays tax only to the USVI.

  3. A United States citizen or resident alien who is not a bona fide resident of the USVI, but has USVI source income, is required to pay the allocable portion of the tax to each jurisdiction.

3.22.3.6.6.1  (01-01-2013)
United States Virgin Islands - Which Returns To File

  1. In general, bona fide residents of the USVI pay taxes only to the USVI. U.S. citizens or resident aliens (but not bona fide residents of the USVI) with USVI source income, pay a portion of tax to each jurisdiction:

    1. Bona fide residents -- include your worldwide income on your USVI return. If properly filed with the USVI, a taxpayer will not have to file a return with the United States.

      Note:

      Taxpayers who have income that is effectively connected net business income of more than $400 from a trade or business in USVI, must file Form 1040-SS with the United States to pay self-employment tax.

    2. Non bona fide residents with worldwide income -- taxpayer must file identical returns with USVI and the U.S. Form 8689 must be attached to both returns.

  2. If the taxpayer is a United States citizen, resident alien, or nonresident alien and a bona fide resident of the USVI (as explained in IRM 3.22.3.6 )during the entire tax year, and their gross income is less than $75,000 the taxpayer must file with the USVI and report worldwide income.

  3. For taxable years ending before December 31, 2006, if the taxpayer is a United States citizen, resident alien, or nonresident alien and a bona fide resident of the USVI during the entire tax year, and their gross income is $75,000 or more the taxpayer must file with:

    1. The USVI and report worldwide income and

    2. The IRS, in order to start the U. S. statute of limitations on assessment, as described in Notice 2007-19

      Note:

      The tax return filed with the IRS will include taxpayer's name, address, Taxpayer Identification Number (TIN) and signature.

  4. For taxable years ending on or after December 31, 2006, all United States citizens, resident aliens, and nonresident aliens who are bona fide residents of the USVI must file with the USVI and report worldwide income.

  5. If the taxpayer is a United States citizen or resident alien and not a bona fide resident of the USVI during the entire tax year, the taxpayer must file identical tax returns with the IRS and the USVI if the taxpayer has:

    1. Income from sources in the USVI or

    2. Income effectively connected with the conduct of a trade or business in the USVI.

    Note:

    The taxpayer will complete and attach Form 8689 to both returns to determine how much tax to pay to the U.S. and to the U.S. Virgin Islands.

3.22.3.6.6.1.1  (01-07-2013)
Processing Form 1040/Form 1040A/Form 1040EZ With Income or Address From United States Virgin Islands

  1. If there is an indication that the taxpayer is a bona fide resident of USVI ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. SSPND 640 to send the return to Rejects to delete the DLN out of the system.

    2. Prepare Form 3696A to initiate Letter 86-C to inform the taxpayer that his/her return has been transhipped to the Virgin islands Bureau of Internal Revenue for processing and

    3. Send the return to:

      Virgin Islands Bureau of Internal Revenue

      6115 Estate Smith Bay

      Suite 225

      St. Thomas, VI 00802

      Caution:

      If Form 8689 is attached or there is an indication on the dotted portion of line 72 that the taxpayer is reporting taxes paid to the USVI, or the taxpayer is filing in compliance with Notice 2007-19 (zero return, taxpayer's name, address, TIN and signature), DO NOT SEND THESE RETURNS TO THE USVI. See processing instructions below.

  2. If there is no indication that a taxpayer is a bona fide resident of the USVI, continue processing the return.

  3. For TY08 only: If a taxpayer resides in the U.S. Virgin Islands (USVI) and files a return only to claim the Recovery Rebate Credit:

    1. SSPND 640

    2. Attach Form 3531-B

    3. Rejects will mail the return back to the taxpayer.

3.22.3.6.6.1.2  (01-01-2015)
Form 8689 - Allocation of Individual Income Tax to the United States Virgin Islands

  1. Form 8689 - Allocation of Individual Income Tax to the United States Virgin Islands is used to figure the amount of United States tax allocable to the USVI.

    Caution:

    If Form 8689 is attached or there is an indication on the dotted portion of line 72 that the taxpayer is either reporting taxes paid to the USVI or filing in compliance with Notice 2007-19 (zero return, taxpayer's name, address, TIN and signature), do not send these returns to the USVI. See IRM 3.22.3.6.6.1.3 below.

  2. Form 8689 must be attached to take the credit for United States tax allocated to the USVI when the amount is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . The taxpayer should add lines 40 and 44 of Form 8689 and include that amount in the total portion of line 72 Form 1040. See IRM 3.22.3.243.2.2. SSPND 215 and correspond for Form 8689 when the amount claimed is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    Sometimes taxpayers erroneously place their US federal withholding, estimated tax payments and payments made with extensions on lines 62-68 of their Form 1040. Do NOT attempt to adjust the amounts for estimated tax payments or payments made with extensions. For withholding discrepancies, adjust Field 0562 and assign TPNC 438. Programming will only allow the actual amounts of estimated tax payments and payments with extensions regardless of what is transcribed on those lines. The taxpayer will receive a systemic notice explaining that their payments do not match our records

    .

3.22.3.6.6.1.3  (01-01-2015)
Form 1040 in Compliance With Notice 2007-19

  1. If you can determine that the taxpayer is filing in compliance with Notice 2007-19, then process the return. Some indications could be:

    1. Notation on the return "Notice 2007-19"

    2. Zero tax return (no dollar entries)

    3. Affirmation statement indicating filed a USVI Form 1040

    4. Statement of gross income of $75,000 or more

    5. Statement affirming the taxpayer's bona fide residency in the USVI along with a summary of facts on which the residency is based

3.22.3.6.6.1.3.1  (01-01-2015)
Processing Form 1040 Filed With the IRS in Compliance With Notice 2007-19

  1. These returns must be hand carried from function to function.

  2. C&E is instructed to "X" all entries except:

    1. Caption information

    2. Computer Condition Code (CCC) and Return processing Code (RPC)

    3. Received Date

      Caution:

      If the return includes both Notice 2007-19 and Form 8689, use only the instructions to process Form 1040 with Form 8689.

  3. If data is present other than the caption information, CCC, RPC or received date, delete entries and/ or section(s).

    Note:

    Always use the received date stamped by compliance.

3.22.3.6.6.1.4  (01-01-2015)
Form 1040 in Compliance with Notice 2007-31

  1. The USVI Bureau Internal Revenue (BIR) will send to the IRS copies of the taxpayers' returns for 2006 and later when the taxpayer files a return with the USVI BIR and they meet each of the following conditions:

    1. Bona fide resident of USVI

    2. Gross income of $75,000 or more

  2. The return will be only page 1 of Form 1040 and include a watermark "Filed due to VI Notice 2007-31" in the upper left corner of page 1 Form 1040.

3.22.3.6.6.1.4.1  (01-01-2013)
Processing Form 1040 in Compliance with Notice 2007-31

  1. These returns must be hand carried from function to function. C&E is instructed to "X" all entries except:

    • Caption information

    • RPC "L"

    • RPC "V"

    • Received Date

  2. If data is present other than the caption information, RPC "L" and RPC "V" or received date, delete entries and/or section.

    Note:

    DO NOT CORRESPOND or ISSUE Taxpayer Notice Codes (TPNC)

3.22.3.6.7  (01-01-2015)
Processing United States Virgin Islands - Cover Over Project

  1. Processing United States Virgin Islands Returns with Transmittal - These returns require special handling, editing and are hand carried from function to function. If you are processing this type of return, follow the chart below. C&E is instructed to "X" all entries except:

    • Caption information

    • Computer Condition Codes (CCCs) and Return Processing Codes (RPCs)

    • Received Date

    If Then
    United States appears in the address Delete it.
    C&E failed to edit the Computer Condition Codes, Get Section (GTSEC 01) and enter CCCs "3" and "O"

    Note:

    CCC "3" must be entered first.

    The received date is illegible, GTSEC 01 and enter the correct received date in Field 01RCD.

    Note:

    Always use the USVI Received Date.

    C&E failed to edit the Return Processing Codes, GTSEC 01 and enter RPCs "B" and "L" . Also enter RPC "K" for Statute years.

3.22.3.7  (01-01-2015)
Form 1040-PR and 1040-SS

  1. Form 1040-PR is filed by taxpayers residing in Puerto Rico and Form 1040-SS is filed by taxpayers residing in AS, CNMI, GU, PR and the USVI. Both Form 1040-PR and 1040-SS are filed to:

    1. Report net earnings from self-employment and pay self employment taxes

    2. Pay any household employment taxes

    3. Claim excess social security taxes withheld

    4. Pay any employee social security and Medicare tax on unreported tips or uncollected employee social security and Medicare tax on tips or group term insurance

    5. Claim additional child tax credit (Only qualified bona fide residents of Puerto Rico with 3 or more qualifying children)

  2. For TY08 only: Taxpayers that file Form 1040-PR and Form 1040-SS cannot claim the Recovery Rebate Credit.

  3. If the taxpayer files Form 1040-SS to claim the Recovery Rebate Credit:

    1. SSPND 640

    2. Attach Form 3531-B

    3. Rejects will mail the return back to the taxpayer

  4. If the taxpayer files Form 1040-PR to claim the Recovery Rebate Credit:

    1. SSPND 640

    2. Attach Form 13557(SP) box 14 using the following literal:
      Form 1040-PR literal: "Le estamos devolviendo su reclamación para el Crédito por Recuperación de Devolución del Estímulo Económico; los contribuyentes que presentan el Formulario 1040-PR no son elegibles para este crédito."
      Translation of literal for Form 1040-PR; We are returning your claim for the Recovery Rebate Credit. Taxpayers who file Form 1040-PR are not eligible for the "Recovery Rebate Credit."

    3. Rejects will mail the return back to the taxpayer.

    Note:

    Form SSA-1042S should only be attached to a Form 1040-NR/Form 1040NR-EZ and is not to be considered as Social Security for the purpose of the Recovery Rebate Credit. If SSA-1042S is attached to any other type of tax form it is to be returned to the taxpayer using the following verbiage in the fill-in portion of Form 3531-B:

    "The return you filed to request the Recovery Rebate Credit claims Form SSA-1042-S benefits. You do not qualify to receive the Recovery Rebate Credit."
    CAUTION: This instruction is only for when a Form SSA 1042-S is present. ERS WILL NOT perform research to determine if Social Security income is from a Form SSA 1042-S or a Form SSA 1099.

  5. Form 1040-PR/Form 1040-SS is a 4 page return.

  6. All Form 1040-PR and Form 1040-SS are processed under FLC 21.

  7. See chart below to determine Document Code and return due Date:

    Form Filed Document Code Return Due Date
    Form 1040-PR 27 Fifteenth day of the fourth month
    Form 1040-SS 26 Fifteenth day of the fourth month
     
     

    Note:

    If the Return Due Date falls on a weekend or legal holiday, the return will be due the first business day following the weekend or legal holiday. The return will be considered timely filed if received on the next Business day following the weekend or legal holiday.

3.22.3.8  (01-01-2015)
Form 1040NR and Form 1040NR-EZ

  1. Form 1040NR and Form NR-EZ are filed by:

    1. Nonresident aliens who have United States source income or income effectively connected with a U.S. trade or business.

    2. Nonresident aliens who are temporarily present in the United States

    3. Dual-status taxpayers in the year of entry into or departure from the United States

  2. All Form 1040NR/Form NR-EZ are processed under FLC 20.

  3. Income reported on Form 1040NR is classified as either effectively connected with a United States trade or business or not effectively connected with a United States trade or business.

  4. See Chart below to determine Document Code and Return Due Date:

    Form Filed Line 8 Document Code Return Due Date
    Form 1040NR Has an entry 73 Fifteenth day of fourth month
    Form 1040NR No entry 72 Fifteenth day of the sixth month
    Form 1040NR-EZ N/A 73 Fifteenth day of the fourth month

    Note:

    If the Return Due Date falls on a weekend or legal holiday, the return will be due the first business day following the weekend or legal holiday.

  5. Form 1040NR must be transshipped to CSPSC (SSPND Action Code 640) if any of the following conditions exist:

    1. TIN is an Employee Identification Number (EIN) formatted xx-xxxxxxx or

    2. The name line has other than an individual's name (such as an estate or trust) or

    3. Line 40 is $300 (Trust) or $600 (Estate) or

    4. Taxpayer quotes IRC Section 642(b)(c)(ii) and enters $3,950. on line 40.

  6. In some instances, the taxpayer may file a short period return due to the date of final departure from the United States during the tax year. These returns must be processed as 201412 (calendar-year returns). SSPND with Action Code 480. Prepare Form 4227, notating "Hold for 2015 processing."

    Exception:

    If the return is received prior to August 1, SSPND with Action Code 640 and use Form 9143 to advise the taxpayer that they must refile in January.

  7. When a refund Form 1040NR/Form 1040NR-EZ has an address in the box notated on Line 71e of Form 1040NR (Line 23e Form 1040NR-EZ)" If you want your refund check mailed to an address outside the United States not shown on page 1, enter it here" , which differs from the entity address, see IRM 3.22.3.177.3.

  8. Rev. Rul. 68-500 allows Form 1040NR to include a facsimile signature signed for the taxpayer by an agent. Accept the facsimile signature and process the returns that are signed for the taxpayer by an agent. (Attorney-in-Fact)

  9. See IRM 3.22.3.240.3 for correction procedures when a taxpayer files a Form 1040NR or Form 1040NR-EZ claiming a refund of $25,000 or more.

3.22.3.8.1  (01-01-2015)
Resident Alien - General Information

  1. A taxpayer can be considered a Resident Alien of the United States for tax purposes and must file Form 1040 if they meet either the "green card test" or the "substantial presence test" for the calendar year. If they do not meet either of these tests, they file Form 1040NR or Form 1040NR-EZ , if applicable.

    Note:

    If certain conditions are met, a nonresident alien may elect to be treated as a resident alien for part of the year.

  2. Green Card Test is met when a taxpayer is a lawful permanent resident of the United States at any time during the calendar year and has been issued an alien registration card also known as a "green card" . All references made throughout this IRM to "green card" include Form I-551 for all years after 1996. Form I-151 is only acceptable as proof of permanent residency for TY96 and prior. See 2512-001, International Tax Returns Job Aid.

  3. To meet the Substantial Presence Test the taxpayer must be physically present in the United States on at least

    1. 31 days during the tax year of the return, and 183 days during the 3 year period that includes the tax year of the return and the 2 years prior to the tax year of the return.

      Example:

      Taxpayer is filing a 2014 tax return and was present in the United States 150 days in 2014, 150 days in 2013 and 150 days in 2012 the total days would be 225 days. See chart below:

    2. Use the following table to determine Substantial Presence.

      The taxpayer will count each day they were present in the United States during the tax year of the return (present in the United States 150 days in 2014. 2014= 150 days), AND
      Add 1/1 of the days they were present in the United States during the first year prior to the tax year of the return (present in the United States 150 days in 2013; 150/150 = 50 days for 2013. Thus far the days in the United States are 200 days. 150 days (for 2014) + 50 days (for 2013) = 200 days., AND
      Add 1/1 of the days they were present in the United States during the second year prior to the tax year of the return (e.g., taxpayer is filing a 2014 tax return and was present in the United States 150 days in 2014; 150/150 = 50 days for 2013 and 150/150 = 25 days for 2012. The total days in the United States for the three year period is 225 days. 150 days (for 2014) + 50 days (for 2013) + 25 days (for 2012) = 225 days.

      Exception:

      For purposes of meeting the Substantial Presence Test to be considered a United States Resident, certain exceptions apply. See Exhibit 3.22.3-6 for types of Visas.

3.22.3.8.2  (01-01-2015)
Nonresident Alien - General Information

  1. Nonresident Aliens are required to report ONLY United States source income on Form 1040NR/Form 1040NR-EZ. United States source income is reported on Form 1042-S , Form W-2 , Form 1099 series, Form 8805, Form 8288-A, Form SSA/RRB 1042-S, or statement of income and received from :

    1. U. S. payor or

    2. Foreign payers for services performed in the U.S.

      Exception:

      Nonresidents are taxed on certain foreign source income that is effectively connected with a United States trade or business.

  2. United States tax law exempts nonresident aliens from United States taxation on interest from United States bank accounts.

  3. Effectively Connected Income is reported on page 1 of the Form 1040NR and is taxed at graduated rates. These are the same rates that apply to U.S. citizens and residents

  4. Non-Effectively Connected Income is reported on page 4 of Form 1040NR and is taxed at 30% OR at a lower treaty rate if a tax treaty exists between the United States and the taxpayer's foreign country of residence and no deductions are allowed against such income.

    Note:

    Non-Effectively Connected (NEC) Income cannot be reported on Form 1040NR-EZ. If the taxpayer attempts to report NEC on Form 1040NR-EZ, the return must be renumbered to a 1040NR.

  5. When a taxpayer performed services as an employee both inside and outside the United States, the taxpayer must allocate their compensation between the United States and non United States sources.

    Note:

    Only the United State's source income is included on line 8 as effectively connected wages.

3.22.3.8.3  (01-01-2015)
Scholarship/Fellowship Income

  1. When Scholarship/Fellowship income is paid to a resident of a tax treaty country, the income:

    1. May be excluded under a tax treaty, and

    2. Must be reported on the appropriate Line on Page 1.

    3. Must answer Question "L" , Form 1040NR, Page 5 or Question "J" , Page 2, Form 1040NR-EZ .

    4. Verify the validity of the tax treaty benefit claimed using Exhibit 3.22.3-1.

    Caution:

    When it can be determined that the taxpayer's income is from an occupation (W-2 issued from other than a qualified educational institute) other than student, (occupation area of the return indicates intern, technical supporter, doctor etc.), do not allow treaty. See IRM 3.22.3.157.2

  2. When Scholarship/Fellowship income is paid to a resident of a non tax treaty country, the income:

    1. May NOT be exempted under a tax treaty.

    2. Must be reported on Line 12, Form 1040NR or Line 5, Form 1040NR-EZ.

    3. If the taxpayer is a "Degree Candidate" , amounts paid to a qualified educational institute for education related expenses (books, fees, tuition) may be deducted on Line 31. Form 1040NR or Line 8, Form 1040NR-EZ.

3.22.3.8.4  (01-01-2015)
Dual-status - General Information

  1. A taxpayer who is a resident alien and a nonresident alien in the United States within the same tax year files a dual-status tax return. This condition usually occurs in the year of arrival in the U. S. or departure from the United States. The taxpayer will file Form 1040 or Form 1040NR/Form 1040NR-EZ for the tax year, based on the taxpayer's residence status on the last day of the year.

    1. The taxpayer will file his/her return on Form 1040 if he/she is a resident of the United States on the last day of the tax year.

    2. The taxpayer will file his/her return on Form 1040NR/Form 1040NR-EZ if he/she is NOT a resident of the United States Form 1040NR on the last day of the tax year.

    3. If the requirements are met, dual-status alien may elect to be treated as a resident for the entire year.

    4. Follow the intent of the taxpayer and process the return that is identified as "Dual-Status Return" , if there is an indication they entered or left the United States in December. See question G page 5, Form 1040NR; page 2, Form 1040NR-EZ.

  2. Restrictions for Dual-Status Taxpayers -see IRM 3.22.3.157.2.3 and IRM 3.22.3.174.2.4.

  3. Tax Treaties - In general, dual-status taxpayers are entitled to tax treaty benefits only on income received during the period of U. S. nonresidence. Treaty income and the treaty exclusion must be explained on the Form 1040NR/Form 1040NR-EZ. See IRM 3.22.3.174.2.4.

    Exception:

    Resident Aliens may be entitled to treaty benefits with respect to certain categories of income.

  4. A Form 1040NR/Form 1040NR-EZ (or substitute statement) may be attached to a Form 1040 dual-status return as a statement (worksheet) if the taxpayer was a resident in the United States on the last day of the tax year. Similarly, a Form 1040 (or substitute statement) may be attached to a Form 1040NR/NR-EZ dual-status return as a statement (worksheet) if the taxpayer was a resident outside the United States on the last day of the tax year.

  5. Check the Form 1040, Form 1040NR or Form 1040NR-EZ (or substitute statements) to ensure that C&E has combined all information onto the controlling form.

  6. When processing Form 1040NR and Itemized Deductions are claimed on Schedule A of Form 1040 that do not have a corresponding line on Page 3 of Form 1040NR, enter the amount(s) in Field 07OTG.

3.22.3.8.5  (01-01-2015)
Article XXV - United States and Canada Income Tax Treaty

  1. When a Form 1040NR is received from a Canadian citizen/resident who has income from U. S. sources, he may be computing his U. S. tax liability in accordance with the special provisions of the tax treaty between the United States and Canada.

  2. Review Form 1040NR from Canadian taxpayers for the following indications of this condition.

    1. Two names are present in the entity section of the return or

    2. Hypothetical married filing joint tax computation using worldwide income for both taxpayers (Form 1040 or statement) or

    3. A statement is attached indicating that a special computation permitted by the U. S./ Canada Tax Treaty has been used or

    4. A notation of "Article XXV" is found on the return or its attachments.

3.22.3.8.6  (01-01-2015)
Expatriation

  1. Taxpayers that are subject to expatriation tax must attach Form 8854, Expatriation Information Statement to their Form 1040 or Form 1040NR , whichever is applicable, for the year of expatriation. Taxpayers may elect to defer all or a portion of the expatriation tax. Taxpayers making this election are only required to file Form 8854 for the year of expatriation. Follow the taxpayer's intent if there is an indication of expatriation. using the chart below:

    If Then
    There is an indication that the taxpayer is filing an "Expatriation Return" (e.g., Expatriation Return noted across the top of the tax return or page 5, Question "D" , either box is answered "yes" ), and Form 8854 is attached
    1. Use verified fields as needed to follow the intent of the taxpayer.

    2. GTSEC 01 and enter Audit Code" K."

    Form 8854 is not attached, Take no action. Continue normal processing procedures

3.22.3.8.7  (01-07-2013)
Community Property - General Information

  1. Taxpayers that are subject to the community property laws of a foreign country, a United States state, or a United States possession/territory, generally must follow those laws to determine the income of each taxpayer for United States tax purposes. However they must disregard certain community property laws if:

    1. Both taxpayers are nonresident aliens, or

    2. One taxpayer is a nonresident alien and the other taxpayer is a United States citizen or resident and they do not choose to be treated as United States residents (as explained in Chapter 1 under Nonresident Spouse Treated as a Resident). In these cases, both taxpayers must report community income as explained below.

  2. Earned Income of each taxpayer, other than trade or business income and a partner's distributive share of partnership income, is treated as the income of the taxpayer whose services produced the income. That taxpayer must report all of it on his or her separate return.

  3. Trade or business income, other than a partners distributive share of partnership income, is treated as the income of the person who exercises substantially all of the management and control over the trade or business. That taxpayer must report all of it on his or her separate return.

  4. Partnership income (or loss). A partner's distributive share of partnership income is treated as the income (or loss) of the partner. The partner must report all of it on his or her separate return.

  5. Income derived from the separate property of the taxpayer (and which is not earned income, trade or business income, or partnership distributive share income) is treated as the income of that taxpayer. That taxpayer must report all of it on his or her separate return. Use the appropriate community property law to determine what is separate property.

  6. All other community income is treated as provided by the applicable community property laws.

    Note:

    If a determination cannot be made, SSPND 370 for Examination review.

3.22.3.8.8  (01-01-2015)
Tax Treaties - General Information

  1. The United States has income tax treaties (conventions) with a number of foreign countries. Under these treaties, residents of foreign countries are taxed at a reduced rate, or are exempt from United States income taxes on certain items of income they receive from sources within the United States. These reduced rates and exemptions vary among countries and with specific items of income. In certain limited circumstances, resident aliens may be entitled to treaty benefits.

  2. Tax Treaties may, under certain circumstances, permit foreign individuals who are residents of the treaty country to visit the United States, practice their profession and earn income (sometimes in limited amounts) for a limited period of time without having to pay United States tax.

3.22.3.8.8.1  (01-01-2013)
Types of Visas - General Information

  1. A visa is assigned to an individual by the United States Citizenship and Immigration Services. See Exhibit 3.22.3-6.

  2. The method of taxation of a visa-holder depends primarily upon whether the individual is classed as a resident or a nonresident.

    1. If the visa-holder is determined to be a nonresident alien, he is generally taxed on all United States Source income and on all income that is effectively connected with the conduct of a trade or business in the United States, unless specifically excluded under a U.S. tax treaty provision.

    2. Resident aliens are taxed the same as citizens.

  3. The following are types and definitions of visas most frequently encountered by the service:

    VISA Definition of VISA
    F-1 International Student
    H-1B Temporary Professional Worker
    H-1C Temporary Registered Nurse
    H-2A Temporary Agriculture Worker
    H-2B Temporary worker whose skills are needed in the U.S.
    H-3 Trainee or participant in a special education exchange program
    I Representative of foreign information media, and their dependents
    J-1 Student Student in the U. S. under Exchange Visitor Program
    J-1 Scholar Researcher/Professor under Exchange Visitor Program
    J-1 Au Pair Individuals in the U. S. under the auspices of the U. S. information Agency and the Designated Program Sponsor
    M-1 Student at vocational schools
    Q-1, Q2 Participant in an international cultural exchange program
    TC Professional business worker admitted under United States - Canada Free Trade Act (CUSTA)
    TD NAFTA allows temporary entry to certain dependents of TN visa holders
    TN Professional business worker admitted under North American Free Trade Agreement (NAFTA)

    Note:

    This is not an all inclusive listing. There are other VISA types used to enter the United States.

3.22.3.9  (01-01-2015)
Correspondence Procedures

  1. Throughout the text of this IRM, instructions are present to correspond with Action Code 215. All missing required information must be requested when corresponding. DO NOT CORRESPOND WITH A TAXPAYER MORE THAN ONE TIME all conditions causing the return to be incomplete must be identified and requested.

    Exception:

    ERS examiners will correspond a second time if the taxpayer sends back a return with the signature not located in the appropriate "Sign Here" area, under the jurat statement. In order for a taxpayer's signature to be valid, it MUST appear in the space provided under the jurat. The only exception to this rule is when the taxpayer him/herself has signed in the wrong area and arrowed their signature to the appropriate place.

  2. ERS examiners are required to inspect returns for missing signatures. Without the taxpayer's signature the tax return is not an official document and may not be processed. The taxpayer’s signature(s) must be present below the jurat line(s). Signatures in the “Third Party Designee” or “Preparer’s Signature” area DO NOT constitute a valid taxpayer signature and must be pulled and sent back to the Receipt and Control Operation (or designated area) to be mailed back to the taxpayer. If a return is unsigned, SSPND 640 to send the return to Rejects. Refer to IRM 3.12.3.2.2.2.4.

    Note:

    Rev. Rul. 68-500 allows bulk filings of Form 1040NR to include a facsimile (rubber stamp) signature signed for the taxpayer by an agent. Accept the facsimile signature and process the returns that are signed for the taxpayer by an agent. (Attorney-in-Fact)

3.22.3.9.1  (07-07-2014)
Missing Signature

  1. An original signature is required, below the jurat (perjury statement), on most returns. Without the taxpayer's signature, the return is not an official document and may not be processed. ERS examiners are required to inspect returns for missing original signatures. If a return is unsigned, SSPND 640 to send the return to Rejects. Be sure to correspond for All missing required information.

    Exception:

    Missing signature on Streamlined returns follow IRM 3.22.3.4.1.3.

    Note:

    Accept a taxpayer's signature elsewhere on the return if the taxpayer has arrowed their signature to the appropriate area.

  2. See IRM 3.12.3.2.2.2.4 for specific procedures regarding missing signatures.


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