3.22.110  Chapter Three Withholding (CTW) Returns - Form 1042

Manual Transmittal

October 22, 2014

Purpose

(1) This transmits revised Internal Revenue Manual (IRM) 3.22.110, International Error Resolution - Chapter Three Withholding (CTW) Returns - Form 1042.

Material Changes

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

(2) Line numbers and processing instructions have been updated and added throughout this IRM to reflect the 2014 Form 1042 changes and filing requirements to include Chapter 4. All section numbers have been updated accordingly.

(3) 3.22.110.1(1) Revised for clarification.

(4) 3.22.110.1(2) Revised to reflect new chapter 4 information.

(5) 3.22.110.1(3)(4) Deleted subsequent paragraphs renumbered accordingly.

(6) 3.22.110.1(5) Updated to reflect revised 2014 Form 1042.

(7) 3.22.110.1(10) Revised to reflect new line numbers.

(8) 3.22.110.4 New section added to the BMF Consistency portion for BMF Identification (ID) Theft. All subsequent sections renumbered.

(9) 3.22.110.5(3) Revised wording for clarity.

(10) 3.22.110.7(3) Revised bullets.

(11) 3.22.110.8(1) Revised bullet list.

(12) 3.22.110.11.2(1) Revised bullet list.

(13) 3.22.110.15 Chart Updated Computer Section 1 chart to include chapter 3 and chapter 4 and make adjustments for new line numbers.

(14) 3.22.110.15.2(8) Removed information regarding pre-printed labels, they are no longer used.

(15) 3.22.110.15.6(4) Chart Corrected the CCC X information.

(16) 3.22.110.15.6(6) Updated the list reflective of the changes to the 2014 Form 1042.

(17) 3.22.110.15.6(7) Updated to reflect 2014 Form 1042 changes.

(18) 3.22.110.15.10 Updated instructions to clarify use of SIC 2.

(19) 3.22.110.15.11 Revised instructions for Field 01QIN, it is no longer transcribed it is now computer generated.

(20) 3.22.110.15.12 Corrected instructions for Field 01CBI to reflect the correct line identified by this field from Paid Preparer to Designee.

(21) 3.22.110.17(14)d Added note regarding Procurement Only type returns.

(22) 3.22.110.17(14)f Revised, QI checkbox information no longer applicable. Instructions now reflect 01QIN field information.

(23) 3.22.110.17(14)n Chart revised for clarification to correction procedures.

(24) 3.22.110.18 Revised instruction to indicate that for 2014 and subsequent, Field 07B/D will always be positive.

(25) 3.22.110.18(4) Revised chart to reflect changes to Section 07 field designators for 2014.

(26) 3.22.110.18.1(2) Added Caution regarding Procurement Only returns.

(27) 3.22.110.18.1(5)b Added Note regarding Procurement Only returns

(28) 3.22.110.18.3 Added new subsection for Field 0762A - Total U.S. Source FDAP Income. Subsequent subsections renumbered.

(29) 3.22.110.18.4 Added new subsection for Field 0762SSD - Total U.S. Source Substitute Dividend Payments. Subsequent subsections renumbered.

(30) 3.22.110.18.5 Added new subsection for Field 0762SSP - Total U.S. Source Substitute Payments Other than Substitute Dividend. Subsequent subsections renumbered.

(31) 3.22.110.18.6 Added new subsection for Field 0762C - Gross Income Reported. Subsequent subsections renumbered.

(32) 3.22.110.18.7 Revised to reflect new line numbers, field, and instructions for 2014 Form 1042. Changed form Field 0762A to 0762D.

(33) 3.22.110.18.8 Added new subsection for Field 0763A - Taxes Withheld by Withholding Agent. Old section regarding Field 0763A deleted.

(34) 3.22.110.18.9 Added new subsection for Field 07POD - Taxes Withheld by Other Withholding Agents, For Payments Other than Substitute Dividend.

(35) 3.22.110.18.10 Added new subsection for Field 07SD - Taxes Withheld by Other Withholding Agents, For Substitute Dividends.

(36) 3.22.110.18.11 Added new subsection for Field 0763C - Reimbursements.

(37) 3.22.110.18.12 Added new subsection for Field 0763D - Taxes Assumed by Withholding Agent

(38) 3.22.110.18.13 Revised to reflect new line numbers, field, and instructions for 2014 Form 1042. Changed from Field 0762B to 0763E.

(39) 3.22.110.18.14 Revised to reflect new line numbers, field, and instructions for 2014 Form 1042. Changed from Field 0763B to 0764A.

(40) 3.22.110.18.15 Added new subsection for Field 0764B - Net Tax Liability Chapter 3.

(41) 3.22.110.18.16 Added new subsection for Field 0764C - Net Tax Liability Chapter 4.

(42) 3.22.110.18.17 Added new subsection for Field 0764D - Form 1042 Excise Tax Amount.

(43) 3.22.110.18.18 Revised to reflect new line numbers, field, and instructions for 2014 Form 1042. Changed from 0763C to 0764E.

(44) 3.22.110.18.19 Revised to reflect new line numbers, field, and instructions for 2014 Form 1042. Changed from 0764 to 0765.

(45) 3.22.110.18.20 Revised to reflect new line numbers, field, and instructions for 2014 Form 1042. Changed from 0765 to 0766.

(46) 3.22.110.18.21 Revised to reflect new line numbers, field, and instructions for 2014 Form 1042. Changed from 0766 to 0767A.

(47) 3.22.110.18.22 Added new subsection for Field 0767B - Credit From Other Withholding Agents For Substitute Dividend Payments

(48) 3.22.110.18.23 Revised to reflect new line numbers, field, and instructions for 2014 Form 1042. Changed from 0767 to 0768.

(49) 3.22.110.18.24 Instructions revised for 2014 Form 1042.

(50) 3.22.110.18.25 Removed (2) and all instructions for Field 07FET. Old Field 07FET is new Field 0764D 3.22.110.18.17.

(51) 3.22.110.19 Added new section for new Section 2 of 2014 Form 1042, Reconciliation of Payments of U.S. Source FDAP Income. Subsequent sections renumbered.

(52) 3.22.110.19.1 Added new subsection for Section 2 Line 1 - Total U.S. Source FDAP Income Required to be Withheld Under Chapter 4.

(53) 3.22.110.19.2 Added new subsection for Section 2 Line 2a -Amount of Income Paid to Recipients With No Chapter 4 Withholding Requirements.

(54) 3.22.110.19.3 Added new subsection for Section 2 Line 2b -Amount of Excluded Non-Financial Payments.

(55) 3.22.110.19.4 Added new subsection for Section 2 Line 2c -Amount of Income Paid With Respect to Grandfathered Obligations.

(56) 3.22.110.19.5 Added new subsection for Section 2 Line 2d - Amount of Income Connected With a Trade or Business in the U.S.

(57) 3.22.110.19.6 Added new subsection for Section 2 Line 2e - Amount of Excluded Offshore Payment.

(58) 3.22.110.19.7 Added new subsection for Section 2 Line 2f - Total U.S. Source FDAP Income Required to be Reported Under Chapter 4 But Not Withheld.

(59) 3.22.110.19.8 Added new subsection for Section 2 Line 3 - Total U.S. Source FDAP Income Reportable Under Chapter 4.

(60) 3.22.110.19.9 Added new subsection for Section 2 Line 4 - Total U.S. Source FDAP Income Reported on All Forms 1042–S.

(61) 3.22.110.19.10 Added new subsection for Section 2 Line 5 - Total Variance, Subtract Line 3 From Line 4, If Amount Other Than 0 Provide Explanation on Line 6.

(62) 3.22.110.19.11 Added new subsection for Section 2 Line 6 - Explanation for Other Than Zero on Line 5.

(63) 3.22.110.20 Added new section for Section 3 - Principle Contract Payments, subsequent sections renumbered.

(64) 3.22.110.21.1(3) Updated chart for clarity.

(65) 3.22.110.21.7(2) Chart revised for clarification.

(66) 3.22.110.21.7(4) Chart revised for clarification.

(67) 3.22.110.21.8(5) Chart updated for clarification.

(68) 3.22.110.21.18 Error Code 704 revised due to changes to the 2014 Form 1042.

(69) 3.22.110.21.19(1) Chart updated to reflect new field designators.

(70) 3.22.110.21.19(3) List updated.

(71) 3.22.110.21.20(1) Error Code 716 Chart updated to reflect updated field designators.

(72) 3.22.110.21.20(3) Chart removed and valid information moved to (3) list.

(73) 3.22.110.21.21 New subsection added for new Error Code 718 -Total Gross Amounts Reported Inconsistency, Subsequent subsections renumbered.

(74) 3.22.110.21.22 New subsection added for new Error Code 719 - Tax Reported as Withheld or Assumed.

(75) 3.22.110.21.23(1) Error Code 720 chart revised to reflect new and updated field designators.

(76) 3.22.110.21.23(3) Chart deleted and valid information moved to (3) list.

(77) 3.22.110.21.24(1) Error Code 724 chart revised to reflect new and updated field designators.

(78) 3.22.110.21.24(3) Chart revised to reflect changes for 2014 Form 1042.

(79) 3.22.110.21.25(1) Error Code 728 chart revised to reflect new and updated field designators.

(80) 3.22.110.21.25(2) Note removed no longer applicable.

(81) 3.22.110.21.25(3) Chart deleted and valid instruction moved to (3) list.

(82) 3.22.110.21.27 New subsection add for new Error Code 734 - Chapter 4 Total U.S. Source FDAP Income, subsequent subsections renumbered.

(83) 3.22.110.21.28 New subsection add for new Error Code 736 - U.S. FDAP Chapter 4 Income Amounts Are Inconsistent.

(84) 3.22.110.21.29 New subsection add for new Error Code 738 - Section 2 Amounts Form 1042-S Are not Consistent With Section 1 Amounts.

(85) 3.22.110.21.30 New subsection add for new Error Code 740 - Total Variance Amounts Inconsistent.

(86) 3.22.110-1 Exhibit Revised with a 2014 Form 1042.

(87) 3.22.110-2 Exhibit removed for 2010 Form field designators, not needed. Subsequent exhibits renumbered.

(88) 3.22.110-3 Exhibit removed for 2000 Form field designators, not needed. Subsequent exhibits renumbered.

(89) 3.22.110-4 Exhibit removed for 1996 Form field designators, not needed. Subsequent exhibits renumbered.

(90) 3.22.110-5 Added Definitions for W-8BEN-E, W-8EIC, Withholding Foreign Partnership (WP), Withholding Foreign Trust (WT), Withholdable Payment, Collective Refund, Reimbursement Procedures, and Participating Foreign Financial Institution (PFFI). Also revised several definitions.

Effect on Other Documents

This IRM supersedes IRM 3.22.110 dated January 1, 2014. .

Audience

Wage and Investment, Error Resolution employees of the Ogden Submission Processing Campus (OSPC Only).

Effective Date

(01-01-2015)

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

3.22.110.1  (01-01-2015)
Overview - Chapter Three and Chapter Four Withholding Legislation

  1. IRC Section 1441 - IRC Section 1443, Chapter Three Withholding Under IRC 1441 and 1442, , a person who makes a payment of U.S. source interest, dividends, royalties, and certain other types of income to a foreign person must generally deduct and withhold 30 percent from the payment. A lower rate of withholding may apply under the Code, the regulations, or an income tax treaty. Generally, a payor of these types of income must also report the payments on Form 1042-S.

  2. IRC 1471-1474, Chapter 4 Withholding. As of June 30, 2014, withholding will begin on withholdable payments under chapter 4 of the IRC pursuant to the Foreign Account Tax Compliance Act (FATCA). The 2014 Form 1042 has been modified substantially to reflect the withholding and reporting under chapter 4.

  3. The Form 1042 is used to report amounts subject to withholding under sections 1441-1443 and amounts withheld on withholdable payments under sections 1471-1474 paid to a foreign person. A foreign person is defined not only as an individual, but also as a foreign corporation, partnership, estate, trust, etc.

  4. The person (or persons) responsible for the withholding is identified as a Withholding Agent. A Withholding Agent can be an individual, corporation, partnership, estate, trust, government agency, association, tax exempt organization, etc. and can be foreign or domestic.

  5. Form 1042 is used to report withholding by publicly traded partnerships under IRC 1446 on distributions of effectively connected income to foreign partners.

  6. Form 1042 can also be used by Qualified Intermediaries, Withholding Foreign Partnerships, Withholding Foreign Trusts, Participating Foreign Financial Institutions, or Reporting Model 1 Foreign Financial Institutions to make a claim for a collective refund with the IRS on behalf of their account holders, partners, beneficiaries, and owners (as applicable). See IRM Section 21.8.2.12 for information on the filing requirements for collective refunds.

  7. The Form 1042 is a two-page return with no other schedules attached.

  8. The Form 1042 includes a 60 line Record of Federal Tax Liability (ROFTL). Each month is divided into quarters (roughly equivalent to weeks) showing the tax liability for that period. The total liability (line 63a), represents the total of these entries.

  9. The Form 1042 is filed annually. The tax period always ends with December 31st. There is no fiscal or short year filing permitted.

  10. The due date of the Form 1042 is March 15th. An extension can be requested by filing Form 7004, Application for Automatic 6 Month Extension of Time To File Certain Business Income Tax, Information and Other Returns, however, the filing of an extension does not extend the time for the withholding agent to pay the tax. Proper filing of this form automatically gives the taxpayer a six month extension on filing. No additional extensions can be granted.

  11. Every withholding agent or intermediary who receives, controls, has custody of, disposes of, or pays any fixed or determinable annual or periodical income must file an annual return for the preceding calendar year on Form 1042.

    Note:

    An intermediary is a person who acts as a custodian, broker, nominee or otherwise as an agent for another person, regardless of whether that other person is the beneficial owner of the amount paid, a flow-through entity, or another intermediary.

  12. The 9/11 Healthcare Bill signed January 2, 2011, (Public Law 111-347) introduced the paying, reporting and collection of a two percent (2 percent) excise tax on specified federal procurement payments made to foreign persons or entities Effective January 2, 2011. Beginning with tax year 2011, this tax is paid via the Electronic Federal Tax Payment System (EFTPS) and reported on the Form 1042"Record Of Federal Tax Liability" (ROFTL) section of the return and on Line 64d. Once a Form 1042 reporting the 2 percent excise tax payment is processed to the Business Master File (BMF) the amount from line 64d will appear on IDRS (under the TC 150 DLN) next to the field name " F1042-EXCISE-TAX-AMT." This amount is an adjustable amount using Item Reference Number 198. If the withholding agent comes in with an amended or supplemental return then the Accounts Management (AM) employees in Philadelphia will make the tax adjustment and update the two percent excise amount with item reference number 198.

3.22.110.2  (01-01-2015)
♦ Regulation Section 3705(a) - IRS Employee Contacts♦

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

  2. IRS employees are required to give their name and unique identification number during taxpayer telephone, face to face, and written contact. Refer to IRM 1.2.4.6 for additional information.

    Note:

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

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

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

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

    • Your last name

    • Your Identification Card (badge) Number

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

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

    • Your last name

    • Integrated Data Retrieval System (IDRS), Letter System, or ID card (badge) number

  6. The Integrated Data Retrieval System (IDRS) number and numbers for some other Letter Systems are automatically generated. If it is not generated, or a handwritten note is prepared, the ID card (badge) number must be used.

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

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

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

  10. It is not necessary to repeat the ID card number (badge) on a subsequent contact, when the nature of an employee’s work involves multiple contacts with the same taxpayer, and the employee has given the taxpayer (either telephone or in-person) their ID card (badge) number on the first contact.

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

3.22.110.3  (01-01-2015)
♦Taxpayer Advocate Service (TAS)♦

  1. Refer taxpayers to the Taxpayer Advocate Service (TAS) (see IRM Part 13, Taxpayer Advocate Service) when the contact meets TAS criteria (see IRM 13.1.7, Taxpayer Advocate Service (TAS) Case Criteria) or has Form 911 attached, and you can’t resolve the taxpayer’s issue the same day. The definition of "same day" is within 24 hours. "Same day" cases include cases you can completely resolve in 24 hours, as well as cases in which you have taken steps within 24 hours to begin resolving the taxpayer’s issue. Do not refer these cases to TAS unless they meet TAS criteria and the taxpayer asks to be transferred to TAS. Refer to IRM 13.1.7.4, Same-Day Resolution by Operations. When referring cases to TAS, use Form 911, Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order), and forward to TAS in accordance with your local procedures.

3.22.110.3.1  (01-01-2015)
♦TAS Service Level Agreements (SLA)♦

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

  2. The SLAs are located at http://tas.web.irs.gov under the heading "Policy/Procedures/Guidance."

3.22.110.4  (01-01-2015)
♦BMF Identification (ID) Theft♦

  1. BMF Identification Theft is increasing. If a tax examiner in Submission Processing (SP) Error resolution System (ERS) finds a case with attachments or correspondence indicating the taxpayer is a victim of ID Theft:

    1. SSPND “360” to route the return to Planning & Analysis (P&A).

    2. Attach Form 4227 (or other appropriate routing slip) with the notation “ID THEFT”.

    3. Provide the entire case to your senior/lead.

    Your senior/lead will expedite the case to the P&A staff for referral to one of the SP BMF ID Theft liaisons. The taxpayer must clearly state that they are a victim of "ID Theft" ; do not send cases that are subject to "Funny Box" or "Fraud" review.

3.22.110.5  (01-01-2015)
♦Use of Fax for Taxpayer Submissions♦

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

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

    Note:

    Before disclosing any tax information, you must be sure you are speaking with the taxpayer or authorized representative. See the Taxpayer Authentication guidelines in IRM 21.1.3. Also, before leaving any messages on a taxpayer's answering machine, review IRM 11.3.2.6.1. Fax procedures contained in IRM 11.3.1.11 must be reviewed prior to faxing confidential information to the taxpayer.

  3. Tax examiners will indicate the fax paragraph on the Form 3696, Correspondence Action Sheet, to advise taxpayers of the option to fax their response.

3.22.110.6  (01-01-2015)
♦General Disclosure Guidelines♦

  1. IRC 6103 establishes the taxpayer's (T/P's) right to privacy of tax information. You must be sure that you provide correct information to the correct T/P or authorized representative (check IDRS CC CFINK for Power of Attorney (POA)).

  2. Taxpayer returns and return information must remain confidential as provided for in IRC 6103,Confidentiality and disclosure of returns and return information. IRC 7431 provides civil damages for unauthorized disclosure of returns and return information. IRC 7213 and IRC 7213A provide criminal penalties for unauthorized disclosure or unauthorized inspection of returns and return information and require employees be discharged from duty if charged and convicted of these offenses.

  3. For more information on General Disclosure Guidelines refer to IRM 21.1.3,Operational Guidelines Overview and for full discussions refer to IRM 11.3.1 through IRM 11.3.40,Disclosure of Official Information.

3.22.110.7  (01-01-2015)
Purpose of Error Resolution

  1. This section of the Internal Revenue Manual (IRM) provides procedures for correcting and processing Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons,

  2. This IRM is designed to be used by the Error Correction Tax Examiners at the OSPC.

    Note:

    Forms 1042 is only filed at the OSPC. Those erroneously filed at other locations are to be forwarded to the OSPC.

  3. While this IRM is your primary source of information, you must also be familiar with the following IRMs:

    • IRM 3.21.110, Chapter Three Withholding Returns - Form 1042 (Document Analysis/Code and Edit)

    • IRM 3.12.38, Business Master File (BMF) General Instructions

  4. In addition, it may be necessary to research information or procedures in the following IRMs:

    • IRM 3.37.110, ISRP - Chapter 3 Withholding Returns

    • IRM 3.10.72 Receiving, Extracting, and Sorting

    • IRM 3.10.73, Batching and Numbering

    • IRM 3.12.279, Business Master File (BMF)/Combined Annual Wage Reporting (CAWR)/Payor Master File (PMF) Unpostable Resolution

    • IRM 3.13.222, BMF Entity Unpostable Correction Procedures

    • IRM 3.0.273, Administrative Reference Guide

    • IRM 3.30.123, Processing Timeliness: Cycles, Criteria and Critical Dates

    • IRM 2.3.2, Introduction to Integrated Data Retrieval System (IDRS) Terminal Responses

  5. The telephone may be used, at the discretion of management, to resolve questions pertaining to returns that are on the Error Resolution System in lieu of rejecting those returns for subsequent correspondence action.

  6. ERS and Reject tax examiners are not expected to redo the work of Code and Edit tax examiners. While a complete review of the return is not required, if an omission or error made by Code and Edit is noticed while working the Form 1042, enter the correct information onto the return.

    Note:

    You must review all IDRS Correspondence Action Sheets prepared by Code and Edit to ensure all required missing data and clarification is requested.

3.22.110.8  (01-01-2015)
General Processing Instructions

  1. The Form 1042 is processed under:

    • Program Code: 12500

    • File Source: Business Master File (BMF)

    • File Location Codes: Domestic 29, International 60 US Possessions 78

    • Tax Class: 1

    • Master File Tax (MFT): 12

    • Document Code: 25

    • Blocking Series: 501-999

    • Return Due Date: March 15, 2015

  2. Withholding Agents may request an extension of time to file using Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. No request for extension can exceed a six month period. The due date is extended to 6 months from the due date of the return, generally September 15th, (see form 7004 Instructions for lines 2 and 3 for exceptions).

  3. The following conditions apply to Form 1042 processing:

    • No edit sheet;

    • No attached schedules;

    • Audit codes are not used;

    • Calendar Year only filing, no fiscal or short year returns allowed.

  4. The following chart list the related Forms and Documents that are referred to in this IRM:

    Form Title Purpose
    1042-T Annual Summary and Transmittal of Form 1042-S Used to transmit Paper Form 1042-S, Foreign Persons U.S. Source Income Subject to Withholding, to the Internal Revenue Service.
    1042-S Foreign Persons U.S. Source Income Subject to Withholding Information return used by withholding agent to report certain U.S. income paid to foreign persons's.
    319 -C Letter used to request information. IDRS computer-generated letter.
    1791-C U.S. Annual Return of Income Paid at Source Incomplete for Processing: Form 1042/1042S IDRS computer-generated letter.
    3177 Notice of Action for Entry on Master File Prepared by Campus and Area Office personnel for input via either DIS (Distributed Input System) or IDRS (Integrated Data Retrieval System) of miscellaneous transaction codes to the taxpayer's tax module(s).
    3465 Adjustment Request Used by Service personnel when requesting a change to a tax module. The completed form is routed to the service center Adjustments Branch for appropriate action by the tax examiner.
    4227 Intra-SC Reject or Routing Slip Used by all functions to route returns and other controlled documents between service center activities.
    3696-A IDRS Correspondence Action Sheet A worksheet used to designate the specific C-letter to be generated and mailed to the taxpayer.
    3244 Payment Posting Voucher Used primarily by service center Receipt and Control Branch personnel to post (via DIS or IDRS) a subsequent payment to a taxpayer's account. It is not used as an official receipt for proof of payment.
    3893 Re-Entry Document Control Control document used to identify a block or a partial block of documents which require reprocessing.

    Note:

    For Tax Year 2001 and prior, Form 1042 was used as the transmitting record for all associated Form 1042-S. Beginning Tax Year 2002, Form 1042 is no longer to be used as the transmitting record for Form 1042-S. Instead, Form 1042-T is to be used as the transmitting record for all Form 1042-S.

    Caution:

    If you identify a potential Erroneous Refund Return, input Action Code 332 and forward the return to Examination for further review (refer to IRM 3.12.38 for additional instructions). You should contact your manager, as you may be advised to place the return into a designated basket for Examination review, per local directives.

3.22.110.9  (01-01-2015)
Definitions

  1. The following definitions are terms that deal with the correction of error screens.

    Term Definition
    Field A specific entry from a document. See the sections following for complete field information.
    Look-See Condition This is not necessarily an error, although it could be. The computer wants a field or section looked-at to see if it should be addressed by the tax examiner.
    Section A group of related fields indicated by a two-digit section number (01, 02, 03, etc.)

3.22.110.9.1  (01-01-2015)
Error Correction Process

  1. All Form 1042 Error Screen Displays will display as follows:

    • Tax Class - 1

    • Document Code 25 - Form 1042

    • MFT - 12

3.22.110.9.2  (01-01-2015)
♦BMF Consistency♦

  1. The purpose of this initiative is to achieve consistency in the Business Master File (BMF) Error Resolution System (ERS) processing IRMs.

  2. Topics for the BMF Consistency have been identified and developed as a coordinated effort between Cincinnati, Ogden and Paper Processing Branch BMF Code and Edit/ERS Section.

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

  4. Text in normal print is the common processes for BMF returns. The text in BOLD print is form specific and applies to this IRM only.

3.22.110.9.3  (01-01-2015)
Inventory/Reports

  1. Records will be placed into the Error Inventory or the Workable Suspense Inventory for correction. Once the Error Resolution Tax Examiner accesses the record and it is displayed on the screen, it must be:

    1. Corrected in full by correcting errors in editing or transcription and/or correcting math errors.

    2. Placed in suspense for additional information.

    3. Rejected from pipeline processing.

  2. Each day the Error Inventory Report will be furnished showing:

    1. Blocks, by the block control number, and block Document Locator Number (DLN) in DLN order.

    2. Each batch will be on a separate page.

    3. Blocks received from Block out of Balance (BOB) Correction will be listed separately.

    4. A copy of the report must be on the carts of documents and used as a charge-out to determine when a cart is completed.

    5. The first line of the Error Inventory Report will show the number of working days the records on that page have been in the Error Inventory. This will enable work left from a previous day to have priority.

3.22.110.9.4  (01-01-2015)
Workable Suspense Inventory Report

  1. Each day the Workable Suspense Inventory Report will be furnished showing the records by Program in DLN order for various status situations. Separate pages for each program, with totals, will be provided.

  2. The first line of the report will show the number of working days that the records have been in the Workable Suspense Inventory. This will allow priority to be given to the older work.

3.22.110.9.5  (01-01-2015)
Error Displays and Corrections

  1. All Form 1042 Error Screen Displays will display as follows:

    • Each field is identified by an Alpha/Numeric Field Designator (AFD) displayed before the field.

    • Fields are displayed with no breaker.

    • Negative values are indicated by a minus (−) sign following the amount.

    • Decimal points are displayed beginning in the left position.

    • Leading zeroes in amount fields are suppressed and the significant digits are displayed beginning in the left position.

    • If more than one amount field of a record is to be shown, the units positions are aligned beneath one another.

    • Sufficient leading blanks are displayed preceding the shorter amounts so that the unit position of these amounts are directly in line with the unit position of the longest amount.

    • The cents digits are not displayed for "dollars only" fields. So that the unit position will remain in line with the other fields of the section, two asterisks (**) are displayed in the cents position of the dollars only field.

  2. Corrections are entered starting with the left-most position of the field. Blank-out unused positions.

    • If fewer than the maximum number of positions is required, the program will automatically move to the right of the digits.

    • It is not necessary to enter the decimal point. If the decimal point is entered, it will be ignored.

    • A minus sign (−) must be entered as the last numeric if the amount is negative.

  3. Be careful not to enter more than the number of positions allowed for a particular field. If more data is entered, the overflow characters will display on the screen but are dropped when the field is added to the record. This is especially important for the TIN, name and address.

  4. Corrections can be made to a displayed field by overlaying only the digits in error and not re-entering the entire field. It is not necessary to eliminate the decimal point when correcting in this manner.

  5. If it is necessary to add a missing section:

    1. Transmit with Command Code GTSEC, followed by the desired Section Number.

    2. When the empty section format is displayed, enter the missing data in the proper fields and transmit with Command Code CRECT.

  6. If it is necessary to see a field or section of the record other than that shown in the display:

    1. Enter Command Code GTSEC, followed by the desired Section Number.

    2. If a correction is not made to the section, drop to the bottom of the screen, and transmit.

    3. Any error display not showing all fields necessary for resolution should be reported to the National Office.

      Reminder:

      When transmitting corrections to a screen display, move the cursor below the last field containing data before transmitting.

  7. If it is necessary to delete a section of the record, enter Command Code DLSEC, followed by the desired Section Number.

  8. If it is determined during the course of correcting a Priority II, III or IV Error, that additional information or research is necessary to resolve the error (or if the error is rejected), enter the appropriate Action Code with either Command Code SSPND or RJECT.

3.22.110.9.6  (01-01-2015)
Command Codes

  1. The Command Codes needed for correcting the Error Inventory and the Workable Suspense Inventory are briefly described below. Any Command Code in the Employees Security Profile will be available:

    Command Code Description
    ACTVT Used to transfer unworkable suspense records to workable suspense inventory.
    CRECT
    • Used to enter a correction.

    • Valid only after an error has been displayed in response to the GTREC command.

    DLSEC Used to delete a section within the record in progress.
    ENMOD Used to research a name control.
    ERINV Used to research a DLN or TIN on the ERS Control File.
    ERVOL
    • Used with a Status Code to display the number of ERS records in the current Workable Inventory.

    • Used to obtain the actual count of records to be worked.

    • Printed reports for ERS are updated nightly.

    FRM49 Used to input a fact of filing when an unnumbered return is withdrawn from normal processing, i.e., correspondence.
    GTREC
    • Used to access the first error record in an ERS error block.

    • Used to access a specific record in the Workable Suspense Inventory.

    GTRECQ Used to access a worked record that has been held for Quality Review.
    GTRECW
    • Used to recover an ERS data record that has already been worked.

    • Can be used at any time on the same processing day.

      Note:

      Errors discovered on subsequent days must be corrected by using Notice Review and Adjustment procedures.

    GTSEC
    • Used to obtain the display of any data section within the record in progress.

    • Response is the display of all correctable fields of the requested section, including blank fields.

    • Computer generated fields and error indicators will not be shown.

    • If no data is present in the specified section, the empty format of the requested section is displayed.

    INOLE Used to access the National Account Profile (NAP) which contains selected entity information for all Master File accounts.
    MFTRA Used to request a hard copy transcript for a specific TIN.
    NAMEE
    • Used to research a missing or incomplete EIN/TIN.

    • Name and address data is input to search the Key Index File.

    NWDLN Used to assign a renumbered DLN on an ERS record.
    RJECT Used to delete a record from ERS.
    SINOF
    • Used to sign off the computer.

    • SINOF will be used by all terminal users, including ERS, GUF and IDRS.

    • SINOF is displayed, but must be keyed onto the screen when signing off.

    • Response is "Request Completed"

    SINON
    • Used to sign on to the computer.

    • SINON is displayed but must be keyed onto the screen when signing on.

    • Password is entered but does not appear on the screen.

    SSPND
    • Used with an ERS Action Code to place a record into Suspense status.

    • SSPND is valid for Error Correction and Suspense Correction.

    TRDBV Tax Return Data Base
    • Used to access 100 percent of return data as well as all subsequent corrections entered via ERS and GUF.

    • Used to verify specific line items (including any correction activity), resolve taxpayer inquiries, identify refund issues, and verify filing and return status.

3.22.110.10  (01-01-2015)
Foreign Currency

  1. All entries must be in U.S. dollars and cents. If the entries are in a foreign currency, correspond for correct amount in U.S. dollars and cents.

  2. Be aware of the presence of the symbols for foreign currency on the lines of the return as an indication of foreign money.

    Figure 3.22.110-1

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

3.22.110.11  (01-01-2015)
Correspondence

  1. When it is determined in Error Correction that it is necessary to contact the taxpayer to obtain missing information or clarification, Error Correction will:

    1. Complete appropriate form.

    2. Attach it to the return.

    3. Enter Action Code 21X to automatically suspend for a predetermined number of days or until the taxpayer replies, whichever is earlier.

  2. Rejects will review the form to ensure that the current revision was used and that it is complete and easy for the taxpayer to understand before releasing it.

  3. Rejects will either prepare Form 3177, Notice of Action for Entry on Master File, to input Transaction Code (TC) 599 and Closing Code (CC) 17, input the two codes using Command Code FRM49.

    Note:

    It is not necessary to input the two codes if the return was originally processed through Residual Remittance Processing System (RRPS). The Transaction Code (TC) 610 input by RRPS serves as the satisfying transaction for the normal delinquency check.

  4. Any time that a correspondence letter is prepared, ERS and Rejects will review the return to determine that all missing information is requested at the same time.

    Caution:

    Correspondence must be sent only once. It is imperative that you review the return for all correspondence conditions.

  5. If Code and Edit has already corresponded (look for attachments), process the error condition ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. Rejects will never send a return back to a taxpayer. If it should ever be necessary to send a photocopy of the return to the taxpayer, notate the word copy on the photocopy and black out the DLN and edit marks.

  7. Enter a Correspondence Received Date into Field 01CRD on the ERS Screen when correspondence is received. Enter Field 01CRD in (YYYYMMDD Format) except in the following situations.

    • The reply from the taxpayer was received before the due date of the return.

    • The correspondence was requested due to an IRS processing error.

  8. If a reply to correspondence is not received within the allotted time, 30 days for domestic mail and 45 days for international, enter Computer Condition Code (CCC) '3' into Field 01CCC on the ERS Screen.

3.22.110.11.1  (01-01-2015)
Missing or Illegible Data

  1. Correspond for missing information when any part of the entity area cannot be found by using all applicable research Command Codes (e.g. NAMEB, NAMEE, INOLE, ENMOD, etc.).

  2. If the taxpayer has not entered data onto the correct lines of the return but instead puts see attached, Rejects will correspond for the return to be properly completed unless instructed otherwise in this IRM.

  3. Rejects will correspond for clarification when the date entered on the return cannot be read accurately.

  4. If the signature is missing, Rejects will correspond.

  5. If the taxpayer does not provide a copy of Form 1042-S, Copy B to support the entry on Line 67a/67b, reject the return and correspond for the information.

3.22.110.11.2  (01-01-2015)
Manual Refunds

  1. Information on the preparation of Manual Refund Forms (5792 or 3753) and other relevant information can be found in the following IRMs:

    1. IRM 3.12.38 (BMF General Instructions)

    2. IRM 3.17.79 (Account Refund Transactions)

    3. IRM 21.4.4 (Manual Refunds)

    4. IRM 2.4.20 (Command Codes RFUND and REFAP)

    5. IRM 3.12.14.7.11 (Income Tax Returns for Estate and Trusts, Forms 1041, 1041-QFT, 1041-N)

  2. Document Perfection is responsible for identifying refunds and for initiating requests for manual refunds. When a Manual Refund must be prepared because the refund is in interest jeopardy or the amount of the refund is $500,000.00 or more, Action Code 341 should be edited by Code and Edit to show that a manual refund is needed. If these conditions are not identified in Code and Edit, ERS must follow the following instructions:

    Note:

    Expeditious processing of refund returns is critical if the credit interest period of 180 days is about to expire.

    If... Then..
    The processing date is more than 155 days after Received Date (whichever is later) and the 180 day interest free period is in jeopardy and the refund amount is $5,000 or more Enter Action Code 341 and route to Accounting for manual refund.
    The refund is $500,000 or more Enter Action code 341 and route to Accounting for manual refund.

3.22.110.11.3  (01-01-2015)
Re-Entry Document Procedures

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

  2. Some re-entry returns may have originally been filed electronically (E-File). These returns may be identified by the presence of Mod E-file printouts in lieu of an actual return. Do not correspond for missing signatures on these documents.

  3. Each re-entry return must have Form 3893, Re-Entry Document Control or Form 13596, Reprocessing Returns attached. See below for the correct form to use.

    • Form 3893 is used to reinput documents.

    • Form 13596 is used to reprocess documents

  4. Always leave Form 3893 or Form 13596 on the front of the return. It must remain as a permanent part of the document.

    Note:

    If the return is more than 2 years and 9 months from the return due date, do not use Form 3893 or Form 13596 reprocessing procedures. Route return to the Statute Control Unit following statute procedures.

3.22.110.11.4  (01-01-2015)
♦Form 3893 Re-Entry Document♦

  1. Examine Form 3893 to determine the action needed to reinput the return processable.

    IF... THEN...
    Form 3893 is missing
    • Edit Action Code 640

    • Route to Receipt and Control using Form 4227.

    • Leave the return in the batch.

    Form 3893 is attached Determine if the return was edited according to current processing instructions.

    Note:

    If more than one return is in the batch and only the top Form 3893 has an entry in Box 1 (Alpha/Numeric block control no.), edit all returns using current processing instructions and keep all returns clipped together.

  2. If the return was not edited according to current processing instruction, circle out any action codes, Computer Condition Codes and any other edit marks that are no longer applicable. Re-edit according to current processing instructions.

  3. If the return was edited according to current processing instruction, ensure that the information from form 3893 is edited to the return.

    Form 3893 Action Taken
    Box 14 (Remarks) Ensure that the information is edited to the return.
    Box 15 (Process as)
    • Circle out any edit marks that may indicate a receipt of remittance

    • Do not change any tax due amounts.

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

    If… Then…
    Improper perfection Edit the same correction in red to the appropriate area.
    Taxpayer error Leave the entries as shown on the document.
  5. A received date must be present on all Re-entry returns:

    If… Then…
    Received date is not present Edit a received date to the middle of the return.
    Multiple received dates are present Circle out all but the earliest date.
  6. When additional information is still needed to make the return processable, prepare Form 3696 (or other approved Correspondence Action Sheet) or Form 4227 for the appropriate action (e.g., correspondence, research, etc.).

  7. When perfection is not possible, enter Action Code 640 on the return and attach Form 4227 noting, "PERFECTION NOT POSSIBLE" and return to initiator.

3.22.110.11.5  (01-01-2015)
♦Form 13596 Reprocessing Returns♦

  1. Examine Form 13596 to determine the action needed to make the return processable.

    If… Then…
    Form 13596 is missing
    • Enter Action Code 640.

    • Route to Accounting using Form 4227

    • Leave the return in the batch.

    Form 13596 is attached Determine if the return was edited according to current processing instructions.
  2. If the return was not edited according to current processing instruction, circle out any action codes, Computer Condition Codes and any other edit marks that are no longer applicable. Re-edit according to current processing instructions.

  3. If the return was edited according to current processing instruction, ensure that the information from Form 13596 is edited to the return.

    Form 13596 Action Taken
    TIN correction Edit correct TIN on return.
    Tax period correction Edit correct tax period ended on return.
    Reasonable cause Edit appropriate computer condition code.
  4. Examine returns that have any color other than red editing in the tax data section to determine if the corrections are the result of improper perfection or taxpayer error.

    If… Then…
    Improper perfection Edit the same correction in red to the appropriate area.
    Taxpayer error Leave the entries as shown on the document.
  5. A received date must be present on all reprocessed returns:

    If… Then…
    Received date is not present Edit a received date to the middle of the return.
    Multiple received dates are present Circle out all but the earliest date.

3.22.110.12  (01-01-2015)
Special Returns

  1. Use the following instructions when processing Special Form 1042 Returns.

3.22.110.12.1  (01-01-2015)
♦Compliance Secured/Prepared Returns♦

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

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

    2. Secured tax returns are notated with "TC 59X" or "ICS" (Integrated Collection System) or notated "Process as Original" with an attached Form 13133, Expedite Processing Request. The "Delinquent Return" box on Form 13133 should be checked.

3.22.110.12.2  (01-01-2015)
♦Collection Secured♦

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

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

    2. Correspond for conditions that cannot be processed (e.g., missing signatures, missing schedules, etc.). Use IDRS Letter 1791C and return a copy of the letter back to the withholding agent.

    3. Enter CCC "W" if the Received Date is more than 2 years and 9 months after the Return Due Date. Do Not send the return to Statute Control. Enter Action Code 310.

    4. If the return is incomplete or no reply is received to the correspondence, and the return is not a statute imminent return, then prepare Form 4227 to Rejects, and enter Action Code 640.

  2. Upon receipt, Rejects will delete the DLN and route the document to collections on Form 3210, Document Transmittal.

3.22.110.12.3  (01-01-2015)
♦Delinquent Returns♦

  1. A return is normally delinquent if it is not received on or before the return due date.

    Note:

    However, accept the return as timely if received within the ≡ ≡ ≡ ≡ ≡ ≡ . See IRM 3.10.72, Extracting, Sorting, and Numbering.

  2. Accept a return as timely if:

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

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

  3. Consider a return timely:

    1. If it appears the Post Office might have sent it to another government agency in error (i.e. SSA)

    2. If the original envelope bears a timely postmark or a timely date stamp by that agency

    3. However, if the return was erroneously addressed to another agency, it will be date stamped with the current date when the IRS receives it

  4. Consider a return timely if it is received or mailed on the next workday when the last day for filing falls on a Saturday, Sunday, or legal holiday.

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

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

    • The document as timely if the postmark date falls on or before the prescribed date for filing the return

  6. If the return is truly delinquent, check the return and attachments for an explanation of late filing, unless a pre-computed delinquency penalty has been shown. If reasonable cause for late filing is found, enter the appropriate Computer Condition Code "D or R" .

3.22.110.12.4  (01-01-2015)
♦IRC 6020(b) - Prepared by Collection♦

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

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

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

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

    3. Enter CCC "4" .

      Note:

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

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

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

3.22.110.12.5  (01-01-2015)
♦Examination Prepared♦

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

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

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

    3. If Form 13133 is attached, enter the Computer Condition Codes that are checked on the form.

      Note:

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

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

3.22.110.12.6  (01-01-2015)
♦Examination Secured♦

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

    1. Correspond for conditions that cannot be processed (e.g., missing signatures, missing schedules, etc.).

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

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

3.22.110.12.7  (01-01-2015)
♦Frivolous Argument♦

  1. A frivolous argument is used for the purpose of expressing dissatisfaction with the substance, form or administration of the tax laws by attempting to illegally avoid or reduce tax liabilities. Recognized frivolous arguments made by businesses include, but are not limited to, the examples in IRM 4.10.12.1.1, Frivolous Return Program.

  2. Review the return to determine whether it appears to be a frivolous return. See Exhibit 3.22.110-9 for additional information.

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

    Caution:

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

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

    Note:

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


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

    Example:

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

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

    Note:

    Returns having only zeros, no entries, are blank or indicate "None," "Not Liable," etc... with no evidence of a frivolous argument are not to be considered as frivolous returns.

3.22.110.12.7.1  (01-01-2015)
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    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

3.22.110.12.7.2  (01-01-2015)
≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡

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

3.22.110.12.8  (01-01-2015)
Statute of Limitations

  1. A period of limitation is a time period established by law to review, analyze and resolve taxpayer and/or IRS related issues.

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

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

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

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

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

    Note:

    Exceptions may apply to change the periods of limitations.

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

    • IRC § 6501 (c) (1) - False Return

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

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

      Caution:

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

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

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

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

    • IRC § 6901 (c) - Fiduciaries and Transferees

    • IRC § 6503 (h) - Bankruptcy

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

  5. Form 1042 should be cleared by Statute Control before coding and editing. If not, Error Correction will reject and Rejects will send to Statute Control with the required BMFOLT research attached. Enter Action Code 310 to forward the document to Statute Control for clearance.

  6. Do not treat a return as a Statute document and enter Computer Condition Code W if:

    1. TC 59X or Sec. 6020(b) is notated on the face of the return, or

    2. A return with no money amounts has been prepared by Examination.

      Note:

      A CLEARED BY STATUTE stamp is not required on these returns.

  7. If the statute has already expired or will expire within 60 days of the current processing date, hand-carry to the Statute Control function.

  8. Enter CCC W on statute returns that have been cleared by Statute Control. CLEARED BY STATUTE will be stamped on the left hand side of the Form 1042 return.

3.22.110.12.8.1  (01-01-2015)
♦Protective Claims♦

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

    Exception:

    If the return is amended, do not remove from batch. Enter Computer Condition Code "G" and use Action Code "650."

3.22.110.13  (01-01-2015)
Action Codes

  1. The ERS Action Code indicates that specific information is missing or that the record is to be rejected from processing. The code will have sufficient detail to indicate if correspondence is to be sent to the taxpayer or specific in-house research or action(s) required.

  2. For a listing of valid ERS Action Codes, see Exhibit 3.22.110-6.

  3. Document Perfection Tax Examiners will assign a three digit code to numbered returns when they determine that the document is unprocessable in its present form either by needing additional information or some manual intervention is required. This code will be entered in the bottom left margin of the return.

  4. Correspondence Action Sheet (CAS) 1791C or other approved Correspondence Action Sheet is used for initiating correspondence. This form is attached by Document Perfection. When routing within the campus (in-house research), an explanation concerning the missing information will need to be attached to the return.

  5. The Action Code assigned by Document Perfection will be transcribed into the record of the Form 1042.

  6. An ERS Tax Examiner may:

    1. Enter an Action Code on a record.

    2. Delete or correct an invalid code.

    3. Overlay the present Action Code with another to either resuspend or reject from ERS. This is done by entering a valid Action Code with a Command Code SSPND, RJECT or NWDLN. See IRM 3.12.38, Error Resolution System (ERS), General Instructions for additional information.

    4. Enter a valid Action Code with the Command Code SSPND to clear the record from the screen and place the record in either Workable Suspense or Unworkable Suspense.

    5. Enter a valid Action Code with the Command Code RJECT to reject the record from ERS. Generally SCCF will be automatically updated for the rejected records.

  7. The presence of a valid Action Code other than 001 will place the record in the Suspense Inventory, either Workable or Unworkable.

  8. If the Action Code assigned by Document Perfection is invalid or incomplete, the record will be assigned to the Error Inventory for correction or deletion of the code.

  9. Only one Action Code may be assigned at one time to a record. The priority of the Action Codes will be 320, 4XX, 6XX, 3XX, 2XX.

3.22.110.14  (01-01-2015)
Types of Errors

  1. This section provides a description of the types of errors generated during Form 1042 processing.

  2. The Error Resolution System (ERS) will identify errors according to type and priority. This will show in the record heading.

    • Action Code Error (Priority I)

    • Section Error (Priority II) – includes terminus error and ISRP problem code.

    • Validity Error (Priority III)

    • Math/Consistency Error (Error Codes) (Priority IV)

  3. There may be records where the tax examiner finds that programming has not furnished a section or a field that is needed to solve an error. In this event, the tax examiner can use command code GTSEC. This should be reported to Headquarters for correction of the display.

3.22.110.14.1  (01-01-2015)
Priority I Errors – Action Code/Unpostable Code Errors

  1. Description:

    • All records with an invalid Action Code assigned by Document Perfection will be placed in the Error Inventory and will be displayed as a Priority I Error.

    • All records with a valid Action Code will be assigned to a Suspense Inventory and will be displayed as a Priority I Error.

  2. Display – The Action Code for the record with the literal description of the action or unpostable condition will be shown.

  3. Correction Procedures – Process Priority I errors as follows:

    If... Then...
    Suspense action is required Enter CC SSPND with the correct Action Code.
    Suspense action is not required Enter "000" in the Clear field (CL) field.

    Note:

    Except for priority statute and manual refund cases, do not remove the document from the block.

  4. See IRM 3.12.38 procedures for correcting Priority I Action Code errors in Suspense and Unpostable Code Correction.

3.22.110.14.2  (01-01-2015)
Priority II Errors – Section Errors

  1. Most edit, missing section and terminus errors should be eliminated by the Integrated Submission and Remittance Processing (ISRP) system. However, edit errors and/or terminus errors may be present if normal ISRP validity checks have been bypassed.

  2. Edit Error – A section with an error detected by ISRP. Edit errors will be coded as follows:

    • Code 1 – Split screen transmission, key verifier attempted to change Check Digit, key verifier changed 4 or more digits of TIN, or the original entry operator indicated that a required section is missing.

    • Code 2 – CATCH-ALL ISRP ERROR: Any error attributed to ISRP that is not described below, such as invalid characters in a field, or a combination of errors listed below.

    • Code 3 – Invalid Section ending point.

    • Code 4 – Invalid field length.

    • Code 5 – Questionable section - the ISRP operator input the same section more than once. The computer program will drop all duplicate sections and display on the error screen the first one encountered.

      Note:

      When displayed, this type of error will display all input fields, except for the Remittance in Section 01 of the section in error. Transcribed data will be present. Computer generated data will not be present.

  3. Correction Procedures:

    • Check all fields of the section when this condition exists verifying that fields are entered as coded.

    • If no correction is needed, or once the section is correct, transmit from the bottom of the screen.

    • If the section needs to be deleted, enter Command Code DLSEC with the section number.

  4. Terminus Error – This error is caused by a section with variable length input fields containing an erroneous size field.

    • When displayed, this type of error will show all input fields of the terminus section. Transcribed data will be present. Computer generated fields or Remittance Field for Section 01 will not be present.

    • All fields present for the section must be examined and the necessary correction(s) made to all the fields.

  5. Correction Procedures:

    • Command Code CRECT will be displayed. If the section needs to be deleted, use Command Code DLSEC to delete the section.

    • If no corrections are needed, transmit from the bottom of the screen.

3.22.110.14.3  (01-01-2015)
Priority III – Field Errors

  1. Definition – Any field that does not meet the requirement(s) for that field will be shown as a Priority III error. Consistency and or relationships with other fields will not be a factor.

  2. Some reasons for this type of error are:

    • Non-numeric character in a numeric field.

    • Non-alphabetical character in an alpha field.

    • Blank space in a numeric field.

    • Blank in the first position of an alpha field if followed by significant data.

  3. Display – Every field displayed is in error.

    • All fields with a Priority III error will be displayed in columnar format in the order encountered in the record.

    • An overflow field is identified by all question marks for a money field or a single pound sign in the last position of a Name Line.

  4. Correction Procedures:

    1. Correct every error field displayed using the specific instructions within each section for the field in error.

    2. Check the information on the source document to determine if each displayed field has been correctly coded and transcribed.

    3. Enter the correct data for each field displayed.

    4. If no data is to be in a displayed field, blank the field.

    5. Transmit.

3.22.110.14.4  (01-01-2015)
Priority IV Errors – Consistency/Math Errors

  1. Definition – Any valid field used in any computation in which the result is inconsistent with (or contrary to) any other valid field will have Error Code 001-999 assigned and will be shown as a Priority IV Error.

  2. Display – These errors will be displayed with the Error Code assigned to them for the specific error in ascending numerical order. The screen display will show the error code assigned and the fields needed to make the necessary correction.

    1. The blank field "CL" will be displayed for the entry of a Clear Code on records where the possibility exists that a change or correction may not be needed.

    2. All errors must be resolved by either eliminating the error or entering a Clear Code.

  3. Correction Procedures:

    • Correct all coding and transcription errors.

    • If the data in the field is correct, enter a "C" in the Clear Code field.

3.22.110.15  (01-01-2015)
Section 01 - Form 1042

  1. Listed below are the fields contained in Section 01 of Form 1042.

  2. The field designator, field length (maximum length for variable fields), the title and the location where the data is obtained on the return is shown below:

    Field Field Length Title Location on Form 1042
    ERS Action Code 3 ERS-ACTION-CD  
    RMIT 11 Remittance Amount  
    01NC 4 Name Control/Check Digit Form 1042, First Name Line
    01EIN 9 Employer Identification Number Form 1042, EIN Box
    01TXP 6 Tax Period Form 1042, between Form Title and OMB Number
    01RCD 8 Received Date Form 1042, Tax Liability Area
    01CCC 10 Computer Condition Code Form 1042, Box under Tax Year
    01CRD 8 Correspondence Received Date Form 1042,
    01PIC 1 Penalty and Interest-CD Form 1042,
    01SIC 1 Schedule-CD-IND Special Income Code Form 1042, Box under Tax Year
    01QIN> 1 Intermidiary-IND Computer Generated
    01CBI 1 Designee Checkbox Indicator Form 1042, Box below Line 62D
    01CBT 10 Designee Phone Number Form 1042, Below Line 62D
    01CBP 5 Designee Personal Identification Number (PIN) Form 1042, below Line 62D
    01PSN 9 Preparer PTIN Page 1, lower right, below the Signature Line
    01PEN 9 Preparer EIN Page 1, lower right, below the Signature Line
    01PTN 10 Preparer Phone Number Page 1, lower right, below Signature Line
    01CH3 2 Chapter 3 Status Code Under Name Line
    01CH4 2 Chapter 4 Status Code Under EIN

3.22.110.15.1  (01-01-2015)
Field RMIT- Remittance

  1. Field (RMIT) is a 11 position non-correctable field that may or may not be present.

  2. Valid characters are numeric (0 thru 9) and blank.

  3. The computer will generate the amount of remittance in Field RMIT into Field 07B/D (balance due) if Field 07B/D is blank.

  4. Invalid Condition: Field RMIT is invalid when:

    • There is an amount present and Total Net Tax Liability (Field 0764E) is blank.

  5. Correction Procedures:

    1. Perfect Field 0764E from the return, if possible.

    2. Add or correct Sections 03-06, as appropriate.

    3. If there is no tax to enter into Field 0764E, but the reason for the remittance is notated on the return (such as penalty or interest), enter a 1 into Field 0764E.

    4. If there is no tax due and no explanation of the remittance is found, reject the return for research and/or correspondence. Notate the Form 4227, NO TAX BUT ENTRY ON Field RMIT.

    5. Compare the form to the field and if the remittance amount in Field RMIT is incorrect, reject the return to be re-input. Notate the Form 4227, REMITTANCE IN ERROR.

      Note:

      Never try to correct Field RMIT.

  6. Rejects Correction Procedures:

    1. Rejects will research the Integrated Data Retrieval System (IDRS). For instance, research using IDRS Command Code BMFOLI to determine if the remittance should be applied to a different tax year or to a different return.

    2. If research does not provide an answer, correspond with the taxpayer asking if the remittance truly belongs to the taxpayer and if so, to which tax return and tax year/quarter it should be applied.

    3. If the taxpayer replies that the money belongs somewhere else, enter the Correspondence Received Date into Field 01CRD and Computer Condition Code X into Field 01CCC. Prepare Form 3465 and send it to the Philadelphia Accounts Management Campus (PAMC) International Business Master File (BMF) unit to transfer the remittance to the correct account; Unless the Ogden Rejects Unit is willing to do the Credit Transfer themselves.

      Reminder:

      Circle out the remittance in RED on the Form 1042 and re-input the return as a non-remittance return.

    4. If the taxpayer replies that the money is not his/hers transfer the money to Unidentified Remittance. Refer to IRM 3.12.38.27.4 for instructions.

    5. If there is NO REPLY to the correspondence, enter Computer Condition Code 3 and X into Field 01CCC and enter a 1 into Field 0764E.

      Note:

      When there is an entry in Field RMIT, there must be an entry in Field 0764E, but the tax and remittance amounts do not have to be the same.

    6. If the Form 1042 must be re-input to change the amount in Field RMIT, Error Correction will reject the return and Rejects will re-input the return on Form 3893.

3.22.110.15.2  (01-01-2015)
Field 01NC - Name Control/Check Digits

  1. Field 01NC is a 4 position field that must be present.

  2. Valid characters are alpha (A thru Z), numeric (0 thru 9), ampersand (&), hyphen/dash (-) or blank.

  3. Change a slash (/) or period(.) in the name control to a hyphen/dash (-).

    Name Control on Return Change to...
    Re/Max RE-M
    98.6 98-6
  4. The person or organization required to withhold tax is the Withholding Agent.

  5. The Withholding Agent can be either domestic (U.S.) or foreign.

  6. The Withholding Agent can be any of the following:

    • An individual

    • A trust

    • An estate

    • A partnership

    • A corporation

    • A government agency

    • An association

    • A foundation

  7. Invalid Conditions -

    1. The alpha characters E, G and M are not valid Check digit characters (but are valid in the Name Control).

    2. The first space in the Field 01NC cannot be blank if the Name Control is present.

    3. Field 01NC will be invalid if any character other than those mentioned in (2) above is present.

    4. If there are check digits (not a name control) in Field 01NC then, If the EIN in Field 01EIN differs from that on a pre-printed label (transcription error or taxpayer change), Field 01NC will be invalid. ANYTIME you change the EIN in Field 01EIN, always replace check digits in Field 01NC with the Name Control.

    5. Use Document 7071-A, Name Control Job Aid - For Use Outside of the Entry Area, to help determine the correct Name Control.

  8. Correction Procedures -

    1. Whenever the EIN is changed ( in Field 01EIN, and there are check digits (not a name control) in Field 01NC, they MUST be changed to a Name Control.

      Note:

      Check Digits are derived from the EIN. Any time the EIN is changed, the check digits will no longer be valid.

    2. If the EIN was not assigned by Entity (taxpayer or Code and Edit entry), follow the procedures in a) above.

  9. Rejects Correction Procedures -

    1. Rejects will re-research the name and EIN to ensure the prior research was performed in the event of an underprint, as described in (8) above.

    If... Then...
    Information is found, Correct the ERS Screen following procedures in (8) above.
    Information is not found, Send the return to Entity for a new EIN and TC 000.
    It is determined that a name change is required,
    1. Forward to Entity and notate.

    2. Prepare Form 4227.

    3. Input a TC 013.

3.22.110.15.3  (01-01-2015)
Field 01EIN - Withholding Agent Employer Identification Number

  1. Field 01EIN is a 9 position field that must be present.

  2. A Social Security Number (SSN) is never permitted in this field.

  3. Only numeric characters (0 thru 9) are valid.

  4. Invalid Conditions -

    • Field 01EIN contains all zeros or all nines.

    • The field is blank.

    • The field is less than 9 digits.

    • Any character other than a number is present.

    • The first two digits are: 00, 07, 08, 09, 17, 18, 19, 28, 29, 49, 69, 70, 78, 79, or 89.

  5. ERS Correction Procedures -

    1. Be sure that the EIN was entered correctly on the ERS Screen.

    2. If not, enter the correct EIN.

    3. Also look on any attachments for a valid EIN (if in doubt about an EIN, look on INOLE or ENMOD).

    4. Research for a valid EIN using Command Code NAMEE.

    5. If found, enter in Field 01EIN on the ERS Screen and on the return.

    6. If no valid EIN is found, reject the return. Rejects will send the return to Entity for an EIN.

    7. If more than one EIN appears on research, reject to be sent to Entity. Notate the Form 4227, MULTIPLE EINs.

    8. If the EIN on a pre-printed label was changed by the taxpayer, reject the return to be sent to Entity. Notate the Form 4227, EIN CHANGED ON PRE-PRINT LABEL.

      Note:

      It is imperative that the Command Codes NAMEE and NAMEB are researched for a valid EIN.

    9. If less than 3 digits of the EIN are transposed, different, or missing, do not send 3875C Letter.

    10. If the taxpayer checks the QI indicator box but the EIN is not within the valid range, correspond asking the taxpayer if he really is a Qualified Intermediary (QI) and if so, did he receive a number in the valid QI EIN range. If he did, why is it not on the Form 1042?

    11. If there is more than one EIN on the return, research with Command Code INOLE to determine which EIN applies. If both EINs show the same name, reject the return to be sent to Entity.

    12. SeeIRM 3.22.110.15.11 for the EIN applicable to QI taxpayers.

  6. Rejects Procedures -

    1. Re-research any return received from Error Correction using Command Code NAMEE before sending the return to Entity.

    2. If a valid EIN is found, follow the procedures noted above.

    3. If no valid EIN is found, or more than one EIN is found, leave the Form 4227 attached with the error condition noted.

      Note:

      No other correction can be made to the ERS Screen when sending a document to another area. Do not enter any Action Code until the return comes back with the new EIN on it. Enter the new EIN into Field 01EIN.

    4. Rejects will never correspond for an EIN. If the return cannot be perfected through research, it must go directly to Entity.

3.22.110.15.4  (01-01-2015)
Field 01TXP - Tax Period

  1. Field 01TXP is a 6 position field that must be present.

  2. Only numeric characters in YYYYMM format are valid.

  3. Invalid Conditions

    1. If the month-ending in the tax period is other than 12.

      Reminder:

      All Form 1042 are calendar year only and must end in 12. The field does not underprint, as do most other returns.

    2. Field 01TXP contains any non-numeric character.

    3. The field is blank or contains less than 6 numbers.

    4. The year is later than 2014 (for 2015 processing).

    5. The tax period is earlier than 198512.

  4. Correction Procedures

    1. Be sure that the tax period was entered correctly.

    2. If not, enter the correct tax period in Field 01TXP.

    3. If the tax period is prior to 198512, reject the return. Rejects will have the return re-numbered to Non-Master File (NMF).

    4. If the return shows a fiscal year, then: change the year to the current calendar year. Send the taxpayer a 3024C Letter indicating that a Form 1042 may only be a calendar year return. Look for a notation on the return that Code and Edit sent a letter and If attachments to the return show money for both years, correspond for a separate return for each year.

    5. If the return shows a tax period later than the received date (early filer), then: Be sure the tax period was edited and transcribed correctly, and If the tax period is within the first 6 months of the year and it is not a Final return, correspond using the 319-C Letter requesting an explanation. If the tax period is in the last six months of the year, reject the return to be input after the year is over.

  5. Rejects Correction Procedures:

    1. If the tax period is prior to 198512, the return is to be re-numbered by attaching Form 4227 to the return, notate in the remarks section "RENUMBER TO Non Master File" (NMF) and release.

    2. Reply Procedures: When the taxpayer replies with a clarification of why an early-filed return was filed, enter a CCC F in red if it is a Final return. Process according to early-filer procedures below. For Early-Filer Processing, seeIRM 3.22.110.15.4.1 for instructions. If entering CCC F (Final return) or CCC 3 (no reply), edit either code in red onto the document.

      Note:

      Do not enter a Correspondence Received Date as the CRD will not be valid the following January when the return is processed.

    3. No Reply Procedures: If the return is a fiscal year return with money amounts in both years, enter CCC 3 on the return. Follow early-filer procedures, if necessary. If the return has a remittance amount that does not appear to belong to the return (such as if the balance due were zero and there is a remittance amount of $500.00), send the remittance amount to the Accounting Department "Unidentified Remittance" group on a Form 3465 (see instructions in IRM 3.12.38). Continue processing the return as a non-remittance and enter CCC 3 in Field 01CCC.

3.22.110.15.4.1  (01-01-2015)
Processing Early-Filed Form 1042

  1. An early-filed Form 1042 is one that is received before the end of its tax year. A Form 1042 cannot be processed as a short-period return. Processing must be delayed until after the end of its tax year. These are usually Final returns.

    Example:

    Tax period is 201412 with a received date of 10-27-2014, the return cannot be processed until January 2015.

  2. Early filed return procedures for Form 1042 (without remittance):

    1. Prepare Form 4227 and notate in the remarks "EARLY FILER."

    2. SSPND with Action Code "480."

    3. Forward to Rejects. Rejects will hold the early filed return for processing until January of the following year.

  3. Rejects Procedures for Form 1042 (with remittance):

    1. Do NOT void (because of the remittance present).

    2. Prepare Form 3244 to put remittance into the module.

      Note:

      A revenue receipt (Form 3244) can take a future tax period.

    3. Photocopy the return and staple it to the back of the Form 3244.

    4. Photocopy the Form 3244 and staple it to the back of the return.

    5. Circle the remittance or the green rocker in "red" on the return.

    6. Put the return into the Early-Filer folder.

    7. Notate "RENUMBER PAYMENT TO 60117 for OSPC" on a Form 4227 and staple it to Form 3244.

    8. Notate the register for re-numbering and release the Form 3244 with the register.

3.22.110.15.5  (01-01-2015)
Field 01EIN - Employer Identification Number (EIN)

  1. Field 01EIN error has generated because the TIN does not fall between the valid range for QI Taxpayers.

  2. If Field 01EIN is in error, disallow credit on Line 67a/67b and assign appropriate Math Error Code.

3.22.110.15.6  (01-01-2015)
Field 01CCC - Computer Condition Codes (CCC)

  1. Field 01CCC is a 10 position field that may or may not be present.

  2. Valid characters are: D, E, F, G, J, O, R, S, T, U, W, X, 3, 4, 7 and blank.

  3. The CCC is transcribed from the CC line in the "For IRS Use Only box" in the upper-right hand corner of the return.

  4. The table provides a brief description of the valid codes. Specific instructions for each Computer Condition Code follows:

    Computer Condition Code Definition Validity Check
    D Reasonable cause for failure to make timely payments
    1. Cannot have precomputed penalty.

    2. Must have a received date.

    E Credit elect
    1. Must have an overpayment.

    2. Cannot be used with CCC F or G.

    F Final return Cannot be used with CCC E or G.
    G Amended return
    1. Only code valid with CCC W or 3.

    2. Must have a received date.

    O Module freeze Manual Refund
    R Reasonable cause for delinquency Must have a received date.
    S Refund/overpayment due
    1. Must have check in box on Line 71 of Form 1042.

    2. Overpayment must be $1.00 or more.

    T Return secured as a result of TDI.  
    X Refund/Credit Freeze No reply to correspondence.
    W Cleared by Statute  
    3 No reply to correspondence. Cannot have correspondence received date present.
    4 Return prepared by IRS under IRC § 6020(b) Will be notated: IRC § 6020(b) and signature of revenue agent.
    7 Reasonable cause statement denied  
  5. Computer Condition Code priority:

    1. If Code and Edit has rejected a return be sure that all other required CCCs, such as F or 4, are entered before making any other correction to the register.

    2. If CCC G is present, the only other CCCs that can be present in Field 01CCC at the same time are W and 3.

    3. If there is an overpayment amount on Line 70a/70b, there must be a CCC E or S in Field 01CCC. CCC X may also be necessary.

    4. If the credit box on Line 71 is checked, enter CCC E.

    5. If the refund box on Line 71 is checked, enter CCC S.

      Note:

      If the taxpayer checks both boxes on Line 71, it may indicate that part of the overpayment is to be carried over to the following year and part of it refunded. Look for an indication of this on the return or attachment. If an indication of this is found, seeIRM 3.22.110.18.24

      .

    6. If the amount is correctly changed from negative to positive, do not enter CCC E or S if not in Field 01CCC and delete CCC E or S if either is present in Field 01CCC.

    7. CCC 7 and R can be used together.

    8. CCC 7 and D can be used together.

  6. Invalid Conditions:

    1. Any code is present with CCC G except W or 3.

    2. CCC E and F are used together.

    3. CCC D and R are used together.

  7. Correction Procedures:

    1. If a previously reinput return is received in Error Correction, be sure all CCCs were entered in Field 01CCC before making any other correction.

    2. If CCC G is present, then: Delete any other CCC in Field 01CCC (except W and 3 if needed). If there is any question that the return is amended, research BMFOLT for a TC 150. If present, delete the CCC G and enter any necessary data.

      Note:

      If the majority of the lines in the ROFTL (Lines 1-60) have an entry, reject the return to be re-input.

    3. If there is a refund amount in Field 0770A and/or 0770B, look at which block is checked on Line 71 and enter CCC E or S.

    4. If CCC E and F are both present, determine which is correct. If the return is a Final return and there is an overpayment, change CCC E to S.

    5. If CCC D and R are both present, determine which is correct and delete the other.

    6. Look under the specific individual instructions for each code for other possible corrections.

    7. If the taxpayer has an overpayment but neither box on Line 71 is checked, "and you are corresponding for another reason" , also ask the taxpayer which box on Line 71 should have been checked. Do not correspond for ONLY this condition (enter an E in Field 01CCC.)

  8. Rejects Correction Procedures:

    1. If a return from Code and Edit with an ERS Action Code 650 is received, be sure all CCCs were entered in Field 01CCC before making any other correction.

    2. If CCC X is required because of a NO REPLY condition and there is an overpayment, CCC E or S must still be present in Field 01CCC along with CCC X and 3.

    3. If a return is received from the Statute Unit with instructions to process the return, be sure all necessary CCCs are entered.

    4. If an erroneous short-year or fiscal-year return was sent to be cleared by Statutes, delete CCC W (if present).

    5. If correcting the tax period to a non-Statute tax period, do not enter CCC W because the corrected tax period no longer makes it Statute criteria.

3.22.110.15.6.1  (01-01-2015)
CCC D - Reasonable Cause for Waiver of Failure to Pay Penalty

  1. Computer Condition Code (CCC) D instructs the computer not to assess a late payment penalty.

  2. Do not use CCC D if there is no IRS Received Date present.

  3. CCC D is NOT to be used if there is a pre-computed penalty in Field TPNC or CCC 7 is present.

  4. While CCC D is entered by Code and Edit, Error Correction will enter CCC D if Code and Edit did not.

  5. If the taxpayer attaches correspondence with a reasonable cause explanation for failure to timely pay or file their Form 1042 return, take the following action:

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

    2. Complete Form 3499, "Informational Transmittal," and forward to Philadelphia Accounts Management Campus (PAMC), BMF INT'L unit, BLN 3-L08.154. In the remarks area write "Process attached Reasonable Cause Correspondence. TC 150 to post in 4 weeks."

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

      Note:

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

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

3.22.110.15.6.2  (01-01-2015)
CCC E - Credit Elect

  1. CCC E is entered when there is an overpayment ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and the Credit box on Line 71is checked.

  2. CCC E is entered when there is an overpayment ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and neither the Credit or Refund box on Line 71 is checked

    Reminder:

    If you are corresponding for another reason and neither checkboxes on line 71 are checked, ask the taxpayer which checkbox should be checked.

  3. Enter CCC E (Delete CCC F) on a "FINAL" return. if the taxpayer:

    1. Elected to have the overpayment credited to next years return AND does not give a date when the last income was paid. (Refer to the line under the "For IRS Use Only box" ) or,

    2. The taxpayer shows a date applicable to next year

    3. If the above apply, delete the CCC F and leave the E.

      Reminder:

      If the return is marked Final, and the Credit block on Line 71 is checked, but there is no date for when the final income was paid, do not enter CCC F, instead enter CCC E.


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