3.22.110  Chapter Three Withholding (CTW) Returns - Form 1042

Manual Transmittal

November 26, 2013

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) Various BMF Consistency Updates

(3) IRM 3.22.110.3.1 Updated the TAS Service Level Agreements (SLA) website information. (08-01-2013)

(4) IRM 3.22.110.14.6.8(3) Update of correspondence codes

(5) IRM 3.22.110.17.1(4)(c) Note Clarified instructions for correcting lines 61a and 61b with 1042-T

(6) IRM 3.22.110.17.11(13)(c) Updated instructions to attach a print of supporting information to the tax return when IRMF is used

(7) IRM 3.22.110.14.6.8(3) Update of correspondence codes

(8) IRM 3.22.110.14.14: Revised this subsection with BMF Consistency language.paragraphs (1) through (5).

(9) IRM 3.22.110.17.1 Clarified instructions for correcting lines 61a and 61b with 1042-T

(10) IRM 3.22.110.17.11(13)(c) Updated instructions to attach a print of supporting information to the tax return when IRMF is used

Effect on Other Documents

This IRM supersedes IRM 3.22.110 dated January 1, 2012. This IRM also incorporates the following Interim Procedural Updates (IPU): 13U0966 dated 05-20-2013; 13U1128 dated 6-19-2-13; 13U1144 dated 6–24–2013;13U1166 dated 06-28-2013;

Audience

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

Effective Date

(01-01-2014)

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

3.22.110.1  (01-01-2014)
Overview - Chapter Three Withholding (CTW) Legislation

  1. IRC Section 1441 - IRC Section 1464, Chapter Three Withholding Changes to IRC Section 1441 and IRC Section 1442, states that, a person who makes a payment of U.S. source interest, dividends, royalties, and certain other types of income to a foreign person must generally deduct and withhold 30 percent from the payment. A lower rate of withholding may apply under 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. Beginning January 1, 2001, the regulations under Chapter 3 (IRC Section 1441 - IRC Section 1464) and Chapter 61 (IRC Section 6041 - IRC Section 6050N) of the Code are affected by these changes. These regulations, together with Revenue Procedure 2000-12, Qualified Intermediary (QI) Revenue Procedure, represent the culmination of a major effort that began in 1992 to revamp the withholding and reporting on payments of U.S. source income to foreign persons.

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

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

  5. The Form 1042 is used to report the total of taxes withheld on U.S. source income 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. The taxpayer filing the F1042 must be shown as the recipient on any supporting 1042-S(s). These should be Copy B (or C,D,E). Never use Copy A to support line 66.

  6. 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.

  7. The Form 1042 is a one-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 how much tax was withheld for that period. The Total Tax represents the total of these withholding 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 new Line 71. Once a Form 1042 reporting the 2 percent excise tax payment is processed to the Business Master File (BMF) the amount from line 71 will appear on 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 Ogden will make the tax adjustment and update the two percent excise amount with item reference number 198.

3.22.110.2  (01-01-2014)
♦ 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  (01-01-2014)
♦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  (01-01-2014)
♦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  (01-01-2014)
♦Use of Fax for Taxpayer Submissions♦

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

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

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

3.22.110.5  (01-01-2014)
♦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.

3.22.110.6  (01-01-2014)
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, See Exhibit 3.22.110-2.

  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:

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

    • 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:

    • 3.37.110, ISRP - Chapter 3 Withholding Returns

    • 3.10.72 Receiving, Extracting, and Sorting

    • 3.10.73, Batching and Numbering

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

    • 3.13.222, BMF Entity Unpostable Correction Procedures

    • 3.0.273, Administrative Reference Guide

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

    • 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.

3.22.110.7  (01-01-2014)
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, 2013

    • Program Completion Date (PCD): June 15, 2013

  2. Withholding Agents may request an extension of time to file using Form 7004, Application for Automatic 6 Month 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.

3.22.110.8  (01-01-2014)
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.)

3.22.110.8.1  (01-01-2014)
Error Correction Process

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

    • Tax Class - 1

    • Document Code 25 - Form 1042

    • MFT - 12

3.22.110.8.2  (01-01-2014)
♦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.

3.22.110.8.3  (01-01-2014)
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.

3.22.110.8.4  (01-01-2014)
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.

3.22.110.8.5  (01-01-2014)
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.

3.22.110.8.6  (01-01-2014)
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.

3.22.110.9  (01-01-2014)
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.

3.22.110.10  (01-01-2014)
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, or input the two codes using 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.

3.22.110.10.1  (01-01-2014)
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 66, reject the return and correspond for the information.

    Note:

    the TP filing the F1042 MUST be shown as the recipient on any supporting 1042-S(s). These should be Copy B (or C, D, E). Never Copy A to support L66.

3.22.110.10.2  (01-01-2014)
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. 3.12.38 (BMF General Instructions)

    2. 3.17.79 (Account Refund Transactions)

    3. 21.4.4 (Manual Refunds)

    4. 2.4.20 (Command Codes RFUND and REFAP)

    5. 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.

3.22.110.10.3  (01-01-2014)
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 6 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.

3.22.110.10.4  (01-01-2014)
♦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.

3.22.110.10.5  (01-01-2014)
♦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.

3.22.110.11  (01-01-2014)
Special Returns

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

3.22.110.11.1  (01-01-2014)
♦Compliance Secured/Prepared Returns♦

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

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

    2. Secured tax returns are notated with "TC 59X" or "ICS" (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.

3.22.110.11.2  (01-01-2014)
♦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.

3.22.110.11.3  (01-01-2014)
♦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 for 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" .

3.22.110.11.4  (01-01-2014)
♦IRC 6020(b) - Prepared by Collection♦

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

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

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

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

    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.

3.22.110.11.5  (01-01-2014)
♦Examination Prepared♦

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

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

    2. Do Not correspond with the taxpayer for unprocessable conditions. If the return is completely unprocessable, use No Reply procedures and 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.

3.22.110.11.6  (01-01-2014)
♦Examination Secured♦

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

    1. 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.

3.22.110.11.7  (01-01-2014)
♦Frivolous Argument♦

  1. A frivolous argument is used for the purpose of expressing dissatisfaction with the substance, form or administration of the tax laws by attempting to illegally avoid or reduce tax liabilities. Recognized frivolous arguments made by businesses include, but are not limited to, 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 3.22.110-12 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 time frame, the Examination examiner will edit Action Code 331 in the lower left margin of the Form.
    Examination has selected the return as frivolous,

    Example:

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

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

    Note:

    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.

3.22.110.11.7.1  (01-01-2014)
≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ "

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

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

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

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

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

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

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

3.22.110.11.7.2  (01-01-2014)
≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ "

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

3.22.110.11.8  (01-01-2014)
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.

3.22.110.11.8.1  (01-01-2014)
♦Protective Claims♦

  1. Returns marked as "Protective Claim," "Protective Refund," "Protective Claim for Refund," or similar statement will be removed from the batch and routed to Accounts Management 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."

3.22.110.12  (01-01-2014)
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 3.22.110-9.

  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 SSPND Command Code 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 RJECT Command Code 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.

3.22.110.13  (01-01-2014)
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.

3.22.110.13.1  (01-01-2014)
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.

3.22.110.13.2  (01-01-2014)
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.

3.22.110.13.3  (01-01-2014)
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.

3.22.110.13.4  (01-01-2014)
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.

3.22.110.14  (01-01-2014)
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 Form 1042, Box above Tax Liability Area
    01CBI 1 Designee Checkbox Indicator Form 1042, Box below Line 71
    01CBT 10 Designee Phone Number Form 1042 , Below Line 71
    01CBP 5 Designee Personal Identification Number (PIN) Form 1042, below Line 71
    01PSN 9 Preparer PTIN Form 1042, below Line 71
    01PEN 9 Preparer EIN In the right margin below the Signature Line
    01PTN 10 Preparer Phone Number Form 1042, Box below Line 71


More Internal Revenue Manual