4.19.3  IMF Automated Underreporter Program

Manual Transmittal

August 16, 2013

Purpose

(1) This transmits revised IRM 4.19.3 Liability Determination, IMF Automated Underreporter Program.

Scope

IRM 4.19.3 effective September 1, 2013 should be used for IMF Automated Underreporter Program for Tax Year 2012.

Material Changes

(1) Made editorial changes throughout the document.

(2) Made formatting changes for clarity and consistency.

(3) Included applicable IRM changes made 09/01/2012 through 06/17/2013.

(4) Throughout the IRM, money amounts have been changed to reflect TY 2012 amounts.

(5) Throughout the IRM, form line/column numbers have been updated to reflect TY 2012 line numbers.

(6) Throughout the IRM, corrected/updated/added IRM references.

(7) Throughout the IRM, changed dates to reflect TY 2012.

(8) Throughout the IRM changed Form 8812 to Schedule 8812.

(9) Throughout the IRM deleted Form 8930.

(10) Throughout the IRM deleted research IDRS TRDBV.

(11) Throughout the IRM changed Letter 3219 to CP 3219A.

(12) IRM 4.19.3.1.1(2) - revised to include toll-free numbers for the National Taxpayer Advocate

(13) IRM 4.19.3.1.5(3) - deleted, renumbered remainder of subsection

(14) IRM 4.19.3.1.5(5) - new for TRDB tab option "Dotted…" , renumbered remainder of subsection

(15) IRM 4.19.3.1.5(6) - new for TRDB tab option "Attached" , renumbered remainder of subsection

(16) IRM 4.19.3.1.6 - new subsection for Integrated Automation Technologies (IAT)

(17) IRM 4.19.3.2.1(3) Reminder - revised to indicate on the taxpayer response or phone call

(18) IRM 4.19.3.3.3(6) - new for Potentially Dangerous Taxpayer (PDT) and Caution Upon Contact (CAU)

(19) IRM 4.19.3.3.3.1(1) - deleted last bullet

(20) IRM 4.19.3.3.3.2(5) - added Caution for identity theft cases

(21) IRM 4.19.3.3.3.2(9) step 2 - corrected website address

(22) IRM 4.19.3.3.3.2(9) step 3 - revised to indicate CP 2000 and CP 2501 only

(23) IRM 4.19.3.3.3.2(9) - new step 4 for Statutory notices, renumbered remainder of step list

(24) IRM 4.19.3.3.3.2 (10) - new for procedures when Exam wants case, renumbered remainder of subsection

(25) IRM 4.19.3.3.3.2 (12) - added Caution for TC 971 AC 134

(26) IRM 4.19.3.3.3.2 (14) - replaced AMTAP with IVO

(27) IRM 4.19.3.3.3.2(19) - revised to clarify cc 81/84 refers to -W

(28) IRM 4.19.3.3.3.2(21) - added PC 76 for Stats, added Note for ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

(29) IRM 4.19.3.3.3.3(6) g and i -deleted, renumbered remainder of alpha list

(30) IRM 4.19.3.3.3.4(10) d - deleted

(31) IRM 4.19.3.3.3.4(15) - (24) - revised to If/And/Then Chart and new Exhibit 4.19.3-16, renumbered remainder of subsection

(32) IRM 4.19.3.4(5) - deleted information regarding message

(33) IRM 4.19.3.4(8) - moved verbiage from Caution to new a, moved verbiage from Exception to new b, renumbered alpha list

(34) IRM 4.19.3.4(10) a Note - added MIP, Excess SST, and Education Credits

(35) IRM 4.19.3.4.4 (3) Note - moved verbiage to new (4), renumbered remainder of subsection

(36) IRM 4.19.3.4.4(3), (7) - (9) - revised to add Form 8958

(37) IRM 4.19.3.4.4(5) Note - deleted

(38) IRM 4.19.3.4.4(6) - (8) a - changed "spouse" to "taxpayer" and "spouses" to "taxpayers"

(39) IRM 4.19.3.4.5(1) - deleted "on the original return"

(40) IRM 4.19.3.4.5(2) - deleted "per return"

(41) IRM 4.19.3.4.6(2) - deleted, obsolete information

(42) IRM 4.19.3.4.6(1) - added Note for IPC 0D and batch type 35

(43) IRM 4.19.3.4.8.1(1) - corrected IRM title

(44) IRM 4.19.3.4.11 - added new subsection for Erroneous Refunds

(45) IRM 4.19.3.4.11.1 - added new subsection for Recovering Erroneous Refunds

(46) IRM 4.19.3.6(1) - ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

(47) IRM 4.19.3.6(1) b Exception - added LTCG

(48) IRM 4.19.3.7.1.1(12) Exception - deleted

(49) IRM 4.19.3.7.1.1(13) a - added Form 8949

(50) IRM 4.19.3.7.1.1(13) a Note - added Form 8949

(51) IRM 4.19.3.7.1.1(14) Caution - added Form 8949

(52) IRM 4.19.3.7.3.4(5) - added Reminder to enter the EXCLUDED SAVINGS BOND field

(53) IRM 4.19.3.7.4.1(2) - added bullet for Investment Expense

(54) IRM 4.19.3.7.4.1(2) 2nd bullet - added "may be"

(55) IRM 4.19.3.7.4.5(1) - moved verbiage and Notes from 2 to new (1) d

(56) IRM 4.19.3.7.4.5(2) - deleted, renumbered remainder of subsection

(57) IRM 4.19.3.7.6.1(2) -moved information from e, f, and i -to a Note following alpha list

(58) IRM 4.19.3.7.6.1(3) d - deleted, renumbered remainder of alpha list

(59) IRM 4.19.3.7.6.1(3) e - revised for any profession

(60) IRM 4.19.3.7.6.2(3) - added Caution regarding unpostable

(61) IRM 4.19.3.7.6.2(8) - deleted Exception

(62) IRM 4.19.3.7.7.1(1) - deleted b, d, and e, renumbered alpha list

(63) IRM 4.19.3.7.7.1(1) a and b - deleted Notes

(64) IRM 4.19.3.7.7.1(2) - moved information from e, g, and h to a Note following alpha list

(65) IRM 4.19.3.7.7.2(2) - added Note for when MERCH is not subject to SE Tax

(66) IRM 4.19.3.7.7.2(3) - added Caution regarding unpostable

(67) IRM 4.19.3.7.8.2(3) - revised to indicate what fields require entries

(68) IRM 4.19.3.7.8.2(3) - added Reminder and Caution for sending IR and unpostable condition

(69) IRM 4.19.3.7.9.2(2) - revised to indicate which fields require entries

(70) IRM 4.19.3.7.9.2(2) - added Reminder and Caution for sending IR and unpostable condition

(71) IRM 4.19.3.7.10.3(3) b - added Note for reported on Schedule D

(72) IRM 4.19.3.7.10.3(6) - added COD G

(73) IRM 4.19.3.7.10.3(7) - deleted, renumbered remainder of subsection

(74) IRM 4.19.3.7.10.3(13) - revised to indicate payer, deleted 2nd Note

(75) IRM 4.19.3.7.10.3.1 - deleted subsection

(76) IRM 4.19.3.7.10.7(4) - deleted Caution

(77) IRM 4.19.3.7.10.7(5) d - deleted

(78) IRM 4.19.3.7.10.7(7) a - revised to indicate on Form 1040

(79) IRM 4.19.3.7.10.7(9) - deleted, renumbered remainder of subsection

(80) IRM 4.19.3.7.11.2(2) - revised to indicate lines that require entries, added a Reminder and Caution for sending IR and unpostable condition

(81) IRM 4.19.3.7.12(3) 2nd bullet - added Note for system deleted IRs

(82) IRM 4.19.3.7.12.1(18) b and (19) b - deleted reference to payer name and EIN, deleted Note

(83) IRM 4.19.3.7.13.2(7) - revised to indicate which fields require entries, added Reminder and Caution for sending IR and unpostable condition

(84) IRM 4.19.3.7.14.1(2) - deleted alpha list

(85) IRM 4.19.3.7.14.1(3) - deleted (moved verbiage to IRM 4.19.3.8.9), renumbered remainder of subsection

(86) IRM 4.19.3.7.14.2(5) - deleted

(87) IRM 4.19.3.7.15.1(1) a Note - deleted

(88) IRM 4.19.3.7.15.2(2) - revised to indicate fields that require entries, added a Reminder and Caution for sending IR and unpostable condition

(89) IRM 4.19.3.7.17(3) alpha list - added "11PAY" and deleted "07PAY"

(90) IRM 4.19.3.7.18.2(7) - revised to indicate which fields require entries, added Reminder and Caution for sending IR and unpostable condition

(91) IRM 4.19.3.7.20.1(2) - new for ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , renumbered remainder of subsection

(92) IRM 4.19.3.7.23.1(9) step 3 Note - added information for loss less than $3,000

(93) IRM 4.19.3.7.23.1.1(4) - (8) - deleted existing, added new (4) and (5)

(94) IRM 4.19.3.7.23.1.1(6) and (7) - new for Stock and Basis

(95) IRM 4,19.3.7.24.1(3) - revised to indicate which fields require entries, added Reminder and Caution for sending IR and unpostable condition

(96) IRM 4.19.3.7.25.1(4) f - deleted Note

(97) IRM 4.19.3.7.27(1), (3) and (4) - changed literal from BASIS to QTB

(98) IRM 4.1.3.7.27.2(1) - (3) - moved to new subsection IRM 4.19.3.14.5, renumbered remainder of subsection

(99) IRM 4.19.3.8(2) - new for completing computation windows after screening discrepant issues

(100) IRM 4.19.3.8.5.1(4) - revised to include step list with appropriate procedures

(101) IRM 4.19.3.8.5.1(5) - deleted existing, added new for overdeducted EWPEN

(102) IRM 4.19.3.8.6.1(4) - added Reminder for IR more accurate than ELF payer document

(103) IRM 4.19.3.8.7.3 - new subsection for Student Loan Interest Deduction (SLID) - Responses, moved from IRM 4.19.3.20.3.22

(104) IRM 4.19.3.8.8(13) - moved to new subsection, IRM 4.19.3.8.8.1

(105) IRM 4.19.3.8.9(4) and (6) - moved from IRM 4.19.3.7.14.1 and IRM 4.19.3.7.14.2, renumbered remainder of subsection

(106) IRM 4.19.3.9(7) Note - deleted

(107) IRM 4.19.3.10.1.1 - new subsection for Schedule A - Responses

(108) IRM 4.19.3.10.3(1), (4) and (5) - deleted existing

(109) IRM 4.19.3.10.3(4) - new for status code X

(110) IRM 4.19.3.10.3(5) - new for categories other than 01. 36 or 67

(111) IRM 4.19.3.10.3(6) - new for categories 01, 36 or 67, renumbered remainder of subsection

(112) IRM 4.19.3.10.3(7) - added Note for toggling off paragraph

(113) IRM 4.19.3.13.5(5) - revised alpha list for new Form layout

(114) IRM 4.19.3.13.5(6) - new for Part III lines 23-26 incomplete, renumbered remainder of subsection

(115) IRM 4.19.3.13.5(7) - added Caution for Part III required for each student, added clarifying statement for each student in Then column

(116) IRM 4.19.3.13.5(8) Table - added new IF/THEN for credit for dependent only

(117) IRM 4.19.3.13.5(12) - moved to new IRM 4.19.3.13.5.1, renumbered remainder of subsection

(118) IRM 4.19.3.13.5.1 - new subsection for Education Credits - Responses

(119) IRM 4.19.3.13.7 - moved information from IRM 4.19.3.15.6, revised to remove references to refundable adoption credit, renumbered remaining subsections

(120) IRM 4.19.3.14.1(5) 3rd bullet 1st Note - added Paragraph 39

(121) IRM 4.19.3.14.1(9) - added Caution regarding unpostable

(122) IRM 4.19.3.14.1(12) - added new j and k

(123) IRM 4.19.3.14.3(1) - moved type of retirement plans to (3)

(124) IRM 4.19.3.14.3(6) o - deleted, obsolete information

(125) IRM 4.19.3.14.5 - new subsection for 10% Tax on Qualified Education Program Payments, renumbered remaining subsection

(126) IRM 4.19.3.14.6(1) - added Reminder for reported SITR amount

(127) IRM 4.19.3.15(2) e - new for American Opportunity Credit

(128) IRM 4.19.3.15.1.3 - new subsection "Withholding and ITIN Filers"

(129) IRM 4.19.3.15.2(17) - new for Paragraph 43

(130) IRM 4.19.3.15.5 - deleted subsection, renumbered remaining subsections

(131) IRM 4.19.3.15.6 - moved to IRM 4.19.3.13.7

(132) IRM 4.19.3.16.2(5) - deleted Refundable Education Credit, Adoption Credit and First Time Homebuyer Credit from the bullet list

(133) IRM 4.19.3.16.5(11) - revised to indicate reasonable cause

(134) IRM 4.19.3.16.5(12) Note - revised to indicate taxpayer and valid POA

(135) IRM 4.19.3.16.7(7) Note - revised to indicate taxpayer and valid POA

(136) IRM 4.19.3.16.9(1) - deleted last sentence

(137) IRM 4.19.3.17.1 - changed title to "Merchant Card Cases" , complete revision

(138) IRM 4.19.3.18.1(1) Note - changed Publication number to 3498-B

(139) IRM 4.19.3.18.2(2) - changed Publication number to 3498-B

(140) IRM 4.19.3.19.1(3) - new for transferring identity theft cases, renumbered remainder of subsection

(141) IRM 4.19.3.19.1(4) b - revised to indicate one Letter 2626C

(142) IRM 4.19.3.19.1(5) - revised to indicate -W with a TC 520 and to clarify cc 81 and 84 for -W freeze

(143) IRM 4.19.3.19.2(5) - revised to include "refused"

(144) IRM 4.19.3.20.1(3) - new for Qualified Offers, renumbered remainder of subsection

(145) IRM 4.19.3.20.1(4) - new for closures, renumbered remainder of subsection

(146) IRM 4.19.3.20.1(13) - added Caution when using IPC RF

(147) IRM 4.19.3.20.1.8(4) - new for Ex-parte communications

(148) IRM 4.19.3.20.1.8(5) - new for Qualified Offers

(149) IRM 4.19.3.20.1.8.1(3) 2nd bullet - deleted Medicare

(150) IRM 4.19.3.20.1.8.1(4) step 2 - revised to clarify use of IDRS to issue letter

(151) IRM 4.19.3.20.1.9(1) - deleted last sentence

(152) IRM 4.19.3.20.1.10.1(2) step 2 and (3) Note - deleted requirement to attach bankruptcy paperwork

(153) IRM 4.19.3.20.1.10.2(1) - new for when contact with insolvency is required, renumbered remainder of subsection

(154) IRM 4.19.3.20.1.10.2 (2) and (11) a - corrected phone number

(155) IRM 4.19.3.20.1.10.2(6) a Note - changed PC 72 to PC 73

(156) IRM 4.19.3.20.1.10.2(6) a Note - revised to provide instruction for full payment before a Statutory Notice

(157) IRM 4.19.3.20.1.10.2(9) - corrected fax number

(158) IRM 4.19.3.20.1.10.2(22) - revised for issuing a letter

(159) IRM 4.19.3.20.1.11(1) step 2 and step 3 - revised to include combat zone indicator

(160) IRM 4.19.3.20.1.11(1) step 4 - moved information to IF/THEN chart

(161) IRM 4.19.3.20.1.12 - new subsection for Community Property, renumbered remaining subsections

(162) IRM 4.19.3.20.1.14(1) Exception - added ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

(163) IRM 4.19.3.20.1.14.1(1) - changed Andover to Kansas City

(164) IRM 4.19.3.20.1.15(3) - revised to add requirements

(165) IRM 4.19.3.20.1.16(2) - new for override message

(166) IRM 4.19.3.20.1.17 - new subsection for Discovered Remittance and Voided Checks, renumbered remaining subsections

(167) IRM 4.19.3.20.1.18(3) b table - expanded for where address is obtained

(168) IRM 4.19.3.20.1.18(4) - deleted information regarding spouse not receiving notice, added ENMOD

(169) IRM 4.19.3.20.1.18(5) - deleted, renumbered remainder of subsection

(170) IRM 4.19.3.20.1.18(5) - combined the information from e into b and c, moved information from f and g to new (6) and (7)

(171) IRM 4.19.3.20.1.19 - complete revision

(172) IRM 4.19.3.20.1.20.2(4) - new for cases with identity theft, renumbered remainder of subsection

(173) IRM 4.19.3.20.1.21 (1) - added Note for new process

(174) IRM 4.19.3.20.1.21 (2) - revised for new procedures

(175) IRM 4.19.3.20.1.21 (3) - new for when case cannot be closed

(176) IRM 4.19.3.20.1.22(6) - deleted Note

(177) IRM 4.19.3.20.1.22(8) 2nd Note - revised to indicate each POA listed

(178) IRM 4.19.3.20.1.22(9) - moved information from (14), renumbered remainder of subsection

(179) IRM 4.19.3.20.1.22(9) a and b - revised to indicate "in" box 2

(180) IRM 4.19.3.20.1.22(9) a - added Caution for Married Filing Separate

(181) IRM 4.19.3.20.1.22(17) - added step 2 for transferring case, renumbered remainder of step list, revised step 3 to indicate monitor case

(182) IRM 4.19.3.20.1.25 through IRM 4.19.3.20.1.25.6 - complete revision of all subsections relating to identity theft

(183) IRM 4.19.3.20.2(2) and (3) - new for Over the Phone Interpreter (OPI) services, renumbered the remainder of subsection.

(184) IRM 4.19.3.20.2.1(3) 2nd bullet - revised to indicate open AUR cases

(185) IRM 4.19.3.20.2.1(4) 1st bullet - added case status

(186) IRM 4.19.3.20.2.2(4) b - added Caution for not sending copies of notices/letters

(187) IRM 4.19.3.20.2.3(1) - moved a, d, e f g and h to a table, renumbered remainder of alpha list

(188) IRM 4.19.3.20.2.4(3) - revised for leaving message on answering machine, added alpha list with additional information

(189) IRM 4.19.3.20.2.4(4) - deleted, renumbered remainder of subsection

(190) IRM 4.19.3.20.2.4 (4) - new for removing identity theft indicators, renumbered remainder of subsection

(191) IRM 4.19.3.20.2.4(11) - moved verbiage from Note to new (12), renumbered remainder of subsection

(192) IRM 4.19.3.20.2.4(16) b - deleted, renumbered remainder of alpha list

(193) IRM 4.19.3.20.2.4.1 - combined information from IRM 4.19.3.20.2.4.1.1 into IRM 4.19.3.20.2.4.1, changed title to "Out Calls - Calling the Taxpayer " , renumbered entire subsection

(194) IRM 4.19.3.20.2.4.1(2) - deleted, renumbered remainder of subsection

(195) IRM 4.19.3.20.2.4.1(3) - added new g and h for additional out call criteria

(196) IRM 4.19.3.20.2.4.1.1 (1) b - new for removing identity theft indicators, renumbered remainder of alpha list

(197) IRM 4.19.3.20.3.1(5) - deleted

(198) IRM 4.19.3.20.3.3(1) - added "or lower"

(199) IRM 4.19.3.20.3.6(4) o - deleted "not"

(200) IRM 4.19.3.20.3.13.2(1) a - revised to indicate at the time of receipt

(201) IRM 4.19.3.20.3.16(1) - added cost basis

(202) IRM 4.19.3.20.3.16(1) a - deleted Note

(203) IRM 4.19.3.20.3.16(2) - added cost basis, deleted alpha list

(204) IRM 4.19.3.20.3.16.1(1) - revised to correct procedures, deleted step list

(205) IRM 4.19.3.20.3.17(1) and (2) - deleted "necessary documentation"

(206) IRM 4.19.3.20.3.18(1) Caution - moved verbiage to a new (2)

(207) IRM 4.19.3.20.3.21(5) - new for contribution intended for AUR tax year

(208) IRM 4.19.3.20.3.22 - moved to IRM 4.19.3.8.7.3, renumbered remaining subsections

(209) IRM 4.19.3.20.3.22(5) a - revised to indicate ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

(210) IRM 4.19.3.20.3.23 - moved to IRM 4.19.3.8.4.1, renumbered remaining subsections

(211) IRM 4.19.3.20.3.23(2) - revised to indicate a completed Form SS-8, added Note for rejecting Form SS-8

(212) IRM 4.19.3.20.3.23(2) step 1 - revised to indicate Holtsville

(213) IRM 4.19.3.20.3.23(3) - new actions to take when Form SS-8 is incomplete

(214) IRM 4.19.3.20.3.23(7) step 1 - added Note

(215) IRM 4.19.3.20.4(6) - new for No Change cases

(216) IRM 4.19.3.20.4.1 - combined (1) - (3), renumbered remainder of subsection

(217) IRM 4.19.3.20.5(1) - added Note for disputing comments

(218) IRM 4.19.3.20.5(1) a - deleted, renumbered remainder of alpha list

(219) IRM 4.19.3.20.5(1) c - revised to correct box taxpayer checks

(220) IRM 4.19.3.20.5(7) - added step 1 for issuing Letter 1802C, renumbered remainder of step list

(221) IRM 4.19.3.20.5(8) - added Caution to remove flag

(222) IRM 4.19.3.20.6(5) - new step 4 to remove flag

(223) IRM 4.19.3.20.6(6) - new step 4 for when case cannot be closed

(224) IRM 4.19.3.20.6(7) - new step 4 to remove flag, renumbered remainder of step list

(225) IRM 4.19.3.20.6(8) - added use PC 59 or PC 95, and added Caution for no flag attached

(226) IRM 4.19.3.20.6(9) - added Note for when Form 9465 is attached

(227) IRM 4.19.3.20.6(9) - new e for when case cannot be closed

(228) IRM 4.19.3.20.6(10) - new for procedures when case is closed no change, renumbered remainder of subsection

(229) IRM 4.19.3.20.6(11) - new c for removing flag

(230) IRM 4.19.3.20.6.1(8) - new for when Form 9465 is attached

(231) IRM 4.19.3.20.7 - split information into new subsections, IRM 4.19.3.20.7.1, IRM 4.19.3.20.7.2, IRM 4.19.3.20.7.3, IRM 4.19.3.20.7.4, IRM 4.19.3.20.7.5, renumbered remainder of subsection

(232) IRM 4.19.3.20.8(1) - deleted last sentence

(233) IRM 4.19.3.20.10 (4) - added Reminder for when Form 9465 is attached

(234) IRM 4.19.3.20.10.1(15) a - revised to indicate always use

(235) IRM 4.19.3.20.10.1(15) b - new for Priority Code 2, renumbered remainder of alpha list

(236) IRM 4.19.3.20.10.1(21) b Note - revised to indicate unpostable condition

(237) IRM 4.19.3.20.10.1(35) - deleted 2nd sentence

(238) IRM 4.19.3.20.11(6) - deleted "under separate cover"

(239) IRM 4.19.3.20.11.2(4) - revised to provide additional information

(240) IRM 4.19.3.22.1(1) Caution - added "within 120 days"

(241) IRM 4.19.3.22.1(3) a - added Caution for TC 971 AC 134

(242) IRM 4.19.3.22.2.1(1) - new for TC 971 AC 134, renumbered remainder of subsection

(243) IRM 4.19.3.23.2(2) c - deleted IRM reference, revised to provide appropriate procedure

(244) IRM 4.19.3.24 through IRM 4.19.3.25.1 - revised and expanded to indicate when mandated IAT tools are to be used

(245) IRM 4.19.3.23.4(6) - deleted, obsolete

(246) IRM 4.19.3.24(1) - revised to include no response

(247) IRM 4.19.3.24.1(2) - added step 6 to read Court decision

(248) IRM 4.19.3.24.1(3) - deleted 1st sentence

(249) IRM 4.19.3.24.1(3) 1st bullet - added Note for Integrated Automation Technologies (IAT)

(250) IRM 4.19.3.24.2(5) - added Note for use of IAT

(251) IRM 4.19.3.24.2(7) - revised to include use of IAT

(252) IRM 4.19.3.24.2(9) - added Note for use of IAT

(253) IRM 4.19.3.24.2.1(3) table - changed definition for IPC 9B and 9E

(254) IRM 4.19.3.24.3 - complete revision

(255) IRM 4.19.3.24.4(3) - added bullet for Exam Criteria (CAT-A) and Accounts Management

(256) IRM 4.19.3.24.4(7) step 1 - revised to indicate use of IAT

(257) IRM 4.19.3.24.5 - complete revision

(258) IRM 4.19.3.24.5.1 - complete revision

(259) IRM 4.19.3.24.5.2 - complete revision

(260) IRM 4.19.3.24.5.3 - complete revision

(261) IRM 4.19.3.24.5.4(2) - added IRM reference and Note for issue codes

(262) IRM 4.19.3.24.6 - complete revision

(263) IRM 4.19.3.24.7(1) - added step list for actions to take

(264) IRM 4.19.3.24.8(2) step 1 - added Note for updating status

(265) IRM 4.19.3.24.8(2) step 3 - revised to indicate use of IAT

(266) IRM 4.19.3.24.9(1) - added Note for use of IAT

(267) IRM 4.19.3.24.9(2) - added step list for actions to take

(268) IRM 4.19.3.24.9(3) - moved information from Note to step 4

(269) IRM 4.19.3.24.10(3) b - revised to indicate use of IAT

(270) IRM 4.19.3.24.10.1(1) step 1 - revised to indicate use of IAT

(271) IRM 4.19.3.25.1(2), (5), and (7) - revised to indicate use of IAT

(272) IRM 4.19.3.25.1(8) - added Note for use of IAT

(273) IRM 4.19.3.25.4 - added new subsection "Guidelines for Resolving Unpostable IDRS Transactions"

(274) Exhibit 4.19.3-1 -deleted "AMTAP" and "TRDBV" , added "IVO" , "IDTSpT" and "INEXP" , revised definition for "CC" and deleted the Note

(275) Exhibit 4.19.3-2 - deleted Accounts Management Taxpayer Assurance Program (AMTAP), added Integrity and Verification Operation (IVO)

(276) Exhibit 4.19.3-3 - changed definition for IPC 9B and 9E, added new section for Identity Theft Internal Process Codes, added S3, S6, S8, S9, and SI

(277) Exhibit 4.19.3-4 - changed the following process codes from Reserved to Active: 56, 61 and 76

(278) Exhibit 4.19.3-5 - changed title of Batch Type 41 to CP 2501 Identity Theft (IDT) Responses and Batch Type 72 to Statutory Identity Theft (IDT) Responses, changed Batch Type 81 to 81001 - 81499. Added Batch Type 81500 - 81949, 81950, 89004, 89005, 89006 and 89009. Batch Type 84001 - 84299 redesignated as Merchant Card Cases

(279) Exhibit 4.19.3-7 - corrected verbiage in various paragraphs (14, 15, 19, 35, 43, 56, 67, 72, 73, 77, 86, 92, 96, 98, 139, 148, 161, 163, 167, 170, 188, and 189), deleted paragraph 26, added paragraphs 39 and 113

(280) Exhibit 4.19.3-8 - added two new codes to Exhibit - DD and EE

(281) Exhibit 4.19.3-9 - deleted value and meaning for ID, added LC - Long-term Cost Basis and SC - Short-term Cost Basis

(282) Exhibit 4.19.3-11 - deleted 43h

(283) Exhibit 4.19.3-12 - changed title to Titles of Forms and Schedules, added new table with list of Schedules and their titles, added the following: Form 9452, Form 12412, Form 13794, Form 14027-B, Form 14103, and Document 14394

(284) Exhibit 4.19.3-16 - new Exhibit for Identity Theft Action Codes, renumbered remaining Exhibits

(285) Exhibit 4.19.3-17 - deleted "Secondary Date Fields" , added 2nd table for literals when removing identity theft indicators

(286) Exhibit 4.19.3-18 - new Exhibit for Form 1040 dotted line literals

(287) Exhibit 4.19.3-19 - new Exhibit for 2012 Filing Requirements for Most People

(288) Exhibit 4.19.3-20 - new Exhibit for Mandated IAT Tools

(289) Exhibit 4.19.3-21 - new Exhibit for Additional IAT Tools Available (Use Not Mandated)

Effect on Other Documents

IRM 4.19.3 effective on September 1, 2013 for Tax Year 2012, September 1, 2012 for Tax Year 2011, August 16, 2011 for Tax Year 2010, September 1, 2010 for Tax Year 2009, September 1, 2009 for Tax Year 2008, September 1, 2008 for Tax Year 2007, September 1, 2007 for Tax Year 2006, September 1, 2006 for Tax Year 2005, and September 1, 2005 for Tax Year 2004. All IRMs remain in effect for related cases unless otherwise noted. This IRM incorporates Automated Underreporter IRM Procedural Updates IPU 12U1661 dated 10-02-2012, IPU 12U1797 dated 11-07-2012, IPU 12U1953 dated 12-14-2012, IPU 13U0118 dated 01-11-2013, IPU 13U0228 dated 01-29-13, IPU 13U0416 dated 02-26-2013, IPU 13U0441 dated 03-01-2013, IPU 13U0709 dated 04-09-2013, IPU 13U0895 dated 05-08-2013, IPU 13U912 dated 05-13-2013, and IPU 13U1097 dated 06-17-2013.

Audience

AUR tax examiners at Small Business/Self-Employed and Wage and Investment sites

Effective Date

(09-01-2013)

Steve C. Klingel
Director, Reporting Compliance
Wage and Investment Division

4.19.3.1  (09-01-2012)
Overview of IMF Automated Underreporter

  1. This manual provides instructions for Automated Underreporter (AUR), the automated analysis and processing of potential underreported (U/R) and/or over-deducted (O/D) issues identified through information return (IR) matching.

  2. AVOID "AUDITING" RETURNS. All returns in the AUR inventory were previously screened for unallowable items and audit potential. They were not selected for action in either event.

    1. When evaluating a taxpayer's (TP) explanation for unreported income, it is not necessary to verify everything the taxpayer says. As a general rule, the issue of questionable items (those not clearly unallowable) will not be raised.

    2. The taxpayer's explanation will generally be taken at face value, including schedules of expenses submitted by the taxpayer to offset unreported income. The screener/examiner should consider the reasonableness of the explanation.

    3. If Exam issues are discovered during AUR processing, consult with the team leader. Then, if necessary, consult with an Exam representative to decide the appropriate action(s) to take.

  3. Underreporter cases are built from two primary sources:

    • The Individual Master File (IMF) which contains information reported to IRS by taxpayers

    • The Information Returns Master File (IRMF)

  4. The IMF file contains information reported on:

    • Form 1040, U.S. Individual Income Tax Return

    • Form 1040A, U.S. Individual Income Tax Return

    • Form 1040EZ, Income Tax Return for Single or Joint Filers with No Dependents

  5. The IRMF information is matched with the IMF information to verify the taxpayer reported all income as required. An AUR case results when computer analysis detects a discrepancy between the two data sources. Information in the IRMF file includes, but is not limited to:

    • Form W-2, Wage and Tax Statement

    • Form 1099-INT, Interest Income

    • Form 1099-DIV, Dividends and Distributions

  6. The information documents in the Form W-2 series (and Form 1099 if tax was withheld) should be attached to the tax return when it is filed.

  7. Taxpayers need not attach information documents in the Form 1099 (unless tax was withheld as noted above), Schedule K-1, Form 1098, and Form 5498 series to the return when it is filed.

  8. Discrepant cases are then categorized by type (wage, dividend, interest discrepancy, etc.) and underreported range (i.e., $200-499.99 tax change). These categories provide a logical system of criteria to select cases from the available inventory.

  9. After cases are selected from the inventory, they are worked according to procedures in this IRM.

  10. AUR Operations at seven campuses compile and control selected cases.

    1. Enterprise Computing Center at Martinsburg (ECC-MTB) sends tape information from the IRMF, Return Transaction File (RTF), Taxpayer Information File (TIF), and Payer Agent file. See IRM 4.19.3.5, Payer Agent, for additional information on the Payer Agent file. This information downloads to the AUR system.

      Note:

      Data from the TIF and Payer Agent file is updated weekly.

    2. A computer tape containing Form 4251 (Return Charge-Out) data prints on a Campus printer. Each Form 4251 contains a social security number (SSN), tax year, and other case identification information, represented in a bar code and numeric format.

      Note:

      A Form 4251 will not be printed for Electronically Filed Returns (ELF) or Form 1040EZ (EZ).

    3. Federal Records Center (FRC) pulls and forwards returns to the Campus Files function for routing to Underreporter.

    4. Returns are controlled into the AUR system by scanning the bar code.

    Note:

    Electronically Filed Returns/Form 1040EZ (ELF/EZ) cases are systemically built into screening batches.

  11. The tax examiner performs an in-depth analysis of each case. The tax examiner determines if the discrepant income or deduction(s) in question are satisfactorily identified on the tax return. If so, close the case. If reasonable doubt remains that the discrepant income or deduction(s) was included on the return, send the taxpayer either:

    • An AUR Notice, CP 2000 or

    • An Initial Contact Letter, CP 2501

    Note:

    The system auto generates CP 2000 Notices for select income categories.

  12. Process codes (PC) are used to provide an audit trail for AUR case processing. Integrated Data Retrieval System (IDRS) reflects PCs as pending actions until they post to the Master File.

    1. PC 0X (except 09) is computer generated to designate how and by which organization the case has been selected. PC 09 establishes an IDRS control base and reflects CP 2000 interest as pending.

    2. PC 20 adjusts Withholding and Excess Social Security/Railroad Retirement Tax only. A Letter 2893C is sent to advise the taxpayer, as outlined in IRM 4.19.3.15.1.2, Withholding and SSTax Miscellaneous.

    3. PC 30 updates cases on the IDRS control base whenever a CP 2501 is generated.

    4. PC 55 updates an IDRS control base when a CP 2000 is generated. An amended CP 2000 Notice also updates the existing IDRS control base.

    5. PC 75 and 77 updates the IDRS control base when a Statutory Notice of Deficiency (A CP 3219A and Form 5564-A, Notice of Deficiency - Waiver) is issued/generated.

    6. Other PCs are input during AUR processing. For a complete list of PCs that can follow the current PC, reference the Case Analysis screen, Reference Tools, and PC Lookup UR.

  13. Internal process codes (IPC) are codes used in AUR processing and do not post to IDRS. See Exhibit 4.19.3-3, AUR Internal Process Codes.

  14. See Exhibit 4.19.3-1, Abbreviations (see also Glossary) and Exhibit 4.19.3-2, Glossary, for a list of abbreviations and definitions used in AUR processing.

  15. See Exhibit 4.19.3-12, Titles of Forms and Schedules, for a complete list of Forms and their titles.

4.19.3.1.1  (09-01-2013)
Taxpayer Advocate Service (TAS)

  1. Even though the IRS strives to improve its systems and provide better service, some taxpayers still have difficulty in getting solutions to their problems or appropriate responses to their inquiries. The purpose of the Taxpayer Advocate Service (TAS) is to give taxpayers someone to speak for them within the Service - an Advocate. TAS is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should.

  2. 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 Case Processing -Taxpayer Advocate Service (TAS) Case Criteria) and you cannot 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 within 24 hours, as well as cases in which you have taken steps within 24 hours to begin resolving the taxpayer's issues. 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. In addition provide the taxpayer with the number for the National Taxpayer Advocate (NTA) toll-free line, 1-877-777-4778 or TDY/TDD 1-800-829-4059 and advise the taxpayer that TAS is available if they are not satisfied with the service he or she received.

    Note:

    It is important that all IRS employees handle cases with the taxpayer's best interest in mind.

4.19.3.1.2  (09-01-2008)
Statute Awareness Program

  1. The Statute Awareness Program was created to minimize barred assessments and erroneous abatements. Because of the time involved in the processing of AUR issues, AUR employees must be particularly watchful for conditions that may indicate statute imminent cases.

  2. Although the system generates a report to alert management to statutes in danger of expiring, employees must be personally knowledgeable of the rules that govern the assessment statute expiration date (ASED). These rules are outlined in IRM 25.6, Statute of Limitations.

    Note:

    The ASED can be found in the STATUTE EXP DATE field on the Tax Account screen, but the date should be verified.

  3. Each functional area should ensure that an adequate number of "Statute Specialists" are assigned.

  4. On a quarterly basis, verification that the Operation has completed the required search for cases that are statute imminent is sent to the Planning and Analysis (P & A) Staff. The P & A staff forwards a consolidated Campus report to the Headquarters Statute Analyst.

4.19.3.1.3  (03-28-2011)
Related IRMs and Publications

  1. See IRM 21.1.3.2, General Disclosure Guidelines, before disclosing any tax information, you must be sure you are speaking with the taxpayer or authorized representative. See the Taxpayer Authentication guidelines in IRM 21.1.3.2.3, Required Taxpayer Authentication, IRM 21.1.3.2, General Disclosure Guidelines, for further information.

    • See IRM 11.3.2.6.1, Leaving Information on Answering Machine/Voice Mail, for proper disclosure protocols before leaving messages on a taxpayer's answering machine

    • See IRM 11.3.1.11, Facsimile Transmission of Tax Information, for proper disclosure protocols before faxing confidential information to the taxpayer

  2. The following additional IRMs and publications/documents are listed as a convenience when AUR determines that in-depth research is required to resolve unusual technical issues not covered in AUR instructions, Form 1040 instructions and various publications. When reference to one of the related IRMs is required for AUR processing, the complete IRM reference is stated in this IRM.

    Note:

    Technical issues that occur frequently should be brought to the attention of the IRM 4.19.3, IMF Automated Underreporter, author for consideration for inclusion in this IRM.

    • IRM 2.3, IDRS Terminal Responses

    • IRM 2.4, IDRS Terminal Input

    • IRM 3.13.62, Media Transport and Control

    • IRM 4.13.1, Audit Reconsiderations, Introduction

    • IRM 4.19.2, IMF Automated Underreporter (AUR) Control

    • IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures

    • IRM 5.9, Bankruptcy and Other Insolvencies

    • IRM 8.20, Appeals Case Processing Manual

    • IRM 10.5, Privacy, Information Protection and Data Security (PIPDS)

    • IRM 11.3, Disclosure of Official Information

    • IRM 13.1.7, Taxpayer Advocate Service (TAS) Case Criteria

    • IRM 20.1, Penalty Handbook

    • IRM 20.2, Interest

    • IRM 21.1.1, Accounts Management & Compliance Services Overview

    • IRM 21.1.3.18, Taxpayer Advocate Service (TAS) Guidelines

    • IRM 21.3.3, Incoming and Outgoing Correspondence/Letters

    • IRM 21.4.4, Manual Refunds

    • IRM 21.5, Account Resolution

    • IRM 21.6, Individual Tax Returns

    • IRM 25.15, Relief from Joint and Several Liability

    • Publication 17, Your Federal Income Tax (For Individuals)

    • Document 6209, IRS Processing Codes and Information

4.19.3.1.4  (09-01-2003)
AUR Security

  1. The AUR system design protects both taxpayer data and the individual AUR users. ALL users are responsible for protecting taxpayer information. Users should access ONLY the data needed to perform their duties, and not divulge taxpayer information to any employee who does not have an official "need to know" . Users will report infractions to their managers immediately.

4.19.3.1.5  (09-01-2013)
Electronic Filing System

  1. Returns are filed electronically by electronic transmitters or from a home computer through a third party vendor (On-Line Filing). Individual electronic returns are transmitted to Andover (ANSC), Atlanta (ATSC), Austin (AUSC), Brookhaven (BSC), Cincinnati (CSC), Fresno (FSC), Kansas City (KCSC), Memphis (MSC), Ogden (OSC) and Philadelphia (PSC) Submission Processing Centers and Enterprise Computing Center - Memphis (ECC-MEM).

  2. Identify all electronically transmitted returns by a unique document locator number (DLN). Use the file location codes (FLC) shown below for the electronic filing of individual income tax returns. The second number listed is the rollover FLC used when a site exhausts the regular FLC for a given processing date.

    • ANSC - 16; 14

    • ATSC - 65

    • AUSC - 76; 75

    • BSC- 22

    • CSC - 26; 27

    • FSC - 80; 90; 99

    • KCSC - 43; 70; 79

    • MSC - 72; 64

    • OSC - 93; 92; 78

    • PSC - 30; 32 (and sometimes 66 - U. S. Possessions and 98 - International)

    • ECC-MEM - 64; 72

      Note:

      The system will not allow a user to order a transaction code (TC) 150 document with the above FLC codes.

  3. The TRPRT print is not considered the original return and is labeled "TRPRT PRINT DO NOT PROCESS" .

  4. Information such as loose forms, schedules, and correspondence CANNOT be attached to an ELF return. Do not use an attachment or association form.

  5. TRDB has a new Tab option: "Dotted…" . Dotted-line literals are only available, on tax returns filed via Modernized e-File (MeF). MeF returns can be identified by a DLN Julian Date greater than 400. A TRDB screen, "Dotted…" tab display, with no entries, indicates either:

    1. The return was not filed via MeF (DLN Julian Date less than 400) or

    2. The MeF filed return included no dotted-line literals

    Note:

    For a complete list of dotted line literals see Exhibit 4.19.3-18, Form 1040 Dotted Line Literals.

  6. TRDB has a new Tab option: "Attach" . When the user accesses the new "Attach" tab, each statement/attachment the taxpayer electronically filed will be listed. There is no standard list of names/titles for the taxpayer to use so the statement/attachment will be listed by the file name the taxpayer used.

  7. No change PCs 15, 39, 47, 48, 51, 52, 69, 70, 71, 72, 73, 89, 91, 92 and 93 automatically generate a TC 290-0 for electronically filed returns with a "Y" in the SOURCE DOCUMENT ATTACHED? field in the Assessment window.

    Caution:

    If there is no information (loose forms, schedules or correspondence) to be associated with the refile DLN, enter an "N" in the SOURCE DOC field in the Process Code window.

4.19.3.1.6  (06-17-2013)
Integrated Automation Technologies (IAT)

  1. Automated Underreporter employees are mandated to use the Integrated Automation Technologies (IAT) tools. When an action must be taken on IDRS (unable to complete the action within the AUR system) and an IAT tool is available, AUR employees with access to IAT tools are required to complete the action using the IAT tool. The IAT tools assist the tax examiner with IDRS research and input. See Exhibit 4.19.3-20, Mandated IAT Tools, for a list of mandated IAT tools.

  2. If an IAT tool is not functioning properly, the case should be worked using IDRS. For more information on each tool see http://iat.web.irs.gov/.

4.19.3.2  (09-01-2009)
Controlling Work

  1. Underreporter cases to be analyzed by AUR tax examiners are assembled into batches, which are then divided into work units. See Exhibit 4.19.3-5, Batch Types. See IRM 4.19.7, IMF Automated Underreporter Technical System Procedures for the following Windows used to control cases:

    • Assign Work Unit Window

    • Release Work Unit Window

    • Transfer Work Unit Window

    • Accept Transfer Window

    • Assign Case Window

    • Release Batch Window

    • Transfer Case Window

    • Request Case Window

    • Universal Work Window

4.19.3.2.1  (09-01-2013)
Viewing Cases

  1. Each user may have clearance to view any case on the system. This function is necessary for any user answering taxpayer phone inquiries.

  2. To view any case take the following actions:

    Exception:

    TY 2003, cases can only be viewed by the originating site.

    1. Select the appropriate Tax Year from the AUR Year menu.

    2. Select reView from the AUR Main menu.

    3. Select View case from the Review menu.

    4. Input the SSN to be viewed.

    5. Click on the PHONE CONTACT field if viewing the case due to a taxpayer phone contact. The AUR program will extract telephone contact data based on this entry.

  3. The only entries that can be updated on the cases are:

    • Telephone number and contact hours on the Tax Account screen

      Reminder:

      The telephone number must be input/updated, if on the taxpayer response or provided during a phone call.

    • Case notes on the Case Note screen

    • Update address

    • Update third party contact

    • Update power of attorney (POA)

    • Action Required (Universal case) box

      Note:

      Any other changes will not save to the database.

  4. The Print menu option may be accessed when the user selects View Case from the Review menu.

4.19.3.2.2  (03-28-2011)
Lost Cases

  1. When an SSN is assigned to a batch, and the corresponding paper case is missing, the case is considered a "lost case" .

  2. When a lost case is identified:

    1. Select the Process Code window. See IRM 4.19.7, IMF Automated Underreporter Technical System Procedures - Process Code Menu.

    2. Input IPC LC (Lost Case).

      Caution:

      If the work unit contains both copies of Form 4251, it is not a lost case. Input IPC "0A" (Return Request).

    3. The AUR system moves the SSN to Batch Type (BT) 98XXX (immediately).

  3. If the missing case is:

    1. A Form 1040EZ, use the Form 1040EZ information at the bottom of the Case Analysis screen to work the case.

    2. An ELF return, see IRM 4.19.3.1.5 (3), Electronic Filing System.

      Note:

      The system will not allow a user to input IPC LC when the case is a Form 1040EZ or an ELF (Virtual) return.

  4. Some cases are found to be missing after the work unit has been released by the tax examiner and is being disassembled by the Control Function. The Control Function notates "Lost Case" on a case transfer sheet and routes the case transfer sheet to the Lead. The Lead contacts the tax examiner who released the case.

    1. If the case is found, the tax examiner accepts and reworks the case on the system.

    2. If the case is not found, the tax examiner accepts and attempts to rework the case on the system, using a substitute Form 4251. If the case file contents are necessary to work the case, input IPC LC on the Process Code window and discard the case history/transfer sheet.

      Note:

      In an effort to eliminate unnecessary paper inventory, substitute charge outs should only be printed if absolutely necessary.

4.19.3.2.3  (10-04-2010)
Wrong Pulls in Screening (WP)

  1. If the original tax return DLN and the Form 4251 DLN do not match:

    1. Leave the Form 4251 attached to the return.

    2. Input IPC "WP" and notate "WP" on the Form 4251.

    3. Leave the return in the work unit.

    The return is sent to Federal Records Center (FRC) after the batch is disassembled.

  2. If the DLNs match, but the taxpayer's name is different, close the case with PC 29.

  3. If the tax return is for the incorrect tax year (the DLNs match, but the TY is different), close the case with PC 29 and route the return to be processed to the correct tax year.

4.19.3.2.4  (09-01-2009)
Case History

  1. The Case History Screen is used to determine the location or status of a particular case. If the case is:

    1. Assigned to your unit, select the Unit Case History window from the Case Analysis menu.

    2. Assigned anywhere on the AUR system, select the Case History window (Analyzation) using the Review option on the Main menu.

    See IRM 4.19.7, IMF Automated Underreporter Technical System Procedures - Viewing Cases.

4.19.3.2.5  (09-01-2013)
Archived Cases

  1. TY 2003 cases can only be viewed by the originating site.

  2. For TY 2002 and subsequent years, access the case data using View Case in the appropriate tax year on the system.

  3. For TY 2001 and prior, if information on the case is needed, the case must be ordered from files.

4.19.3.3  (09-01-2003)
Case Information

  1. Each AUR case contains information for one tax account.

4.19.3.3.1  (08-16-2011)
Underreporter Cases

  1. A case where a paper Form 1040 or Form 1040A was filed has an individual income tax return present in the case. If the Form 4251 is batched without an original tax return, order the TC 150 return on the Tax Account screen.

    Note:

    A Form 4251 is not generated for Form 1040EZ or ELF (Virtual) returns. Tax examiners will notate the applicable PC/IPC next to the corresponding SSN on the work unit listing for ELF/EZ returns.

  2. Some cases may have an amended return, Form 1040X, Amended U.S. Individual Income Tax Return, attached to the original individual tax return.

    1. If the amended return was not processed, include it in the resolution of the case. Leave the amended return attached to the original return when the case is closed.

    2. If the amended return was processed, consider it in the AUR case resolution and refile separately when the case is closed.

  3. All cases have online data which displays in a series of screens. See IRM 4.19.7, IMF Automated Underreporter Technical System Procedures, for more information.

  4. An action trail MUST be made part of the case data whenever significant actions are taken. Use either the IR Note window or the Case Note window. See IRM 4.19.7, IMF Automated Underreporter Technical System Procedures - Case Notes and Information Return Notes.

    Note:

    IR notes and Case notes are part of the official case file and may be viewed by the taxpayer.

  5. Form 4251 is attached to a return when it is pulled from the files at the Federal Records Center.

    Note:

    Form 1040EZ and ELF (Virtual) returns will have an individual work unit listing rather than a Form 4251.

    1. Form 4251 MUST remain with the paper return when the case is closed.

    2. Notate the applicable PCs and IPCs on Form 4251.

    3. Keep the Form 4251 in the front of the case file with the bar code visible.

4.19.3.3.2  (09-01-2006)
Case Analysis Screen

  1. The Case Analysis screen is the main screen used by tax examiners for the analysis of AUR cases. See IRM 4.19.7, IMF Automated Underreporter Technical System Procedures - Case Analysis Overview.

  2. Certain Transaction Codes, Freeze Codes, or Indicators may require research, referral, or other specific actions. When these conditions are present, the Message window displays on the Case Analysis screen when the SSN of the case is entered. If this window displays, review the information on the Tax Account screen to determine the appropriate action to take.

  3. Within the Case Analysis screen various windows display, dependent upon the issues involved on an individual case. You must work certain windows in the proper order if two or more of them are present. The twelve windows and their proper sequence are:

    1. Misc Adjust/Sch C Exp

    2. FICA Tax

    3. SST on Tips

    4. SE Tax

    5. SEP/KEOGH/SIMPLE

      Note:

      HSA/AMSA Contribution/Deduction. Although there is no HSA/AMSA window, this income type must be worked in the proper order. See IRM 4.19.3.8.2 (10), Health Savings Account (HSA) or Archer Medical Savings Account (AMSA) Deduction.

    6. SSA/RRB

    7. IRA (CONTR)

    8. Savings Bond Exclusion

    9. EPAB

    10. Student Loan Interest Deduction (SLID)

    11. Tuition and Fees

    12. Domestic Production Activity Deduction

    Example:

    The SE Tax window has been worked. Subsequently, the SST on Tips window is worked. The system displays a warning message describing the proper sequence. You must access the SE Tax window again to complete the proper sequence before going to the Return Value screen.

4.19.3.3.3  (10-02-2012)
Tax Account Screen

  1. The Tax Account screen displays posted information from the taxpayer's Master File account. It contains the name and address, Date of Birth (DOB), return amounts, transactions, and other current data (including Reason Codes (RC)). The data is downloaded to the AUR system from ECC-MTB. The taxpayer's phone number and hours of contact can be entered. This screen is used to order a return if the related adjustment has posted to the account. See IRM 4.19.7, IMF Automated Underreporter Technical System Procedures, - Tax Account Screen.

  2. Compare the Adjusted Gross Income (AGI) and Taxable Income (TXI) on the return with the AGI/TXI on the Tax Account screen. A mismatch could be due to a taxpayer and/or processing error. The AUR Function is responsible for issuing a CP 2000 to correct these types of errors.

    Note:

    If the processing error resulted in an erroneous refund, transfer to the Erroneous Refund Coordinator.

  3. If the AGI on the return and the AGI on the Tax Account screen do not match, the taxpayer/processing error may be found on page 1 of the return.

    1. The system displays the AGI as determined from Master File.

    2. Verify the AGI on the Tax Account screen.

    3. If appropriate, use the MISC ADJUSTMENT/SCHEDULE C EXPENSE window to account for the discrepancy. See IRM 4.19.3.4.9 (1), Miscellaneous.

      Exception:

      If the taxpayer(s) AGI/TXI return amounts were correct, a processing error changed the AGI/TXI, and the taxpayer(s) did not receive a Math Error Notice because the change was below tolerance, correct the AGI (by entering the taxpayer's original amount in the AGI window). Leave a case note explaining the action taken.

  4. If the Tax Account screen displays an asterisk in the NEW TRANS field, a new TC has been added since the case was last analyzed. When an asterisk displays:

    1. Review the TC to determine if any action is required.

    2. Click on the asterisk and press ENTER to indicate the TC has been considered while working the case.

      Note:

      The system automatically totals TC 640 payments and displays a prompt: "Should amount be entered in Return Value Screen?" .

  5. If the Tax Account screen displays the Indicator KITA (Killed in Terrorist Action) or HSTG (Hostage in Terrorist Action) in the KITA IND field, or if the system displays the message "KITA/HSTG indicator present. Close case." , use PC 18 to close the case.

    Note:

    Because taxpayer contact has not been made, no further actions are needed.

  6. If the Tax Account screen displays the indicator PDT (Potentially Dangerous Taxpayer), see IRM 25.4.1, Potentially Dangerous Taxpayer, for additional information. If the Tax Account screen displays the indicator CAU (Caution Upon Contact), see IRM 25.4.2, Caution Upon Contact Taxpayer.

4.19.3.3.3.1  (09-01-2013)
Power of Attorney (POA)

  1. A POA is on file when an indicator is displayed in the Centralized Authorization File (CAF) Indicator field. The indicator is either alpha or numeric. See Document 6209 for the applicable POA indicators. A TC may also be present.

    • TC 960 is a CAF Indicator (POA on file)

    • TC 961 reverses the CAF Indicator (POA revoked)

  2. Prior to the issuance of a CP 2000/CP 2501 or Recomputation Notice, the CAF is automatically researched for the valid POA's name and address.

  3. If issuing a notice, and there is a valid POA on file:

    1. A copy of the notice is automatically created for the POA. (If there are multiple POAs, the notice is only created for the first two POAs authorized to receive notices per the CAF.)

    2. PARAGRAPH 178 automatically generates on the CP 2000/CP 2501 and Recomputation Notice to inform the taxpayer that a copy is being sent to the POA. See Exhibit 4.19.3-7, CP PARAGRAPHS.

  4. If an original POA is found attached to the tax return (not detached during processing), see IRM 4.19.3.20.1.22, Letters From a Third Party and Authorization From a Valid Power of Attorney (POA) and IRM 21.3.7, Taxpayer Contacts - Processing Third Party Authorizations onto Centralized Authorization File (CAF), for instructions on determining validity.

  5. Disregard invalid POAs.

  6. Consider "valid" POAs approved.

    Note:

    CAF will only accept the Form 2848 with a revision date of October 2011 or later.

    1. Make a photocopy for the AUR case file.

    2. Forward the original to the CAF Unit for processing.

    3. Input the POA information on the Update Address window (POA). See IRM 4.19.7, IMF Automated Underreporter Technical System Procedures - Updating Address Information.

      Note:

      A foreign address requires a period ("." ) in the first position of the State field.

4.19.3.3.3.2  (09-01-2013)
Freeze Codes

  1. If certain freeze codes are present on the tax module, a message window displays on the Case Analysis screen when the SSN of the case is entered. Access the Tax Account screen to determine the proper action.

  2. If there is a Freeze Code "-A" , the case is worked by AUR. See IRM 4.19.3.3.3.3 (15) and (16), Transaction Codes Reflecting Tax Liability, for further instructions.

  3. A Freeze Code "-C " on the account indicates the taxpayer was involved in a military operation in a designated combat zone and is entitled to special tax treatment.

    Note:

    The -C freeze remains on the taxpayer's account even after the taxpayer is no longer on the combat zone. If a case has a -C freeze present additional research is necessary to determine the taxpayer's combat zone status.

    Research IDRS CC IMFOLE for the Combat Indicator.

    If the Combat Indicator is Then
    1 The taxpayer is still serving in a combat zone. Close the case using PC 15.
    2 The taxpayer is no longer serving in a combat zone, continue normal processing.

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  5. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Caution:

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

  6. If a Freeze Code "-I" is present on Tax Account screen, and/or the NET CHANGE field on the Return Value screen is less than the TC 846 with a corresponding TC 776 that is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ on the Tax Account screen, then a Manual Interest computation is required. If there is U/R income, input IPC MI (Manual Interest) only if a CP 2000 is being issued. If the case results in a refund, do NOT use IPC MI. Enter "0" in MANUAL INTEREST field of the Return Value or the Notice Summary Screens, and continue processing. Input PC 30, if issuing a CP 2501. See IRM 4.19.3.16.10, Manually Computed Interest for the CP 2000.

    Note:

    If a Manual Interest computation is required, and the tax examiner attempts to input Process Code (PC) 55, 57, 59, or 95 or IPC RN or SR, the system alerts the tax examiner that IPC MI is required. Cases with CP 2000 Notice Indicator 8 do not require an IPC MI.

  7. A Freeze Code "L-" identifies that an Innocent Spouse claim (Form 8857, Request for Innocent Spouse Relief) has been filed and is set by input of TC 971 AC 065. The TC 971 AC 065 also generates a TC 130 freezing the entire account for the non-requesting spouse.

    1. During the Screening phase, close the case using PC 28.

    2. During the Response phase, refer to IRM 4.19.3.20.1.20, Innocent Spouse Relief Cases, for more information.

  8. Freeze Code "-L" (Audit Indicators TC 420 or 424, not reversed by TC 421) indicates the return is currently being requested or audited by Exam. During case analysis (screening phase), take the following action:

    1. Research IDRS CC TXMODA for a pending TC 421 that will reverse the "-L" freeze. If there is a reversal, continue normal processing.

    2. If there is NO reversal, determine if the case is controlled by the Tax Equity and Fiscal Responsibility Act (TEFRA) function. These cases are identified on IDRS by a "33" or "34" under the CURRENT-STATUS-CD/DATE field on IDRS CC AMDISA. If the case is controlled by TEFRA, continue normal processing. Do not use the Exam transfer PCs to close TEFRA cases.

    3. If the conditions in (8) 1 and 2 above are not met, input PC 13 (Case Analysis phase) to transfer the case to Exam.

  9. If the Freeze Code "-L" open TC 420/424 is present after an AUR notice has been issued, take the following actions:

    1. Research IDRS CC AMDISA to determine the primary business code (PBC), secondary business code (SBC) and employee group code (EGC).

    2. Use the PBC, SBC and EGC information from AMDISA to locate the correct Exam contact by accessing one of the following websites: If the PBC is 301-309:
      http://wsep.ds.irsnet.gov/sites/co/dcse/sbse/exam/webdocuments/Document%20Library/1/AIMS/LB-I%20Contact%20Listing.xls
      all others:
      EXAM Employee Group Code (EGC) Contacts, under the Who/Where Tab on SERP.

    3. If the case is in CP 2501 or CP 2000 phase and Exam wants the case, input PC 38 (CP 2501) or PC 64 (CP 2000).

    4. If the case is in Statutory Notice phase and Exam wants the case, see (10) below.

    5. If Exam does not want the case, leave a Case Note and continue normal processing. If an assessment is needed see IRM 4.19.3.20.10, Assessments.

  10. If Exam wants the case, take the following actions:

    1. Allow the statutory period to expire.

    2. Access the Assessment window and enter the appropriate priority code.

    3. Commit the Assessment window.

    4. Print the case contents for shipment to Exam.

    5. Prepare Form 3210 to send case contents to Exam. Notate "AUR TC 922 closed. Open TC 420/424; please route to Exam" in the Remarks area of Form 3210.

      Note:

      Clerical will send return and correspondence with assessment.

    6. Input PC 94 and release the case.

  11. A Freeze Code "-O" on the Tax Account screen, is a Disaster Indicator set by TC 971 AC 086 or 087. See IRM 4.19.3.4.6, Declared Disaster Areas, for more information.

  12. ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Caution:

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

  13. ≡ ≡ ≡ ≡ ≡ ≡ "" ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  14. A Freeze Code "-R" on Tax Account screen reflects Integrity and Verification Operation (IVO) (formerly Accounts Management Taxpayer Assurance Program-AMTAP) involvement and is identified with TC 971 AC 134, TC 971 AC 052 and TC 570 which indicates a frozen refund. Continue normal case processing.

  15. A Freeze Code "-S " replaces the assignment of computer condition codes to identify tax returns filed within a declared disaster area and is set with a TC 971 AC 688. The -S freeze does not suppress notices. Continue normal case processing.

  16. A Freeze Code "-T" is present on Tax Account screen, there is a ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ entity freeze on the account, used for monitoring purposes only. Continue normal case processing.

  17. If there is a Freeze Code "-U" , transfer to the Erroneous Refund Coordinator. Freeze Code "-U" indicates the Erroneous Refund area is monitoring a case for available credits and a closure may release needed credits.

  18. If there is a Freeze Code "-V" and/or TC 520, a Bankruptcy condition is present. If identified on the Tax Account screen;

    1. During Case Analysis (i.e., pre-notice contact), close the case using PC 27.

    2. During Response phase (after the taxpayer has been issued an AUR Notice), see IRM 4.19.3.20.1.10, Bankruptcy Procedures - Responses.

  19. If there is a Freeze Code "-W" with closing code (cc) 81, or cc 84 and/or a TC 520 (not reversed by TC 521 or 522), a Bankruptcy condition is present. If identified on the Tax Account screen;

    1. During Case Analysis (i.e., pre-notice contact), close the case using PC 27.

    2. During Response phase (after the taxpayer has been issued an AUR Notice), see IRM 4.19.3.20.1.10, Bankruptcy Procedures - Responses.

  20. A Freeze Code "-Y " on the account indicates that the taxpayer filed an Offer-in-Compromise with the service. See IRM 4.19.3.3.3.4 (6) , (11) and (12), Other Transaction Codes and Math Error Codes, for additional information.

  21. ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

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

  22. If a Freeze Code other than those explained in (2) through (21) above, are indicated on the Tax Account screen, refer to Document 6209.

4.19.3.3.3.3  (09-01-2013)
Transaction Codes Reflecting Tax Liability

  1. A TC 150 indicates a return was filed and posted to the Master File. The TC 150 amount is the tax assessed when the original return was filed.

  2. TCs 290 and 300 indicate additional tax was assessed after the original return was filed. The system adds these amounts to the TC 150 amount to determine the total tax per return. If the TC 290/300 source document is present, determine if the adjustment source document (Form 5147, Form 5344, Examination Closing Record, amended or duplicate return) resolves the U/R issue(s).

    Note:

    A TC 300-0 with a corresponding TC 764, TC 768, or TC 765 indicates Exam adjusted EIC with no change to AGI or TXI. See IRM 4.19.3.15.3, Earned Income Credit, for further instructions on EIC.

    Caution:

    Certain modules where an overstatement of estimated tax payments or Withholding (W/H) credits resulted in a refund, offset, or a credit elect may show as assessed using TC 290, RC 051, for the amount of the overstatement. These accounts will generally not contain a TC 807.

  3. TCs 291 and 301 indicate a portion or all of a previously assessed tax was abated after the original return was filed. The system subtracts these amounts from the TC 150 amount to determine the total tax per return. If the TC 291/301 source document is present, determine if the adjustment source document (Form 5147, Form 5344, Examination Closing Record, amended or duplicate return) resolves the U/R issue(s). If the AGI/TXI on the Tax Account screen:

    1. Differs from the tax return, order the TC 291/301 document without screening for income discrepancies.

    2. Matches the tax return, screen for income discrepancies and see (7) below.

  4. Order the missing TC 290/291 or TC 300/301 adjustment source document

    1. Before issuance of a notice or

    2. Prior to taking a PC 20 action.

  5. Do not order the missing TC 290/291 or TC 300/301 source document for the following situations:

    1. The difference between the AGI/TXI on the return and the AGI/TXI shown on the Tax Account screen matches the total discrepant amount within ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . Consider the amount in question reported and close the case if there are no other related issues (i.e., SET (Self-employment tax), 10% tax, etc.)

      Note:

      To calculate the taxpayer's reported self-employment income, divide the amount shown in the SE INCOME fields on the Tax Account screen by .9235 (92.35%).

    2. The adjustment changes the amount(s) or item(s) back to the original figures on the return (changes may have resulted from a math error code or unallowable code). The AGI, TXI and Tax (TC 150 minus TC 291) should equal the amounts on the original tax return.

    3. Withholding or excess Social Security Tax (SST)/Railroad Retirement Tax (RRT) is the only issue (PC 20 criteria) and the adjustment does not have a TC 806/807 or TC 766/767 with credit reference number (CRN) 252 present.

    4. A TC 806/807 or a TC 766/767 with CRN 252 is the only change (there is no change to the AGI or TXI) and withholding or excess SST/RRT is not an issue.

      Caution:

      Certain modules where an overstatement of estimated tax payments or W/H credits resulted in a refund, offset, or a credit elect may show as assessed using TC 290, RC 051, for the amount of the overstatement. These accounts will generally not contain a TC 807. Send a Special Paragraph using the following verbiage as an example "The other taxes as shown on this notice include the previous change made to your federal income tax withheld."

    5. The adjustment is a TC 291/301 when the AGI, TXI and the tax has been reduced to zero. Close case with PC 28 (these are generally filing status changes or incorrect SSN).

  6. Order the TC 290-0 adjustment source documents when one of the following corresponding TCs is present:

    1. TC 976/977.

    2. TC 971 AC 010 or 012 through 016.

    3. TC 806/807 with the TC 290-0.

    4. TC 764/765/768.

      Exception:

      Do not order the TC 290-0 adjustment source document for changes to EIC and there is no change to AGI or TXI.

    5. TC 766/767 with CRN 336.

    6. TC 766/767 with CRN 252.

    7. TC 766/767 with CRN 260.

    8. ELF return and the blocking series of the TC 290-0 is "05" or "15" .

  7. Do not order TC 290-0 adjustment source documents for the following:

    1. TC 290-0 adjustment source document is for changes to EIC (TC 764/765/768) and there is no change to AGI or TXI.

    2. The TC 290-0 has a corresponding TC 971 AC 071. These are injured spouse claims for which the refund was released.

    3. The TC 290-0, the TC 150 and the TC 846 have the same DLN with blocking series 92X (example: 18221-046-92337-5). These are also injured spouse claims for which the refund was released.

    4. The TC 290-0 has a corresponding TC 971 AC 270. These are cases where the amended return was sent back to the TP.

    5. The TC 290-0 is in the 98 blocking series (adjustment made without the original return) and there is a RC 062 or 065. These are penalty abatement request disallowances and have no impact on our AUR case.

    6. The TC 290-0 has a corresponding TC 971 AC 142. This is a true duplicate return.

  8. The tax account screen indicates if the adjustment source document is a Correspondence Imaging Services (CIS) document. If it is determined the adjustment is:

    • a CIS document, view document on Account Management System (AMS)

    • not a CIS document, follow the instructions in (9) below

  9. Request an amended return to resolve the case, if necessary.

    1. To request an amended return, enter an "X" in the ORDER RTN field for the applicable DLN on the Tax Account screen. During the screening phase, use IPC 0A.

      Exception:

      The system will not accept an "X" for any DLN where the DLN indicates the return is ELF or Form 1040EZ or a CIS document.

    2. If the DLN of the amended return is the control DLN on the Tax Account Screen, attach the original return behind the amended return and refile together under the control DLN. Otherwise, refile them separately.

  10. Review all adjustment documents to determine if the U/R amount has already been taken into consideration. If so, close the case using PC 21. If a document has been requested, refile it separately when the case is closed.

  11. Consider all previous changes to income, deductions, refundable/non-refundable credits, taxes, and penalties when a CP 2000 is to be issued.

  12. When a TC 300/301 is present on the Tax Account screen with a TC 421 and no -L freeze, a disposal code displays on the Tax Account screen. If pursuing U/R income, determine the disposal code. The disposal code is located under the column titled "DIS CD" in the transaction section of the Tax Account Screen.

    1. If the disposal code is 01 - 13, review the attached audit papers to determine if the U/R amount has been addressed. If there is still a U/R amount after review, issue a notice. Consider all changes made by Exam per the TC 300/301.

    2. If the disposal code is 20 - 99, no audit was performed. Continue processing the case.

  13. If a TC 300/301 and a TC 577 with Julian Date 999 is displayed on the Tax Account screen (no -L Freeze present), the U/R income has not been addressed by the Examination Function. Review the papers to determine what changes were made and take those changes into consideration when calculating U/R income adjustments.

  14. When a TC 896 with the literal "OFF to IRA" is present, the taxpayer has paid additional tax on excess contributions on Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. This tax is posted to the taxpayer’s Master File Tax (MFT) 29 account and is not included in the TC 150 amount. The system adds this amount to the TC 150 amount to arrive at total tax per return.

    Note:

    TC 892 offsets a TC 896.

  15. If a duplicate/amended return is filed (TC 976/977 or TC 971 AC 010 or 012 through 016), a CP 2000 ,CP 2501 or PC 20 is to be issued, a TC 290/291 is present, and the duplicate or amended return is not in the case file:

    1. Order the duplicate/amended return by requesting the TC 290/291 DLN unless the conditions in (9) above apply.

    2. Close the case using PC 29 if the duplicate/amended return is not available.

  16. If a duplicate/amended return is posted (TC 976/977 or TC 971 AC 010 or 012 through 016), a CP 2000, CP 2501 or PC 20 is to be issued, a TC 290/291 is NOT present, and the duplicate/amended return is not in the case file:

    1. Transfer the case to the Unit Suspense batch.

      Exception:

      If 45 days or more from the TC 976/977 or the TC 971 pending/posted date have passed, continue processing the case.

    2. Monitor the case for 45 days from the TC 976/977 or the TC 971 date for the pending/posting of the TC 290/291.

      If the TC 290/291 posts, order the adjustment document.

      If the TC 290/291 does not post, continue processing.

      Note:

      Underreporter functions that work their own Accounts Maintenance Research (AMRH) Transcripts should forward these cases to the appropriate unit after the batch has been disassembled.

  17. TC 295 indicates a tentative allowance from Form 1045, Application for Tentative Refund, was input on the taxpayer's account by Adjustments. TC 299 indicates an abatement of the original tax. If there is a TC 295 or 299 unreversed, or only partially reversed by TC 294 or 298, and there is U/R income, issue a notice.

    Note:

    Enter the TC 295 minus the TC 299 amount as a MISCELLANEOUS CREDIT in the Other Credits Window.

  18. TC 305 indicates a tentative allowance from Form 1045 was input on the taxpayer's account by Exam. TC 309 indicates an abatement of the original tax. If there is a TC 305 or 309 unreversed, or only partially reversed by TC 304 or 308, and there is U/R income, issue a notice.

    Note:

    Enter the TC 305 minus the TC 309 amount as a MISCELLANEOUS CREDIT in the Other Credits Window.

4.19.3.3.3.4  (09-01-2013)
Other Transaction Codes and Math Error Codes

  1. Other TCs shown on the Tax Account screen may require additional action.

  2. TC 160 or 166 indicates a Delinquency/Failure to File Penalty was assessed. TC 161 or 167 means a portion or all of the penalty has been abated. When a U/R issue exists, the system computes or recomputes the Delinquency/Failure to File Penalty when required. See IRM 4.19.3.16.1, Failure to File Penalty (FTF), for additional information.

  3. TC 170 or 176 indicates an Estimated Tax (ES) Penalty was assessed. TC 171 or 177 means a portion or all of the penalty has been abated. When a U/R issue exists, a recomputation of the ES penalty may be required. See IRM 4.19.3.16.3, Estimated Tax (ES) Penalty, for additional information.

  4. TC 270 or 276 indicates a Failure to Pay Penalty (FTP) was assessed. TC 271 or 277 means a portion or all of the penalty is abated. See IRM 4.19.3.16.2, Failure to Pay Penalty (FTP), for additional information.

  5. TC 460 indicates a request for extension of time to file was approved. The extension date appears in the Remarks column.

  6. TC 480 (not reversed by TC 481 or 482) indicates the taxpayer has filed an "Offer in Compromise" (OIC) with the Service. Continue normal AUR processing. A TC 29X may be input on these types of cases. Send copies of the case data to Collection OIC function upon their request.

  7. TC 540 indicates that the taxpayer is deceased. See IRM 4.19.3.4.5, Deceased Taxpayers, for further instructions.

  8. TC 604 indicates either bankruptcy has been discharged/revoked or close-out of the MFT 30 module in preparation of mirroring to MFT 31.

    1. During screening, close the case using PC 27.

    2. During responses (AFTER the taxpayer has been issued an AUR notice), refer to either the local Innocent Spouse (when TC 971 AC 065 is present) or Bankruptcy Coordinator (all others).

  9. TC 764 or 768 indicates Earned Income Credit (EIC) was allowed. TC 765 indicates the credit was fully or partially reversed. If TC 764, 765, or 768 is present, EIC may need to be computed or recomputed. See IRM 4.19.3.15.3, Earned Income Credit, for instructions.

  10. TC 766 with:

    1. CRN 336 indicates Additional Child Tax Credit was allowed. TC 767 (with CRN 336) indicates the credit was fully or partially reversed. If TC 766/767 (with CRN 336) is present, Additional Child Tax Credit may need to be computed or recomputed. See IRM 4.19.3.15.4, Additional Child Tax Credit (ACTC), for instructions.

    2. CRN 252 indicates excess SST has been adjusted (TY 2006 and subsequent tax years only). TC 767 (with CRN 252 indicates the credit was fully or partially reversed. If TC 766/767 (with CRN 252) is present, Excess SST/RRT may need to be computed or recomputed.

    3. CRN 260 indicates previously allowed American Opportunity Credit (AOC).

  11. If a TC 780 has been fully reversed by a TC 781 or 782, continue normal AUR processing.

  12. If an unreversed TC 780 is present on the Tax Account screen, a warning message displays to close the case. Take the following action:

    1. Close case using the appropriate PC (21 - 28, 52, 71, or 96).

    2. Leave a Case Note stating that this is an OIC closure.

    3. Issue a Letter 1802C, if closing the case with PC 52, 71 or 96.

  13. TC 806/800 credits the tax module for the amount of withholding tax (W/H) claimed on a tax return. TC 807/802 reverses the TC 806/800 credit in whole or in part. Withholding may need to be adjusted because of AUR processing. Before proposing a change to W/H, be certain that the adjustment has not been previously allowed. See IRM 4.19.3.15.1, Withholding - General, for instructions.

    Note:

    Certain modules where an overstatement of estimated tax payments or W/H credits resulted in a refund, offset, or a credit elect will show as assessed using TC 290, RC 051, for the amount of the overstatement. These accounts will generally not contain a TC 807.

  14. TC 971 AC 151 indicates duplicate filing by secondary taxpayer. If the message window displays "DUP TIN filing, take appropriate action." , close the case using PC 10.

  15. TC 971 with certain Action Codes (AC), indicate the taxpayer may be a victim of identity theft. During response phase, see IRM 4.19.3.20.1.25, Stolen Identity (IDT) Claims - Overview ALL, and IRM 4.19.3.20.1.25.3.1, Identity Theft Specialized Teams (IDTSpT) - Responses, for additional information. During screening phase:

    If there is a TC 971AC And Then
    501   Close case PC 23
    504   Close case PC 23
    505   Close case PC 23
    506   Close case PC 23
    522   Close case PC 23
    523

    Note:

    Per IRM 10.5.3.2.13, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , TP has been using a questionable dependent TIN.

      Continue normal AUR processing. DO NOT TRANSFER TO IDTSpT.
    524

    Note:

    IRM 10.5.3.2.14, Locking SSNs Decedent Accounts - TC 971 AC 524, TC 971 AC 524 is used to lock the account of deceased taxpayers.

     
    • If filing status (FS) 2, research IDRS CC IMFOLS to determine which TP is deceased.

    • Continue AUR processing see IRM 4.19.3.4.5, Deceased Taxpayers, and IRM 4.19.3.20.1.14, Decedents, DO NOT TRANSFER TO IDTSpT.

    525 The posted date (transaction date field) in the idt Entity menu option is for the AUR tax year or a prior year

    Note:

    Anything posted in 2013 is for the 2012 tax year.

    Close the case PC 23
    525 The posted date (transaction date field) in the idt Entity menu option is after 2012.

    Note:

    Anything not posted in 2013 is for a tax year other than 2012

    Continue normal processing.

    Note:

    For a list of AC meanings see , Exhibit 4.19.3-18, Identity Theft Action Codes.

  16. TC 972 with corresponding AC indicates identity theft has been reversed. DO NOT TRANSFER TO IDTSpT, continue normal AUR processing.

  17. If a TC other than those explained in IRM 4.19.3.3.3.3, Transaction Codes Reflecting Tax Liability, or IRM 4.19.3.3.3.4, Other Transaction Codes and Math Error Codes, are indicated on the Tax Account screen, refer to Document 6209.

  18. If there is a math error code on a case, the math error code number displays in the MATH ERROR CODE field of the Tax Account screen. If there are multiple math error codes, they display up to a maximum of five (5) codes in this field.

    Note:

    The math error code verbiage displayed on tax account screen is abbreviated and paraphrased from the actual verbiage in Document 6209

    .

4.19.3.3.3.5  (09-01-2012)
Correspondence Imaging Services (CIS) Documents

  1. CIS is used to manage scanned images of amended Individual Master File (IMF) returns, documents and electronic case files.

  2. When there is a duplicate/amended return on Tax Account (TC 976/977 or TC 971 AC 010 or 012 through 016 and a posted TC 290/291) an indicator "1" is displayed in the Tax Account screen in the CIS column when a CIS document is available.

  3. If a CIS document is indicated, take the following actions:

    1. Access IDRS.

    2. Access AMS.

    3. From the AMS screen, click on "Cases by TIN" in the Case Management section

    4. In the Taxpayer Lookup screen, enter the taxpayer SSN in the "Request by TIN" field and then click on <Go> or press <Enter> on the keyboard. The taxpayer account summary screen appears.

    5. In the Alert section, click on the "View Images" link.

    6. Select the tax year to review from the CIS image list and click on "Open Image" .

      Note:

      The thumbnail view can be used to view each page

      .

    7. Compare the amended return to the U/R issues to determine if any or all issues are addressed. Continue normal processing.

    8. After processing changes, input the IRS received date located on the amended return.

  4. To exit AMS:

    1. Click on the "Exit Account" link in the upper right hand corner.

    2. In the Taxpayer Lookup window, click on the "Logoff" link to exit the system.

4.19.3.3.4  (09-01-2003)
Information Return Window

  1. The Information Return window displays the complete IR. See IRM 4.19.7, IMF Automated Underreporter Technical System Procedures - Information Return window.

  2. Payer address information, as shown on the Information Return window, displays on the CP 2000/CP 2501.

4.19.3.3.5  (09-01-2003)
Income Comparison Screen

  1. The Income Comparison screen displays a comparison of amounts reported by payers on IRs and the amount the taxpayer reported on his/her tax return. Access this window when it is necessary to view RETURN and IRP amounts or to determine the discrepant income type. See IRM 4.19.7, IMF Automated Underreporter Technical System Procedures - Income Comparison Screen.

  2. The OFFSET field displays codes describing how matched return and IRP amounts were offset for identification of potential discrepancies.

  3. When attempting to offset income, make sure the income to which it is being offset has not already been used. However, if you can determine that offsets were applied incorrectly, analyze that issue as well.

4.19.3.4  (09-01-2013)
Analysis Procedures

  1. The following instructions are for use by AUR tax examiners. They are to be used in conjunction with training materials and the IRM 4.19.7, IMF Automated Underreporter Technical System Procedures.

    1. An UNDERREPORTED (U/R) condition exists when there is income shown on the IR(s) that was not reported by the taxpayer on Form 1040, Form 1040A, or Form 1040EZ. Proposed tax adjustments are based on these U/R amounts, as well as on reported income amounts for which the taxpayer failed to include the required additional taxes (e.g., Self-Employment tax (SET)).

    2. An OVER-DEDUCTED (O/D) condition exists when the taxpayer claims more of a deduction than is substantiated by IR(s) and/or allowed by law (e.g., Mortgage Interest Deduction or Individual Retirement Account (IRA) Deduction).

    3. An UNDERCLAIMED (U/C) condition exists when the taxpayer fails to claim all the payments to which he/she is entitled (e.g., W/H).

    4. An OVERCLAIMED (O/C) condition exists when the taxpayer reduces his/her tax liability by an amount that either exceeds the amount shown on the IRs, and/or the amount cannot otherwise be substantiated (e.g., Education Credits).

  2. Computer identified income/deduction discrepancies of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ are displayed in the LIST OF DISCREPANCIES field on the Tax Account screen. If the category is a combination type, all appropriate discrepancies are displayed.

  3. The IR(s) contributing to the discrepancies are listed first on the Case Analysis screen, and the specific income type is identified with an asterisk.

  4. Cases involving U/R and Earned Income Credit (EIC) are identified in Subfile E. An EIC discrepancy can occur when there is unreported: interest, dividends, capital gain net income (including securities), rents, royalties or income from certain passive activities and the taxpayer claims less than $3,200 in investment income. If the taxpayer’s total investment income exceeds $3,200 (regardless of overall AGI), the EIC is disallowed.

    1. Due to the investment income limitation for EIC, cases have been created with small amounts of apparent U/R investment income. These investment income discrepancies are not asterisked, (in either Case Analysis or the Income Comparison screens) to alert the tax examiner of where the discrepancy lies. The system does not display a warning message.

    2. When accessing cases in Subfile E, screen ALL IRs.

    3. If there is any U/R (regardless of amount), complete the Return Value screen.

  5. If the Case Analysis screen does not contain any asterisked items, go to the Income Comparison screen to determine the discrepancy and screen the case accordingly.

  6. Discrepant income types are identified with an asterisk on the Income Comparison screen and Information Return window.

    Note:

    Because of computerized offsets, some APPARENT W/H discrepancies are not asterisked. Follow procedures in IRM 4.19.3.15.1, Withholding - General, for these cases.

  7. The Case Analysis screen may contain IRs that HAVE NOT been identified as discrepant. These IRs were added after the case creation and must be analyzed. These IRs are listed along with the discrepant IRs and are identified with an indicator in the AMENDED INDICATOR field. IRs containing the same income types, MUST BE screened and an applicable IR Code assigned to each element of the IR. The indicators are shown as follows:

    • N - New

    • AN - Amended New

    • RN - Replace New

    • DN - Duplicate New

    • XN - Delete New

  8. Initially analyze the asterisked elements on the IR(s) related to the computer identified discrepancies. Also analyze other issues related to the income on the discrepant IR.

    Example:

    Consider adjustments to: Child Care Credit when the DCB element is asterisked; consider SE Tax when NEC, MERCH, MED, FISH, etc. elements are asterisked (or when the system identifies a potential SE Tax issue); consider the 10% tax when Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., element is asterisked and the IR contains a COD, "J" , "L" , "1" , "5" or "7" (with a PGR Indicator of 1), etc.

    Note:

    The AUR system identifies potential SE tax discrepancies on reported income from Form 1040, lines 12, 18 or 21 where no Self-Employment tax was paid. The system alerts the user that a discrepancy exists when there are no IRs to mark. An asterisk displays in the SELF EMPLOYMENT TAX field on the Income Comparison window. Follow IRM procedures for specific income types and see IRM 4.19.3.14.1, Self-Employment Tax, to determine when SE Tax needs to be considered.

    1. If the asterisked IR is discrepant and it contains withholding, always screen Withholding element(s).

    2. If there are no asterisked elements for cases in Subfile E, see (4) above.

    3. If the asterisked element(s) is/are fully reported on the line(s) designated for that income on the tax return (i.e., discrepant wages are fully reported on line 7), then check the INCOME COMPARISON screen for a possible misplaced data entry. Screen the income type related to the misplaced data entry.

    4. If the asterisked element is identified as being included in another type of income, analyze all related IRs. (i.e., Pensions are identified as discrepant but are found reported on the wage line - analyze both pensions and wages.)

    5. If the asterisked element results in above tolerance U/R, screen the remaining non-asterisked items.

  9. If the discrepant IR(s) element(s) is/are reported and/or the system identified SE tax discrepancy is resolved, close the case using PC 21.

  10. When there is U/R income or if related tax/credit adjustment issues are involved, proceed to Return Value.

    Note:

    It is not necessary to mark non-asterisked IR(s) to access the Return Value screen.

    1. AUR multiplies the CHANGE TO AGI field amount by the highest tax rate for the tax year. If this calculation does not result in either ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Note:

      If any of the following is an issue - Schedule A Mortgage Interest, MIP, Self-Employment Tax, Federal Insurance Contributions Act (FICA), W/H, Excess SST, Dependant Care Benefit (DCB), Child Care Credit, Employer Provided Adoption Benefits (EPAB), Education Credits, EIC, and/or Premature Distribution Tax on retirement income, complete the Return Value screen before closing the case. Ignore the Case Analysis screen system prompt to close the case.

    2. Complete all applicable windows.

    3. If the dollar tolerance for issuing a notice is not met, the system displays a message to close the case. Use PC 22 to close below tolerance cases.

  11. Proposed adjustments on the CP 2000/CP 2501 require an explanation to the taxpayer. There is a single set of explanation paragraphs for both the CP 2000/CP 2501. Some PARAGRAPHs are automatically generated when the related condition applies and these paragraphs can be viewed. All automatic PARAGRAPHs are automatic toggle. Non-automatic PARAGRAPHs may be viewed, selected, deleted, and/or added. The following information supersedes previous versions of the IRM.

    Note:

    There is a single Notice Summary screen. This is to facilitate automatically generating a CP 2000 from a CP 2501 no-response. Paragraphs are either manually selected or automatically generated based on the case condition. All applicable paragraphs display in the SELECTED PARAGRAPH field(s) on the Notice Summary screen. If a CP 2501 Notice is selected (PC 30), the system prevents any non-CP 2501 paragraphs from printing on the notice. If issuing a CP 2501do not"toggle off" apparent inappropriate CP 2501 paragraphs.

    Note:

    The programming that automatically selects paragraphs occurs in different screens (Case Analysis, Return Value or Notice Summary) depending on the conditions needed to set the paragraph. To reduce the instances of paragraphs resetting, the tax examiner should only"toggle off" or "toggle on" paragraphs from the Select Notice Paragraph window accessed in the Notice Summary screen.

    • CP 2000/CP 2501 automatic and non-automatic paragraphs are notated in this IRM as "PARAGRAPH XX"

    • Miscellaneous Letter paragraphs are notated as "Special Paragraph"

      Note:

      The verbiage provided in the Special Paragraphs is for example only and can be modified as needed.

    There are 40 numbered paragraphs for local use by AUR. In situations where the numbered paragraphs are not applicable, a Special Paragraph may be written in the Special Paragraph window.

    Note:

    Special Paragraphs MUST BE reviewed by a manager or lead tax examiner. See IRM 4.19.7, IMF Automated Underreporter Technical System Procedures - Selecting, Viewing and Deleting Notice Paragraphs.

  12. Twelve different income types can be marked as underreported. If there are more than twelve U/R income types, an error message displays. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  13. When issuing a notice for underreported issues, send the applicable element(s) of the IR. The entire IR will not be sent unless all elements (income types) on an IR are marked with a "S" . This includes modified and created IRs. When an IR is marked with a "U" , the system automatically enters the Send Indicator. If it is determined that the IR should not be sent, remove the Send Indicator.

    Note:

    The Send Indicator must be manually entered on any created or modified IR that the tax examiner wants to include on the Notice. In order for a created IR to be considered valid for inclusion on the notice, it must contain: a payer name, payer EIN, and an income amount greater than zero (in addition to other required entries).

  14. Close short year returns with PC 28.

4.19.3.4.1  (11-08-2005)
Information Returns - Review

  1. The initial review of IRs is accomplished from the Case Analysis screen. See IRM 4.19.7, IMF Automated Underreporter Technical System Procedures- Case Analysis Overview.

    Note:

    All IR(s) with the same document type are sorted in payer Employer Identification Number (EIN) sequence.

    Caution:

    Be aware of Payer Agent information.

  2. Delete EIN IRs as invalid if any of the following apply:

    1. The payer EIN or name on Form W-2 or Form 1099 matches the payee EIN or name on the IR in question.

    2. Schedule E contains a Partnership or Small Business Corporation with the same EIN or name as the payee EIN or name on the IR(s) in question, UNLESS the payer on the IR is the partnership or small business corporation shown on Schedule E.

  3. Delete the EIN IR when the payee name line(s) is obviously not the taxpayer. For example, the name line(s) contains any of the following groups:

    • Government agencies - federal, state, or local

    • School - private, public, colleges, universities, etc.

    • Charitable and tax-exempt organizations - hospitals, churches, medical centers, etc.

    • Pension Profit Sharing Plan name line(s) with the words "trustee for" , "trustee" , etc.

  4. Consider the EIN IR valid (as belonging to the taxpayer) when ANY of the following conditions are present:

    1. Primary or secondary taxpayer's name is the only payee name on the IR.

    2. Primary or secondary taxpayer's name appear in the first or the second name lines on the IR.

    3. The payee address on the EIN IR is the same address as shown on the tax return, Form W-2 or Form 1099 attached to the tax return, or other SSN IRs.

    4. The payee name on the IR implies a sole proprietorship type business, or the taxpayer's occupation as shown on Form 1040, Form 1040A, Form 1040EZ, or Schedule C or F is typically operated as a sole proprietorship or small business.

    5. The payee EIN on the IR matches the EIN on the Schedule C or F.

    Note:

    If it appears the EIN listed on the Schedule C or F does not belong to the taxpayer (i.e., the listed EIN matches a payer EIN on another IR), use IDRS CC INOLES to determine the validity of the EIN.

  5. Compare all valid EIN IRs to amounts on the tax return and related schedules. Use instructions for the particular type of income involved.

  6. Assert self-employment tax (SET), as appropriate, only on the issues that are normally subject to self-employment tax. See IRM 4.19.3.14.1, Self-Employment Tax, for further instructions.

  7. EIN IRs do not display with an Income Identify Code in the INC CD field. If SET applies, enter the appropriate Income Identify Code. If it cannot be determined which Income Identify Code to enter, see Exhibit 4.19.3-9, Income Identify Codes, and enter the value from the "Displayed Codes" column. If the IR has a Status Code of "U" , it is necessary to remove the "U" before an Income Identify Code can be entered.

  8. Delete IRs when:

    1. Payer Agent Indicator "Y" is present and the Payer Agent window contains instructions to delete the IR. See IRM 4.19.3.5, Payer Agent.

      Note:

      If all U/R income is from identified Payer/Agents and the Payer Agent window contains instructions to accept or delete the IR, close the case with PC 24.

    2. The payee entity contains the words "Estate of" .

    3. The taxpayer's name is preceded by the word "by" .

    4. The payee(s) name is obviously different from the tax account names and does not contain obvious business words, even though the SSN matches.

    5. EIN 99-9999999, foreign income, is present and another EIN is present for the same payer. IR dollar amounts may vary due to currency exchange rates.

      Note:

      Delete the 99-9999999 IR ONLY when both are present. Foreign Source IRs are treated the same as domestic source IRs.

    6. The literal is "DELET" .

    7. The Filing Status is "3" or "6" and the SSN on the IR is for the spouse.

    8. The IR contains non-select term(s) and you determine that the payee is NOT the taxpayer. See Exhibit 4.19.3-10, Non-Select Table.

    9. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  9. Consider IRs with the following conditions valid and pursue any U/R amounts:

    1. The payer's name is garbled, missing, or incomplete. See IRM 4.19.3.4.2 (11) c), Comparison of IRP Information Returns With Return Information.

    2. The payee's first and last name are in a different order on the IR.

    3. The payee name is a foreign version of an English name (i.e., Peter listed as Pedro or Pierre).

    4. The payee name line includes the taxpayer's title (MD, DDS, CPA, etc.).

    5. Only a name control is showing as the payee name and it matches the taxpayer's name.

    6. The payee second name line includes "c/o" (or a variation) followed by the taxpayer's name.

    7. The payee name line contains obvious business words and you determine that the payee is the taxpayer.

    8. The literal is "AMEND" and the document does not match the original documents. See (11) below for further instructions.

    9. The payee name is followed by "and" or "or" without other names.

    10. The IR payee name is a maiden name. If the payee's first name or initial on the IR are the same as the tax account name, pursue the IR.

    11. The word "rollover" is present on either the payee or payer side. See IRM 4.19.3.7.10.4 (1), Rollovers, for further information.

  10. The payee entity name line of the IR may contain terms or variations of terms. See Exhibit 4.19.3-10, Non-Select Table.

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ for that document type unless you determine that the payee is the taxpayer.

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ present of the same document type NOT containing a non-select term.

  11. Amended IRs are identified on the Case Analysis screen by Indicator "A" , "R" , "D" or "X" in the AMD IND field. Amended IRs are identified on the Information Return window by the literal "AMEND" , "REPLC" , "DUPLE" , or "DELET" . If the computer has pre-identified amended IRs that are used to replace the original IR, the amended IRs have the literal "REPLC" and the literal on the original is "DELET" . PARAGRAPH 47 automatically generates when Amended IRs are included on the notice. See Exhibit 4.19.3-7, CP PARAGRAPHS. Delete original IRs if amended IRs match an original. The amended and original IR must have:

    • The same payer name and/or EIN.

    • The same account number (if present).

    • The same type of income if the money amount changes or different income types when the money amount stays the same i.e., amending a Form 1099-MISC, Miscellaneous Income, from NEC to OTINC).

    Note:

    Pursue all IRs if the amended IR(s) does not match an original, or if the amended IR matches more than one of the other IRs.

    Caution:

    Amended IRs may reflect incomplete information; neither amount literals nor $0 (zero dollar amounts) are displayed. If such an IR is present, assume the payer/employer attempted to zero out an incorrect income amount previously reported.

    Note:

    A blank in the amount field of an amended IR represents $0 (zero). Amended IRs with $0 amounts appear on the Case Analysis screen only if there is another IR with at least one money amount or the IR is for a Form W-2.

  12. If all elements (SSN/EIN, name, amount, account number, income type, etc.) on any two IRs are identical:

    1. Including the source, delete one of the IRs.

    2. Except the source, delete the paper source IR.

  13. If all elements on any two IRs are identical except that one does not contain an account number, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  14. If all elements (except the account numbers) of any two IRs are the same and it can be determined that the account numbers of both IRs contain the same sequence of numbers or characters, delete one of the IRs

  15. Do not consider IRs as duplicates when the account numbers are obviously different, even though all other elements are identical.

  16. Do not consider duplicate any two Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or Form 1099-S, Proceeds From Real Estate Transactions, IRs unless the sales date is the same.

  17. If a Form 1099-MISC and Schedule K-1 (PTK-1, SBK-1 or TRK-1) are present for the same taxpayer, from the same payer AND for an identical money amount, see IRM 4.19.3.7.12.1 (9), Conduit Income - Analyzation, for further information.

4.19.3.4.2  (08-16-2011)
Comparison of IRP Information Returns With Return Information

  1. Different income types may be combined on one information document, (e.g., Form W-2 may include ordinary wages, allocated tips, withholding, etc.). On the Case Analysis screen, each income type is displayed separately and can be assigned a Status Code.

    Note:

    If an IR with multiple income elements is U/R, input Status Code "U" ONLY for the income element that is actually U/R. If necessary, enter Status code "R" or "N" for any remaining income elements that are not U/R.

  2. An Income Identify Code in the INC CD field of the Case Analysis screen and the Information Return window identifies certain income types to the system so that U/R income is included in related calculations (i.e., earned income qualifying for earned income credit, income subject to self-employment tax, etc.). See Exhibit 4.19.3-9, Income Identify Codes. The tax examiner may change or delete this code if information on the taxpayer's return indicates that the displayed code for U/R income types is inaccurate.

  3. The following general rules apply to the analysis of all types of IRs:

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

    2. Consider an IR reported if the taxpayer reports the same amount of income but under a different payer name.

    3. Allow a tolerance of $1 (rounding) for each IR. In those processes which do automatic calculations and grouping (e.g., SS/RR, IRA Deduction, etc.), the system considers the (rounding) tolerance.

      Note:

      The system does not consider a rounding tolerance during automatic calculations that apply to Withholding or the 10% tax. Follow the taxpayer's intent as to rounding, dropping cents, etc. when working these issues.

    4. Consider Payer Agent criteria when evaluating IRs. See IRM 4.19.3.5, Payer Agent, for further instructions regarding Payer Agent data.

  4. Misplaced entries on the tax return are frequent causes of U/R discrepancies. Taxpayers report income on their returns in a variety of places. It is important to thoroughly review the ENTIRE return before identifying income as being underreported.

    Note:

    If there is unearned income (i.e., UNEMP, TX/A, etc.) reported as wages, complete the Return Value screen adjusting the TOTAL EARNED INCOME field of the EIC window if necessary.

    Caution:

    BE SURE THAT INCOME IDENTIFIED ON AN ATTACHMENT IS CARRIED FORWARD AND INCLUDED IN THE ADJUSTED GROSS INCOME.

  5. When comparing IRs with entries on any line not specifically identified for that income type, the amount must match within $1 or be clearly identified as the income type in question.

    1. If the amount matches within $1, consider the IR reported.

    2. If the amount does not match within $1, but the income type has been clearly identified, consider the IR(s) reported if the entry is a larger amount, or consider the IR partially U/R if the entry is a lesser amount.

  6. When payer documents are attached (Form W-2, Form 1099-MISC, etc.) to a paper return, consider them more accurate than the IR UNLESS:

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

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ continue processing and consider the IR the most accurate.

    3. There is an amended IR that corresponds with the payer document. Consider the amended IR the most accurate.

    4. They appear to be for an incorrect tax year.

  7. Taxpayers recreate payer information (such as Form W-2, Form 1099-R, etc.) to include with their ELF return. Due to the increase for potential input errors of the payer information, such as transposed money amounts or missing information (ex: pension plan box on Form W-2, COD on Form 1099-R, etc.), always consider the information on the corresponding IR more accurate than the ELF payer document.

    1. When the ELF payer document indicates more income than the IR, assume the taxpayer is reporting correctly per an amended document. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. When the taxpayer includes ELF payer document(s) for which there is no corresponding IR, consider the income amounts reported when determining overall U/R income and AGI changes. If necessary, create an IR for the additional amount(s).

      Exception:

      Do not give credit for withholding claimed on an ELF payer document for which there is no IR.

  8. For ELF returns, consider the IR more accurate than the ELF payer document when the ELF payer document shows less income than the IR. All elements of the IR are considered more accurate than the ELF payer document elements.

  9. If the return is missing supporting forms or schedules, research IDRS. If the information is not available, take the following action(s):

    1. Allow credit against IRs for wages, W/H, interest, and dividends reported on the return unless there is an indication the return amounts are not from the same payer(s) on the IR(s).

    2. For all other types of income, do not allow credit against IRs unless the return amount matches an IR within $1.

    3. Do not make any changes in the calculation windows (e.g., Child Care Credit, Schedule A, Alternative Minimum Tax), but allow the system to compute if the necessary supporting schedule or form is missing.

  10. The Create Information Return window is used to create a new IR. See IRM 4.19.7, IMF Automated Underreporter Technical System Procedures - Creating Information Returns.

  11. Create an IR if:

    1. The taxpayer reports income/deductions for which there is no corresponding IR, and the reported amount is needed by the system to perform related calculations. (The corresponding information document may or may not be attached to the return.)

    2. There is an attached information document with no corresponding IR, and the income is not reported. Send PARAGRAPH 139 (See Exhibit 4.19.3-7, CP PARAGRAPHS).

    3. The payer's name is garbled, missing or incomplete. Use the EIN to research IDRS CC INOLES for the proper payer name. If the income is U/R, recreate the IR as shown on the Case Analysis screen, including the correct payer name. Include the created IR on the notice.

      Caution:

      In order for a created IR to be considered valid for inclusion on the notice, it must contain: a payer name, payer EIN, and an income amount greater than zero (in addition to other required entries). The Send Indicator must be manually entered on the IR by clicking in the SEND INDICATOR field on the Case Analysis screen.

      Note:

      The tax examiner may determine other conditions that require creation of an IR.

  12. The Modify Information Return window modifies an existing IR. See IRM 4.19.7, IMF Automated Underreporter Technical System Procedures - Modifying Information Returns.

  13. Modify an IR if:

    1. The COD/PGR Indicator is incorrect.

    2. The Payee Indicator is incorrect.

    3. One or more IR(s) belongs to both taxpayers and the income/deduction amount needs to be allocated (e.g., the taxpayers divided nonemployee compensation from one IR between two Schedules C, and self-employment tax is an issue).

    4. One or more IR(s) is reported on more than one schedule or form (e.g., mortgage interest on Schedule A and Schedule E), and the income must be allocated in order to reflect the correct Income Identify Code.

    5. It is determined other conditions require modification of an IR.

      Reminder:

      After an IR is modified the system marks the original amount with an "X" . To include the modified IR on the notice, click the SEND INDICATOR field next to the original amount.

  14. Use the SEARCH option to view only those IRs that fit specific criteria (e.g., payer name, income type, etc.). See IRM 4.19.7, IMF Automated Underreporter Technical System Procedures - Search Function.

  15. Use the SCROLL IR option to view multiple IRs on the Information Return window, without returning to the Case Analysis screen. See IRM 4.19.7, IMF Automated Underreporter Technical System Procedures - CA Tools Menu.

  16. Use the GROUP option when the taxpayer has not provided a breakdown and it is necessary to compare a total money amount for related IRs with a single line entry on the taxpayer's return. See IRM 4.19.7, IMF Automated Underreporter Technical System Procedures - Grouping Information Returns.

    Note:

    The Group function is a tool to assist the TEs in computing the correct U/R amount. It may not be necessary to use the Group function if the correct U/R can be determined without it.

    1. If the group total amount is larger than the single line entry on the return, assign Status Code "U" to the group.

    2. If the group total amount is smaller than the single line entry on the return, assign Status Code "R" to the group.

    Note:

    All IRs of the same income type are grouped together, regardless of the Income Identify Codes. After grouping, it may be necessary to remove an IR(s) from the group because of the Income Identify Code.

  17. If a Form 1099-MISC IR has two identical money amounts (e.g., NEC is $500 and MED is $500) and the taxpayer reports one of the amounts, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  18. A photocopy of a prior year CP 2000 response may be attached to the return. Consider the information in the previous year's response. This information may result in resolving the U/R issue(s).

  19. When a U/R issue for the same type of income from the same payer was resolved per a copy of a Letter 2625C response from a prior year attached to the return, delete any current year IR.

    Note:

    If a prior year AUR closure letter (CP 2005, Letter 1802C, etc.) is attached to the return, research the prior year to see if the resolved issue(s) corresponds to the current AUR year discrepancy. If so, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  20. If all IRs are matched exactly, but there is still a U/R amount:

    1. Add the amounts reported on the return. (There has probably been a math error.)

    2. Pursue the U/R issue.

    3. Send an appropriate paragraph to advise the taxpayer of the error.

  21. If the discrepancy is resolved, close the case using PC 2X.

  22. Foreign source income IRs are identified by:

    • A payer TIN of "99-9999999"

    • An unusual payer name (Bundesent fer Finazen, Banque de Quebec) or a payer name indicating a foreign country (French Dividends, German Securities, United Kingdom Royalties)

    • Foreign country abbreviation in the State field

    • Account Code Type "T"

      Note:

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

4.19.3.4.2.1  (09-01-2012)
Service Center Recognition/Image Processing System (SCRIPS)

  1. The following procedures apply to the analysis of Service Center Recognition/Image Processing System (SCRIPS) IRs.

  2. The system displays a warning message when STATUS CODE "U" is assigned to a SCRIPS IR(s). When this message is received, the tax examiner should screen the related IR with EXTREME care.

  3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

      Example:

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

    3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Example:

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

    4. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. If a SCRIPS IR is asterisked and is deleted due to one of the conditions in (3) above and the other asterisked item(s) are reported or below tolerance, close the case. If the other asterisked item(s) are U/R, continue processing.

  5. If a SCRIPS IR is U/R and none of the conditions in (3) above are present, consider the IR correct and pursue the issue using normal procedures.

    Note:

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

    Note:

    Do not send SCRIPS IRs with erroneous information to the taxpayer. Create an IR to reflect the correct information and include it on the notice.

  6. Do not send information regarding erroneous SCRIPS IRs to the AUR Payer Agent Coordinator, unless some other payer agent (P/A) condition exists.

4.19.3.4.3  (09-01-2013)
Jointly Owned Income

  1. Joint ownership is indicated when there are two or more names on the IR, or one payee name is on the IR followed by "and" or "or" . This situation occurs primarily when working with interest, dividend and/or securities income.

  2. When the taxpayer reports the appropriate percentage of ownership from a jointly owned IR, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Exception:

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

  3. If the taxpayer resides in a Community Property state, see IRM 4.19.3.4.4, Community Property States, for further instructions.

  4. If the Filing Status is 3 (Married Filing Separately), the spouse's name appears on the IR, the taxpayer does not report all of the income in question and does not include a statement that ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , research IDRS using CC INOLE, RTVUE, ENMOD, etc. for the spouse's return.

    Note:

    If the IR is solely for the spouse, ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. If the spouse did not file a return, issue a CP 2000.

    2. If the spouse filed a return, it may be possible to determine if the spouse reported the jointly owned income. If the difference between the spouse’s IRPTR data and his/her reported per return amount (from CC RTVUE, or IMFOLR) for the related income type equals the U/R amount (within tolerance) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . If not, issue a notice for the full U/R amount to the AUR taxpayer.

  5. If the Filing Status is 6 (taxpayer claiming an exemption for spouse not filing), issue a notice as appropriate to the primary taxpayer for the U/R issue.

    Reminder:

    If the Filing Status is 6 and the IR is for the spouse, delete the IR.

4.19.3.4.4  (09-01-2013)
Community Property States

  1. Taxpayers who reside in a Community Property state must follow the individual state's community property laws to report their community/separate income on a Federal Tax return.

  2. The Community Property states are:

    • Arizona

    • California

      Note:

      In a Chief Counsel Advice Memorandum issued in May of 2010, it was determined that the federal tax treatment of community property should apply to California registered domestic partners (RDP).

    • Idaho

    • Louisiana

    • Nevada

      Note:

      The states community property laws apply to RDP as of October 1, 2009.

    • New Mexico

    • Texas

    • Washington

      Note:

      The states community property laws apply to RDP as of June 12, 2008.

    • Wisconsin

  3. Married taxpayers can elect to file either a joint return or separate returns (to get a greater tax advantage). If the taxpayers meet certain conditions, they may be eligible to file a non-joint return using either FS 1 (single) or FS 4 (head of household), as opposed to FS 3 (married filing separate).

  4. RDPs are not married for federal tax purposes. They can use only the single filing status, or if they qualify, the head of household filing status. RDPs treat income as jointly owned. An RDP must report half of all community income and all of his/her separate income on his/her tax return. Taxpayers attach Form 8958, Allocation of Tax Amounts Between Certain Individuals in Community Property States (or similar statement) to show how the income has been allocated.

  5. Community income is generally income from:

    • Community property (e.g., a jointly owned savings account)

    • Salaries, wages or pay for services that either spouse performed during their marriage

    • Real estate that is treated as community property under the laws of the state where the property is located

  6. Separate income is generally income from separate property. Separate income belongs to the taxpayer who owns the property.

    Note:

    Contribution limits on IRAs are applied without regard to community property interests.

  7. When married taxpayers choose to file separate tax returns, they should use Form 8958 (or similar statement), to list their income, deductions and withholding. Each taxpayer is instructed to attach the Form 8958 (or similar statement) or a photocopy of the other spouse's payer documents (Form W-2, Form 1099, etc.) to each of their individual tax returns.

  8. On the Form 8958 (or similar statement), community income is generally equally divided between both taxpayers and each taxpayer would report their separate income.

    1. Earned income (e.g., wages, nonemployee compensation, etc.) is generally considered community income and the taxpayers would divide their combined income equally between them.

      Note:

      The amount of W/H would also be combined and divided between both taxpayers.

    2. Jointly held savings accounts are treated as community property. Individual savings accounts that earn either interest or dividends are generally considered separate property.

      Exception:

      The Community Property laws for those taxpayers who reside in Idaho, Louisiana, Texas or Wisconsin stipulates that income from separate property is generally treated as community income. For example, interest earned on an individual savings account would be considered community income.

  9. On an individually filed tax return, if there is partially reported income/deductions and the taxpayer resides in a community property state as listed in (2) above, determine if the AUR condition is the result of the income allocation.

    1. Consider the information return fully reported if attached statements/worksheets or Form 8958 identifies that the income was allocated between both spouses (including RDPs).

    2. If the discrepant information return is not addressed in the attached statement/worksheet or Form 8958, pursue the full amount of the income.

4.19.3.4.5  (09-01-2013)
Deceased Taxpayers

  1. If there is an indication that the primary or secondary taxpayer is deceased, follow the procedures listed below to evaluate the case:

    Note:

    When one of the taxpayers is deceased, see IRM 4.19.3.7.17.1(4), Social Security/Railroad Retirement Benefits - Analyzation, for procedures to resolve SS/RR discrepancies on jointly filed returns.

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

      Caution:

      If the decedent's income is reported on the return, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Exception:

      If the surviving spouse's U/R income causes a change in the taxable portion of a decedent's reported SS/RR, Student Loan Interest Deduction, IRA Contributions and/or Tuition and Fees, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

    3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Send PARAGRAPH 129 (See Exhibit 4.19.3-7, CP PARAGRAPHS).

    4. Issue a notice if the U/R IR(s) show ownership for the surviving spouse.

  2. If taxpayer is deceased, but the Tax Account screen does not reflect this, and the case is not being closed No Change, input the current information in the Update Address window. See IRM 4.19.7, IMF Automated Underreporter Technical System Procedures - Updating Address Information.

    1. Update the first name line.

    2. For joint returns, enter DECD after the given name of the deceased taxpayer.

    3. For other than joint returns, enter DECD after the taxpayer's last name, including suffix.

      Note:

      The first name line is limited to 35 characters. If DECD will not fit on this, input the deceased taxpayer's name and DECD on the second name line.

    4. Enter the second name line, if present.

    5. Enter "D" in the Split Code field.

4.19.3.4.6  (09-01-2013)
Declared Disaster Areas

  1. AUR Coordinators input Zip Codes for specific declared disaster area situations as necessary based on IRS Disaster Relief Memos. Follow system prompts to ensure proper handling of declared disaster area cases. Disaster types with case impact:

    Note:

    Use of IPC 0D and batch type 35 to process disaster cases should occur ONLY when directed by AUR HQ and ONLY for impacted sites

    1. Type 2 - suppresses CP 2000/CP 2501 and Statutory Notices.

    2. Type 3 - prevents cases from defaulting (notices continue to be issued).

    3. Type 4 - suppresses CP 2000/CP 2501 and Statutory Notices AND prevents cases from defaulting.

4.19.3.4.7  (09-01-2012)
Frivolous Return Program (FRP)

  1. A frivolous return is defined as noncompliance with filing and/or paying tax based on unfounded legal or constitutional arguments per IRM 4.10.12, Examination of Returns - Frivolous Return Program. If in doubt about whether the return is frivolous, consult with your lead or manager. If it is determined during screening that the return is frivolous, close the case with PC 13, notate the case for clerical "FRP to Ogden" .

    Note:

    See IRM 4.19.3.4.9 (6), Miscellaneous, if the taxpayer is quoting an IRC.

  2. If the return is determined NOT to be frivolous, continue normal processing.

  3. If FRP requests an AUR case after taxpayer contact, close the case with the appropriate PC (38, 64 or 85), notate the case for clerical "FRP to Ogden" .

4.19.3.4.8  (10-02-2012)
Fraud Referral Program

  1. The primary objective of the fraud program is to foster voluntary compliance through the recommendation of a criminal investigation/prosecution and/or civil penalties against taxpayers who evade the assessment and/or payment of taxes known to be due and owing.

  2. Tax fraud is often defined as an intentional wrongdoing on the part of a taxpayer, with the specific purpose of evading a tax known or believed to be owing. Tax fraud requires both:

    1. a tax due and owing; and

    2. fraudulent intent

  3. The objective of the Campus Fraud Referral Program is to:

    1. Identify cases with potential fraud.

    2. Develop fraud guidance from the Campus Fraud Referral Specialist (FRS).

    3. Refer potential fraud cases to Field Exam for further development.

  4. Fraud Technical Advisor (FTA) - The FTA assists with the development of fraud in the Campus Examination environment.

  5. Functional Fraud Coordinator (FFC) - The FFC is a fraud liaison assigned to a specific function or operation within the Campus. The FFC is responsible for reviewing the Forms 13549, Campus Fraud Lead Sheet, and conducting research used to establish a pattern of non-compliance. See IRM 4.19.10.4.3, Responsibilities of the Functional Fraud Coordinator (FFC), for additional information.

  6. Campus Fraud Coordinator (CFC) - The CFC is a fraud liaison assigned to each SB/SE Campus. The CFC is the main point of contact with the FTA assigned to that campus.

  7. Exam Fraud Coordinator (EFC) - The EFC is a fraud liaison assigned to each W & I Exam function. The EFC is the main point of contact with the FTA assigned to that campus.

4.19.3.4.8.1  (11-07-2012)
Identifying and Developing Fraud in AUR

  1. During the course of AUR case work, situations may be encountered involving potential fraud, referred to as indicators of fraud. Although only a small percentage of cases are fraudulent, it is essential to detect and report any potential fraudulent activities. IRM 25.1.2.3, Indicators of Fraud, provides several lists of Fraud Indicators. The following list has been developed for AUR and identifies examples of indicators of fraud that are most likely to be found in a campus environment (this list is not all inclusive and may involve a promoter/return preparer):

    • Altered Documents

    • False deductions/adjustments to income

    • False/overstated Form W-2 for EIC purposes (may be preparer/promoter)

    • False Schedule C for EIC purposes

    • Identity theft (sale or purchase)

    • False basis in assets

    • False transaction date for asset disposition

    • False statements made by taxpayer

    • False exemptions

    • Use of decedent’s SSN

    • False business, rental, or farm expenses

    • False or overstated refundable credits

    • Amended returns with any of the above

  2. Fraud is developed by trained Fraud caseworkers until it is determined that affirmative acts (deceit, subterfuge, camouflage, concealment or some attempt to color or obscure events or to make things seem other than they are) exist. The Service must prove that the taxpayer acted deliberately and knowingly with the specific intent to violate the law. Once a suspicion or indicator of fraud is found, it is essential that the case be transferred to the designated AUR Functional Fraud Coordinator (FFC) for further development.

  3. See IRM 25.1.1.3, Indicators of Fraud vs. Affirmative Acts of Fraud.

4.19.3.4.8.2  (08-16-2011)
AUR Tax Examiners Fraud Responsibilities

  1. Identify indications of fraud that are uncovered through regular case processing. Use the list in IRM 4.19.3.4.8.1, Identifying and Developing Fraud in AUR.

  2. Discuss the indicators of fraud with the group manager or lead. If the group manager or lead concurs:

    1. Complete Sections I, II and III of Form 13549, Campus Fraud Lead Sheet (information and indicators of fraud).

    2. Secure the group managers initials and date.

    3. Assign the appropriate Internal Process Code (IPC) 0D, 3F, 6F, or 8F.

    4. Forward the case and the sheet to the AUR Functional Fraud Coordinator (FFC) for consideration.

  3. Documentation is critical in the development of fraud. Maintain complete and accurate case notes that include each of the following:

    1. All case actions.

    2. All documents received.

    3. All contacts must be adequately documented (e.g. changes to entity information were recognized/updated).

    4. All conversations with the taxpayer, representative, return preparer, and third parties must be recorded (what was discussed and the responses).

4.19.3.4.8.3  (09-01-2012)
AUR Functional Fraud Coordinator Responsibilities

  1. The AUR Functional Fraud Coordinator (FFC) is responsible for developing fraud cases:

    1. Conducting preliminary screening of Form 13549, Campus Fraud Lead Sheet to determine if the referral should be forwarded to the CFC (all cases in IPC 0D, 3F, 6F, and 8F).

    2. Conducting research used to establish a pattern of non-compliance.

    3. Making a determination to accept (forward the case to the CFC) or decline the referral within 10 (ten) days of receipt.

  2. The AUR FFC is also responsible for monitoring and managing the Fraud Referral Program within the AUR Operation.

    1. Maintaining a copy of each Form 13549, Campus Fraud Lead Sheet.

    2. Tracking all AUR fraud leads, including those declined/returned to AUR and those accepted for further Fraud development. AUR will use a combination of the IPC listing and Form 13549, Campus Fraud Lead Sheets to track Fraud referral cases.

    3. Submitting information on Fraud referral/accepted/declined cases to Headquarters by the fifth day of each month.

  3. If the AUR FFC declines the fraud lead he/she will:

    1. Provide a written explanation for the declination in Section VI, Explanation for Declination, of Form 13549.

    2. Return a copy of the completed Form 13549, Campus Fraud Lead Sheet to the initiator through the initiator’s team leader/manager.

    3. Reassign the case to the initiator's User Identification Number (UID).

  4. If the AUR FFC accepts the fraud lead, he/she will:

    1. Annotate the acceptance on the Form 13549, Campus Fraud Lead Sheet.

    2. Forward the fraud lead (case and Form 13549, Campus Fraud Lead Sheet) to the CFC for a final fraud determination.

    Note:

    The CFC is required to make a determination to accept or decline a lead within 21 business days of receipt.

  5. If the CFC accepts the fraud lead for further development, he/she will request the case be reassigned and ensure the case is established on AIMS. The AUR FFC will:

    1. Close the case using Fraud Closing PC 14, 44, 72 or 84, as appropriate.

    2. Annotate the Form 13549, Campus Fraud Lead Sheet and keep a copy for the AUR records.

    3. Make and send a copy of the Form 13549, Campus Fraud Lead Sheet to the initiator through the initiator's manager.

    4. Ensure the entire case contents are forwarded.

  6. If the CFC declines the fraud lead, he/she will return the Form 13549, Campus Fraud Lead Sheet with a written explanation to AUR. The AUR FFC will:

    1. Return the Form 13549, Campus Fraud Lead Sheet to the initiator through the initiator’s manager.

    2. Transfer the case to the initiating tax examiner's UID.

4.19.3.4.9  (09-01-2012)
Miscellaneous

  1. Initial processing errors, or additions to the AGI are corrected by entering the appropriate amount(s) in the MISCELLANEOUS ADJUSTMENT fields on the MISC ADJUSTMENT/SCHEDULE C EXPENSE window. See IRM 4.19.7, IMF Automated Underreporter Technical System Procedures - Miscellaneous Adjustment/Schedule C Expense. When any amount is entered in this window send a Special Paragraph explaining the adjustment. The amount computed in the changed amount field is included in the AGI by the system and is considered in all calculations. This amount is included in the U/R Amount on the Return Value screen and displays on the Notice Summary as Miscellaneous Adjustment.

    Caution:

    Do not use this window for situations where a specific income/deduction type has its own window for the required adjustment. Also, the entry for the return field can be a negative or a positive amount, depending on the line entry being changed.

  2. If Form 6781, Gains and Losses from IRC 1256 Contracts and Straddles, is attached to the return, or if Form 1040, line 44, indicates that the tax is from Form 6781, continue normal processing.

    Note:

    This is reported on Schedule D.

  3. A net operating loss (NOL) is identified by a negative entry on Form 1040, line 22 caused by negative amounts on lines 12, 14, 17 other than Schedule E Part I, line 18, or the indication of a carryover NOL on line 21.

    Note:

    A NOL is indicated by a negative amount on Form 1040, Line 22. A NOL does not exist simply because there are negative entries on lines 12, 14, 17, 18, or 21.

    1. Verify that the correct amount is displayed in the NET OPERATING LOSS AMT field of the Return Value screen.

    2. If a NOL is caused by negative entries on Form 1040, lines 14 or 21, an amount does not display on the Return Value screen. Input the amount of the NOL in the NET OPERATING LOSS AMT field.

    3. The NET OPERATING LOSS AMT field displays an amount that is just a negative figure, not an actual NOL. If a displayed amount is not a NOL, delete the incorrect amount.

  4. If Form 1040 shows a net operating loss, continue normal processing.

  5. If IRC 6501(d), Request for Prompt Assessment, is noted on the tax return, or there is a statement requesting a prompt assessment, AND there is a U/R amount, the case MUST BE WORKED EXPEDITIOUSLY. Prompt Assessment cases have an 18 month statutory period for the assessment of additional tax.

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

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ use the following guidelines:

    3. Enter "Y" in the IRC 6501(d) field on the Tax Account screen.

    4. Enter the irregular statute of limitation date in the IRREG DATE field on the Tax Account screen.

    5. Control the case and continue processing.

  6. If an attachment indicates the income in question is nontaxable and the taxpayer cites an IRC section, determine the validity of the taxpayer's statement by researching the IRC. If the IRC submitted by the taxpayer(s) is not valid, send a Special Paragraph to inform him/her that the explanation is not acceptable.

  7. Erroneous refunds caused by IRS error require special processing, transfer to the Erroneous Refund Coordinator and leave a case note.

  8. If a Form 8857, Request for Innocent Spouse Relief or an attachment indicates a taxpayer is claiming Innocent Spouse, see IRM 4.19.3.3.3.2 (7), Freeze Codes, and IRM 4.19.3.20.1.20.1, Innocent Spouse Relief Cases - Tax Examiner Instructions.

    Caution:

    Do not confuse Innocent Spouse cases with Injured Spouse cases, which are worked in Accounts Management.

    Caution:

    If the taxpayer's claim for Innocent Spouse relief does not relate to the tax year of the open AUR case, send only the Innocent Spouse claim to CSC. Do not send the AUR case to CSC.

4.19.3.4.10  (09-01-2010)
AUR Bankruptcy Coordinator Procedures - Contact by Insolvency

  1. When contacted by an Insolvency Specialist on a case in AUR inventory that has not yet been screened:

    1. Inform the Insolvency Specialist that there will not be an AUR issue for the year in question.

    2. Leave a detailed case note documenting the contact with the Insolvency Specialist.

    3. Take the following action to close the case with PC 27:

      If... Then...
      The case is currently in a batch (AB, AU OR BF status) Have the case assigned to yourself and input closing PC 27
      The case is not currently in a batch (i.e., in a future run control) On a weekly basis, provide the clerical function with a listing of SSNs and request that they assign PC 27

      Note:

      Follow the above procedures regardless of whether or not Bankruptcy indicators are present on the AUR system.

      Reminder:

      Run the AUR Bankruptcy Status listing on a weekly basis and take appropriate steps to address the cases identified on the listing. Provide clerical with the SSNs of any "pre notice" cases identified from the listing to be closed with PC 27. See IRM 4.19.3.20.1.10.2 (9) a, Bankruptcy Procedures - AUR Bankruptcy Coordinator Instructions, for additional information.

  2. When contacted by an Insolvency Specialist on a case that has been screened but the notice has not yet been issued:

    1. Inform the Insolvency Specialist that there will not be an AUR issue for the year in question.

    2. Leave a detailed case note documenting the contact with the Insolvency Specialist

    3. Stop the notice and input PC 27. See IRM 4.19.3.17.3, Stop Notice Functionality, for additional information on stopping notices.

      Note:

      Follow the above procedures regardless of whether or not Bankruptcy indicators are present on the AUR system and/or regardless of the proposed U/R amounts.

4.19.3.4.11  (09-01-2013)
Erroneous Refunds

  1. An erroneous refund is any receipt of money from the Service to which the recipient is not entitled. It includes all erroneous payments to the taxpayer, even if the erroneous refund involves returning the taxpayer’s own money. An erroneous refund may occur when:

    • The statute of limitations has expired and a refund is issued

    • There are misapplied payments, or

    • The AUR adjustment erroneously releases a credit hold (i.e., IVO involvement TC 971 AC 134 is present)

  2. When an erroneous refund is identified and the TC 846 has not posted, use IDRS CC NOREF definer "P" to stop the refund. IDRS CC NOREF must be input by 10:00 a.m. on the Wednesday preceding the date of the refund. Do not stop a direct deposit refund; which is identified by the number "10" in the DDRC field on IDRS CC IMFOLT

  3. When an erroneous refund is identified and is the only issue, assign PC 28, 53, 68, or 88. If the Erroneous Refund Statute Expiration Date (ERSED) has expired, close the case with PC 28, 52, 71, or 96. Take appropriate actions to resolve the erroneous refund issue. See IRM 4.19.3.4.11.1, Recovering Erroneous Refunds, for additional information.

4.19.3.4.11.1  (09-01-2013)
Recovering Erroneous Refunds

  1. There are four categories of erroneous refunds that AUR will work; Category A1, A2, B and D. Each category has a specific method that must be used to recover the erroneous refund and different statutes of limitation apply.

  2. The Statute of Limitation used when recovering erroneous refunds are:

    1. ASED (assessment statute expiration date) which is generally three years from the date the return was filed,

    2. CSED (collection statute expiration date) which is generally ten years from the date of assessment, and

    3. ERSED (erroneous refund statute expiration date) which is generally two years from the date of the erroneous refund check or direct deposit. A five year statute applies when the IRS can show the erroneous refund was induced by fraud or a misrepresentation of a material fact. ERSED is used to recover Category D erroneous refunds.

  3. When a case is determined to be an erroneous refund, there are two steps to follow for recovering an erroneous refund:

    1. Identify the appropriate erroneous refund category.

    2. Complete the required actions within the applicable statutes to correct the error that caused the erroneous refund.

  4. Category A1 Erroneous Refunds occur when the tax liability has been understated due to an error on either a tax assessment or on an adjustment to the tax liability and the error results in a refund.

    Example:

    The IRS lowered the tax when processing the original return or an incorrect adjustment on an amended return was made.


    The Category A1 Erroneous Refund is generally recovered with a deficiency assessment by the Examination function. The notice of deficiency must be issued within the assessment statute period or by the ASED.

    1. Prepare Form 4442, Inquiry Referral, and include any information pertinent to the erroneous refund. Forward the Form 4442 to your local Examination function for the issuance of a deficiency notice.

      Exception:

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

    2. Use the IAT "REQ54" tool to input TC 971 AC 663; regardless of erroneous refund amount.

    3. Leave a case note and assign appropriate PC/IPC.

      Note:

      The Letter 510C is not issued on Category A1 Erroneous Refunds. Do not input a TC 470 or a TC 844 on these accounts.

  5. Category A2 Erroneous Refunds involve errors on non-refundable and/or refundable credits that are subject to deficiency procedures. Examples of refundable credits subject to deficiency procedures include Additional Child Tax Credit, Earned Income Tax Credit, First Time Homebuyer Credit, American Opportunity Credit and Making Work Pay and Government Retirees Credit.
    Category A2 Erroneous Refunds are generally recovered with a deficiency assessment by the Examination function. The notice of deficiency must be made within the assessment statute period or by the ASED.

    1. Prepare Form 4442 and include any information pertinent to the erroneous refund. Forward to your local Examination function for the issuance of a deficiency notice.

      Exception:

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

    2. Use the IAT "REQ54" tool to input TC 971 AC 663; regardless of erroneous refund amount.

    3. Leave a case note and assign appropriate PC/IPC.

      Note:

      The Letter 510C is not issued on Category A2 Erroneous Refunds. Do not input a TC 470 or a TC 844 on these accounts.

  6. Category B Erroneous Refunds occur when the taxpayer overstates their Federal income tax withholding credits or estimated income tax payments on a return or a claim for refund. If the IRS caused the overstatement of withholding or estimated tax payments, the erroneous refund becomes a Category D Erroneous Refund and can only be recovered through the Category D Erroneous Refund procedures, see (7) below.

    Note:

    Category B assessments are not subject to the deficiency procedures; however, the assessments must be made by the ASED.

    Note:

    The Letter 510C is not issued on Category B Erroneous Refunds. Do not input a TC 470 or a TC 844 on these accounts. Do not use Hold Codes on the adjustment that will prevent the notice from being generated.

  7. Category D Erroneous Refunds include any erroneous refund that is not included in any other erroneous refund category. The Category D Erroneous Refunds can also include any other Category Erroneous Refunds if the ASED has expired but the ERSED is still open.

    Note:

    The Erroneous Refund Unit in Accounting inputs a false credit (TC 700) on Category D Erroneous Refunds to remove the erroneous refund amount from Masterfile and reestablish the account in Accounting. This action prevents notices and administrative collection action (liens or levies) from occurring on the erroneous refund liability. The TC 700 credit can be identified by a Document Code 58 and a blocking series 950-999 in the DLN. These accounts will have a -U Freeze (generated by a TC 844) and it informs other employees the account is being worked and monitored in Accounting. Do not release the TC 700 credit.


    When a Category D Erroneous Refund is identified within the ERSED statute:

    1. Issue Letter 510C using the IAT "Letters" tool. The date of the letter is considered to be the Date of Demand. Two copies of the letter are needed; one to attach to Form 12356, Erroneous Refund Worksheet, and one for the AUR case file.

      Exception:

      Do not send Letter 510C when the ERSED is expired. Refer to (11) below.

    2. Input the adjustment using the IAT "REQ54" tool for the TC 807 (W/H) and/or TC 252 (EXSST) using blocking series 55 and hold code (HC) 3. Use source document "Y" if including the original return with the adjustment.

      Note:

      Input a TC 270-0 to prevent the generation of the failure to pay penalty.

    3. Input any necessary credit transfers using the IAT "Credit Transfer" tool. Use TC 570 on the debit side to suppress the CP 60 Notice. The IAT "Credit Transfer" tool contains a box for Debit Freeze and Credit Freeze and will input the TC 570 when checked.

    4. Input TC 470 using the IAT "REQ77" tool. If the ERSED has expired, do not input TC 470. Instead, input TC 971 AC 663 using the IAT "REQ54" tool.

    5. Input a TC 844 using the IAT "REQ77" tool for taxpayer error or refunds of more than $50,000. If the ERSED has expired, do not input TC 844.

      Note:

      The TC 844 generates a "-U" freeze on the account and the TC 470 will stop all systemic notices and collection processes.

    6. Update the IDRS Category Code to ERRF, reassign the IDRS control base to the Erroneous Refund Unit in Accounting (A/ER), change the status to "M" with activity code "ERRORREF" . The first five digits of the Erroneous Refund Units IDRS numbers are as follows:

      Site IDRS
      Atlanta 07112
      Austin 06113
      Cincinnati 02116
      Fresno 10117
      Kansas City 09113
      Ogden 04117

    7. Prepare Form 12356, Erroneous Refund worksheet, ACS Batch Ticket, and include a copy of all pertinent information, including a copy of Letter 510C sent.


    Once the adjustment posts:

    1. Prepare Form 4442, Form 3465, Adjustment Request, or a case history sheet.

    2. Notate "Letter 510C" sent and any other important case details.

    3. Refer the case to the A/ER. See IRM 3.17.80, Exhibit 4, Erroneous Refund Coordinators, for a list of A/ER functions and their corresponding Erroneous Refund Coordinators

    4. Close the case by assigning PC 28 in screening or PC 53, 68, or 88, as appropriate, in response, or appropriate IPC in Recon.

      Note:

      When assigning PC 53, 68, or 88, complete the assessment window and enter an "M" in the AUTO/MANUAL IND field to indicate a manual assessment, as the adjustment was input on IDRS.

  8. If the case involves a combination of Erroneous Refund (Cat D- W/H and/or Excess SST) and other AUR issues, take the following actions:

    1. Use the IAT "REQ54" tool to input the adjustment using blocking series 05 and "N" source document since the original will be kept to work other AUR issues.

    2. Monitor for adjustment to post on both IDRS and AUR Tax Account.

    3. After the adjustment for W/H and/or Excess SST posts, issue a CP 2000 for remaining the AUR issues, following normal AUR processing procedures.

  9. If Category D erroneous refund was due to the AUR payment refunding in error, take the following actions:

    1. Send Letter 510C using the IAT "Letters" Tool. Two copies of the letter are needed; one to attach to Form 12356 and one for the AUR case file.

      Note:

      If the erroneous refund is discovered during phone contact with the taxpayer, a case history can be input on IDRS instead of issuing a Letter 510C. Advise the taxpayer to void the check if it has not been cashed. Enter history "PHTPERRF" on IDRS using IDRS CC ACTON or IAT "ACTON" tool. The date you request repayment on the phone is the Date of Demand. Leave case note on a AUR.

    2. Use the IAT "REQ77" tool to input TC 844 and TC 470

    3. If full paid, work the case as an AUR agreed response, assigning PC 53, 67, or 87.

    4. Complete Form 12356 and include a copy of all pertinent information, including copy of Letter 510C or a copy of the case note.


    Once the adjustment posts on IDRS:

    1. Prepare Form 4442 and route case documentation to the appropriate Erroneous Refund Unit.

    2. Use the IAT "REQ54" tool to input TC 971 AC 663.

    3. Leave a detailed case note.

    4. If partial payment is received, assign PC 75 and release the case. Monitor the case for the PC 75 to post.


    After a Statutory Notice of Deficiency has been issued:

    1. Request the case and hold in unit suspense until the taxpayer responds or the suspense period has expired. If no response is received, default the case using the appropriate PC.

    2. Complete Form 12356 and include a copy of all pertinent information, a copy of Letter 510C or a copy of the case note.


    Once the adjustment posts on IDRS:

    1. Prepare Form 4442 and route case documentation to the appropriate Erroneous Refund Unit.

    2. Use the IAT "REQ54" tool to input TC 971 AC 663.

    3. Leave a detailed case note.

  10. When the ERSED is expired, complete the following:

    1. Notate "ERSED Statute Expired" on the case.

    2. Complete Form 12356 and include a copy of all pertinent information.

    3. Use Form 12634, Correspondence Transmittal, or Form 3499, Informational Transmittal, to route case documentation to the appropriate Erroneous Refund Unit. See table in IRM 4.19.3.4.11.1(7), Recovering Erroneous Refunds.

    4. Do not input TC 844 or TC 470.

    5. Do not send Letter 510C.

    6. Use the IAT "REQ54" tool to input a TC 971 AC 663.

    7. Leave a case note on AUR.

    8. Close case with PC 28, 52, 71, or 96.

4.19.3.5  (09-01-2004)
Payer Agent

  1. The Payer Agent file is a compilation of Employer/Payer Information Return (IR) documents (Form W-2, Form 1099, Form 1098, etc.) which have been verified as erroneously filed or processed. The AUR Payer Agent file is tax year specific.

  2. Payer Agent (P/A) Indicator "Y" in the PA field of the Case Analysis screen indicates that the Payer Agent file contains data for the IR in question.

  3. Taxpayers and/or Employer/Payers may contact/notify AUR that a discrepancy with documents or the filing of IRs for a tax year has occurred. Tax examiners are encouraged to request that the taxpayer and/or Employer/Payer forward the information to the site AUR Payer Agent Coordinator.

4.19.3.5.1  (05-04-2007)
Tax Examiner - Instructions

  1. Access the Payer Agent window for all IRs showing Payer Agent Indicator "Y" . The Payer Agent window lists the payer's name, EIN, document type, source, and a synopsis of the reporting problem. See IRM 4.19.7, IMF Automated Underreporter Technical System Procedures - Viewing Payer Agent Information.

    Note:

    If all U/R income is from identified Payer/Agents and the Payer Agent window contains instructions to accept or delete the IR, close the case with PC 24. If U/R issues remain, continue normal processing (the P/A closing PC would NOT apply).

  2. During the screening phase, the tax examiner may identify questionable IRs, which appear to be erroneous but are not marked with a Payer Agent code "Y" . When IRs appear to be questionable and the tax examiner determines the IRs should be investigated, take the following steps:

    1. Print the Case Analysis screen and the Info Return (IR) screen.

    2. Forward both screen prints and any additional supporting information documents to the site AUR Payer Agent Coordinator.

    3. Continue normal processing.

  3. During the response phase, the examiner may receive information from the payer or the taxpayer indicating the proposed U/R is the result of a payer reporting error, or a payroll processing mistake. Take the following action to forward the information to the site Payer Agent Coordinator:

    1. Photocopy the TP statement or payer letter and a copy of the Case Analysis screen and the Info Return (IR) screen.

    2. Forward these photocopies and any additional supporting information documents to the site AUR Payer Agent Coordinator.

    3. Continue normal processing.

4.19.3.5.2  (09-01-2004)
AUR Site Payer Agent Coordinator - Instructions

  1. The AUR Site Payer Agent Coordinator will perform the following tasks.

    1. Take action on all IRs referred by tax examiners as questionable/suspicious Payer Agent data.

    2. Sort and review the screen prints received from tax examiners deemed questionable/suspicious. Begin research when four or more screen prints with the same EIN are identified. The Site P/A Coordinator should attempt to make a determination about the discrepant IRs. If payer contact is necessary to determine the impact, check IDRS for a telephone number or call XXX-555-1212 (XXX represents the area code of the city/state being called).

      Note:

      Revised Third Party procedures allow for the administrative action of verifying information received from Employers/Payers. This verification is not considered a third party contact if the purpose of the contact is to process information received from the source and/or to ensure its validity/correctness.

    3. Create a Payer Agent record when a Payer Agent record does not currently exist, and the information available leads to a determination that the Payer Agent should be added to the Payer Agent File.

    4. Update payer name and text lines, when required. There may be more than one type of income or source code for each Payer Agent EIN entered. Verify by scrolling both type and source fields; P=Paper and T=Tape (magnetic media).

    5. Input the EIN to search/query the Payer Agent File.

    6. View and/or print Payer Agent reports from the Payer Agent Coordinator menu.

    Note:

    A Payer Agent cannot be created if a Payer Agent record already exists for the EIN, document type, source code or tax year. If this condition exists, the system displays a message.

  2. At the end of the AUR program for the tax year, print a copy of the Payer Agent Listing and retain in the Payer Agent file for three years.

4.19.3.5.3  (09-01-2004)
National Designated AUR Payer Agent Coordinator - Instructions

  1. Employer/Payer identified IR filing discrepancies are submitted through the Enterprise Computing Center at Martinsburg (ECC-MTB) Management and Technology Information Returns Division. Documentation received from Employers/Payers is reviewed at ECC-MTB and copies are provided to WI AUR National Headquarters in Atlanta and to the HQ (national) designated AUR Payer Agent Coordinator (currently located in Ogden). The HQ (national) designated AUR Payer Agent Coordinator has access to the national AUR Payer Agent File and is responsible for the input of all Employer/Agent Information Return documents received from ECC-MTB.

    Note:

    IR documents are identified as tape source or a combination paper/tape source.

  2. Query the Payer Agent File to determine if the Payer information received should be established or needs to be updated.

    Note:

    A Payer Agent cannot be created if a Payer Agent record already exists for the EIN, document type, source code or tax year. If this condition exists, the system displays a message.

    To Update/Create a Payer Agent record:

    1. Enter the EIN of the identified Payer Agent.

    2. Select the appropriate document type from the list displayed.

    3. Enter the appropriate Source Code: "P" for Paper or "T" for Tape (magnetic media).

    4. Enter the payer name.

    5. Select or enter new instructions for the tax examiners.

  3. The AUR Payer Agent Program is automatically invoked during the weekly run process. The program updates the Payer Agent File for all sites during the weekly process with the new and updated records.

    Note:

    Revised Third Party procedures allow for the administrative action of verifying information received from Employers/Payers. This verification is not considered a third party contact if the purpose of the contact is to process information received from the source and/or to ensure its validity/correctness.

4.19.3.6  (09-01-2013)
Determination of CP 2501 Issuance

  1. Issuance of a CP 2501 (assignment of PC 30) is required for the conditions listed below. In certain other situations, issuance of a CP 2501 may provide better customer service since it is an inquiry instead of a proposal of assessment. If in doubt, consult your lead or manager for guidance.

    Exception:

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

    1. The U/R income is $100,000 or more, including U/R Security Sales in Category 31 and 39.

    2. Cases involving partially reported K-1 IRs when the discrepant amount is $50,000 or more per income type, per payer.

      Exception:

      Partially reported INT, DIV, LTCG, STCG, and ROYAL discrepancies do not require a CP 2501.

    3. Cases involving questionable underclaimed W/H that result in an overall refund. See IRM 4.19.3.15.1.2 (3), Withholding and SSTax Miscellaneous, for further information.

    4. Cases resulting in an overall refund due to underreported income.

      Exception:

      If the refund is due to U/C W/H from a Form 1099-SSA, and the income is reported correctly, do not issue a CP 2501.

    5. Cases involving U/C excess SST on ELF returns - see IRM 4.19.3.15.2 (15) c, Social Security Tax/Tier I Railroad Retirement Tax.

    6. Cases involving Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,900, and the parent or child used the Qualified Dividends and Capital Gains Worksheet, Schedule D or Schedule J tax methods. See IRM 4.19.3.12.1, 8615 Window.

    7. Cases where the On File Date is the same for multiple IRs and none of the IRs are reported. See IRM 4.19.3.7.12.1 (10), Conduit Income - Analyzation.

4.19.3.7  (09-01-2003)
Analysis of Each Income Type

  1. These instructions are used to process the various U/R income amounts by each income type.

4.19.3.7.1  (09-01-2003)
Wages - General

  1. Wages are compensation for employee services and are not subject to self-employment tax.

    Note:

    Settlements or awards under the ADEA (Age Discrimination in Employment Act) cannot be excluded from income and should be pursued as U/R if excluded.

  2. Wages are identified on the Case Analysis screen by the literal "W-2" in the DOC TYPE field and the literal "WAGES" in the INCOME TYPE field.

4.19.3.7.1.1  (09-01-2013)
Wages - Analyzation

  1. Compare WAGES amount with entries on:

    1. Form 1040, line 7.

    2. Form 1040A, line 7.

      Note:

      If wages are U/R and the TP enters "SNE" (Special Needs Exclusion) on the dotted line portion of Form 1040, line 7, compare the U/R amount with Form 8839, Qualified Adoption Expenses, line 25. If the Form 8839, line 25 amount matches the U/R amount within $1, accept wages as reported. If the amount is not equal to the U/R wages, consider the difference U/R.

    3. Form 1040EZ, line 1.

  2. Wage comparisons for the following entries must match within $1 or be CLEARLY IDENTIFIED as wages:

    1. Form 1040, line 16b.

    2. Form 1040A, line 12b.

    3. Form 1040, line 21.

    4. Schedule C or Schedule F - If wages are reported here, see IRM 4.19.3.7.1.3, Wages Paid to Statutory Employees, for instructions regarding Statutory Employees.

    5. Attachments to the return.

    6. Form 2106, Employee Business Expenses, Part 1, line 7 - Give credit for these amounts if the payer name on the IR is related to the occupation box on Form 2106. If the occupation box on Form 2106 is blank, consider the IR(s) fully U/R unless amounts match within $1. If line 7 is greater than line 6, in Column A of Form 2106, the excess reimbursements must be included as income on page 1 of Form 1040.

  3. When comparing reported wages to IRs, do not allow partial credit for unidentified amounts UNLESS the return is missing supporting Form(s) W-2. Returns that were processed through OCR or ELF may not have Form(s) W-2 attached. DO NOT request the Form(s) W-2 from FRC. Allow the taxpayer credit for amounts on Form 1040, line 7, Form 1040A, line 7, or Form 1040EZ, line 1. Issue a CP 2000 for discrepancies.

  4. If the taxpayer reports the same amount of Form W-2 income as shown in the IR, but under a different payer name, consider the IR reported.

  5. Consider any two WAGE IRs, for the same taxpayer, that contain identical income information, as duplicates even if the payer names and EINs are different. Take the following action:

    1. If the taxpayer failed to report either WAGE IR, consider only one of the IRs U/R (mark all components of the other IR with status code "D" or "N" ), and show both of the IRs on the notice.

    2. If the taxpayer reported one of the IRs, delete the IR the taxpayer did not report (mark all components of the IR with status code "D" or "N" ). If there are no other U/R issues, enter PC 24.

  6. If there are two WAGE IRs for the same taxpayer, from the same payer (payer name and EIN match) take the following action:

    1. If the taxpayer fully reports one of the IRs, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    2. If the taxpayer does not fully report one of the WAGE IRs, group them together and consider the difference U/R.

  7. Allow taxpayers (i.e., police officers, firefighters, etc.) who have sustained injuries in the line of duty to reduce Form W-2, Box 1 Wages, by amounts indicated as line of duty injury payments when ALL of the following conditions are present:

    1. The taxpayer is under age 65.

    2. The payer statement is attached indicating the taxpayer was injured while on duty and provides a specific amount of excludable income. If the attached payer letter does not provide a specific amount, allow the exclusion if the taxpayer includes a worksheet providing a breakdown of excludable income.

      Note:

      When pursuing excluded amounts because the above condition is not met, send a Special Paragraph requesting payer documentation to support the taxpayer's claim.

    3. The amount has not been excluded from Box 1 Wages as shown on the attached Form W-2.

      Note:

      If the taxpayer has double excluded the amount (Social Security Wages are more than the Wages shown on Form W-2, Box 1), send PARAGRAPH 46 (See Exhibit 4.19.3-7, CP PARAGRAPHS).

  8. Retired/non-active status members of the military employed as Junior ROTC (Reserve Officers Training Corps) instructors receive allowances for uniforms, housing, subsistence, etc. However, unlike active duty military personnel, these taxpayers CANNOT exclude these allowances. Disallow any excluded amounts and send PARAGRAPH 154 (See Exhibit 4.19.3-7, CP PARAGRAPHS).

  9. When wages or Social Security wages are U/R, and the taxpayer paid self-employment tax, or is now subject to self-employment tax, input/verify the appropriate entries in the SET SHORT/LONG SCHEDULE section of the Self-Employment Tax window.

  10. Use Status Code "R" in the SSWAG and SSTIP literal when screening valid Wage IRs. Do not use Status Code "N" or "D" . Status Code "N" or "D" may result in an incorrect excess SST/RRT calculation.

  11. The system automatically enters Status Code "R" on MCWGE and MCTXW. The Status Code can be changed to "D" if necessary.

  12. If there are two or more fully U/R WAGE IRs with an out-of-state payee address beyond the reasonable commuting area of the taxpayer (for example, taxpayer lives in Pennsylvania and U/R IRs are for Georgia, etc.), send PARAGRAPH 167 (See Exhibit 4.19.3-7, CP PARAGRAPHS).

    Note:

    Many WAGE IRs involving the potential illegal use of SSNs are from agricultural, farming, food processing, or wholesale/retail employers.

  13. When taxpayers exercise statutory (qualified) employee stock options, is generally excluded from ordinary income and the gain may be reported as a capital gain on Schedule D when the shares acquired upon exercise are sold.

    1. Taxpayers may reduce Form W-2, Box 1, Wages by the amount shown in Box 14 (identified as: stock, incentive stock options (ISOs), employee stock purchase plan (ESPP), etc.) and report the difference as a gain on Schedule D/Form 8949, column (h).

      Note:

      If the stock received upon exercise was not held a minimum of 2 years from the date the option was granted or 1 year from the date the option was exercised, the employer may not identify the exercised amount on the Form W-2, Box 14. If the balance of the WAGE IR is found on Schedule D/Form 8949, column (h), consider the issue resolved.

    2. Review Form 1040, line 7, and Schedule D before determining any U/R WAGE amount.

    3. If the taxpayer did not report the full WAGE amount, send PARAGRAPH 164. (See Exhibit 4.19.3-7, CP PARAGRAPHS).

      Note:

      When the option is exercised, Form 1099-B (Proceeds From Broker and Barter Exchange Transactions) may also be issued to show the value of the stock. Since the STOCK IR relates to the exercise of the statutory employee stock option, allow credit for amounts reported on Schedule D/Form 8949, column (d) against STOCK IRs.

  14. When taxpayers exercise non-statutory (non-qualified) employee stock options, the gain upon exercise is reported as ordinary income. Employers include the exercised amount on Form W-2, Box 1 and identify the stock option amount in Box 12 using code "V" .

    Note:

    The "V" Code displays on WAGE IRs with the literal "V" CODE.

    Caution:

    Taxpayers may reduce Form W-2, Box 1, wages by the amount shown in Box 12 (Code "V" ) and report the difference as a gain on Schedule D/Form 8949, Part 1, column (h).

    1. Review Form 1040, line 7 and Schedule D, Part 1 before determining any U/R WAGE amount.

      Caution:

      If the taxpayer reports the non-statutory option gain as a long term capital gain (Schedule D/Part II) AND a notice is being sent for other U/R issues, remove the non-statutory option gain from the LONG TERM GAIN(LOSS) field in the Sch D/8814/ECR window. Send PARAGRAPH 165 (See Exhibit 4.19.3-7, CP PARAGRAPHS).

    2. If the taxpayer did not report the full WAGE amount, send PARAGRAPH 164 (See Exhibit 4.19.3-7, CP PARAGRAPHS).

      Note:

      When the option is exercised, Form 1099-B (Proceeds From Broker and Barter Exchange Transactions) may also be issued to show the value of the stock. Since the STOCK IR relates to the exercise of the non-statutory employee stock option, allow credit for amounts reported on Schedule D/Form 8949, column (d) against STOCK IRs.

  15. Whenever wages are U/R, compute withholding (W/H) or consider W/H.

    1. If there is an U/R wage IR with no W/H amount, there are no other IRs with W/H, and there is a TC 806, 807, or TC 290 with Reason Code 51 on the Tax Account screen, complete the Withholding window.

    2. If there is an U/R wage IR with no W/H amount, and there are no other IRs with W/H, the system automatically generates a W/H amount of zero (0) on the Summary screen.

  16. For a list of the codes found in Box 12 of Form W-2, See Exhibit 4.19.3-8, Form W-2 - Box 12 Codes.

4.19.3.7.1.2  (09-01-2010)
Attached Forms W-2 - Analyzation

  1. Consider wages U/R if wage amounts from attached Form W-2 are:

    • Omitted

    • Added incorrectly when there are multiple Form W-2 involved

    • Transposed

    • Taken from the wrong box(es) on Form(s) W-2. Send PARAGRAPH 2 (See Exhibit 4.19.3-7, CP PARAGRAPHS).

  2. If it appears that the taxpayer reduced Form W-2 box 1 Wages by the amount in box 11 (Nonqualified Plans), pursue the difference as U/R wages and send PARAGRAPH 50 (See Exhibit 4.19.3-7, CP PARAGRAPHS).

    Note:

    Before considering the amount U/R, check to see if the taxpayer reported the amount as pension income.

  3. An O/R situation exists if the taxpayer's entry on Form 1040, line 7, Form 1040A, line 7, or Form 1040EZ, line 1 is greater than the total WAGE IR(s). Consider wage income O/R if you determine that the taxpayer:

    • Made a double entry (math error)

    • Transposed figures

    • Used Social Security Wages from Form W-2, Box 3. Send PARAGRAPH 2 (See Exhibit 4.19.3-7, CP PARAGRAPHS).

  4. The taxpayer may exclude certain types of income. Wages reported on Form W-2, Box 1 are generally reduced by the amount of excluded income. Some of these exclusions are:

    1. Tax favored amounts.

    2. Elective deferrals to a 401(K) or 403(B). These are generally tax-deferred annuities for teachers and employees of 501(c)(3) organizations and/or plans. See Exhibit 4.19.3-8, Form W-2- Box 12 Codes, for a complete list of the elective deferral codes found in Box 12 of Form W-2.

    3. Dependent Care Assistance Benefits (DCB). See IRM 4.19.3.7.2.1, Dependent Care Benefits (DCB), for limitation of excludable income.

    4. "IOD" (Injury on Duty) or "LODI" (Line of Duty Injury) payments. See IRM 4.19.3.7.1.1 (7), Wages - Analyzation, for further information.

    5. Survivor annuity received by the spouse, former spouse, or child of a public safety officer killed in the line of duty or a chaplain killed in the line of duty after September 10, 2001 while responding to a fire, rescue, or emergency as a member or employee of a fire or police department will generally be excluded from the recipient's income regardless of the date of the officer's death.

    6. Cost of living allowances paid to federal employees working abroad.

    7. Ministers Housing Allowances (This amount may be the difference between net Schedule C income and income subject to self-employment tax on Schedule SE.) See IRM 4.19.3.7.1.5 (4), Wages Miscellaneous.

    8. Exercised Employee Stock Options. See IRM 4.19.3.7.1.1 (13) and (14), Wages - Analyzation, for further instructions.

    Since the amount reported on Form W-2, Box 1 should reflect these exclusions from income, the taxpayer should not subtract the above items from the amount reported as wages.

  5. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ :

    • The Form W-2 attached to the return appears to be altered, AND

    • There is a W/H discrepancy, AND

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

      Note:

      Use the IR as the most correct information, if the case does not meet referral criteria or if the referral is returned.

  6. If wages are U/R, check the attached Form W-2 and/or any attachments to determine if the taxpayer excluded the amount as sick pay.

    1. Accept the exclusion if there is an indication that the taxpayer paid the premiums (an amount present on Form W-2, Box 12, with code "J" that matches the excluded amount) and per attached pay-stubs or other documentation, the payer incorrectly included employee paid sick pay on Form W-2, Box 1. Form W-2, Box 1 matches Box 3, SSWAG, or attached payer documentation.

    2. If there is no clear indication per (6) a. above, consider the amount U/R and issue CP 2000. Send PARAGRAPH 25 (See Exhibit 4.19.3-7, CP PARAGRAPHS).

      Note:

      Payers are instructed to indicate the amount of sick pay not included in income (and not shown in Boxes 1, 3, and 5) in Box 12 of Form W-2 with Code "J" when the employee contributed to the sick pay plan.

  7. If the taxpayer attaches a substitute Form W-2 and reports a lesser amount than shown on the IR from the same payer, consider the difference U/R.

  8. Consider W-2 IRs fully reported when Wage or W/H amounts on the IRs are ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    Note:

    This also applies to Virtual cases.

  9. If the taxpayer participates in a nonqualified deferred compensation plan that does not meet all requirements as specified in IRC 409A, the employer must report the deferred compensation as income and the amount is subject to an additional tax.

    1. The employer identifies income under IRC 409A on Form W-2 in box 12 with Code Z.

      Note:

      The amount in Form W-2 box 12, Code Z is already included in box 1 (WAGES). If WAGES are U/R and the difference corresponds to the NQDC amount, pursue the discrepancy as WAGES and include a Special Paragraph using the following verbiage as an example: "Income recognized due to participation in a nonqualified deferred compensation plan that did not meet the requirements of Internal Revenue Code Section 409A is considered taxable. You cannot reduce your wages or nonemployee compensation by this amount" .

    2. Income recognized under IRC 409A is identified on the Case Analysis screen by the literal "W-2" in the DOC TYPE field and the literal "NQDC" in the INCOME TYPE field.

      Note:

      Enter Status Code "R" on the "NQDC" element(s).

    3. The "NQDC" amount is subject to an additional tax. See IRM 4.19.3.14.7, Additional Taxes on Income from Nonqualified Deferred Compensation Plan (IRC Section 409A), for further instructions.

      Reminder:

      Mark the NQDC IR element(s) with Send Indicator "S" when adjusting the additional tax.

4.19.3.7.1.3  (09-01-2012)
Wages Paid to Statutory Employees

  1. Statutory employees are self-employed independent contractors, for purposes of reporting income and expenses on their tax returns, who are treated as employees for FICA tax purposes.

  2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and consider him/her a statutory employee if his/her occupation is listed in IRM 4.19.3.20.3.1.1 (2), Statutory Wages. Do not make any adjustments to the Schedule C/C-EZ and/or SE tax.

  3. Statutory employees should receive a Form W-2 with the statutory employee box checked in Box 13. If the Statutory Employee box was checked, the SEI literal has a value of "1" displayed on the IR. If it was not checked, the SEI literal has a value of "0" (zero).

  4. Statutory employees report their Form W-2 Wages on Schedule C or C-EZ, line 1, along with business expenses. This income is NOT subject to self-employment tax and business expenses are not subject to the 2% limitation for miscellaneous itemized deductions. This income is subject to social security and Medicare taxes that should be withheld at the source by the payer and shown on Form W-2 as SS/Medicare Tax Withheld, SS Wages, and Medicare Wages and Tips.

    Note:

    Follow the taxpayer's intent, do not refund self-employment tax computed on wages paid to statutory employees.

  5. Performing artists are not statutory employees, but, they may report Form W-2 income on Schedule C (instead of Form 2106), if during the tax year ALL of the following conditions apply:

    1. They perform services in the performing arts for at least two employers,

    2. They receive at least $200 each from any two of these employers,

    3. Their related performing arts expenses are more than 10% of their gross income from the performance of those services, AND

    4. Their adjusted gross income is not more than $16,000 before deducting these business expenses.

  6. Cases involving wages of statutory employees are created when:

    1. Wages received by an individual other than a statutory employee were reported on the Schedule C or C-EZ, and the individual incorrectly deducts expenses on Schedule C or C-EZ.

      Note:

      Only statutory employees may deduct expenses on Schedule C or C-EZ.

    2. The statutory employee did not report the wages on Schedule C or C-EZ, line 1, or as wages on Form 1040, Form 1040A, or Form 1040EZ.

  7. There is a discrepancy if there is a difference between the total of all wages (but not allocated tips) on all Form W-2 when the statutory employee indicator in Box 13 of Form W-2 is checked and the wages per return, Schedule C or C-EZ, line 1.

  8. Input Income Identify Code"SW" in all U/R wages from Statutory Employee IRs if wages are U/R.

  9. Consider wages from Statutory Employees U/R and send PARAGRAPH 115 (See Exhibit 4.19.3-7, CP PARAGRAPHS) if the Wage amounts from attached Form(s) W-2 are:

    • Omitted

    • Added incorrectly when there are multiple Form(s) W-2 involved

    • Transposed

    • Taken from the wrong box(es) on Form(s) W-2, send PARAGRAPH 2 (See Exhibit 4.19.3-7, CP PARAGRAPHS).

  10. If the taxpayer combines non-statutory wages with statutory wages or self-employment income (i.e., NEC, MERCH, OTINC, MED, etc.) on the same Schedule C, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  11. If the taxpayer includes only non-statutory wages on the Schedule C or C-EZ, disallow the expenses from Schedule C line 28 (or Schedule C-EZ line 2) and the amounts on Schedule C, lines 2, 4, and/or 30.

    1. Input the amount of disallowed expenses in the PRIM/SEC SCH C EXPENSE PER RETURN field(s).

    2. Enter a zero (0) in the PRIM/SEC SCH C EXPENSE NOW field(s) on the MISC ADJUSTMENT/SCHEDULE C EXPENSE window.

      Note:

      These amounts display on the CP 2000 Summary as a changed item (changes to the Primary and/or Secondary Schedule C expenses displays as a single item on the Summary screen).

    3. Send PARAGRAPH 116 (See Exhibit 4.19.3-7, CP PARAGRAPHS).

    Note:

    When disallowing expenses on Schedule C or Schedule C-EZ due to the conditions above, do not adjust any SE Tax claimed. Manually access the SETAX window to suppress the change. See IRM 4.19.3.14.1, Self-Employment Tax.

4.19.3.7.1.4  (04-07-2009)
Fellowships, Grants, and Stipends

  1. If an explanation attached to the return indicates the fellowship, grant, or stipend was used for tuition, fees, books, supplies, and equipment required for the course, AND:

    1. The expenses equal or exceed the IR, consider the income fully reported.

      Note:

      The taxpayer cannot deduct or exclude expenses that exceed the IR. (i.e., enters a negative amount.)

    2. The expenses are less than the IR, pursue the difference if not reported on the return.

    3. The taxpayer excludes expenses not shown above, then pursue the unallowable expenses. Send PARAGRAPH 124 (See Exhibit 4.19.3-7, CP PARAGRAPHS).

  2. If the taxpayer enters "SCH" next to Form 1040, line 7, accept as fully reported.

  3. If no explanation is attached and the IR is not fully reported, pursue the amount not reported. Send PARAGRAPH 124 (See Exhibit 4.19.3-7, CP PARAGRAPHS).

4.19.3.7.1.5  (09-01-2010)
Wages Miscellaneous

  1. If Wages are U/R and the taxpayer has Form W-2 wages, determine if the taxpayer makes any reference to repayment of supplemental unemployment benefits. If the taxpayer correctly reported net wages after repayment of supplemental unemployment benefits, consider the wages reported.

  2. If wages are U/R and the taxpayer is claimed as a dependent on another person's return, see IRM 4.19.3.11 (4), Standard Deduction, for further instructions.

  3. If wages are U/R, the system requires that you analyze W/H. See IRM 4.19.3.15.1, Withholding - General, for further instructions.

  4. If the taxpayer is a minister and has reported Form W-2 wages on a Schedule C:

    1. If the Form W-2 and/or WAGE IR shows that SST has NOT been withheld, allow the expenses. The net income is subject to self-employment tax UNLESS the taxpayer has a Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, or Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits, exemption annotated on line 56 of Form 1040.

    2. If the Form W-2 and/or WAGE IR shows SST has been withheld, disallow the expenses. Do not adjust any SET claimed. Manually access the SETAX window to suppress the change. See IRM 4.19.3.14.1, Self-Employment Tax. Send PARAGRAPH 45 (See Exhibit 4.19.3-7, CP PARAGRAPHS).

    3. Ensure excluded minister housing allowance is subjected to SE tax, unless: the TP notates "Exempt Form 4361" or "Form 4029 " on Form 1040, line 56 or the housing allowance is for a retired minister.

  5. If the taxpayer computes Social Security Tax on Tips on Form 4137, Social Security and Medicare Tax on Unreported Tip Income, but did not include the tip income in the AGI, consider the tip income U/R.

    1. If necessary, create a W-2 IR with an A-TIP element for the amount of allocated tips for which Social Security Tip Tax was reported but was not included in income. See IRM 4.19.3.14.2 (3), Social Security Tax on Tip Income Unreported to the Payer.

    2. The system computes a 50% Social Security Tip Tax Penalty when the taxpayer uses Form 4137, PARAGRAPH 15 automatically generates. See Exhibit 4.19.3-7, CP PARAGRAPHS.

  6. If Wages are U/R, enter the return amount in the RETURN field on the Summary screen.

4.19.3.7.2  (09-01-2003)
Other W-2 Income

  1. In addition to wage income, Form W-2 can contain information relating to Dependent Care Benefits (DCB), Employer Provided Adoption Benefits (EPAB), etc.

4.19.3.7.2.1  (08-16-2011)
Dependent Care Benefits (DCB)

  1. A taxpayer whose employer excludes earnings from taxable wages designated to pay for child care and/or care for a dependent(s) who is unable to care for himself/herself can exclude the amount of this benefit (within certain limits). The excluded amount is limited to the smaller of the taxpayer's earned income, the spouse's earned income, or $5,000 ($2,500 if married filing separately).

    Note:

    For each month, or part of a month, a spouse was a full-time student or was unable to care for himself/herself, he/she is considered to have worked and earned income. His/her income for each month is considered to be at least $250 ($500 if more than one qualifying person was cared for).

  2. The Case Analysis screen displays this benefit with the literal "W-2" in the DOC TYPE field and the literal "DCB" in the INCOME TYPE field.

    Note:

    Screen ONLY system identified discrepant DCB amounts (i.e., those marked with an asterisk). If the case is open because of other income discrepancies, mark any non-asterisked DCB amounts on the WAGE IRs with Status Code "N" or "D" .

  3. The gross benefit amount shows separately on Form W-2, Box 10. The wage amount on Form W-2, Box 1 SHOULD NOT INCLUDE the DCB for the tax year.

    Note:

    The employer includes any DCB over $5,000 in the taxpayer's wages as shown on Form W-2, Box 1.

  4. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. Taxpayers MUST complete Form 2441, Child and Dependent Care Expenses, Parts I, II, and III in order to compute the correct amount of Child Care Credit and excludable DCB.

    1. Form 2441, line 15, contain the TOTAL BENEFIT AMOUNT less the amount forfeited.

    2. Form 2441, line 26 contain the TAXABLE BENEFIT AMOUNT. This taxable amount should be included with wage income on Form 1040 or Form 1040A, line 7 with "DCB" noted on the dotted line next to line 7. Verify that the correct amount of DCB is actually reported on line 7.

    3. See IRM 4.19.3.13.2 (5), Credit for Child and Dependent Care Expenses, for further instructions regarding Child Care Credit.

  6. The system computes the correct taxable amount of DCB. Input/verify the appropriate entries on the Dependent Care Benefits window. See IRM 4.19.7, IMF Automated Underreporter Technical System Procedures - Dependent Care Benefits.

  7. If there is an indication that the taxpayer participated in one of the following Cafeteria Plans: flex plan, flex credits, or flex dollars (pre-tax deduction) for Dependent Care Benefits and the taxpayer IS NOT claiming Child Care Credit, consider the DCB reported.

  8. If the taxpayer did not file Form 2441 and did not report DCB, the taxable portion is the DCB IR amount up to ≡ ≡ ≡ ≡ per payer and per taxpayer. Take the following action to determine if DCB is U/R:

    1. Select the Dependent Care Benefits window.

    2. Enter zero (0) in the REPORTED DEP CARE BENEFITS field.

    3. Enter the total of all DCB reported by payer(s), but no more than ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , on the IR(s). Input/verify all other fields per the IRM 4.19.7, IMF Automated Underreporter Technical System Procedures - Dependent Care Benefits.

    4. PARAGRAPH 156 automatically generates when DCB is U/R.

  9. If the taxpayer filed Form 2441 and Part III is blank or incorrectly completed, take the following action:

    1. Review the taxpayer's entries in Part III, lines 12 through 26 and prepare a mock Form 2441 to correct any errors and/or complete any omitted entries. Use the total expenses shown in Part II, line 2, column c, to determine the line 16 (qualifying expenses) amount.

    2. Access the DCB window and use the information from the mock Form 2441 to input all appropriate entries.

    3. Send PARAGRAPH 66 (See Exhibit 4.19.3-7, CP PARAGRAPHS).

  10. Taxpayers who receive DCB generally do not qualify for Child Care Credit. If the taxpayer claimed Child Care Credit, take the following action:

    1. If the DCB IR(s) is reported, click on the Send Indicator to show these IRs on the notice.

    2. Complete screening of ALL remaining IRs in the Case Analysis screen, following normal procedures.

    3. Access the Return Value screen. Ignore any system prompt to close the case below tolerance.

    4. See IRM 4.19.3.13.2 (5), Credit for Child and Dependent Care Expenses, to determine the correct entry in the QUALIFYING EXPENSES field in the Child Care Credit window.

  11. If the taxpayer reduced his/her wages by the DCB IR amount, pursue the issue as an U/R wage issue.

4.19.3.7.2.2  (09-01-2013)
Employer-Provided Adoption Benefits (EPAB)

  1. Employer-provided adoption benefits (EPAB) are available for taxpayers who adopt a child(ren) who is a U.S. citizen or resident or who adopt a foreign child(ren) if the adoption becomes final in the AUR tax year.

  2. Taxpayers may receive a cash allotment of up to $12,650 for each child in an adoption, including a Special Needs child adoption.

  3. Employer-provided adoption assistance payments are shown on Form W-2, Box 12 and are identified with a code "T" .

  4. The wage amount on Form(s) W-2, Box 1 does not include the EPAB payments for the tax year.

  5. Taxpayers must complete Form 8839, Qualified Adoption Expenses, Part I, II and III in order to compute the correct amount of taxable or excludable EPAB. If no Form 8839 is filed, consider the EPAB fully U/R.

  6. Taxpayers should include this taxable benefit amount with wage income on Form 1040, line 7. They also write "AB" on the dotted line next to line 7.

  7. The Case Analysis screen displays this benefit with the literal "W-2" in the DOC TYPE field and the literal "EPAB" in the INCOME TYPE field.

  8. If Form 8839, line 25 is not reported on Form 1040, line 7, create a wage IR for that amount. Send PARAGRAPH 191 (See Exhibit 4.19.3-7, CP PARAGRAPHS).

    Caution:

    EPAB should not be claimed on a Form 1040A, however; taxpayers might report EPAB on line 7.

  9. Access the EPAB window by entering a "U" in the IR CODE field.

    Note:

    Screen EPAB IR(s) after analyzing all other potentially discrepant income types. After any subsequent analysis that changes the TOTAL AGI CHANGE field, reselect the EPAB window. Recompute all changes to adjustments to income before selecting this window.

    Exception:

    Compute taxable EPAB amount BEFORE Student Loan Interest Deduction (SLID), Tuition and Fees and/or Domestic Production Activities Deduction (DPAD). See IRM 4.19.3.3.2 (3), Case Analysis Screen, for the proper sequence when these issues are present on the same case.

  10. Input/verify the appropriate entries on the EPAB window. See IRM 4.19.7, IMF Automated Underreporter Technical System Procedures - Employer-Provided Adoption Benefits.

  11. If it can be determined the taxpayer reduced his/her wages by the EPAB payment, pursue the issue as U/R wages. Also pursue EPAB as a separate issue. Send PARAGRAPH 195 (See Exhibit 4.19.3-7, CP PARAGRAPHS).

    Reminder:

    If "SNE" is noted on line 7, Form 1040 or Form 1040A, see IRM 4.19.3.7.1.1 (1) Note, Wages - Analyzation.

  12. PARAGRAPH 190 automatically generates when EPAB is U/R. See Exhibit 4.19.3-7, CP PARAGRAPHS.

4.19.3.7.3  (04-05-2005)
Interest - General

  1. Interest is reported by payers on Form 1099-INT, Form 1099-OID, and on Schedules K-1 from Form 1065, Form 1041, and Form 1120-S.

  2. Interest is identified on the Case Analysis screen by the literal "99INT" in the DOC TYPE field and the literal "INT" in the INCOME TYPE field.

4.19.3.7.3.1  (03-11-2011)
Interest - Analyzation

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

    • Municipal Bonds

    • Keogh (HR-10) or Tax Sheltered Annuities (403(b)) accounts

    • Simplified Employee Pensions (SEP) or Individual Retirement Accounts (IRA)

    • A Pension Plan or Profit Sharing Plan (including a 401(k) plan)

    • A Capital Construction Fund (CCF) account.

    Note:

    If W/H is claimed, allow; if not claimed ≡ ≡ ≡ ≡ ≡ ≡ .

  2. Compare INT amounts with entries on:

    1. Form 1040 or Form 1040A, lines 8a or 8b.

      Note:

      Form 1040 or Form 1040A, line 8b, is used to report tax exempt interest. If the amount on line 8b matches the interest amount(s) on a Form 1099-INT IR, consider the Form 1099-INT IR U/R unless the payer is a state or political subdivision of a state, the District of Columbia, or a U.S. possession.

    2. Schedule B, Part I, line 1.

    3. Form 1040EZ, line 2.

  3. Interest comparisons for the following entries must match within $1 or be CLEARLY IDENTIFIED as interest:

    1. Form 1040, line 21.

    2. Schedule C, line 6.

    3. Schedule E, Parts II, III, or IV.

    4. Schedule F, lines 8 or 43.

  4. If Schedule B (or an attachment in lieu of Schedule B) is attached, compare IRs with individual items. If you cannot match individual IRs:

    1. Group all INT amounts from the same payer.

    2. Compare to the total interest reported for that payer.

    3. If the group total amount is smaller, assign Status Code "R" to the group.

    4. If the group total is larger, assign Status Code "U" to the group.

  5. If a breakdown of interest by payer is not shown on the return or on an attachment and there is only one IR:

    1. Compare the amount reported on Form 1040, Form 1040A, lines 8a, or Form 1040EZ, line 2.

    2. If the taxpayer reports a larger amount, consider the IR fully reported.

    3. If the taxpayer reports a lesser amount, allow credit for the amount reported.

  6. If a breakdown of interest by payer is not shown on the return or on an attachment and there is more than one IR:

    1. Group by income type INT.

      Note:

      The Group function is a tool to assist the TEs in computing the correct U/R amount. It may not be necessary to use the Group function if the correct U/R can be determined without it.

      Note:

      If BOND IRs are present it may be necessary to add BOND IRs to the group.

    2. Compare the group total amount to the total interest amount reported on the return.

    3. If the group total amount is smaller, assign Status Code "R" to the group.

    4. If the group total amount is larger, consider the difference U/R and assign Status Code "U" to the group.

    5. If interest amounts are U/R, send PARAGRAPH 64 (See Exhibit 4.19.3-7, CP PARAGRAPHS).

      Exception:

      If the specific U/R amount matches an IR - PARAGRAPH 64 may not be appropriate.

  7. Taxpayers often interchange interest and dividend income. Check any dividend income areas when comparing INT amounts. Offset interest income against dividend income ONLY if one of the following applies:

    1. The same amount (within $1) AND the same payer are reported; OR

    2. An unidentified amount matches the U/R interest amount within $1.

  8. If interest income is listed on Schedule B but is not added into the AGI:

    1. Consider the interest income U/R. If necessary create an IR for any income the taxpayer included on Schedule B for which we do not have a corresponding IR.

    2. If interest and/or dividend amounts are U/R, send PARAGRAPH 57 (See Exhibit 4.19.3-7, CP PARAGRAPHS).

  9. If you notice a math error on Schedule B:

    1. Create an IR for any reported interest amount(s) for which we do not have a corresponding IR.

    2. Group by income type INT.

    3. Compare the group total amount to the total interest reported.

    4. If the group total is larger, assign Status Code "U" .

    5. Send PARAGRAPH 79 (See Exhibit 4.19.3-7, CP PARAGRAPHS).

    6. If the group total amount is smaller, assign Status Code "R" to the group.


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