4.19.17  Non-Filer Program (Cont. 1)

4.19.17.7 
Closures - Non Examined

4.19.17.7.1 
Non-Filer Reject (NFR) - Return Received Prior to ICL

4.19.17.7.1.2  (07-13-2012)
No Return Received – Taxpayer Verifies Income does not Belong to Them

  1. If after contacting the taxpayer correspondence is received and the taxpayer provides verification that the income on the SFR case does not belong to them. Refer to IRM 4.19.17.6.1 If/Then Table.

    1. Close the case DC 39.

    2. Send Letter 4391

  2. If the taxpayer claims the income is not theirs and is a result of identity theft, refer to IRM 4.19.17.8.8.

4.19.17.7.1.3  (01-05-2010)
No Return Received – Taxpayer Deceased with No Estate or Estate Closed

  1. If after contacting the taxpayer correspondence is received from a family member or the executor stating the taxpayer is deceased and the estate is closed or there is no estate:

    1. Close the case DC 39.

    2. Send Letter 4391.

4.19.17.7.1.4  (01-05-2010)
No Return Received – Taxpayer Due Refund

  1. If prior to or after contacting the taxpayer correspondence is received or research shows the taxpayer is due a refund:

    1. Close the case DC 41.

    2. Send Letter 2469C.

4.19.17.7.1.5  (01-05-2010)
Combat Zone

  1. Examinations are not to be conducted during the period of time a taxpayer is in a combat zone.

  2. If you are working an audit, and there is a Combat Zone indicator code, TC 500 and freeze code "C" and the ICL has not been sent. Check CC IMFOLE (Combat Indicator on Line 11)to see if the taxpayer has exited the combat and six months has elapsed. If the Combat Indicator is "1" , then::

    1. Close the case DC 31.

  3. If you are working an audit, and there is no Combat Zone indicator "-C" Freeze on MF but, the taxpayer responds to an Exam contact letter stating they have been deployed to a Combat Zone:

    1. Close the Case DC 32.

    2. Send Letter 4392.

  4. See IRM 5.19.10.6.3, Combat Zone Freeze Code in evaluating -C freeze accounts.

4.19.17.7.2  (01-05-2010)
Closures – Examined

  1. There are four types of closures after a return has been received. They are:

    1. Agreed – Fully Accepted.

    2. Agreed – Partially Accepted.

    3. Unagreed.

    4. Final – After a Partial Accepted.

4.19.17.7.2.1  (01-05-2010)
Agreed – Fully Accepted

  1. There are two types of fully accepted Agreed closures. They are:

    1. Signed Form 4549.

    2. Signed Return.

4.19.17.7.2.1.1  (01-05-2010)
Signed Form 4549

  1. If the taxpayer provides a signed Form 4549 Examination Report, the report does not become a return filed by the Service under IRC 6020(a):

    1. Close the case DC 04 before the SNOD and DC 09 after SNOD if signed report is received.

    2. Update name, address, and filing status as appropriate.

    3. Resolve any credit balances if RSED expired. See IRM 4.19.17.3.7.

    4. Do not restrict penalties and interest. Use the appropriate Priority Code.

  2. The 30 Day Interest Free Period is only applicable after the filing of an original return. Since a signed Form 4549 agreement does not constitute an original return under IRC 6020(a):

    1. Close the case DC 04 if a signed agreement is received after a partial assessment before SNOD.

    2. Close the case DC 09 if a signed agreement is received after a SNOD.

4.19.17.7.2.1.2  (01-05-2010)
Signed Return

  1. If after verifying that the return is true and accurate and the return is accepted as filed, close the case DC 04 before SNOD has been issued and DC 09 after SNOD.

  2. Update the activity code after the examination is completed based on the new income figure. Refer to IRM 4.4.1-2 for applicable Activity Codes.

  3. If the return is accepted as filed, it is not necessary to send the taxpayer a separate letter stating the return was accepted. The taxpayer will receive an IDRS notice of the adjustments made that will match the figures per the return.

  4. Document workpapers with actions taken and decision made including appropriate penalties.

  5. Refer to IRM 4.19.17.3.7 to resolve credit balances when RSED has expired.

  6. Refer to IRM 4.19.17.3.8 ASED procedures for additional information on determining the ASED.

  7. If multiple returns are received for the same taxpayer and one or more of the delinquent return(s) shows a refund, that is not barred, and others show a balance due, the processing of the returns must be cycled.

  8. If cycling is necessary, adjust the balance due year(s) first and after the adjustment has posted, adjust the refund year(s) so the overpayment will offset to the balance due years.

  9. If the refunds are barred it is not necessary to cycle the returns.

4.19.17.7.2.2  (01-05-2010)
Agreed – Partially Accepted

  1. Use partial assessment procedures to assess the secured delinquent return if a SFR has posted and the examination is continuing or the taxpayer is appealing the reasonable cause determination.

  2. Before the case is sent for partial assessment ensure that the return has been validated see IRM 4.19.17.6.2.

  3. Do not hold overpayments available for refund.

  4. Refer to IRM 4.19.17.3.7 to determine if the RSED has expired. DO NOT resolve credit balances on partial assessments until final closure.

  5. Refer to ASED procedures in IRM 4.19.17.3.8for additional information regarding the ASED.

  6. Update the activity code after the examination is completed based on the new income figure. Refer to IRM Exhibit 4.4.1-2 for applicable Activity Codes.

  7. Close case DC 04, use the appropriate priority code.

    Note:

    Do not make an entry in Item 06, "Interest to Date" or " Item 08, Agreement Date" . Entering an agreement date allows the taxpayer the interest free period 30 days from the agreement date which is only allowable on the additional assessment, not the original return.

4.19.17.7.2.2.1  (01-05-2010)
Partial Assessment – Subsequent Contact

  1. Follow procedures in IRM 4.19.13 and IRM 4.19.15 for subsequent contacts with the taxpayer after a partial assessment.

  2. If No Reply after SNOD has already been issued and the taxpayer’s filing status is Single, Head of Household, or MFS and the increase in tax does not meet new deficiency guidelines, allow the SNOD to default on Unagreed and/or No Reply cases before making the assessment per the corrected report.

  3. If the SFR SNOD has already been issued and the taxpayer’s filing status per the secured return is Joint, a new SNOD must be issued in the Joint name to allow the spouse the same deficiency rights the SFR taxpayer received prior to making the assessment per the corrected report. It is not necessary to wait until the SFR SNOD has expired before issuing a Joint SNOD or to rescind the previous SFR SNOD.

  4. If information is received from the taxpayer after a Partial assessment and is being accepted and the case would normally be closed No Change, use DC 08 as AIMS will not allow us to use DC 02 after there has been a previous TC 300 assessment. Send Letter 4391.

4.19.17.7.2.3  (01-05-2010)
Unagreed

  1. If the taxpayer does not agree with the proposed or revised assessment and the SNOD has expired, close the case as "Unagreed" DC 10. Follow IRM 4.19.13 procedures for working unagreed cases.

  2. Do not restrict penalties and interest and use the appropriate Priority Code.

4.19.17.7.2.4  (04-27-2011)
Final Closing After a Partial

  1. After a partial assessment was made, follow the procedures below:

    Taxpayer agrees Close the case DC 04 if signed agreed before SNOD, including signed agreed after a partial assessment.SeeIRM 4.19.17.2.1.
    Close the case DC 08 if signed agreed after SNOD including signed agreed after a partial assessment. See IRM 4.19.17.7.2.1.1.
    Taxpayer disagrees See IRM 4.19.13.11.
    No Change AIMS will not allow us to use DC 02 after there has been a previous TC 300 assessment. Send Letter 4391.
    Resolve any credit balance accounts where the RSED has expired per IRM 4.19.17.3.

4.19.17.7.2.5  (01-05-2010)
Workpapers

  1. Workpaper documentation is extremely important and leaves an audit trail of the actions taken by the Correspondence Examination Technician. Refer to IRM 4.19.13.5 Workpapers for All Cases for additional information. Some of the items that must be documented on the Non-filer workpapers are:

    1. Return received date.

    2. Research performed to validate spouse and dependent TINs.

    3. Income verification.

    4. Referrals for LUQ, Frivolous, and fraudulent issues. Documentation should include decision(s) from the referral.

    5. Penalty assessments and reasons for abatements.

  2. Below are examples of appropriate workpaper documentation:

    Example #1: (DATE of action) (TE Initials) Received filing status 2 signed return (IRS received date), Researched indicates that spouse has not filed and dependents are not claimed on another return. Taxpayer has U/R NEC of $ amount. Taxpayer also has LUQ contributions and EBE. Update entity for Joint filing. Close case using partial procedures. Issue Letter 692. RSED expired; hold excess credits until final closing.

    Example #2: (DATE of action) (TE Initials) Received filing status 2 signed return (IRS received date), Researched indicates that spouse has not filed and dependents are not claimed on another return. All income reported. taxpayer also has LUQ Schedule C AO issues, refer to Classification. Received back from Classification, return accepted as filed. Update entity for Joint filing. Close case using appropriate DC. RSED expired credits to Excess Collection.

    Example #3: (DATE of action) (TE Initials) Received filing status 2 signed return (IRS received date), Researched indicates that spouse has not filed and dependents are not claimed on another return. All income reported. Schedule C for EITC purposes refer to Classification. Received back from Classification, accept as filed, and close using appropriate DC.

4.19.17.8  (01-05-2010)
Special Processing for Non-Filer Cases

  1. There are several instances where special processing will take place. They include, Frivolous Returns, International Returns, International TAS Referrals, Fraud Referrals, Disaster/Emergency Relief, Freedom of Information Act Requests (FOIA), Bankruptcy, and Power of Attorney cases.

4.19.17.8.1  (01-05-2010)
Frivolous Returns

  1. The Frivolous Return Program (FRP) teams in Ogden process frivolous filer correspondence and/or tax returns received from taxpayers in the Campuses.

  2. The Non-filer audit and the assessment of the Section 6702, Frivolous Return Penalty, are separate issues and can be performed independently and simultaneously.

  3. The Campuses are not to work any frivolous filer issues received from taxpayers. This information MUST be forwarded to the Ogden FRP Teams.

  4. Tax Returns or Correspondence – Correspondence Examination Technician

    Correspondence Examination Technicians should already be trained on how to identify frivolous filer comments on correspondence and/or tax returns. Refer to IRM 4.10.12.3.3. It is not necessary to send this information to a FRP Coordinator if your Operation has one. Proceed with the correspondence examination as follows:

    1. Continue working the Non-filer issue and treat the return and/or correspondence as a disagreed response and proceed with the next stage of the correspondence audit.

    2. DO NOT respond to or address frivolous correspondence and/or tax returns.

    3. DO NOT send the Non-filer case to FRP in Ogden.

    4. Document work papers "FRP Correspondence and/or Return to FRP Ogden" .

    5. Ensure the tax return and/or correspondence includes the taxpayer’s name and SSN.

    6. Phone calls related to the frivolous filing of tax returns should be referred to Ogden.

  5. Tax Returns and Correspondence – Clerk

    Any case notated with "FRP Correspondence and/or Return to FRP Ogden" should be handled as follows:

    1. Make a copy of the correspondence and/or tax return for the correspondence examination case file.

    2. Ensure the correspondence and/or return includes a name and SSN.

    3. Send the taxpayer’s original correspondence and/or tax return on Form 3210 to:

      Internal Revenue Service Ogden
      FRP Team Mailstop 4450
      1973 N Rulon White Blvd
      Ogden, Utah 84404

    4. Take action on the case file as notated by the examiner on the case work papers.

4.19.17.8.2  (06-14-2011)
International Returns

  1. Any return with Form 2555 or Form 2555-EZ will be transferred to Philadelphia Exam Classification at the address shown below.

  2. Returns that appear to be International, such as returns with International addresses, that do not contain Forms 2555 and 2555-EZ will be treated as any other Non-filer case.

  3. If transferring to PSC Classification:

    1. DO NOT adjust the taxpayer’s account per the secured return.

    2. Transfer AIMS database to PSC using PBC 299 Org 5598.

    3. Update workpapers with information regarding the transfer to PSC and archive the RGS record before routing to PSC. (This keeps the sending Campus from having to print a copy of the report when sending the case to PSC).

  4. Route the Paper International Return to PSC by overnight mail. DO NOT delay sending the International paper return to PSC.

    Exception:

    See TAS instructions below. Returns should be shipped the same or next day after AIMS transfer, Follow the procedures below for routing of the return to PSC:

    1. Prepare Form 3210 with taxpayer information (Name Control, Tax Year, and SSN. Complete mailing address portion including Mail Stop shown below.

    2. In Remarks section of Form 3210 state - Attn: AIMS Coordinator - International Returns"Open on AIMS – Return(s) Unassessed "

    3. Attach a copy of a current AIMS print after the transfer of the AIMS database has been completed.

    4. Sending the paper return(s) by Overnight Mail is mandatory to eliminate the delay in processing the case still open on AIMS and provides a tracking system of the shipped return(s). Mail to:
      Internal Revenue Service
      Attn: AIMS Coordinator
      BLN 4-E08141
      2970 Market St
      Philadelphia, PA 19104

      Note:

      If the International return is not received in PSC within 10 days from the date of the AIMS database transfer, PSC will contact the sending site for tracking of the overnight mail. The sending Campus will provide PSC with the appropriate tracking information in order to track the return.

4.19.17.8.2.1  (01-05-2010)
International Classification (Philadelphia Campus Only)

  1. All delinquent secured Non-filer returns with Form 2555 or Form 2555-EZ will be classified for international issues in the Philadelphia Campus Classification function.

  2. If International issues do not warrant examination, the return will be screened for domestic LUQ issues before sending to Corr Exam for processing.

  3. Classification will process the International Non-filer return following the determination table below.

    International Determination Table
    Return Accepted Stamp the return Accepted and route to PSC Corr Exam.
    Selected for Corr issues Classify the return for domestic issues only to be audited by PSC Corr Exam.
    Selected for AO issues Classify the return for domestic or international issues to be audited by AO Exam.

  4. PSC Classification should complete the monthly SFR International Classification Report to the HQ Exam Policy Analyst by the end of the first week for the preceding month.

4.19.17.8.2.2  (01-05-2010)
International Corr Exam (Philadelphia Campus Only)

  1. After the International Return has been received back from Classification, follow procedures below.

    International Determination Table
    Return Accepted Process the return per Return Received procedures in IRM 4.19.17.6.2 - IRM 4.19.17.6.2.6. It is PSC Corr Exam’s responsibility to validate the International accepted return. Returns previously assessed by ASFR do not need to be validated.
    Selected for Corr issues For UR income or LUQ issues, process the return per Partial Closing procedures after validating. See IRM 4.19.17.7.2.2.
    Selected for AO issues Process the return per Partial procedures in IRM IRM 4.19.17.7.2.2 and transfer AIMS to the appropriate AO PSP.

4.19.17.8.2.3  (01-05-2010)
International TAS Referrals

  1. All International returns (using the International Referral Criteria above) that are secured by TAS on an open Exam Non-filer case will be routed to PSC. The AIMS Coordinator (AC) in PSC will contact the AC in the Campus with the open AIMS database. The AIMS database will be transferred to PSC using AIMS transfer information in IRM 4.19.17.8.2.2.

4.19.17.8.3  (04-27-2011)
Fraud Referrals

  1. Returns secured in the Non-filer Program may appear to have suspicious or questionable expenses/credits/deductions claimed. Refer to IRM 25.1.2.3 for examples of Fraud indicators and on how to refer to the Campus/Exam Fraud Coordinator.

  2. Workpapers must be documented before and after a return is referred to the Campus Fraud Coordinator for potential Fraud. Documentation should include actions taken and decisions made.

4.19.17.8.4  (01-05-2010)
Disaster/Emergency Relief

  1. Procedures for responding to disasters or other significant emergencies can be found in IRM 25.16 Disaster Assistance and Emergency Relief.

4.19.17.8.5  (01-05-2010)
Freedom of Information Act (FOIA) Requests

  1. Refer any response from the taxpayer requesting information and citing the FOIA or Privacy Act to the Campus Disclosure Office.

4.19.17.8.6  (01-05-2010)
Power of Attorney (POA)

  1. Taxpayers file Form 2848 to notify the IRS of their authorized representative.

  2. Refer to IRM 4.19.13.7, Powers of Attorney and IRM 21.3.7, IRM Processing Third Party Authorizations on the Centralized Authorization File, for guidelines on processing Powers of Attorney and additional information.

4.19.17.8.7  (01-05-2010)
Bankruptcy

  1. Refer to IRM 4.19.13.19 for procedures on processing cases when the taxpayer has filed bankruptcy.

4.19.17.8.8  (07-13-2012)
Identity Theft

  1. If the taxpayer states they are a victim of identity theft, or someone is using their SSN illegally, refer to IRM 4.19.13.25 General Case Development and Resolution, Identity Theft.

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4.19.17.9  (07-15-2010)
Puerto Rican Non-Filed Self-Employment Returns 1040PR/SS

  1. U.S. citizens who are self-employed must pay Self-Employment Tax on net Self-Emloymentearnings of $400 or more. This rule applies even when the earnings are excludable from gross income (or whether a U.S. income tax return must otherwise be filed). Residents of Puerto Rico who have net Self-Emloymentincome, and do not have to file Form 1040 with the U.S., use Form 1040SS or Form 1040PR (written in Spanish) to compute their Self-EmloymentTax.

  2. The IRS obtains a listing of the net income from self-employment for taxpayers who file the equivalent of Schedule C on tax returns filed with the Commonwealth of Puerto Rico. Taxpayers from this listing, who have not filed Form 1040SS or 1040PR for Self-Employment Tax, are selected for examination.

  3. Since no returns are filed and the cases are closed through deficiency procedures, SFR (IRC 6020(b)) returns must be prepared and the following penalties will be considered. See IRM 20.1.2.1.4 for specific procedure regarding penalties and IRC 6020(b):

    Note:

    Do not waive penalties in Non-filer cases without reasonable cause.

    1. Failure to File Penalty, IRC Sec. 6651(a)(1), use Standard Paragraph 8110.

    2. Estimated Tax Penalty, IRC Sec. 6654, use Standard Paragraph 8105.

    3. Failure to Pay Penalty, IRC Sec. 6651(a)(2), use Standard Paragraph 8102.

  4. The following procedures are used to post an IMF SFR using AM 424 Push Code 036:

    1. Check master file using INOLES or IMFOLE to verify that the name line is for a period equal to or earlier than the tax period being input and that the name line is for a non-Joint filing status.

    2. If all name lines are for a subsequent tax period, change the name line to the earliest tax period and filing status being established.

    3. If the name line relating to the year being processed reflects filing status Married Filing Joint, change the name line to MFS or Single. Make sure the filing status is equal to or prior to the earliest tax period being established.

  5. Cases are established on AIMS for each tax year as follows:

    1. Transaction Code (TC) 424.

    2. Source Code 24.

    3. Project Code 721.

    4. Employee group code (EGC) 5XXX.

    5. Master File Tax (MFT) 30.

    6. Status Code 06/08.

    7. Primary business code (PBC) 299.

  6. Initial contact with the Non-filer is made using , Letter 4149, Form 4549 Pub 3498-A, and includes computations and explanations for Self-Employment tax and the appropriate penalties.

  7. The case file includes a copy of the package sent to the taxpayer, Form 4700 (examiner’s history sheet) and form 13496 (6020(b) certification).

4.19.17.9.1  (07-15-2010)
Taxpayer Responses

  1. Follow correspondence procedures and telephone procedures outlined in IRM 4.19.13.

  2. Pay special consideration to the Auditing Standards laid out in:

    1. IRM 4.19.13.2.3 - Work papers Support Conclusions: Delinquent returns that are accepted as prepared by the Non-filer still require work papers to support the conclusion that the returns are substantially correct. The work papers should establish an audit trail and justify estimates and acceptance of oral testimony. In unagreed cases take particular care to document contact (or attempts at contact including telephone and correspondence) with the taxpayer and the calculation of taxable income.

    2. IRM 4.19.17.4- Penalties Properly Considered: Every effort should be made to apply penalties in a fair and consistent manner. The case file should fully document the consideration, assertion or non-assertion, and computation of all appropriate penalties. Determine why the taxpayer did not timely comply with filing requirements. Reasonable cause should be applied consistently and fully documented in the work papers.

  3. See IRM 4.19.17.6.2. Secured delinquent returns in Non-filer cases are processed by Examination. If a dummy/SFR was previously processed and a Transaction Code (TC) 150 has posted, the delinquent return cannot be forwarded to the Campus for processing. The amount of tax shown on the return and any applicable penalties will be assessed by Examination.

  4. See IRM 4.19.17.4.1. Do not waive penalties in Non-filer cases without reasonable cause. Whether a taxpayer has met the reasonable cause and good faith exception is a facts and circumstances determination made on a case by case basis. The most important factor is the extent of the taxpayer's effort to assess the proper tax liability. Taxpayers are required to exercise ordinary business care and prudence, i.e., taking that degree of care that a reasonable, prudent person would exercise. It is the examiner's responsibility to solicit and evaluate the taxpayer's explanation for the position taken with respect to an issue or with respect to late filing. However, it is the taxpayer's responsibility to support his or her explanation. Regardless of the reasons advanced, the taxpayer must have exercised ordinary business care and prudence. IRM 20.1, Penalty Handbook, will provide assistance and should be used as a resource guide for the assertion or non-assertion of penalties and correct calculations of appropriate penalties in Non-filer cases.

  5. The taxpayer may request an abatement of penalties even after the examination is closed using Form 843.The taxpayer will still bear the same burden to demonstrate the reasonable cause exception is met.

4.19.17.9.2  (07-15-2010)
Unagreed Replies

  1. Respond to unagreed correspondence using Letter 692 or Letter 555, when the Notice of Deficiency has been issued.

  2. Since the proposed adjustment is based on amounts the taxpayer has reported to the Commonwealth of Puerto Rico, generally documents submitted by the taxpayer will not reduce their assessment. Include standard paragraphs 2503 and 7401 in the explanation to the taxpayer. Ask the taxpayer to submit a copy of the return filed with the Commonwealth of Puerto Rico, if they dispute our calculation.

4.19.17.9.3  (07-15-2010)
Special Cases

  1. The tax was paid under the secondary taxpayer's account. Verify the situation by:

    1. Securing a copy of the return filed with the Commonwealth of Puerto Rico to see if the income was for a secondary taxpayer.

    2. Viewing the secondary taxpayer's account to insure the return was properly filed.

    3. Close our case “No Change.”

  2. The tax is owed by the secondary taxpayer. Verify the situation by:

    1. Securing a copy of the return filed with the Commonwealth of Puerto Rico to see if the income was for a secondary taxpayer.

    2. Close our case “No Change.”

      Note:

      The secondary taxpayer may have to be opened for examination. A notice must be sent to the secondary taxpayer, if the tax is not paid or the tax is not self assessed.

  3. There are estimated tax payments on the taxpayer's account. Verify the situation by:

    1. Viewing the taxpayer's account to insure the payments were made.

    2. Recalculate the penalties and issue a “Revised Report”.

  4. The taxpayer submitted a return, which was processed after the “Substitute for Return” posted. Verify the situation by:

    1. Comparing the income reported and the tax self-assessed with our examination report.

    2. Securing a copy of the return filed to reconcile any differences between the two.

    3. Revise our report and continue our examination, if the taxpayer's self-assessment fails to satisfy the examination issue.

    4. Close our case, if we are accepting the taxpayer's return.

  5. Part or all of the income from self-employment was earned as a notary public. Verify the situation by:

    1. Securing a copy of the taxpayer's license.

    2. Generally these taxpayers have another source of income or are retired individuals.

    3. Reduce the Net Income subject to Self-EmloymentTax by the Net Income as a Notary Public.

    4. We will have to revise our report or close our case “No Change”.

  6. The taxpayer works for the Puerto Rico Departamento de Salud (Department of Health) and is being treated as a statutory employee for the purpose of Puerto Rico taxes. Verify the situation by checking:

    1. IRP for FICA income reported on Form W-2PR.

    2. The taxpayer's Form 480.6B and a copy of the return filed with the Commonwealth of Puerto Rico.

    3. The income on Form 480.6B. It should equal wages ( box 8 ) plus Social Security Tax withheld ( box 19 ) plus Medicare Tax withheld ( box 21 ) as reported on the Form W-2PR.

    4. The gross income on the Puerto Rico version of “Schedule C” containing the unreported net income from self-employment should be the amount reported on Form 480.6B.

    5. If the taxpayer is such an employee, close our case “No Change”.

4.19.17.9.4  (07-15-2010)
Additional Child Tax Credit

  1. Bona Fide residents of Puerto Rico who are not subject to Chapter 1 Federal income tax and exclude income under IRC 933 must have at least three qualifying dependent children under age 17 and have paid FICA or Self-Employment taxes in order to claim the refundable child tax credit. See IRC 151/152 and IRC 24(d). Our taxpayers may wish to claim this credit in order to offset a portion of the exam assessment. They must file Form 1040SS/PR to claim this credit. Verify the situation by:

    1. Securing a copy of the Form 1040SS/PR to establish the tax is being self-assessed and use CC DDBKD to verify the eligibility of the qualifying children.

    2. Examiners should use available electronic records, oral testimony, any documents submitted with the return, and their discretion, when deciding to allow the claim or ask for additional verification.

    3. The credit is calculated as the lesser of: the number of qualifying children times $1,000 ($600 in tax years 2001 & 2002) or FICA Tax withheld plus Medicare Tax withheld plus ½ Self-Employment Tax.

    4. FICA Tax withheld plus Medicare Tax withheld plus ½ Self-Employment Tax of the secondary taxpayer is included in the calculation for Joint filers.

  2. The Additional Child Tax Credit is a prepayment credit and will affect the calculation of the Failure to File, Failure to Pay, and Estimated Tax penalties.

4.19.17.10  (01-05-2010)
Refund Hold (RH) Program

  1. The Service holds individual income tax refunds, TOP offsets, offsets and credit elects when a return is filed with a refund and the account has at least one module within the five years prior to the current filing year which:

    1. Is in Taxpayer Delinquency Status 03, or

    2. Is assigned to ASFR, or

    3. Has an OPEN AIMS RECORD with an unresolved TC 420/424 and the return is not posted.

  2. Refer to multifunctional IRM 25.12.1 Processing Refund Hold Program Inventory, for specific information.

  3. Follow procedures in IRM 4.19.17.6 for processing taxpayer replies and/or returns.

4.19.17.10.1  (01-05-2010)
Refund Hold Inventory

  1. RH account information is passed from Master File to IDRS for processing and analysis. A Control D report, LE62740Z, is created weekly to alert Examination Operations of the RHcases in their inventory.

  2. SB/SE Headquarters will provide each SB/SE Examination Operation a filtered Control D report of RH cases at least twice a month.

  3. Each Examination Operation is responsible for weekly review of the report to identify cases assigned to their functional area and determining whether the refund should be released or applied to a proposed liability.

4.19.17.10.2  (01-05-2010)
Refund Hold Program Coordinator

  1. Compliance Services Examination Operations must designate functional Refund Hold Coordinators (RHC). See IRM 25.12.1.4 Refund Hold Coordinator Roles and Responsibilities, for more information.

    1. The RHC is responsible for implementing the instructions in this document and communication with the Headquarters Program Analyst with responsibility for the Refund Hold Program.

    2. RHCs coordinate with the Office of Appeals and/or Area Counsel to determine the status and history of RH cases in Appeals.

    3. RHCs support the program within their assigned area of responsibility and ensure timely movement of cases.

      Note:

      Communications between the referring function and Appeals that address the strengths and weaknesses of the issues and positions of the parties, accuracy of the facts, credibility or cooperation of the taxpayer, et cetera, are prohibited unless the information communicated has been shared with the taxpayer. However, communications between the referring function and Appeals that relate to ministerial, administrative or procedural matters are permissible. Refer to sections 2.02(6) and 2.03(3) of Revenue Procedure 2012-18, Ex Parte Communications Between Appeals and Other Internal Revenue Service Employees, for additional discussion regarding ex parte communications with Appeals.

Exhibit 4.19.17-1 
Underreported Income Taxability

Underreported Income Type Form Types Compare amounts with entries on: Additional Notes
Wage W-2 • Form 1040 / Form 1040A - line 7.
• Form 1040-EZ line 1.
• Schedule C or Schedule F.
• Form 2106, Employee Business Expenses, Part 1, line 7.
• Form 1040, line 16b, Form 1040 A, line 12b Pensions.
• Form 1040, line 21 Other income.
Refer to IRM 4.19.3.7.1 for further determination of taxability.
Dependent Care Benefits (DCB) W-2 Box 10 • Form 2441, line 15, and Schedule 2, Part III, line 15 contain the TOTAL BENEFIT AMOUNT less the amount forfeited.
• Form 2441, line 28, and Schedule 2, Part III, line 22 contain the TAXABLE BENEFIT AMOUNT. The taxable amount should be included with wage income on Form 1040/1040A, line 7 with "DCB" noted on the dotted line next to line 7.
Refer to IRM 4.19.3.7.2.1 for further determination of taxability.
Employer Provided Adoption Benefits (EPAB) W-2 Box 12, Code T • 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 UR.
• 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.
• If Form 8839, line 31 is not reported on Form 1040, line 7, treat as UR.
• EPAB should not be reported on Form 1040A, however taxpayers might report EPAB on line 7.
Refer to IRM 4.19.3.7.2.2 for further determination of taxability.
Interest 1099-INT • Form 1040/1040A, lines 8a
• Schedule B, Part I, line 1.
• Form 1040A, Schedule 1, Part 1. Form 1040EZ, line 2.
• Form 1040, line 21.
• Schedule C, line 6.
• Schedule E, Parts II, III, or IV.
• Schedule F, lines 10 or 44.
Refer to IRM 4.19.3.7.3 for further determination of taxability.
Dividends 1099-DIV • Form 1040/1040A, line 9a.
• Form 1040,Schedule B, Part II.
• Form 1040A, Schedule 1, Part II.
• Form 1040, Schedule E, Parts II, III, and/or IV.
Refer to IRM 4.19.3.7.4 for further determination of taxability.
Capital Gain Distributions 1099-DIV • Form 1040, line 13.
• Form 1040A, line 10.
• Schedule D, line 13, column (f). Refer to IRM 4.19.3.7.4 for further determination of taxability.
• Form 1040, line 10.
Refer to IRM 4.19.3.7.4 IRM for further determination of taxability.
State and Local Income Tax Refunds (SITR) 1099-G • Form 1040, line 10. Refer to IRM 4.19.3.7.5 for further determination of taxability.
Non-Employee Compensation (NEC) 1099-MISC • Schedule C, Part 1.
• Schedule C-EZ, Part II.
• Schedule E, Part II - See IRM 4.19.3.7.6.1(3) .
• Schedule F, Part I or III.
• Form 4835, Part I.
• Form 1040, line 7.
• Form 1040A, line 7.
• Form 1040EZ, line 1.
• Form 1040, line 21.
• Schedule D, Part I, line 1(d) or Part II, line 8(d).
• Sch E, Part I.
• Form 2106, line 7.
• Form 4797, Parts I, II, or III.
• Form 6252, line 5 or line 21.
• Form 3903, line 4.
Refer to IRM 4.19.3.7.6 for further determination of taxability.
Medical Payments 1099-MISC • Schedule C, Part I, or Schedule C-EZ, if it appears to be for a medical practice.
• Schedule E, Part II, if the partnership appears to be a medical practice.
• Form 1040 / 1040A, line 7.
• Form 1040EZ, line 1.
• Form 1040, line 21.
Refer to IRM 4.19.3.7.7 for further determination of taxability.
Fishing Income 1099-MISC •Schedule C, Part I (or C-EZ).
• Schedule E, Part I.
• Schedule E, Part II.
• Form 1040, line 21.
Refer to IRM 4.19.3.7.8 for further determination of taxability.
Retirement Plans 1099-R • Form 1040, line 7, 15a, 15b, 16a, 16b, or 21.
• Form 1040A, line 7, 11a, 11b, 12a, or 12b.
• Form 1040EZ, line 1.
• Form 4972.
• Schedule D, Part II.
• Attachments to Form 1040.
• Schedule B.
• Form 8915, Part I, column (a).
Refer to IRM 4.19.3.7.9 for further determination of taxability.
Rents and Royalties 1099-MISC or PTK-1 and SBK-1 • Schedule E, Part I, lines 3 and 4
• Schedule E, Part II.
• Schedule C, Part 1, line 1 or Schedule C-EZ, line 1.
• Schedule C, Part 1, line 6 (if specifically identified as rent/royalty income.
• Schedule F, Part I or Part III.
• Form 4835.
• Form 2106, line 7, columns A and B.
• Schedule D, if income is identified as Coal and Timber royalties, patents, rights of way or easements.
• Form 1040, line 21.
Refer to IRM 4.19.3.7.10 for further determination of taxability.
Agricultural Subsidies and CCC Loans forfeited 1099-G • Schedule F, lines 6a, 6b, 40a, or 40b.
• Form 4835, Farm Rental Income and Expenses, lines 3a or 3b.
• The following entries must match or be CLEARLY IDENTIFIED as AGSUB:
Schedule F, lines 10 or 44.
Schedule F, lines 4 or 38 (agricultural subsidies reported as commodities).
Schedule E, Part I. Check property names on Schedule E, line 1 to clearly identify farm rental.
Form 4835, line 6.
Form 1040, line 21.
Refer to IRM 4.19.3.7.12 for further determination of taxability.
Agricultural Subsidies and CCC Loans forfeited 1099-G • The following entries must match or be CLEARLY IDENTIFIED as compensation from PEANUT QUOTA BUYOUTS: (Proceeds from peanut quota buyouts are not subject to Self-EmloymentTax.)
Form 4797, Sales of Business Property, line 2, column (d).
Form 6252, Installment Sale Income, Part II, line 21.
Schedule D, Part I line 1, column (d) or Part II, line 8, column (d).
Refer to IRM 4.19.3.7.12 for further determination of taxability.
Patronage Dividends 1099-PATR • Schedule F, lines 5a, 5b, 39a or 39b
• Form 4835, line 2a or 2b.
• Schedule E, Part I.
• Schedule E, Part II. If the income is from a farming business
• Schedule B, Part II.
• Schedule C, line 6, (or Schedule C-EZ, line 1), if the business activity is fishing related (i.e., Principal Business 2246) or the distribution received is from a cooperative.
• Form 8903.
Refer to IRM 4.19.3.7.13 for further determination of taxability.
Crop Insurance 1099-MISC • Schedule F, line 8a, 8b, or 42.
• Schedule F, line 10.
• Form 4835, line 5a or 5b.
• Form 4835, line 6.
• Form 1040, line 21.
Refer to IRM 4.19.3.7.14 for further determination of taxability.
Unemployment Compensation 1099-G • Form 1040, lines 4, 19, or 21.
• Form 1040 A, lines 7 or 13.
• Form 1040 EZ, lines 1 or 3.
Refer to IRM 4.19.3.7.15 for further determination of taxability.
Social Security / Railroad Retirement Benefits RRB-1099 • Form 1040, line 20a (total benefits) and line 20b (taxable benefits). Form SSA-1099.
• Form 1040 A, line 14a (total benefits) and line 14b (taxable benefits).
• Form 1040, line 21.
Refer to IRM 4.19.3.7.16 for further determination of taxability.
Other Income 1099-MISC OTINC • Schedule C, line 6.
• Schedule F, lines 10 or 44.
• Form 4835, line 6.
• Form 1040 / 1040A, line 7.
• Form 1040EZ, line 1.Form 1040, line 21.
• Schedule D, Part I, line 1(d) or Part II, line 8(d). - The taxpayer may report the sale of timber, coal, easements, right-of-way (ROW), land damages, etc. on these lines.
• Schedule E, Part II. - Consider OTINC reported here if it can be determined from the payer name or business activity that it is the same income.
• Schedule F, Part I, lines 1 or 4. - Consider OTINC reported here if it can be determined from the payer name or business activity that it is the same income.
• Schedule C, Part I, line 1 (or C-EZ, line 1). - Consider OTINC reported here if you determine from the payer name or business activity that it is the same income.
• Form 2106, line 7.
Refer to IRM 4.19.3.7.17 for further determination of taxability.
Gambling Income W-2G • Form 1040 lines 7 or 21.
• Form 1040A, line 7.
• Form 1040EZ, line 1.
• Schedule C, Part I, lines 1 or 6 (or Schedule C-EZ, line 1).
• Schedule F, lines 10 or 44.
Refer to IRM 4.19.3.7.18 for further determination of taxability.
Cancellation of Debt (DBTCN) 1099–C • Form 1040, line 21.
• Schedule C, Part I, line 6 or Schedule C-EZ, line 1.
• Schedule E, Part I, liners 3 and 4.
• Schedule F, Part I, lines 5a, 6a, 7b, 8a, and 10 or Part III, lines 41-44.
Refer to IRM 4.19.3.7.19 for further determination of taxability.
Taxable Grants 1099-G • Form 1040, line 21.
• If the payer is the US Department of Agriculture, compare grant amount(s) with entries on:
Schedule F, lines 6a, 6b, 40a, 40b.
Schedule F, lines 10 or 44.
Form 4835, lines 3a or 3b.
Refer to IRM 4.19.3.7.20 for further determination of taxability.
Substitute Payments in Lieu of Dividends or Interest 1099-MISC • Form 1040, line 21. Refer to IRM 4.19.3.7.21 for further determination of taxability.
Securities Sales
Day Trader Securities
1099-B • Schedule C, Part I, line 1.
• Schedule D, Part I, line 1, column d4.19.3.7.22.
• Schedule D, Part I, line 3.
• Schedule D, Part II, line 8, column d.
• Schedule D, Part II, line 10.
• Form 4797, Part II, line 10.
• Form 6252, Part I, line 5.
Refer to IRM for further determination of taxability.
Bartering 1099-B • Schedule C, lines 1 or 6 or C-EZ, line 1.
• Schedule F, lines 1, 4, 5a, 5b, 9, 10, 11, 38, 39a, 44, or 45. (Consider bartering reported here only if you can determine from the payer name or business activity that it is farm related income.).
• Form 1040, line 21.
• Schedule D.
• Schedule E, lines 3 or 4.
• Form 4835, lines 2a or 2b, 6 or 7.
Refer to IRM 4.19.3.7.23 for further determination of taxability.

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