4.119.4  BMF Underreporter (BMF-AUR) Program (Cont. 1)

4.119.4.7 
Analysis of Income Types

4.119.4.7.3 
Interest - General

4.119.4.7.3.1  (03-29-2013)
Interest - Analyzation

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    • 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

    Exception:

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

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

  3. Compare 1099-INT, Sch K-1 and/or 1099-OID amounts with entries on Form 1120, line 5.

    Note:

    The taxpayer may reduce INTEREST amounts by the EARLY WITHDRAWAL PENALTY shown on the information return and report the difference on Form 1120, line 5. Consider the Interest discrepancy resolved when it appears that they reported the netted amount. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. If a breakdown of Interest and/or OID income is not shown on the return and there is more than one related IR:

    1. Group all Interest and OID related Amount Types together.

    2. Compare the group total amount to the total reported interest.

    3. If the group total amount is smaller, assign UR Status "Reported" to the group.

    4. If the group total amount is larger, consider the difference U/R and assign UR Status "Underreported" to the group.

  5. Interest and Dividends income may be interchanged. Check any dividend income area when comparing IR amounts. Offset interest/OID income against dividend income ONLY if an unidentified amount matches the U/R interest/OID amount within $1.

  6. When interest and/or OID is U/R, enter the gross reported amount in the RETURN field of the Summary screen.

  7. Interest and/or OID related Document Types may include withholding. See IRM 4.119.4.13, Withholding - General, for further instructions.

4.119.4.7.4  (10-01-2012)
Rents - General

  1. Rental income is compensation for the use of property by someone other than the owner.

  2. Rental income is reported on Form 1099-MISC or Schedule K-1.

  3. Rental income reported on Form 1099-MISC is identified on the Case Analysis screen with Document Type 1099-MISC and Amount Type RENTAL INCOME.

  4. Rental income reported on Sch K-1 is identified on the Case Analysis screen with Document Type Sch K-1 (1041), Sch K-1 (1065) or Sch K-1 (1120-S) and Amount Types NET RENTAL REAL ESTATE INCOME or OTHER RENTAL INCOME.

4.119.4.7.4.1  (10-01-2013)
Rents - Analyzation

  1. Compare Rental Information Return amounts with entries on:

    1. Form 1120, line 6.

    2. Form 1040, Schedule F, Part I or Part III. lines 8 or 43. The amount must match within $1 or be clearly identified as Rental Income.

    3. Form 1120, line 10. The amount must match within $1 or be clearly identified as Rental Income.

    4. Form 1120, line 1a when the taxpayer name or Business Activity as shown on Form 1120, Schedule K, lines 2a – 2c relates to rental activity (i.e.: Rental, Real Estate, Property Management, Warehouse Storage, Leasing, Rental Equipment, etc.). See IRM 4.119.4.7.1.2, Gross Receipts or Sales (Bartering, Payment Card Transactions, Attorney’s Proceeds, Fishing Proceeds/Medical Payments/Nonemployee Compensation - Analyzation, for additional information.

      Note:

      Consider any other Gross Receipts related IRs when determining the total amount to compare to Form 1120, line 1a.

      Exception:

      Do not give credit for any amounts reported on Form 1120, line 1a when the taxpayer has reported an amount on Form 1120, line 6 (Gross Rents).

  2. If a breakdown of Rental Income is not shown on the return and there is more than one rent IR:

    1. Group all rent IRs together.

    2. Compare the group total amount to the total reported rents.

    3. If the group total amount is smaller, assign UR Status "Reported" to the group.

    4. If the group total amount is larger, consider the difference U/R and assign UR Status "Underreported" to the group.

  3. When Rental Income is U/R, enter the gross reported amount in the RETURN field of the Summary screen.

  4. Rental income Document Types may include withholding. See IRM 4.119.4.13, Withholding - General, for further instructions.

4.119.4.7.5  (10-01-2012)
Royalties - General

  1. Royalties are compensation for the use of property, usually copyrighted works, patented inventions, or natural resources, by someone than the owner.

  2. Royalties are reported on Form 1099-MISC or Schedule K-1.

  3. Royalties are identified on the Case Analysis screen with Document Type 1099-MISC, Sch K-1 (1065), or Sch K-1 (1120-S) and Amount Type ROYALTIES.

4.119.4.7.5.1  (10-01-2013)
Royalties - Analyzation

  1. Compare Royalties amounts with entries on:

    1. Form 1120, line 7.

    2. Form 1040, Schedule F, Part I or Part III, lines 8 or 43. The amount must match within $1 or be clearly identified as Royalties.

    3. Form 1120, line 10. The amount must match within $1 or be clearly identified as Royalties.

    4. Form 1120, line 1a when the taxpayer name or Business Activity as shown on Form 1120, Schedule K lines 2a - c relates to Mining, Independent Artists (including Writers and/or Performers), Advertising or Publishing (including Software Development and/or Film Production) activities. See IRM 4.119.4.7.1.2, Gross Receipts or Sales (Bartering, Payment Card Transactions, Attorney’s Proceeds, Fishing Proceeds/Medical Payments/Nonemployee Compensation - Analyzation, for additional information.

      Note:

      Consider any other Gross Receipts related IRs when determining the total amount to compare to Form 1120, line 1a.

      Exception:

      Do not give credit for any amounts reported on Form 1120, line 1a when the taxpayer has reported an amount on Form 1120, line 7 (Gross Royalties).

  2. If a breakdown of Royalty Income is not shown on the return and there is more than one Royalties IR:

    1. Group all Royalties Amount Types together.

    2. Compare the group total amount to the total reported Royalties.

    3. If the group total amount is smaller, assign UR Status "Reported" to the group.

    4. If the group total amount is larger, consider the difference U/R and assign UR Status "Underreported" to the group.

  3. When Royalty income is U/R, enter the gross reported amount in the RETURN field of the Summary screen.

  4. Royalty income related Document Types may include withholding. See IRM 4.119.4.13, Withholding - General, for further instructions.

4.119.4.7.6  (05-17-2013)
Securities Sales and Cost Basis- General

  1. Securities Sales are the proceeds from transactions involving stocks, bonds, other debt obligations, commodities or forward contracts.

  2. Cost Basis represents the purchase price of the securities sale.

  3. Securities Sales are identified on the Case Analysis screen with Document Type 1099-B and Amount Type BROKER SALES.

  4. Cost Basis is identified on the Case Analysis screen with Document Type 1099-B and Amount Type COST BASIS.

    Note:

    Payers report COST BASIS on "covered securities" (i.e., the sale of a stock transaction that was purchased in 2011 or later). Therefore, not all Form 1099-B IRs will contain a COST BASIS.

4.119.4.7.6.1  (05-17-2013)
Securities Sales and Cost Basis - Analyzation

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  2. Generally, Form 1099-B Securities Sales IRs contain a CUSIP (Committee on Uniform Security Identification Procedures) number. This number is usually nine characters long, consisting of alpha and/or numeric characters. The CUSIP number identifies the issuer of the transaction and the type of transaction. Alpha characters in the 7th and/or 8th position(s) of the CUSIP number denote fixed income obligation securities. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ When the taxpayer has reported these amounts, the IRs must be taken into consideration when determining the U/R amount.

    Caution:

    Be careful when determining the position of the CUSIP number containing the alpha characters. The first six digits represent the issuer number and the 4th and 5th and/or 6th positions may contain alpha character(s).

    Note:

    Pursue Securities Sales IRs whose entity includes nontaxable Municipal Bond, tax free exchange or tax free unless the CUSIP number meets the conditions provided above.

  3. Some Securities Sales IR(s) appear to be duplicates because the account numbers, the amounts, AND the source (paper or tape) are identical. DO NOT consider these IR(s) as duplicates if the transaction (sales) dates shown on the IR(s) are different.

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    Example:

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  5. If the Form 1120 , Schedule D is present without Form 8949, Sales and Other Dispositions of Capital Assets, compare BROKER SALES amounts with entries on:

    1. Form 1120, Schedule D, Part I, line(s) 1 through 3, column d.

    2. Form 1120, Schedule D, Part II, line(s) 8 through 10, column d.

      Note:

      Use the IR payer name or item description to identify the stock transactions reported on the tax return.

      Note:

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

      Reminder:

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

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

    5. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    6. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. If the Form 8949, or attachment provides a breakdown of stock transactions by payer name or item description:

    1. Compare Form 8949 Part I, line 1, column d or Part II, line 3, column d entries to the BROKER SALES and give credit for identified reported amounts.

    2. If there are multiple IRs with the same payer name or item description, compare the total to the identified amount(s) reported on the return.

      Note:

      Do not give credit for any amounts reported on the Form 8949 when the payer name or item description does not match the IR, unless there is a dollar match.

      Note:

      Ensure that any amounts reported on attachments/forms are properly included as income on page one of the return.

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

      Reminder:

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

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

    5. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    6. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  7. If the taxpayer does not file a Form 1120 Schedule D, Form 8949 or a breakdown of securities sales is not provided and there is more than one Securities Sales IR, take the following action:

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ " ≡

    2. Group the remaining IRs by Amount Type BROKER SALES and compare the total to the gross amounts reported on Form 1120, line 8.

    3. If the BROKER SALES group total amount is smaller, consider the issue reported.

    4. If the BROKER SALES group total amount is larger, consider the difference underreported.

    5. Group any COST BASIS Amount Types, mark with UR Status "Underreported" and enter zero as the reported amount.

    6. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    7. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    8. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

4.119.4.7.6.2  (10-01-2013)
Securities Sales and Cost Basis Miscellaneous

  1. Form 1099-B may reflect withholding. See IRM 4.119.4.13, Withholding - General, for further instructions.

  2. PARAGRAPH 13 automatically generates when BROKER SALES is U/R.

  3. If BROKER SALES is U/R, enter the sum total of Form 1120, Schedule D, Part I, line 1 through 3, column (d) and Part II, line 8 through 10, column (d) in the RETURN field on the Summary screen.

  4. If COST BASIS is U/R, enter the sum total of Form 1120, Schedule D, Part I, line 1 through 3, column (e) and Part II, line 8 through 10, column (e) in the RETURN field on the Summary screen.

4.119.4.7.7  (10-01-2013)
Aggregate Profit Or Loss On Contracts - General

  1. Transactions relating to regulated futures contracts are taxable under IRC Section 1256 and are generally referred to as "Section 1256 Contracts" . Payers report these transactions on Form 1099-B, boxes 9-12. The overall aggregate profit or loss on contracts is reported in box 12.

  2. Aggregate Profit or Loss on Contracts are identified on the Case Analysis screen with Document Type 1099-B and Amount Type AGGREGATE PROFIT OR LOSS ON CONTRACTS.

4.119.4.7.7.1  (10-01-2013)
Aggregate Profit Or Loss On Contracts - Analyzation

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

  2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ " ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ " ≡

  3. If a breakdown of Aggregate Profit or Loss amounts is not provided on the return or an attachment and there is more than one Aggregate Profit or Loss IR, take the following action:

    1. Group by Amount Type AGGREGATE PROFIT OR LOSS ON CONTRACTS and compare to amounts reported on Form 1120, line 8 on the tax return.

    2. If the group total amount is smaller, assign UR Status "Reported" to the group.

    3. If the group total is larger, consider the difference U/R and assign UR Status "Underreported" to the group.

4.119.4.7.7.2  (10-01-2013)
Aggregate Profit Or Loss On Contracts - Miscellaneous

  1. Form 1099-B may reflect withholding. See IRM 4.119.4.13, Withholding - General, for further instructions.

  2. PARAGRAPH 14 automatically generates when AGGREGATE PROFIT OR LOSS ON CONTRACTS is U/R.

  3. If AGGREGATE PROFIT OR LOSS ON CONTRACTS are U/R, enter the sum total of Form 1120, line 8 if applicable when no Form 1120, Schedule D is attached.

4.119.4.7.8  (10-01-2013)
Cooperative Distributions

  1. Cooperative Distributions are paid by cooperatives to their members and are reported on Form 1099-PATR, Taxable Distributions Received From Cooperatives. They display on the Case Analysis screen with Document Type 1099-PATR and the following Amount Type(s):

    1. PATRONAGE DIVIDENDS

    2. NON-PATRONAGE DIVIDENDS

    3. PER-UNIT RETAIN ALLOCATIONS

    4. REDEMPTION AMOUNT

    5. DOMESTIC PRODUCTION ACTIVITIES DEDUCTION - Reported on Form 8903, Domestic Production Activities Deduction.

      Note:

      See IRM 4.119.4.8.1, Domestic Production Activities Deduction, for additional information on screening DOMESTIC PRODUCTION ACTIVITIES DEDUCTION amounts.

  2. Use the Group function to combine: PATRONAGE DIVIDENDS, NON-PATRONAGE DIVIDENDS, PER-UNIT RETAIN ALLOCATIONS and REDEMPTION AMOUNT to determine the overall amount AND compare with the following entries:

    1. Form 1120, line 10. Taxpayers are instructed to identify any amounts reported on Form 1120, line 10. DO NOT give credit for any unidentified amounts reported on line 10, unless there is a $1 match.

    2. Form 1040, Schedule F, Profit or Loss From Farming, line 3a (use 3b if line 3a is zero or blank) or 38a (use line 38b if line 38a is zero or blank).

      Caution:

      Per Unit Retain Allocations may be reported on Form 1040, Schedule F lines 2a/2b. Only give credit if the amount reported on line 2a (line 2b if line 2a is zero or blank) matches within $1 or is clearly identified as Per Unit Retain Allocations.

    3. Form 4835, Farm Rental Income and Expenses, line 2a (line 2b if line 2a is zero or blank).

    Note:

    Give credit for amounts reported on Form 1120 , line 10 when identified as Gross Farm Income ONLY when Form 1040, Schedule F or Form 4835 is not attached.

  3. If Cooperative Distributions are U/R, enter the return amount in the RETURN field on the Summary Screen.

  4. Form 1099-PATR may include withholding. See IRM 4.119.4.13, Withholding - General, for further instructions.

4.119.4.7.9  (10-01-2013)
Agriculture Payments and Market Gain on Commodity Credit Corp (CCC) Loans

  1. Agriculture Payments are governmental subsidies paid to farmers and agricultural businesses to supplement their income. Market Gain on Commodity Credit Corp (CCC) Loans are the market gain associated with the repayment of a CCC loan. They are reported on Form 1099-G, Certain Government Payments, and display on the Case Analysis screen with Document Type "1099-G" and the following Amount Type(s):

    • AGRICULTURAL PAYMENT

    • MARKET GAIN

  2. Compare Agriculture Payments and/or Market Gain amounts with entries on:

    1. Form 1120, line 10. Taxpayers are instructed to identify any amounts reported on Form 1120, line 10. DO NOT give credit for any unidentified amounts reported on line 10, unless there is a $1 match.

    2. Form 1040, Schedule F, lines 4a (line 4b if line 4a is zero or blank) or line 39a (line 39b if line 39a is zero or blank).

    3. Form 4835, line 3a (line 3b if line 3a is zero or blank).

    Note:

    Give credit for amounts reported on Form 1120, line 10 when identified as Gross Farm Income ONLY when Form 1040, Schedule F or Form 4835 is not attached.

  3. If Agriculture Payments and/or Market Gain are U/R, enter the return amount in the RETURN field on the Summary Screen.

  4. Form 1099-G may include withholding. See IRM 4.119.4.13, Withholding - General, for further instructions.

4.119.4.7.10  (10-01-2013)
Commodity Credit Corporation (CCC) Loans Forfeited

  1. Outstanding debts are reported on Form 1099-A, Acquisition or Abandonment of Secured Property, and displays on the Case Analysis screen with Document Type "1099-A" and following Amount Types:

    • DEBT OUTSTANDING

    • FAIR MARKET VALUE

      Note:

      FAIR MARKET VALUE is displayed for information purposes only. The system automatically marks this Amount Type with UR Status "System Deleted" .

  2. When the outstanding debt relates to a forfeited Commodity Credit Corporation loan, the payer is instructed to indicate "CCC" in the property description on Form 1099-A, box 6.

  3. The debt (principal only) owed at the time that the Commodity Credit Corporation (CCC) loan is forfeited is considered income.

  4. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ " ≡ ≡ ≡ ≡

  5. Compare Debts Outstanding (ie: CCC Loan Forfeited) with entries on:

    1. Form 1120, line 10. Taxpayers are instructed to identify any amounts reported on Form 1120, line 10. DO NOT give credit for any unidentified amounts reported on line 10, unless there is a $1 match.

    2. Form 1040, Schedule F, line 5b (use line 5c if line 5b is zero or blank) or line 40b (use line 40c if line 40b is zero or blank).

    3. Form 4835, line 4b (use line 4c if line 4b is zero or blank).

    Note:

    Give credit for amounts reported on Form 1120, line 10 when identified as Gross Farm Income ONLY when Form 1040, Schedule F or Form 4835 is not attached.

  6. If CCC Loan Forfeited is U/R, enter the return amount in the RETURN field on the Summary Screen.

4.119.4.7.11  (10-01-2013)
Crop Insurance

  1. Crop Insurance proceeds are payments received by farmers or agricultural businesses as a result of destruction or damage to crops. Crop Insurance is reported on Form 1099-MISC and displays on the Case Analysis screen with Document Type "1099-MISC" and Amount Type CROP INSURANCE.

  2. Compare Crop Insurance with entries on:

    1. Form 1120, line 10. Taxpayers are instructed to identify any amounts reported on Form 1120, line 10. DO NOT give credit for any unidentified amounts reported on line 10, unless there is a $1 match.

    2. Form 1040, Schedule F, line 6a (use line 6b if line 6a is zero or blank) or line 41.

    3. Form 4835, line 5a (use line 5b if line 5a is zero or blank).

    Note:

    Give credit for amounts reported on Form 1120, line 10 when identified as Gross Farm Income ONLY when Form 1040, Schedule F or Form 4835 is not attached.

  3. Apparent Crop Insurance discrepancies may be due to the taxpayer electing to defer reporting the proceeds to the next year. Consider any Crop Insurance discrepancies resolved when ALL of the following conditions are met:

    1. Uses a cash accounting method (see Form 1120, Schedule K), AND

    2. Attaches a statement electing to defer Crop Insurance proceeds to the subsequent year (under IRC Section 451(d) and Regulation Section 1.451-6).

      Note:

      If the taxpayer filed Form 1040, Schedule F, box 6c should be checked. If Form 4835 is filed, box 5c should be checked.

  4. If Crop Insurance is U/R, enter the return amount in the RETURN field on the Summary screen.

  5. PARAGRAPH 20 automatically generates whenever Crop Insurance is U/R.

  6. Form 1099-MISC may include withholding. See IRM 4.119.4.13, Withholding - General, for further instructions.

4.119.4.7.12  (10-01-2012)
Cancellation of Debt - General

  1. Cancellation of Debt is considered income to the taxpayer if a debt owed to the Federal Government, financial institution, credit union or other creditor was discharged and is not otherwise excluded from gross income.

  2. Cancellation of Debt is reported on Form 1099-C, Cancellation of Debt.

  3. Cancellation of Debt is identified on the Case Analysis screen with Document Type "1099-C" and the following Amount Types:

    • DEBT CANCELLED

    • FAIR MARKET VALUE

    • INTEREST FORGIVEN

      Note:

      FAIR MARKET VALUE and INTEREST FORGIVEN are displayed for information purposes only. The system will automatically mark these Amount Types with UR Status "System Deleted" .

4.119.4.7.12.1  (10-01-2012)
Cancellation of Debt - Analyzation

  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

      Exception:

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

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "" ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

  2. Compare Cancellation of Debt with entries on Form 1120, line 10. Taxpayers are instructed to identify any amounts reported on Form 1120, line 10. DO NOT give credit for any unidentified amounts reported on line 10, unless there is a $1 match.

    Note:

    If the taxpayer reduces the reported DEBT CANCELLED amount by the INTEREST FORGIVEN amount,≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. Compare the description of debt property from Information Return Detail screen to Form 4797, Column (a) in Parts I, II, and III and allow credit for gross amounts reported.

  4. If the taxpayer received DEBT CANCELLED from a Foreclosure or Repossession and the taxpayer is personally liable (recourse debt), the amount by which the canceled debt exceeds the Fair Market Value of the property must generally be reported as ordinary income on Form 1120, line 10.

    Note:

    The payer may indicate on the Form 1099-C that the taxpayer is personally liable for repayment of the debt. Check the Information Return Detail window for a Personal Liability Indicator of "1" .

  5. If the taxpayer has received DEBT CANCELLED from a Foreclosure or Repossession and the taxpayer is not personally liable (non-recourse debt), the gain or loss is computed by comparing the balance of the loan amount with the adjusted basis.

    1. Losses are non-deductible, unless the property was used in trade or business or held for investment. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . Send a Special Paragraph to inform the taxpayer these losses are not deductible.

    2. Losses in excess of gains from sales of property used in trade or business are deductible as ordinary losses.

  6. If the taxpayers indicate that the income is not taxable because they are insolvent, (e.g., Form 982, Box 1b, is checked or on an attached statement), they MUST provide a statement showing the amount of their insolvency. If taxpayers do not provide a breakdown of their assets and liabilities, DO NOT consider them to be insolvent. The taxpayers are considered insolvent if the net liability amount(s) shown on the attached statement is GREATER than the total fair market value of assets immediately prior to the debt cancellation.

    1. If the DEBT CANCELLED amount(s) is less than or equal to the insolvency amount, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    2. If the DEBT CANCELLED amount(s) is more than the insolvency amount, the amount of the taxpayers insolvency must be considered. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Example:

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

  7. If Cancellation of Debt is U/R, enter the return amount in the RETURN field on the Summary screen.

4.119.4.7.13  (10-01-2012)
Taxable Grants - General

  1. A grant is subsidized financing paid by a federal, state, or local programs for energy conservation or production projects, and is income to the recipient.

  2. Taxable grants are reported on Form 1099-G.

  3. Taxable grants are identified in the Case Analysis screen with Document Type "1099-G" and Amount Type TAXABLE GRANTS.

4.119.4.7.13.1  (10-01-2013)
Taxable Grants - Analyzation

  1. Compare Taxable Grants with entries on Form 1120, line 10. Taxpayers are instructed to identify any amounts reported on Form 1120, line 10. DO NOT give credit for any unidentified amounts reported on line 10, unless there is a $1 match.

  2. If the payer is the US Department of Agriculture, compare Taxable Grant amount(s) with entries on:

    1. Form 1040, Schedule F, lines 4a (line 4b if line 4a is zero or blank) or line 39a (line 39b if line 39a is zero or blank).

    2. Form 1040, Schedule F, lines 8 or 43. The amount must match within $1 or be clearly identified as grants.

    3. Form 4835, line 3a (line 3b if line 3a is zero or blank).

    Note:

    Give credit for amounts reported on Form 1120, line 10 when identified as Gross Farm Income ONLY when Form 1040, Schedule F or Form 4835 is not attached.

  3. When Taxable Grants are U/R, enter the return amount in the RETURN field of the Summary screen.

  4. Form 1099-G may include withholding. See IRM 4.119.4.13, Withholding - General, for further instructions.

4.119.4.7.14  (10-01-2012)
Other Income on Form 1099-MISC - General

  1. Other income is reported on Form 1099-MISC.

  2. Other income is identified on the Case Analysis screen with Document Type "1099-MISC" and Amount Type OTHER INCOME.

4.119.4.7.14.1  (10-01-2013)
Other Income on Form 1099-MISC - Analyzation

  1. Compare Amount Type OTHER INCOME with entries on:

    1. Form 1120, line 10. Taxpayers are instructed to identify any amounts reported on Form 1120, line 10. DO NOT give credit for any unidentified amounts reported on line 10, unless there is a $1 match.

    2. Form 1040, Schedule F, lines 8 or 43. The amount must match within $1 or be clearly identified.

    3. Form 4835, line 6. The amount must match within $1 or be clearly identified.

  2. The Other Income amount on a Form 1099-MISC IR represents the full value of Other Income. If the taxpayer reports a lesser amount, consider the difference U/R, unless documentation is attached to the return.

  3. If OTHER INCOME is U/R, enter the return amount in the RETURN field of the Summary screen.

  4. Form 1099-MISC may include withholding. See IRM 4.119.4.13, Withholding - General, for further instructions.

4.119.4.7.15  (10-01-2012)
Payments in Lieu of Dividends or Interest

  1. Payments in lieu of dividends or interest are made by a broker who transfers a taxpayer’s securities for use in a short sale or in securities lending transaction and receives certain substitute dividend or interest payments on the taxpayer’s behalf while the short sale or securities lending transaction is open.

  2. Payments in lieu of dividends or interest are reported on Form 1099-MISC.

  3. Payments in lieu of dividends or interest are identified on the Case Analysis screen with Document Type "1099-MISC" and Amount Type PAYMENTS IN LIEU OF DIV.

  4. Compare Amount Type OTHER INCOME with entries on Form 1120, line 10. Taxpayers are instructed to identify any amounts reported on Form 1120, line 10. DO NOT give credit for any unidentified amounts reported on line 10, unless there is a $1 match.

  5. If PAYMENTS IN LIEU OF DIV is U/R, enter the return amount in the RETURN field of the Summary screen.

  6. Form 1099-MISC may include withholding. See IRM 4.119.4.13, Withholding - General, for further instructions.

4.119.4.7.16  (10-01-2012)
Partnership/Trust/S-Corporation (Conduit Income) - General

  1. Conduit income is the taxpayer's distributive share from a Form 1065, U.S. Return of Partnership Income, Form 1120-S, U.S. Income Tax Return for an S Corporation or Form 1041, U.S. Income Tax Return for Estates and Trusts.

  2. Conduit income is reported on Schedules K-1 filed with Form 1065, Form 1120-S, and Form 1041.

  3. Conduit income is identified on the Case Analysis screen in the Document Type field as "Sch K-1 (1120-S)" , "Sch K-1 (1065)" , or "Sch K-1 (1041)" and one or more of the following Amount Types:

    1. DIVIDENDS. See IRM 4.119.4.7.2, Dividends and Capital Gain Distributions - General, for additional information.

    2. INTEREST. See IRM 4.119.4.7.3, Interest - General, for additional information.

    3. NET RENTAL REAL ESTATE INCOME. See IRM 4.119.4.7.4, Rents - General, for additional information.

    4. OTHER RENTAL. See IRM 4.119.4.7.4, Rents - General, for additional information.

    5. SHORT TERM CAPITAL GAINS

    6. CAPITAL GAINS

    7. OTHER PORTFOLIO AND NONBUSINESS INCOME

    8. BUSINESS INCOME

    9. ROYALTIES. See IRM 4.119.4.7.5, Royalties - General, for additional information.

    10. ORDINARY INCOME

    11. GUARANTEED PAYMENTS

    12. SECTION 179 DEDUCTION

4.119.4.7.16.1  (10-01-2013)
Partnership/Trust/S-Corporation (Conduit Income) - Analyzation

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

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

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

    Note:

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

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

  4. Compare Amount Types: ORDINARY INCOME, NET RENTAL REAL ESTATE, OTHER RENTAL INCOME, BUSINESS INCOME OTHER PORTFOLIO AND NONBUSINESS INCOME and/or GUARANTEED PAYMENTS to Form 1120, line 10. Taxpayers are instructed to identify any amounts reported on Form 1120, line 10. DO NOT give credit for any unidentified amounts reported on line 10, unless there is a $1 match.

    Note:

    These Amount Types may be found elsewhere on the return and/or attachments. Thoroughly review the entire return, schedules, forms and attachments before pursuing discrepant K-1 amounts.

    Note:

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

  5. INTEREST - See IRM 4.119.4.7.3.1, Interest - Analyzation, for further instructions.

  6. DIVIDENDS - See IRM 4.119.4.7.2.2, Dividends - Analyzation, for further instructions.

  7. Compare Sch K-1 Amount Type SHORT TERM CAPITAL GAINS with entries on:

    1. Form 8949, Part I, line 1. Taxpayers are instructed to write "from Schedule K-1" and to enter the amount in column (h).

      Note:

      If the taxpayer did not file a Schedule D, determine if the Short Term Capital Gains are reported on Form 1120, line 8.

    2. Form 1120, line 10. Taxpayers are instructed to identify any amounts reported on Form 1120, line 10. DO NOT give credit for any unidentified amounts reported on line 10, unless there is a $1 match.

  8. Compare Sch K-1 Amount Type CAPITAL GAINS with entries on:

    1. Form 8949, Part II, line 3. Taxpayers are instructed to write "from Schedule K-1" and to enter the amount in column (h).

      Note:

      If the taxpayer did not file a Schedule D, determine if the Capital Gains are reported on Form 1120, line 8.

    2. Form 1120, line 10. Taxpayers are instructed to identify any amounts reported on Form 1120, line 10. DO NOT give credit for any unidentified amounts reported on line 10, unless there is a $1 match.

  9. ROYALTIES - See IRM 4.119.4.7.5.1, Royalties – Analyzation, for further instructions.

  10. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

    5. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  11. If a Form 1099-MISC and Schedule K-1, IR are present for the same taxpayer, from the same payer AND for an identical money amount, take the following action:

    1. If one of the IRs is fully reported delete the other.

    2. If either IR is only partially reported or both are fully underreported, pursue both amounts.

  12. If multiple conduit IRs are present from the same payer for the same taxpayer take the following action:

    1. Research IDRS CC IRPTRL for each IR to determine the On File Date.

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

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

    4. If the On File Date is the same for multiple IRs and none of the IRs are reported, pursue all IRs.

  13. IDRS research is required to determine if fully U/R Sch K-1 (1041) IRs Trusts are the result of a fiscal year filling requirement. Using the payer EIN, research IDRS CC BMFOLI to determine the following:

    1. Presence of MFT 05 with a Return Posted indicator of "Y" , denoting that a Schedule K-1 (1041) was filed.

    2. If the MFT 05 indicates that it is for our BMF-AUR tax year pursue the U/R amount. If for another tax year, consider the issue resolved.

      Note:

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

4.119.4.7.16.2  (10-01-2012)
Partnership/Trust/S-Corporation Conduit Income - Miscellaneous

  1. When conduit income is U/R, enter the appropriate return amount in the RETURN field on the Summary screen.

  2. Schedules K-1 may include withholding. See IRM 4.119.4.13, Withholding - General, for further instructions.

4.119.4.7.17  (10-01-2012)
Real Estate Sales - General

  1. Real estate transactions are the proceeds from the transfer (sale or exchange) of real estate.

  2. Real estate transactions are reported on Form 1099-S.

  3. Real estate transactions are identified on the Case Analysis screen with Document Type "1099-S" and Amount Type REAL ESTATE SALES.

4.119.4.7.17.1  (10-01-2013)
Real Estate Sales - Analyzation

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

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

  3. Compare Real Estate Sales amounts with entries on:

    1. Form 1120, line 10. Taxpayers are instructed to identify any amounts reported on Form 1120, line 10. DO NOT give credit for any unidentified amounts reported on line 10, unless there is a $1 match.

    2. Form 1120, line 1a (Gross Receipts) ONLY when the Business Activity on Form 1120, Schedule K lines 2a - c relates to Real Estate activities AND there are no corresponding Gross Receipts related Payer Information Returns. See IRM 4.119.4.7.1, Gross Receipts or Sales (Bartering/Payment Card Transactions/Attorney's Proceeds/Fishing Proceeds/Medical Payments/Nonemployee Compensation) – General, for additional information on information returns that are related to Gross Receipts or Sales.

    3. Form 4797, Sale of Business Property, lines 1, 2(d), 10(d), or 20.

    4. Form 6252, Installment Sale Income, lines 5 or 21.

    5. Form 8949, lines 1(d) or 3 (d).

    6. Form 8824, Like-Kind Exchanges, line 15.

      Note:

      If the amounts reported on these Forms or Schedules is equal to or greater than the REAL IR(s) amounts, consider the issue resolved. If the amount reported is less, consider the difference U/R.

      Note:

      Ensure that amounts reported on Forms and Schedules are properly carried forward to page 1 of the Form 1120.

  4. If Real Estate Sales are U/R, enter the return amount in the RETURN field of the Summary screen.

  5. PARAGRAPH 18 automatically generates when Real Estate Sales are U/R.

4.119.4.7.18  (10-01-2013)
Gambling Winnings

  1. Gross winnings from gambling activities are reported on Form W-2G, Certain Gambling Winnings.

  2. Gambling winnings are identified on the Case Analysis screen with Document Type "W-2G" and Amount Type GAMBLING WINNINGS.

  3. Compare Gambling winnings with entries on:

    1. Form 1120, line 10. Taxpayers are instructed to identify any amounts reported on Form 1120, line 10. DO NOT give credit for any unidentified amounts reported on line 10, unless there is a $1 match.

    2. Form 1120, line 1a (Gross Receipts) ONLY when the Business Activity on Form 1120, Schedule K lines 2a - c relates to Gambling Industries - including Casinos and Racetracks activities AND there are no corresponding Gross Receipts related Payer Information Returns. See IRM 4.119.4.7.1, Gross Receipts or Sales (Bartering/Payment Card Transactions/Attorney's Proceeds/Fishing Proceeds/Medical Payments/Nonemployee Compensation) – General, for additional information on information returns that are related to Gross Receipts or Sales.

  4. If Gambling winnings are U/R, enter the return amount in the RETURN field of the Summary screen.

  5. Form W-2G may include withholding. See IRM 4.119.4.13, Withholding - General, for further instructions.

4.119.4.8  (10-01-2012)
Analysis of Deductions

  1. The following instructions pertain to recalculating deductions on the tax return.

4.119.4.8.1  (05-17-2013)
Domestic Production Activities Deduction

  1. Domestic Production Activities Deduction is reported on Form 1099-PATR, Taxable Distributions Received From Cooperatives, and displays on the Case Analysis screen with Document Type "1099-PATR" and Amount Type DOMESTIC PRODUCTION ACTIVITIES DEDUCTION.

  2. Taxpayers use Form 8903, Domestic Production Activities Deduction to figure their domestic production activities deduction (DPAD) allowable from certain trade or business activities. The deduction is claimed on Form 1120, line 25.

  3. The deduction is limited to 9% of the lesser of the taxpayer’s:

    1. Qualified Production Activities ncome.

    2. TXI figured without the DPAD.

    Exception:

    If the DPAD is oil related, the deduction is further reduced by 3%.

    Note:

    The deduction is further limited to 50% of the Form W-2 wages the taxpayer pays to their employees.

  4. If Form 8903is not present, group all DOMESTIC PRODUCTION ACTIVITIES DEDUCTION amount(s) and:

    1. Update the group with UR Status "Reported" .

    2. Mark each DOMESTIC PRODUCTION ACTIVITIES DEDUCTION Amount Type with a Send Indicator.

    3. Include the following Special Paragraph: "Our records show that you have a domestic production activities deduction from cooperatives as shown on Form 1099-PATR , box 6. If you are eligible to claim this deduction, please provide us with a completed Form 8903, Domestic Production Activities Deduction."

  5. If Form 8903, Domestic Production Activities Deduction, is present, mark the DOMESTIC ACTIVITIES DEDUCTION Amount Type with UR Status "Underreported" . This action will cause the Form 8903 Domestic Production Activities Deduction window to display.

    Note:

    If the taxpayer has claimed Domestic Production Activities deduction and there are no IRs with Amount Type DOMESTIC PRODUCTION ACTIVITIES DEDUCTION present, create a Form 1099-PATR with Amount Type DOMESTIC PRODUCTION ACTIVITIES DEDUCTION for a zero value to engage the Form 8903 window.

    Note:

    Any changes to the DOMESTIC PRODUCTION ACTIVITIES DEDUCTION are used in determining the proper Form 8903 deduction.

  6. Any U/R income, as well as underreported DOMESTIC PRODUCTION ACTIVITIES DEDUCTION amounts can affect the deduction claimed on Form 1120, line 25.

  7. Access this window after you have determined all underreported income issues.

    Note:

    If you determine any changes to underreported income after accessing the Form 8903 Domestic Production Activities Deduction window, you must re-access the window.

  8. Input/verify the appropriate amounts in the Domestic Production Activities Deduction window.

    Note:

    Do not compute a Domestic Production Activities Deduction when there is no evidence that the taxpayer filed Form 8903, Domestic Production Activities Deduction.

    Note:

    When there is an amount on Form 1120, line 25 the tax examiner must complete the Form 8903 Domestic Production Activities Deduction window.

  9. If the Domestic Production Activities Deduction is discrepant, enter the Form 8903, line 25 amount in the RETURN field of the Summary screen.

  10. PARAGRAPH 28 automatically generates when there is a change to Domestic Production Activities Deduction.

4.119.4.8.2  (10-01-2012)
Charitable Contributions Deduction

  1. A corporation can claim a deduction for charitable contributions made in cash or other property. The deduction may be limited.

  2. When the taxpayer claims charitable contributions on Form 1120, line 19 and there is U/R income, PARAGRAPH 26 automatically generates.

  3. If the taxpayer’s response to our notice indicates that they are entitled to additional charitable contributions, update the CHARITABLE CONTRIBUTIONS PER RETURN and CHARITABLE CONTRIBUTIONS NOW fields in the Miscellaneous Adjustment/Deductions Adjustment window.

4.119.4.8.3  (10-01-2012)
Miscellaneous Deductions

  1. Taxpayers claim deductions on Form 1120, lines 12 - 26.

  2. If the taxpayer's response to our notice includes adjusting any previously claimed deductions (other than Charitable Contributions or Domestic Production Activities Deduction) take the following actions:

    Note:

    If the taxpayer is claiming a new deduction (not previously claimed on the tax return) or increasing an existing deduction (other than Charitable Contributions due to limitation), determine the validity of the claim. If necessary, refer to the Lead Tax Examiner or TCO for a determination.

    1. Update the MISC NON-CHARITY DEDUCTIONS PER RETURN and MISC NON-CHARITY DEDUCTIONS NOW fields in the Miscellaneous Adjustment/Deduction Adjustment window.

    2. If issuing a recomputed notice, include a Special Paragraph explaining the adjustment.

4.119.4.9  (12-04-2012)
Return Values Screen

  1. The Return Values screen is used to verify and input the amounts from the tax return. It also performs calculations necessary to determine the correct tax increase or decrease. The BMF-AUR system is updated with the amounts from the originally processed tax return. Any subsequent adjustments to the taxpayer's return must be considered when verifying and entering amounts on the Return Values screen and windows.

    Note:

    A Taxable Income mismatch could be due to a taxpayer and/or processing error. BMF-AUR is responsible for correcting these types of errors.

  2. Using the information from the original return, and amounts computed in Case Analysis, the system displays the appropriate windows and also performs the necessary calculations.

  3. If the TXI PER RETURN field on the Return Values Screen does not match the TXl on the return a taxpayer/processing error may be involved.

    Note:

    PARAGRAPH 32 automatically generates when the TXI per return is a negative amount.

  4. Input/verify the TXI PER RETURN field. This must be the amount reported on the original return, as adjusted by Error Resolution function or a subsequent adjustment.

  5. Input/verify the BASE TAX PER RETURN field. The base tax is the amount of tax assessed prior to credits and other taxes. This amount may need to reflect any changes, math errors, subsequent adjustments (e.g., TC 290, 291, 295, 299, 300, 301 305, 309, etc.) The base tax per return plus or minus the credits and other taxes per return MUST equal the tax assessed ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

  6. If the TOTAL BASE TAX PER RETURN field on Return Values does not match the total tax on the return but there is a TXI match (between the return and Return Values), the processing error may involve credits or other taxes. Access, verify, and correct window entries in Case Analysis and/or Return Values as appropriate. If necessary, perform IDRS research (i.e., CC BRTVU) to complete the Return Values screen.

  7. If a taxpayer or initial processing error is identified that results in U/R income and/or prepayment credits being adjusted, and no corresponding IRs are present, send a Special Paragraph to explain the adjustment to the taxpayer.

  8. When preparing a CP 2030 notice, you will generally use per return figures from the filed tax return. However, when per return amounts on the CP 2030 differ from those shown on the original return because of a processing change (Math Error Code present), previously filed amended return, or other adjustment, and:

    If Then
    The taxpayer was notified of the adjustment. Indicators that the taxpayer was notified of the adjustment include:
    1. Presence of a TC 290 or 291, generally due to filing of an amended return. OR

    2. Presence of a TC 300 or 301, due to prior Examination. OR

    3. The MATH ERROR STATUS field on Tax Account displays a 3.

    Include PARAGRAPH 30 on the CP 2030 Notice.

    Note:

    PARAGRAPH 30 reminds the taxpayer that the per return amounts shown on the CP 2030 differ from the originally filed Form 1120 due to prior adjustments to the account.

    The taxpayer was not notified of the adjustment Include PARAGRAPH 31 on the CP 2030 Notice.

    Note:

    There must be a significant difference (i.e., more than $1) between the per return amount used on the CP 2030 and the corresponding amount on the originally filed tax return.

  9. By using the next window function, calculation windows display in a sequence determined by the system. If a necessary window does not display, it may be selected and information input in the appropriate fields. If a window is selected, it displays by using the next window function only AFTER Return Values is committed and exited.

    Example:

    If forms/schedules are not attached to the original return (they are filed with a Form 1120-X) or are not transcribed, the applicable windows must be manually selected.

  10. The Return Values screen must be committed before a CP 2030 or a CP 2531 Notice can be issued. When Return Values is committed, the system verifies that the base tax per return plus or minus the credits and other taxes per return equals the tax assessed. If there is a discrepancy ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , an error message displays. "TAX PER RETURN NOT EQUAL TO TAX ASSESSED. REWORK CASE." If this message appears, take the appropriate following action(s).

    1. If no changes were made to the original return, verify the amounts displayed in the PER RETURN fields of the Additions to Base Tax, Non Refundable Credits and Other Taxes windows.

    2. In the BASE TAX PER RETURN field input the amount from: Form 1120, Schedule J, line 2.

  11. If a subsequent adjustment was made to the tax return, use the following manual calculation to determine the base tax per return:

    1. Use the amount from the TOTAL TAX PER RETURN field of the Return Values screen.

    2. Subtract other taxes per return and any subsequent adjustments.

    3. Add other credits per return and any subsequent adjustments.

    4. Subtract any additions to base tax shown on the dotted portion of Form 1120, Schedule J, line 2.

    5. Enter the result in the BASE TAX PER RETURN field.

  12. If changes were made due to a math error and an error correction notice was issued, determine the reason for the issuance of the notice. Also verify the amounts displayed in the PER RETURN fields of the Non Refundable Credits and Other Taxes windows. Include any applicable changes made by the Error Resolution function. Use the following manual calculation to determine the base tax per return:

    1. Use the amount from the TOTAL TAX PER RETURN field of the Return Values screen.

    2. Subtract the other taxes per return or as corrected.

    3. Add the other credits per return or as corrected.

    4. Subtract any additions to base tax shown on the dotted portion of Form 1120, Schedule J, line 2.

    5. Enter the result in the BASE TAX PER RETURN field.

  13. If changes have been made due to a math error and an error correction notice was NOT issued use the following manual calculation to determine the base tax per return. Also verify the per return amounts in the credits and other taxes window.

    1. Use the amount from the TOTAL TAX PER RETURN field of the Return Values screen.

    2. Subtract the other taxes per return using the taxpayer figures.

    3. Add the other credits per return using the taxpayer figures.

    4. Subtract any additions to base tax shown on the dotted portion of Form 1120, Schedule J, line 2.

    5. Enter the result in the BASE TAX PER RETURN field.

  14. Determine the correct tax based on the taxable income per return and/or the special tax rates (i.e., Qualified Personal Service Corp). The taxable income per return must include changes made by error resolution and any subsequent adjustments.

  15. Input any Net Operating Loss.

  16. Certain conditions require a Manual Interest computation see IRM 4.119.4.3.4.4, Other Transaction Codes, and Math Error Codes. The system alerts the tax examiner with a message when the conditions are present. When issuing a CP 2030 and the system displays the message that manual interest conditions exist, ensure that the case is worked to completion, prior to entering IPC "4XMI" .

    1. Return Values must be completed and committed.

      Note:

      If the Return Values screen reflects a refund, input zero (0) in the MANUAL INTEREST field and continue processing. Do not input IPC "4XMI" .

    2. On the Summary screen, all RETURN fields must be updated and all non-automatic paragraphs must be selected. The Summary screen must be committed.

    3. Input IPC "4XMI" .

      Reminder:

      Input PC 4300 if issuing a CP 2531. Do not input IPC "4XMI" .

  17. Cases with IPC "4XMI" are batched in BT 610 (Manual Interest batch) for a Manual Interest computation. See IRM 4.119.4.14.9, Manually Computed Interest for the CP 2030, for further instructions.

  18. If the case is in BT 610 (Manual Interest Batch) follow the instructions in IRM 4.119.4.14.9, Manually Computed Interest for the CP 2030, otherwise, leave the MANUAL INTEREST field blank.

4.119.4.10  (10-01-2012)
Recomputation of Tax

  1. Most corporations figure their tax by using the tax rate schedule below.

    If taxable income is over But not over Tax is Of the
    amount over
    $0 $50,000 15% $0
    $50,000 $75,000 $7,500 + 25% $50,000
    $75,000 $100,000 $13,750 + 34% $75,000
    $100,000 $335,000 $22,250 + 39% $100,000
    $335,000 $10,000,000 $113,900 + 34% $335,000
    $10,000,000 $15,000,000 $3,400,000 + 35% $10,000,000
    $15,000,000 $18,333,333 $5,150,000 + 38% $15,000,000
    $18,333,333 ---------- 35% 0

  2. The system automatically computes base tax using the tax tables, unless prompted to use an alternative tax calculation method. Alternative tax calculations methods are:

    1. Indication of a Qualified Personal Service Corporation (QPSC) which is taxed at a flat 35% rate. See IRM 4.119.4.10.1, Qualified Personal Service Corporation (QPSC) Tax Rate, for further information.

    2. Form 1120, Schedule O, Consent Plan and Apportionment Schedule for a Controlled Group, was used to calculate tax. See IRM 4.119.4.10.2, Schedule O, Consent Plan and Apportionment Schedule for a Controlled Group, for further information.

4.119.4.10.1  (10-01-2013)
Qualified Personal Service Corporation (QPSC) Tax Rate

  1. A corporation is considered a Qualified Personal Service Corporation (QPSC) when it meets both of the following conditions:

    1. Substantially all of the corporation’s activities involve the performance of services in the fields of: health, law, engineering, architecture, accounting, actuarial science, performing arts or consulting AND

    2. At least 95% of the corporation’s stock is directly or indirectly owned by its employees retired employees, and the estate or legatees of those persons.

  2. A QPSC is taxed at a flat rate of 35% on their taxable income.

  3. Taxpayer's identify themselves as a QPSC by:

    1. Checking box 3 (Personal service corp) on Form 1120, Section A and

    2. Checking the "qualified personal service corporation" box on Form 1120, Schedule J, line 2.

    Note:

    When both of these boxes are checked and the taxpayer uses the 35% tax rate, the tax return is flagged and the following codes are uploaded to Masterfile: ALBM CD 400 and CONTROL GRP CD 2. When these indicators are present on the account, the system populates the QUALIFIED PERSONAL SERVICE CORP field with a check mark.

    Note:

    If the taxpayer also checks the "member of a controlled group" box 1 on Form 1120, Schedule J, the QPSC takes priority.

  4. When a check mark is present in the QUALIFIED PERSONAL SERVICE CORP field, the system calculates changes to base tax using a 35% tax rate.

  5. Due to Original Processing errors, it is possible that the taxpayer indicated that they are a QPSC but did not use the 35% tax rate to calculate their base tax. You must validate that the system has the proper indicators.

  6. When the taxpayer has checked both the "Personal Service Corp" box 3 on Form 1120, Section A and the "qualified personal service corporation" box on Form 1120, Schedule J, line 2 take the following actions:

    1. Verify that the QUALIFIED PERSONAL SERVICE CORP field contains a "check mark" .

    2. If the QUALIFIED PERSONAL SERVICE CORP field is blank, enter a "check mark" in the QUALIFIED PERSONAL SERVICE CORP OVERRIDE field.

    Reminder:

    Verify that the TXI PER RETURN and BASE TAX PER RETURN correctly account for any previous adjustments. See IRM 4.119.4.9, Return Values Screen, for additional information.

  7. PARAGRAPH 35 automatically generates when the QUALIFIED PERSONAL SERVICE CORP field is blank and the QUALIFIED PERSONAL SERVICE CORP OVERRIDE field contains a "check mark" .

  8. Based on the taxpayer’s response, it may be necessary to recalculate the QPSC tax to the applicable tax schedule rate.

4.119.4.10.2  (12-04-2012)
Schedule O, Consent Plan and Apportionment Schedule for a Controlled Group

  1. A corporation that is a member of a controlled group uses Form 1120, Schedule O, Consent Plan and Apportionment Schedule for a Controlled Group, to report the distribution of taxable income and income tax (including certain tax benefits) between all members of the group. The Schedule O includes all of the control group members and lists them in Part II and Part III.

  2. For each member of the control group, taxable income is allocated to the following tax rate brackets:

    • 15% tax rate - limited to $50,000

    • 25% tax rate - limited to $25,000

    • 34% tax rate - limited to $9,925,000

  3. For each member of the control group, certain tax benefits are allocated to the following tax rate brackets:

    • 5% tax rate - limited to $11,750

    • 3% tax rate - limited to $100,000

  4. Taxpayers filing Form 1120, Schedule O also check Form 1120, Schedule J, box 1.

    Note:

    If the taxpayer also checks the "qualified personal service corporation" box on Form 1120, Schedule J, line 2, the QPSC indicator takes priority.

  5. The Schedule O - Controlled Group Apportionment window displays when the taxpayer uses the Schedule O method to determine tax. It may be necessary to manually access the window if it does not automatically display.

  6. Input/verify all of the PER RETURN entries in the Schedule O - Controlled Group Apportionment window by comparing them to Schedule O, Part II and/or Part III for our taxpayer only. The system automatically populates the RECOMPUTED field with the same amounts as their PER RETURN counterparts.

    Note:

    The system does not allow negative entries in any of these fields. If the taxpayer shows negative amounts on the Schedule O attached to the return (ex: allocating their negative TXI), input/verify that the impacted PER RETURN fields contain a “0” (zero).

  7. During case analysis phase, ensure that the RECOMPUTED entries are the same as their PER RETURN counterparts.

  8. Taxpayers are responsible for revising any apportionment on the Schedule O, based on our proposed underreported income.

  9. PARAGRAPH 36 automatically generates when the Schedule O - Controlled Group Apportionment window RECOMPUTED fields contain the same amount as their PER RETURN counterparts.

  10. A CP 2531 is required as the initial contact notice when the taxpayer uses Schedule O to determine tax liability.

  11. When the taxpayer responds to our notice with a revised Schedule O, input the revised amounts in the RECOMPUTED fields for our taxpayer.

4.119.4.11  (10-01-2012)
Non - Refundable Credits

  1. Non-Refundable credits are used to reduce tax. They include the following credits reported on:

    1. Form 1118, Foreign Tax Credit , reported on Form 1120, Schedule J, line 5a.

    2. Form 8834, Qualified Electric and Plug-in Electric Vehicle Credit, reported on Form 1120, Schedule J, line 5b.

    3. Form 5735, American Samoa Economic Development Credit, reported on Form 1120, Schedule J, line 5b.

      Note:

      Although not listed on Form 1120, Schedule J, the Form 1120 , reporting instructions direct the taxpayer to include any credit from Form 5735 on Schedule J, line 5b.

    4. Form 3800, General Business Credit, reported on Form 1120, Schedule J, line 5c.

    5. Form 8827, Credit for Prior Year Minimum Tax, reported on Form 1120, Schedule J, line 5d.

    6. Form 8912, Bond Credit reported on Form 1120, Schedule J, line 5e.

  2. The Non Refundable Credits window displays when the taxpayer claims credits on Form 1120, Schedule J, line(s) 5a through 5e. It may be necessary to manually access the window if it does not automatically display.

  3. Input/verify the entries for the following fields:

    • FOREIGN TAX CREDIT - reported on Schedule J, line 5a from Form 1118, Schedule B, Part III, line 6.

    • FORM 8834/FORM 5735 CREDIT - reported on Schedule J, line 5b from Form 8834, line 30 and/or Form 5735, line 12.

    • GENERAL BUSINESS CREDIT - reported on Schedule J, line 5c from Form 3800, line 38.

    • PRIOR YEAR MINIMUM TAX CREDIT - reported on Schedule J, line 5d from Form 8827, line 8b.

    • BOND CREDIT - reported on Schedule J, line 5e from Form 8912, line 12.

  4. PARAGRAPH 40 automatically generates when any entries (other than zero) appear in the Non Refundable Credits window.

  5. Based on the taxpayer's response it may be necessary to enter revised amounts in the RECOMPUTED fields. Ensure that carryback/carryforward guidelines are followed if the taxpayer responds requesting change(s) to the amount of previously reported credit(s).

4.119.4.11.1  (10-01-2012)
Carryforward Credits

  1. The following credits are carryforward credits:

    1. Form 1118, Foreign Tax Credit Schedule K (Foreign Tax Carryover Reconciliation Schedule).

    2. Form 3800, General Business Credit.

    3. Form 8827, Credit for Prior Year Minimum Tax.

      Note:

      Taxpayer can claim the unused portion of a carryforward credit on their subsequent year's tax return.

      Note:

      Both Form 3800 and Form 8827 have a refundable credit component which can be claimed on Form 1120, Schedule J, line 19c.

  2. Based on the taxpayer's response it may be necessary to enter revised amounts in the RECOMPUTED fields. Ensure that carryback/carryforward guidelines are followed if the taxpayer responds requesting change(s) to the amount of previously reported credit(s).

4.119.4.12  (10-01-2012)
Changes to Other Taxes

  1. The following instructions pertain to changes to various other taxes claimed by taxpayers.

  2. Other taxes may include:

    • Additions to Base Tax

    • Alternative Minimum Tax

    • Personal Holding Corporation Tax

    • Miscellaneous Other Taxes

4.119.4.12.1  (10-01-2012)
Additions to Base Tax

  1. Taxpayers subject to deferred tax under section 1291 are instructed to add the amount to their base tax and enter the total on Form 1120, Schedule J, line 2. They are also instructed to write "section 1291" and the amount on the dotted portion of Schedule J, line 2.

  2. Taxpayers subject to additional tax under section 197(f) are instructed to add the amount to their base tax and enter the total on Form 1120, Schedule J, line 2. They are also instructed to write "section 197" and the amount on the dotted portion of Schedule J, line 2.

  3. When the taxpayer includes additions to base tax on the dotted portion of Schedule J, line 2 take the following action:

    1. Manually access the Additions to Base Tax window.

    2. Enter the amount(s) from the dotted portion of Schedule J, line 2 in the SECTION 1291/197 TAX ADJUSTMENT PER RETURN field. The system automatically populates the RECOMPUTED field with the same amount.

    Note:

    Ensuring that any additions to base tax are addressed is necessary for the system to properly calculate tax changes. Without this information, the TOTAL TAX PER RETURN will be incorrect and error message "TAX PER RETURN NOT EQUAL TO TAX ASSESSED. REWORK CASE" displays. See IRM 4.119.4.9, Return Values Screen, for additional information.

  4. Based on the taxpayer’s response, it may be necessary to revise the SECTION 1291/197 TAX ADJUSTMENT RECOMPUTED field.

4.119.4.12.2  (10-01-2012)
Alternative Minimum Tax, Form 4626

  1. The alternative minimum tax helps ensure that corporations pay some amount of tax despite their use of allowable exclusions, deductions and credits. The alternative minimum tax provides a formula for tax computation which offsets certain preferential tax treatments, creating a tax liability for a corporation which would otherwise pay little or no tax.

  2. Alternative minimum tax is computed on Form 4626, Alternative Minimum Tax – Corporations.

  3. The Form 4626 Alternative Minimum Tax window automatically displays when the taxpayer pays alternative minimum tax. It may be necessary to manually access the window if it does not automatically display.

  4. Input/verify the entries in the Form 4626 Alternative Minimum Tax window.

  5. PARAGRAPH 50 automatically generates when there is a change to alternative minimum tax.

4.119.4.12.3  (03-29-2013)
Personal Holding Company (PHC) Tax

  1. Generally, a corporation is a Personal Holding Company (PHC) if it meets both of the following requirements:

    1. At least 60% of the corporation's adjusted ordinary gross income for the tax year is PHC income.

    2. At any time during the last half of the tax year, more than 50% in value of the corporation's outstanding stock is directly or indirectly owned by five or fewer individuals.

  2. Taxpayers file Form 1120, Schedule PH - US Personal Holding Company (PHC) Tax, to determine the additional tax. The amount from Schedule PH, line 26 is reported on Form 1120, Schedule J, line 8.

  3. The Personal Holding Company (Schedule PH) window displays when the taxpayer checks box A2 (Personal Holding Co) on Form 1120 or claims a personal holding company tax on Form 1120, Schedule J, line 8. It may be necessary to manually access the window if it does not automatically display.

  4. Input the amount from Schedule PH, line 13 in the PER RETURN UNDISTRIBUTED PHC INCOME field. If the amount is a loss, enter the amount as a negative (use the negative sign).

    Caution:

    Taxpayers may enter a zero on line 13 when line 11 is a loss. Math verify that the amount entered on Schedule PH, line 13 is the correct result of line 11 minus line 12. You must enter the correct amount of Undistributed PHC Income in this field.

  5. The system updates the RECOMPUTED UNDISTRIBUTED PHC INCOME field based on the U/R income and applies the 15% PHC tax when the RECOMPUTED UNDISTRBUTED PHC INCOME amount is greater than zero.

  6. Enter/Verify the PER RETURN PERSONAL HOLDING COMPANY TAX field.

  7. If there is a change to the PHC Tax, issue CP 2531.

  8. PARAGRAPH 37 automatically generates when there is a change to the PHC tax.

  9. Based on the taxpayer’s response, it may be necessary to use the MANUAL PERSONAL HOLDING COMPANY TAX field determine the correct new PHC Tax amount.

4.119.4.12.4  (10-01-2012)
Miscellaneous Other Taxes

  1. Various miscellaneous other taxes are reported on:

    1. Form 4255, Recapture of Investment Credit , reported on Form 1120, Schedule J, line 9a.

    2. Form 8611, Recapture of Low-Income Housing Credit, reported on Form 1120, Schedule J, line 9b.

    3. Form 8697, Interest Due Under the Look-Back Method - Completed Long-Term Contracts, reported on Form 1120, Schedule J, line 9c.

    4. Form 8866, Interest Due Under the Look-Back Method - Income Forecast Method, reported on Form 1120, Schedule J, line 9d.

    5. Form 8902, Alternative Tax on Qualifying Shipping Activities, reported on Form 1120, Schedule J, line 9e.

    6. Other taxes reported on Form 1120, Schedule J, line 9f.

  2. The Total Other Taxes window displays when the taxpayer claims any other taxes on Form 1120, Schedule J, line(s) 9a through 9f. It may be necessary to manually access the window if it does not automatically display.

  3. Input/verify the entries for the following fields:

    • FORM 4255 TAX - reported on Schedule J, line 9a from Form 4255, line 15.

    • FORM 8611 TAX - reported on Schedule J, line 9b from Form 8611, line 14.

    • FORM 8697 TAX - reported on Schedule J, line 9c from Form 8697, Part I, line 10 or Part II, line 11.

    • FORM 8866 TAX - reported on Schedule J, line 9d from Form 8866, line 10.

    • FORM 8902 TAX - reported on Schedule J, line 9e from Form 8902, line 30.

    • OTHER MISCELLANEOUS TAXES - reported on Schedule J, line 9f from various forms/schedules attached to the tax return.

    • DEFERRED TAXES - reported on the dotted portion of Schedule J, line 10.

  4. Certain taxes may be deferred. Taxpayers are instructed to reduce the amount of total taxes on Form 1120, Schedule J, line 10 by the amount of the eligible deferred taxes. They are also instructed to identify the tax(es) being deferred and the amount on the dotted portion of Schedule J, line 10. When the taxpayer includes deferred taxes on the dotted portion of Schedule J, line 10 enter the amount of deferred taxes in the DEFERRED TAXES fields (PER RETURN and RECOMPUTED) of the Total Other Taxes window.

    Note:

    The DEFERRED TAXES amount is always treated as a reduction in tax.

    Note:

    Ensuring that any deferred taxes are addressed is necessary for the system to properly calculate tax changes. Without this information, the Total Tax Per Return will be incorrect and error message "TAX PER RETURN NOT EQUAL TO TAX ASSESSED. REWORK CASE" displays. See IRM 4.119.4.9, Return Values Screen, for additional information.

  5. Based on the taxpayer’s response, it may be necessary to revise entries in the RECOMPUTED field(s) of the Total Other Taxes window.

4.119.4.13  (10-01-2012)
Withholding (W/H) - General

  1. Withholding is identified on the Case Analysis screen with Amount Type FEDERAL INCOME TAX WITHHELD for Document Types in the Form 1099 and Form W-2 series or with BACKUP WITHHOLDING for Document Type Sch K-1 (1120-S).

  2. Within the Document Matching program, withholding (W/H) and backup withholding (BUWH) are treated the same way. Any withholding claimed needs to be supported by Information Return data.

  3. Withholding is claimed on Form 1120, Schedule J, line 17.

  4. Payment credits (including withholding) reported on Form 1120, Schedule J, lines 12 through 20 appear on the Tax Account screen with a TC 766.

    1. Subsequent adjustments to withholding display with a TC 766 (additional withholding) or TC 767 (reduction in withholding) without a Credit Reference Number (CRN).

    2. Subsequent adjustments to other refundable credits display with a TC 766 (addition credit) or TC 767 (reduction in credit) with the applicable CRN identifying the credit.

  5. When payer documents are attached to the tax return, consider them more accurate than the IR UNLESS:

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

      Note:

      Use the IR as the most accurate information even if the case does not meet referral criteria or if the referral is returned.

    2. There is an indication on the Case Analysis screen that the payer amended the information return. Consider the amended IR as the more accurate information.

4.119.4.13.1  (10-01-2013)
Withholding (W/H) - Analysis

  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ unless:

    1. Another IR from the same payer is present showing income, or

    2. The withholding amount in question is shown on a valid payer information return document attached to the return.

  2. If the withholding amount exceeds 50% of the income shown on the same IR or the related income on another IR, complete Form 13549 and refer to the BMF-AUR Functional Fraud Coordinator (FFC) to further review.

  3. For various reasons, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ There are instances when information documents attached to the return do not appear as IRs on the Case Analysis screen.

    1. Create an IR for the income and/or withholding information as shown on the payer information return document unless it appears to be fraudulent. Consult with the BMF-AUR Functional Fraud Coordinator if appropriate.

    2. If income and/or withholding shown on the information documents is not reported, pursue the issue(s).

  4. Schedule(s) K-1 may contain backup withholding that does not display on the information return. Consider attached Schedule(s) K-1 as documentation to support additional withholding not shown on the IR when:

    1. Sch K-1 (1041) contains an amount in box 13, with code "B" .

    2. Sch K-1 (1065) contains an amount in box 15 with code "O" .

    3. Sch K-1 (1120-S) contains an amount in box 13 with code "O" .

    Note:

    Ensure that the system considers these amounts when determining overall allowable withholding.

  5. Withholding can be either overclaimed (O/C) or underclaimed (U/C):

    1. O/C W/H occurs when the taxpayer claims more withholding on the tax return than is supported by payer information returns. When disallowing O/C W/H amounts and issuing a notice, show all available withholding related Amount Types. This will assist the taxpayer to determine the additional documentation they need to provide.

    2. U/C W/H occurs when the taxpayer claims less withholding on the tax return based on withholding related Amount Types on the information returns. Allow the additional W/H from the IRs unless you can clearly determine that the IR is invalid (ex: not the taxpayer, Payer Agent issue, etc.).

  6. The Withholding Calculation window is used to determine any discrepancies between withholding reported on the tax return and withholding reported by payer.

  7. When Amount Type FEDERAL INCOME TAX WITHHELD or BACKUP WITHHOLDING is marked with UR Status "Underreported" , the system automatically displays the Withholding Calculation window.

    Note:

    It may be necessary to manually access the window if it does not automatically display.

    1. Verify that the WITHHOLDING PER RETURN field reflects the amount reported on the tax return or as adjusted during original processing.

    2. The system groups all withholding related Amount Types together and compares the total to the withholding per return (including any prior adjustments as shown on the Tax Account screen).

      Note:

      The system considers a $1 per IR variance to account for taxpayer rounding.

    3. If the group amount matches the reported amount, the system updates the group with UR Status "Reported" .

    4. If the group amount does not match the reported amount, the system updates the group with UR Status "Underreported" and displays the difference in the UR AMOUNT field.

      Note:

      If the taxpayer underclaimed withholding, the additional withholding displays as a positive amount in the UR AMOUNT field. If the taxpayer overclaimed withholding, the disallowed amount displays as a negative amount in the UR AMOUNT field.

    5. Ensure that any system determined withholding change accounts for taxpayer rounding. ALWAYS verify that the system computed the correct withholding change in accordance with the taxpayer's intent. If not, access the Withholding Calculation window and use the MANUAL WITHHOLDING NOW AMOUNT field to account for the variance.

      Example:

      On a fully U/R IR (income and withholding) showing $1,000 W/H, the system determines a withholding change of $997 (due to taxpayer rounding). Add $1,000 to the withholding reported on the tax return and enter the sum in the MANUAL WITHHOLDING NOW AMOUNT field. After committing the Withholding Calculation window, verify that the UR AMOUNT field shows $1,000.

  8. If the taxpayer includes payer information return documents that correspond to every IR with a withholding related Amount Type and there is a withholding mismatch, the discrepancy may be due to:

    1. A math error, transposition of figures, illegible information document(s), displaced decimal point, and/or transcription error, etc.

    2. The taxpayer may have claimed an amount from the wrong box on the payer information return document.

    3. Payer(s) may have been identified as having submitted erroneous information and are included in Payer Agent data.

    4. The taxpayer may have received a corrected information document that is not identified as amended on the Case Analysis screen.

  9. Do not adjust withholding when the taxpayer claims it correctly, but indicates that the income is not reported because it was not received until the subsequent year. Withholding is allowed when reported to IRS by the payer, while income is taxable when received by the taxpayer.

4.119.4.13.2  (03-29-2013)
Withholding (W/H) - Miscellaneous

  1. If the system computes a tax change above tolerance and withholding is an issue, a notice MUST BE issued.

  2. If withholding is the only issue, an adjustment to W/H should be made without issuing a notice, when the W/H change is confirmed and appropriate. ONLY withholding changes due to the following conditions are considered confirmed and appropriate:

    Caution:

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

    1. Form 1099, Form W-2G and/or Schedule K-1, attached to the tax return, verify the correct withholding amounts. For example, the taxpayer clearly transposed numbers from the withholding box on the document.

    2. Based on attached payer information return documents, the taxpayer clearly claimed an amount from the wrong box.

    3. Based on attached payer information return documents, the taxpayer clearly made a math error in determining the total amount of allowable withholding.

    4. Withholding was disallowed during Original Processing because payer information return documents were not included with the return AND the W/H on the IRs matches the amount previously disallowed.

    Note:

    Underclaimed W/H due to a fully U/R IR (income and withholding) resulting in no tax change (ex: due to negative TXI remaining negative after applying the U/R income) is not considered confirmed and appropriate.

    Note:

    Overclaimed W/H due to the taxpayer claiming more withholding than supported by the available information returns is not considered confirmed and appropriate unless one or more of the above conditions are present.

  3. If the change to W/H is not considered confirmed and appropriate issue:

    1. A CP 2531 for cases with U/C W/H and an overall refund.

    2. A CP 2030 for all other situations.

  4. In order to adjust confirmed and appropriate changes to W/H, without issuing a notice, take the following actions:

    Reminder:

    Since you are adjusting the account without prior taxpayer contact, ensure that the W/H adjustment is appropriate.

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

    2. Complete and commit the Return Values screen.

    3. Access the Compute Assessment Window.

      Note:

      Any adjustments to penalties (ex: Failure to File or Failure to Pay) would not be subject to deficiency procedures since adjustments to W/H are not included on the Statutory Notice of Deficiency.

    4. Verify that the IRS RECEIVED DT field is blank.

    5. Verify the BLOCKING SERIES field: Blocking Series "55" is for paper filed tax returns and "57" is for MeF tax returns.

    6. Verify that the CORRESPONDENCE DT field is blank.

    7. Verify that the TRANS CD and TRANS AMT fields display TC 290 and 0 (zero) respectively.

    8. Enter a "3" in the PRIORITY CD field when making refund adjustments. Otherwise leave this field blank.

    9. Credit Reference Number (CRN): Verify the REF NUM and ADJUSTMENT AMOUNT fields. CRN 766 is used for allowing additional underclaimed W/H and CRN 767 is used for disallowing overclaimed W/H.

    10. Verify that the SOURCE DOCUMENT ATTACHED? field contains a "" for paper tax returns and is blank for MeF returns.

    11. The REMARKS field will automatically populate with BMF AUR ADJ. If the Remarks needs to be revised, update the field before saving the window.

    12. Commit the Compute Assessment window after all fields are verified as correct.

    13. After committing and exiting the Compute Assessment window, create a Letter 2893C, including appropriate paragraphs to inform the taxpayer of the adjustment.

    14. Close the case using PC 4200.

    Caution:

    If a subsequent review of the case determines that a notice should be issued (i.e., the PC 4200 action was incorrect), the user MUST manually delete the Letter 2893C.

  5. PARAGRAPH 60 automatically generates when disallowing O/C W/H.

  6. PARAGRAPH 61 automatically generates when allowing additional U/C W/H.

  7. PARAGRAPH 71 automatically generates when changes to W/H is a NEGATIVE amount.

4.119.4.14  (10-01-2013)
Penalties and Interest

  1. The following instructions are used in calculating the various penalties and interest amounts for BMF-AUR processing.

  2. When the IRC 6662 accuracy-related penalties for negligence and substantial understatement are assessed under the BMF-AUR Program without an employee independently determining the appropriateness of the penalty, the penalty is automatically calculated through electronic means and may be assessed without written managerial approval of the penalty. However, if a taxpayer responds either to the initial letter proposing a penalty or to the notice of deficiency that the program automatically issues, an IRS employee must consider the response. When considering the response, the employee must make an independent determination as to whether the response provides a basis upon which the taxpayer may avoid the penalty. Whether the employee decides to apply the penalty or not, the employee's independent determination of whether the penalty is appropriate means that the penalty is not automatically calculated through electronic means. Accordingly, IRC 6751(b)(1) would require written managerial approval of an employees determination to assert the penalty.

4.119.4.14.1  (10-01-2013)
Failure to File Penalty (FTF)

  1. Form 1120 tax returns are due by March 15th unless March 15th falls on a Saturday, Sunday, or a legal holiday, then the return is due on the next succeeding day that is not a Saturday, Sunday, or a legal holiday or by the approved extension date. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ a Failure to File (FTF) penalty may have been assessed on the unpaid tax balance. An additional FTF may be due because of BMF-AUR processing.

    Note:

    See IRM 20.1.2, Penalty Handbook - Failure to File/Failure to Pay Penalties, for procedures regarding the recomputation of FTF.

  2. The system does not compute additional FTF if there was a prior full or partial abatement (TC 161 or TC 167). TC 167 is a computer generated abatement of the penalty. Master File recomputes a TC 167. Only a TC 160/161 manual computation of the penalty restricts recomputation.

    Exception:

    Additional FTF is computed if the original FTF was abated because it was under the ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . The abated amount is added to the additional FTF.

  3. The BMF-AUR system does not compute FTF if the original return was "R" coded. This code displays on the Tax Account screen in the RETURN CONDITION CD field. If the tax return was paper filed, the “R” appears in the income section of the return. This code indicates that the taxpayer was not subject to FTF because they provided reasonable cause for late filing.

    Note:

    TC 167 is computer generated and does not restrict Master File.

  4. If a FTF was assessed, it appears on the Tax Account screen as a TC 160 or TC 166. If the penalty was partially or fully reversed, it shows as TC 161 or TC 167.

    Note:

    If the tax on a late filed balance due return is decreased or if the net result of changes to BUWH, or Refundable Credits is a decrease in tax, any unpaid tax is reduced and the FTF penalty is also reduced. If the return is adjusted to become a refund return, and TC 160/166 is present on the Tax Account screen, it is reversed with a TC 161/167.

  5. The system computes or recomputes the FTF when applicable. With the exception of manually restricted accounts TC 160/161, the account will require a manual computation if the remaining penalty posted to the account is greater than $0.

    Note:

    The FTF penalty is automatically corrected on IDRS when there is a change to pre-payments on a late-filed return. No action is needed in the Assessment window to address the FTF penalty when posting a withholding only change (ie: PC 4200).

  6. It may be necessary to limit the penalty to an amount, including zero (0), other than what the system computes. Manually input the limited penalty in the ADDITIONAL FAILURE TO FILE PENALTY field. See IRM 4.119.4.14.7, Limited Penalties, for further instructions.

  7. PARAGRAPH 70 automatically generates when FTF is proposed.

  8. When a manual assessment is needed and the FTF is decreased, see IRM 4.119.4.18.10.1, The Assessment Window, for special instructions.

4.119.4.14.2  (10-01-2012)
Failure to Pay Penalty (FTP)

  1. If a FTP was assessed, it appears on the Tax Account screen as TC 270 or TC 276. If the penalty was partially or fully reversed, it shows as TC 271 or TC 277.

  2. FTP must be manually adjusted when a TC 270/271 is on the tax module as the system is restricted from recomputing the penalty.

  3. The BMF-AUR system does not recompute the penalty. The National Computing Center recomputes the penalty if applicable. PARAGRAPH 71 automatically generates to advise the taxpayer that they may receive a separate notice for the recomputation of FTP when the net result of changes to withholding is a negative amount.

4.119.4.14.3  (10-01-2012)
Estimated Tax (ES) Penalty

  1. IRC 6655 imposes an addition to tax when a corporation (C or S), private foundation, private foundation organized as a trust, or tax exempt organization makes an underpayment of estimated tax. IRC 6655 also applies to qualified settlement funds described in Treasury. Regulation. Section 1.468B-1.

  2. A corporation (or other entity subject to IRC 6655) must make estimated tax payments if its tax shown on the return (income tax minus credits) is $500 or more. If the tax is less than $500, no ES payments are required and a penalty will not be assessed.

  3. Generally speaking, the due dates for payment of estimated tax by a corporation are the 15th day of the 4th, 6th, 9th and 12th month of the taxable year. In the case of a calendar year filer that would be April 15th, June 15th, September 15th and December 15th.

  4. In the case of a private foundation or other exempt organization subject to the tax on unrelated business income, the due dates are the same, except that the due date of the first installment is the 15th day of the 5th month of the taxable year. In the case of a calendar year filer the first due date would be May 15th.

  5. See IRM 20.1.3.3.1.1.2, Short Taxable Years , for information regarding short period returns

  6. If an ES penalty was assessed, it appears on the Tax Account screen as TC 170 or TC 176. If the penalty was partially or fully reversed, it shows as TC 171 or TC 177.

  7. The BMF-AUR system does not recompute the ES penalty. When there is a change to withholding, or Refundable Credits and the penalty has not been fully reversed, the Estimated Tax Penalty window displays on the Return Values screen. Enter the total amount of Estimated Tax Penalty previously charged in the ESTIMATED TAX PENALTY NOW field in the Estimated Tax Penalty window.

4.119.4.14.4  (10-01-2012)
Accuracy-Related Penalty Due to Substantial Understatement of Tax

  1. An understatement of income tax is considered substantial when it exceeds the greater of 10% of the tax required to be shown on the return or $5,000.

    Exception:

    In the case of a corporation (other than an S-Corporation or a personal holding company), an understatement of income tax is considered substantial when it exceeds the lesser of 10% of the tax required to be shown on the return (or, if greater, $10,000) or $10,000,000.

  2. When a substantial understatement exists, a penalty may be imposed equal to 20 percent of the underpayment of tax attributable to the understatement.

    Note:

    The Substantial Understatement Penalty may be proposed on returns that are also subject to the Failure to File Penalty.

  3. Any portion of an underpayment may be subject to only one accuracy penalty even though that portion may be attributable to both a substantial understatement of tax and negligence. However, one portion of an underpayment may be attributable to a substantial understatement of tax and a different portion to negligence. See IRM 4.119.4.14.5, Accuracy-Related Penalty Due to Negligence or Disregard of Rules or Regulations (Negligence Disregard Penalty).

    • If both penalties apply to the same underpayment, only one 20% penalty is imposed

    • The system determines the greater of the two penalties and displays it on the CP 2030

    • The system selects the appropriate notice paragraph(s) when penalties apply

  4. The substantial understatement penalty displays on the system before issuance of the CP 2030. After a CP 2030 is issued, the substantial understatement penalty displays on the CP 2030 History window in the ACCURACY RELATED PENALTY field.

  5. PARAGRAPH 76 automatically generates.

  6. See IRM 20.1.5, Penalty Handbook - Return Related Penalties, for procedures regarding the computation of the penalty.

  7. When the taxpayer's account is assessed through the Assessment window, a Reference Code 680 displays for the substantial understatement penalty. In certain situations it may be necessary to enter or delete the Reference Code 680. See IRM 4.119.4.18.10.1, The Assessment Window, for more information.

  8. The penalty does not apply if taxpayers attach evidence of SUBSTANTIAL AUTHORITY as a basis for the tax treatment of an item that resulted in an understatement of their tax liability. Examples of substantial authority are:

    • Internal Revenue Code

    • Temporary, Proposed and Final Regulations

    • Court Cases

    • Revenue Rulings

    • Revenue Procedures

    • Tax Treaties with Accompanying Regulations and Official Explanations

    • Committee Reports (Congressional Intent)

    • Blue Book (Joint Committee Explanations)

    • Private Letter Rulings

    • Technical Advice Memoranda and Expedited Technical Advice Memoranda

    • Actions on Decisions

    • General Counsel Memoranda

    • IRS information including press releases, notices, announcements and other administrative pronouncements published in the Internal Revenue Bulletin

    Note:

    See IRM 20.1.5, Penalty Handbook - Return Related Penalties, for additional information.

  9. If the tax examiner determines to suppress the substantial understatement penalty in full, enter a zero (0) in the SUBSTANTIAL UNDERSTATEMENT PENALTY field on the Limit Penalties window.

  10. The Limit Penalties window contains additional fields to track instances where the taxpayer requests waiver of the Substantial Underpayment Penalty and whether the request has been granted or denied. When the taxpayer makes this request and the tax examiner determines:

    • The request will be granted, check the box next to the PENALTY WAIVED field in the Limit Penalties window

      Note:

      Only check the box when the penalty is still applicable, but is being suppressed. Do not check the box if the penalty is no longer applicable (i.e. recomputed notice and the revised tax increase is now below $10,000 or less than 10% of the tax required to be shown on the notice).

    • The request is denied or only partially waived, check the box next to the PENALTY NOT WAIVED field in the Limit Penalties window

      Note:

      The SUBSTANTIAL UNDERPAYMENT PENALTY field must contain a value greater than zero in order to check the PENALTY NOT WAIVED field. Managerial approval is required when denying the taxpayer's request. See IRM 4.119.4.18.1.4, Accuracy-Related Penalties, for additional information.

  11. The substantial understatement penalty will not apply to any portion of the understatement if the taxpayer provides that there was reasonable cause for the understatement and the taxpayer acted in good faith. See IRM 4.119.4.14.5, Accuracy-Related Penalty Due to Negligence or Disregard of Rules or Regulations (Negligence Disregard Penalty), for reasonable cause criteria. Also see IRM 20.1.1, Penalty Handbook - Introduction and Penalty Relief, for more information regarding reasonable cause criteria in general, and IRM 20.1.5, Penalty Handbook - Return Related Penalties, for exceptions to the Substantial Understatement Penalty.


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