5.18.1  Automated Substitute for Return (ASFR) Program (Cont. 5)

5.18.1.10 
Taxpayer Responses

5.18.1.10.2 
Taxpayer Responses, Returns and Correspondence

5.18.1.10.2.3 
Tax Examiner Procedures for Processing Taxpayer Responses

5.18.1.10.2.3.23  (12-30-2011)
Non-Employee Compensation

  1. Nonemployee compensation is fees, commissions, or any other compensation paid by a business to an individual who is not an employee.

  2. Nonemployee compensation is reported on Form 1099–MISC.

  3. Compare NEC amounts with entries on:

    1. Schedule C, Part 1, Gross Sales or Receipts

    2. Schedule C-EZ, Part II, Gross Sales or Receipts

    3. Schedule E, Part II - Income From Partnership and S Corporations

    4. Schedule F, Part I or III- Farm Income

    5. Form 4835, Part I- Farm Rental Income

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

  4. When comparing NEC case minors with entries on any line not specifically identified for NEC, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

    1. An amount on the return matches within $1. Also give credit for amounts identified as being from the same payer.

    2. The taxpayer is incorporated (payer name must include INC, PA, SC, or PC) and pays wages to himself/herself (ie: the name and/or address of the payer on the W-2 is similar to or matches the name and/or address of the taxpayer). ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. The taxpayer is a doctor, dentist, etc. and appears to be a partner or shareholder in a medical practice as shown on Schedule E, Part II. The taxpayer surname does not necessarily have to be part of the partnership/corporation name. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    4. The taxpayer appears to be a partner or shareholder as shown on Schedule E, Part II and the payer can be related to the partnership. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    5. The taxpayer is in the medical profession and has reported wages from a medical professional corporation (e.g. INC, PA, SC, PC, clinic or group) but not a hospital or medical center. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    6. A doctor, dentist, etc. is an employee of an institution and has attached a statement that indicates an agreement exists for the doctor, dentist, etc. to turn over all receipts to the employer, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    7. The taxpayer nets the amount for reimbursed expenses reported on Form 1099-MISC and ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    8. Form 3115, Application for Change in Accounting Method, is attached and the taxpayer is an insurance agent, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

  6. If Form 2106, Reimbursement line is greater than Total expenses (no meals and entertainment), the taxpayer received an excess reimbursement that must be ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  7. If the payer is an oil, gas, or petroleum company:

    1. consider the case minor(s) ≡ ≡ ≡ ≡ ≡ if it is included (identified by payer or activity) in a larger total on schedule C,C-EZ, or Schedule E, Part I.

    2. Depletion should NOT be deducted on Schedule C, Part II, or Schedule E, Part I , unless the business activity is related to a natural resource (e.g. oil, gas, mineral, timber).

    3. Consider the depletion amount ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ if that depletion was deducted from income that is clearly NEC (Schedule C, depletion line or Schedule E, depletion line).

    4. Consider the case minor fully under/unreported if the depletion amount cannot be determined.

  8. Nonemployee Compensation may represent crop insurance proceeds, which are reported on Schedule F, Crop Insurance lines, or Form 4835, Crop Insurance lines. The taxpayer may elect to postpone the crop insurance proceeds to the year following the damage. If the NEC amount(s) appear to be this type of income, consider the amount ≡ ≡ ≡ ≡ ≡ ≡ if:

    1. The box on Schedule F, election to defer box, or Form 4835, election to defer box, is checked AND

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

  9. If an explanation is attached to the return indicating the fellowship, grant, or stipend was used for tuition, fees, books, supplies, and equipment required for the course, AND:

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

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

  10. If the NEC case minor is identifiable as fellowship/grant/stipend income, no explanation of tuition expenses is attached, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    SE TAX is not charged on scholarship/stipend income.

  11. If the taxpayer reports NEC income on Form 1040/1040A, Wages line 7 and attaches a Form 4137, Social Security and Medicare Tax on Unreported Tip Income, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ This is an indication the taxpayer is an employee and is paying the Employee Share of FICA.

  12. If taxpayers who are Native American Tribe Members report Form 1099MISC tribal-related income on Form 1040, other income Line, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , if any of the following literals are provided:

    • INDIAN GAMING

    • INDIAN GAMING PROCEEDS

    • IGP

    • INDIAN TRIBAL DISTRIB

    • INDIAN TRIBAL INCOME

    • INDIAN TRIBAL FUND

    • INDIAN TRIBAL EARNINGS

    • NATIVE AMERICAN

    • NATIVE AMERICAN DISTRIB

    • IGE

    • ITI

    • ALASKA PERMANENT FUND

    • ALASKA PERMANENT FUND DIV

    • APF

    • APFD

  13. If the taxpayer reports NEC income, but indicates he/she worked as an employee and

    1. Paid the employee percentage of FICA (7.65%), ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. Did not pay the employee percentage of FICA (7.65%), ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. The NEC case minor is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ on Form 4137 and SS/Medicare tax is paid on the reported amount instead of SE tax, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  14. 1099–MISC case minors may reflect W/H. Consider W/H when determining if the under/unreported income meets the tolerance in 5.18.1.10.2.3.20

  15. Reported, under reported, or unreported NEC may be subject to SE Tax. If there is a NEC amount that is subject to SE Tax and SE Tax is unreported/ under reported then:

    1. Correspond for a corrected return if the SE Tax amount that is un/under reported meets the un/under reported income tolerance. See 5.18.1.10.2.3.20 for tolerance.

    2. If no reply is received within applicable timeframes, process the return as filed.

    3. Refer to Exam Classification per tolerance

    Note:

    If schedule SE is attached, verify that all applicable NEC has been included. Otherwise, SE Tax must be computed/recomputed if applicable.

5.18.1.10.2.3.24  (11-03-2010)
Medical Payments

  1. Medical payments are compensation paid to doctors, dentists, and other in the medical profession (e.g., Nurse Practitioner, Midwife, Chiropractor, Doctor of Osteopathy, Veterinarian, Podiatrist, etc.)

  2. Medical payments are reported on Form 1099–MISC.

  3. Compare 1099 MISC, Medical Payments amounts with entries on:

    1. Schedule C, Part I, or Schedule C-EZ, if it appears to be for a medical practice.

    2. Schedule E, Part II, if the partnership appears to be a medical practice.

    3. Form 1040, 1040A, 1040EZ, Wages or salaries, tips, etc. line.

    4. Form 1040, other income line.

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

    1. If the taxpayer reported wages from a medical professional corporation (e.g., INC, PA, SC, PC, clinic, or group), but not a hospital or medical center.

    2. If the taxpayer is incorporated (payer name must include INC, PA, SC or PC) and pays wages to himself/herself (the name and/or address of the payer is similar to or matches the name and/or address of the taxpayer).

  5. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. If an attached statement indicates an agreement exists for the doctor, dentist, etc., to turn over all receipts to an employer.

    2. If the doctor, dentist, etc., appears to be a partner or shareholder in a medical practice as shown on Schedule E, Part II.

      Note:

      The taxpayer's surname does not necessarily have to be part of the partner/shareholder name. Do not consider the ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. If MED payments are under/unreported and the taxpayer's occupation and/or the payer name on the 1099–MISC case minor(s) is NOT related to the medical field, the income may be sick pay or disability payments. Forms 1099–MISC are sometimes incorrectly used to report sick pay or disability payments.

    1. Do not consider the under/unreported MED amount(s) as self-employment income.

  7. If MED payments are under/unreported and the taxpayer is in the medical profession, treat the MED payments as self-employment income.

  8. If there is reported MED on which the taxpayer should have paid SE tax but did not, consider the SE tax unreported.

  9. 1099-MISC with MED amounts may reflect W/H. Consider W/H when determining if the under/unreported income meets the under/unreported tolerance. See 5.18.1.10.2.3.20 for tolerance.

5.18.1.10.2.3.25  (11-03-2010)
Fishing Income

  1. Fishing income is earned by fishing boat crew members.

  2. Fishing income is reported on Form 1099–MISC.

  3. If there is fishing income reported on which the taxpayer should have paid SE tax but did not, consider the SE tax unreported.

  4. Form 1099–MISC with FISH amounts may reflect W/H. Consider W/H when determining if the under/unreported income meets under/unreported tolerance. See 5.18.1.10.2.3.20 for tolerance.

5.18.1.10.2.3.26  (11-03-2010)
Retirement Plans

  1. Form 1099–R, Distributions from Pensions, Annuities, Retirement, or Profit-Sharing Plans, IRA's, Insurance Contracts, etc., is used to report retirement plan income amounts.

  2. Retirement plans include pensions and annuities, profit-sharing and stock bonus plans, individual retirement accounts (IRA's), employee savings plans, etc. Distributions from retirement plans are not always fully taxable.

  3. Form 1040 and Form 1040A include separate lines, IRA Distributions, for taxpayers to report distributions from IRA accounts. Other pension and annuity payments (including non-IRA distributions that are periodic payments or lump-sum distributions not entitled to special tax treatment on Form 4972) are reported on Form 1040 and 1040A, Pensions and Annuities.

    Caution:

    When distributions for Traditional or Roth IRAs, 401(k), 403(b), governmental 457, 501(c)(18)(D), SEP or SIMPLE plans, or qualified retirement plans as defined in section 4974(c) (including Federal Thrift Savings Plan) are determined to be under/unreported, check for Form 8880, Credit for Qualified Retirement Savings Contribution, and adjust as appropriate.

  4. The following references are for specific retirement types and MUST be used in conjunction with the general instructions.

  5. See IRM 5.18.10.2.3.26.2 for Railroad Retirement income when:

    1. Form 1099–R is attached or the case minor indicates the payment is from the Railroad Retirement Board.

    2. Form 1099–R shows Taxable Contributory Amount, Taxable Vested Dual Benefit, and/or Taxable Supplemental Annuity.

  6. See IRM 5.18.1.10.2.3.26.3 for Pensions/Annuities when:

    1. Form 1099–R is attached and indicates pension/annuity.

    2. Taxpayer reported the distribution on Form 1040, 1040A, Pension and Annuities line.

    3. Taxpayer attached a written statement which identifies the income as pension or annuity.

  7. See IRM 5.18.1.10.2.3.26.4 for IRA Distributions when:

    1. Form 1099–R is attached and an IRA/SEP distribution is indicated in box 7.

    2. Taxpayer reported the distribution on Form 1040, 1040A, IRA Distribution line.

    3. Form 1099–R or the case minor shows "IRA" in the payer or payee name lines.

    4. Taxpayer attached a written statement identifying income as IRA.

  8. See IRM 5.18.10.2.3.26.5 for Lump Sum Distributions when:

    1. Form 1099–R or case minor shows Distribution Code "A" .

    2. The case minor contains Eligible capital gains amounts.

  9. See IRM 5.18.10.2.3.26.6 for Employee Savings Plans when:

    1. The payer name contains the terms "savings plan" , "thrift plan" , "incentive plan" , "profit sharing plan" , "ESOP" , "TRAYSOP " , "PAYSOP" , etc., or

    2. The payer name on the 1099–R case minor is similar to the employer's name as shown on the WAGE case minor or Form W-2.

  10. Disability pensions (Distribution Code "3" ) are considered earned income.

  11. These are general instructions and MUST be used in conjunction with the instructions for specific retirement types.

  12. Compare retirement plan case minors with entries on:

    1. Form 1040, 1040a, 1040EZ, Wages, salaries, tips, etc., IRA Distributions, Pensions and Annuities, Other Income lines.

    2. Form 4972.

    3. Schedule D, Part II.

    4. Attachments to Form 1040.

    5. Schedule B -

  13. If the taxpayer included ordinary retirement income as Capital Gains on Schedule D, Part II, consider the distribution reported.

  14. Accurate analysis of retirement plan case minors depend on whether the payer of reported Form 1099–R income is identifiable. The payer is identified if the taxpayer has:

    • Attached Form 1099–R.

    • Written a statement.

    • Annotated the return.

    • Claimed the W/H on a Form 1099–R case minor.

    • Reported an amount within $1.

  15. Do not pursue Form 1099–R case minors with Distribution Code codes of "6" , "P" , "N" , "R" , "D" , "G" , or "H" .

    Note:

    ASFR will add all components of a Form 1099-R case minor with Distribution Code "6" , "P" , "D" , "G" and "H" .

    Exception:

    If the Form 1099 is from Railroad Retirement, and has an "N" indicator, pursue the case minor if not reported.

    Caution:

    When a 5498 Rollover case minor matches the amount on a deleted 1099–R case minor (Distribution Code "6" , "P" , "N" , "R" , "D" , "G" , or "H" ) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  16. The Office of Personnel Management (OPM) is the payer of a Civil Service Annuity.

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ unless Form 1040, 1040A, Pension and Annuities is zero or blank.

    2. If Form 1040, 1040A, Pension and Annuities line is blank or zero,≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  17. If there is an indication the income is from a military payer and the taxpayer reports a lesser amount, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  18. If the case minor or Form 1099–R attached displays only the "GR/A" literal, consider the GROSS distribution amount ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ If the case minor or Form 1099–R attached displays only the "TX/A" literal, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  19. If a "Taxable" amount is present and the payer indicates the "taxable amount has not been determined " , ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. The taxpayer reports a lesser taxable amount, as calculated on an attached Form 8606 or similar worksheet.

    2. The taxpayer reports the taxable amount as shown on the attached Form 1099–R.

    Note:

    If the taxpayer writes "rollover" or provides another statement that the distribution was rolled over, IRM 5.18.1.10.2.3.26.1.

    If none of the above conditions are present, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  20. If the Form 1099–R case minor or an attached Form 1099–R shows only a "Gross" amount and the taxable amount has not been determined, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Caution:

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

  21. If there are multiple Form 1099–R case minors from the same payer, compare the total gross case minor amount to the total amount reported by the taxpayer. If the gross amount is not present, use the taxable amount.

  22. Compare the case minor amount to the return amount (Form 1040, 1040A, Pensions and Annuities, IRA Distribution lines. If the return amount:

    1. is equal or greater than the case minor amount, consider the income reported unless identified as a different payer.

    2. is less than the case minor amount, consider the difference under/unreported if the reported income is identified as the same payer.

    3. is less than the case minor amount AND the reported income is unidentified or identified as a different payer, consider the income fully under/unreported.

  23. Consider Form 1099–R case minors reported when the return indicates that the under/unreported amount is due to employee contributions AND:

    1. Form 1099–R or similar documentation is present, and the box 5 amount matches the under/unreported amount within $1 or

  24. Form 1099–R case minors may be subject to an additional 10% or 25% tax. IRM 4.19.3.14.3 identifies the conditions for the difference in percentage.

    Note:

    Refer to lead or manager.

  25. Premature distributions may be subject to a 10% early withdrawal penalty. If a premature distribution is reported, under reported, or unreported and the taxable portion of the distribution is subject to an early withdrawal penalty then:

    1. correspond for a corrected return if the unreported/under reported 10% Early Withdrawal Penalty amount meets under/unreported tolerance. See 5.18.1.10.2.3.20 for tolerance.

    2. If no reply is received within applicable timeframes, process the return as filed.

    3. Refer to Exam Classification per tolerance identified in IRM 5.18.1.10.2.3.20.

      Note:

      If Form 5329 is attached with Part 1 completed, follow the taxpayer's intent as to the amount of distribution that is subject to the Early Withdrawal Penalty.

  26. Form 1099–R case minors may reflect W/H.

  27. See Publication 575 for more information on 1099-Rs. Current Distribution Codes for 1099-Rs are:

    • No Code -Normal Distribution from plans other than an IRA or SEP (1099-R ONLY)

    • 1 -Early (Premature) Distribution, no known exception

    • 2 -*Early (Premature) Distribution, exception applies

    • 3 -*Disability

    • 4 -*Death

    • 5 -Prohibited Transaction (such as borrowing or using as loan security)

    • 6 -Section 1035 Exchange (tax-free)

    • 7 -Normal Distribution

    • 8 -Excess Contributions Refunded plus Earnings (taxable)

    • 9 -Cost of life insurance (taxable)

    • A -May be eligible for 10-year tax option (Form 4972)

    • D -Excess Contribution plus Earnings/Excess Deferrals (taxable in 2001)

    • E -*Excess Annual Additions under Section 415 and Excess Section 403b amounts (taxable)

    • F -Charitable gift annuity

    • G -*Direct rollover (to a qualified plan, tax sheltered annutity, 457(b) plan or IRA) and rollover contributions

    • J -Early Distribution from a Roth IRA - no known exception

    • L -Loans treated as distributions

    • N -Recharacterized IRA contribution made for current year

    • P -Excess Contributions plus earnings/excess deferrals taxable in prior year

    • Q -*Roth IRA qualified distribution

    • R -Recharacterized IRA contribution (made for prior year and recharacterized for current year)

    • S -Early distribution from a SIMPLE IRA in first two years - no known exception

    • T -Roth IRA distribution - exception applies NOTE: * designates Form 5329 not required

    The following are reserved for Railroad Retirement Board's use:

    • W - RRB -Vested Dual Benefit (Windfall)

    • X - RRB -Tier 1

    • Y - RRB -Tier 2

    • Z - RRB -Supplemental

5.18.1.10.2.3.26.1  (01-28-2010)
Rollover

  1. The Payee/Payer name line on a Form 1099–R case minor may contain the word "rollover" with the date the taxpayer transferred funds into the new plan. Consider the 1099–R case minor valid and pursue any under/unreported income.

  2. A Form 1099–R case minor with Distribution Code "3" , "5" , "8" , "E" or "L" cannot be rolled over. Inherited distributions (usually Distribution Code 4) may not be rolled over, unless the beneficiary is the surviving spouse. If a Form 5498 case minor with either Rollover (ROLV)or Fair Market Value (FMV)is present that matches the 1099-R case minor ≡ ≡ ≡ ≡ ≡ ≡ ≡ with Distribution Code "3" , "5" , "8" , "E" " L" , or "4" , ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. If a Form 5498 case minor is present with either the literal Rollover or the literal FMV only in the Income Type field, and it has an amount that matches Form 1099-R case minor(s)≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    Payers may erroneously report rollover contributions in box 5 (FMV) of Form 5498 instead of box 2 (Rollover).

  4. If Form 5498 case minor with either Rollover or FMV is not present to substantiate the rollover , ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ when the taxpayer enters the gross amount on the gross return lines and:

    1. Enters the word rollover on the tax return (or on an attached statement) and either left the corresponding taxable return line blank or enters a zero (0), OR

    2. If the word rollover is missing, consider the distribution rolled over if the corresponding taxable line contains a zero (0) or blank ANDthe case minor or attached statement indicates a "total distribution."

  5. When a distribution contains W/H, the TP receives a net amount. In order for a distribution to be considered fully rolled over (i.e. tax free), the TP MUST rollover the entire Taxable (TX/A) amount by supplementing the amount withheld with additional monies from another source. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ If the net amount (GR/A minus W/H) is less than the TX/A amount, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    ≡ ≡ ≡ ≡

    1. The TP reports the net amount on line a, zero (0) on line b and writes"Rollover " , or

    2. The TP reports the TX/A on Pensions and Annuities Line a, zero (0) on line b and writes "Rollover" , unless there is an indication that the TP supplemented the rollover amount to account for the W/H.

  6. Taxpayers may partially roll over retirement plans reported on Form 1099–R. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. the taxpayer enters the "GR/A" amount on the gross return lines,

    2. a lesser amount on the corresponding taxable line,

    3. a Form 5498 case minor is present with the literal "Rollover" or "FMV" in the income type field AND

    4. has an amount that matches the difference between the reported gross amount and the reported taxable amount within $30.

  7. If a Form 5498 case minor with either "Rollover" or "FMV" is not present to substantiate the rollover, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. The taxpayer indicates rollover, partially rolled (or any other similar variation) on the tax return or on an attachment.

    2. The taxpayer reports the withholding as the taxable portion of the distribution (i.e., the taxpayer fully rolled over the net distribution check that he/she received).

5.18.1.10.2.3.26.2  (01-28-2010)
RRB- Form 1099 R

  1. Pensions and annuities are reported from the RRB on Form RRB-1099-R.

  2. The RRB files a separate Form RRB–1099-R for each of the following amounts and each of these amounts displays as separate case minor's for each taxpayer:

    • Employee Contributions (box 3).

    • Contributory Amount Paid (box 4).

    • Vested Dual Benefit (box 5).

    • Supplemental Annuity (box 6).

    • Total Gross Paid (box 7).

    • Prior Year Repayments (box 8).

  3. The following list contains the symbols and definitions for Distribution Code's for RRB–1099-R documents:

    • "W" — RRB-Vested Dual Benefit — Box 5 — Windfall, fully taxable

    • "X" - RRB-Tier 1

    • "Z" — RRB-Supplemental — Box 6 — Gross amount of supplemental benefits paid

    • "Y" - RRB-Tier 2

  4. Railroad Retirement Board pension income is reported as GR/A on a separate Form RRB-1099–R case minor showing Distribution Code "X" , "W" , "Z" or "Y" . Group these RRB-1099–R case minors together to determine the total taxable amount. Compare the total to the amount reported on Form 1040, 1040A, Pensions and Annuities lines. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    If the taxpayer indicates that the simplified general rule was used to reduce the "GR/A" amount(s), ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. The taxpayer may erroneously treat the RRB–1099-R income as Social Security/Railroad Retirement Benefits, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

5.18.1.10.2.3.26.3  (01-28-2010)
Pension

  1. A pension is generally a series of payments made after retirement for past services with an employer. An annuity is a series of payments under a contract purchased by the taxpayer alone or with the help of an employer. Annuity payments are made regularly for more than one full year.

  2. Total distributions are indicated on either the case minor, Form 1099–R with the appropriate box checked, or an attachment to the return.

  3. If the Form 1099–R case minor or an attachment shows the income is for support of a minor child:

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ when the attached Form 1099–R does not provide a breakdown.

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ when the attached Form 1099–R provides a breakdown and the taxpayer reports his/her designated portion.

    3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ when the attached Form 1099–R provides a breakdown and the taxpayer reports none of the income or less than his/her portion.

  4. If a under/unreported Form 1099–R case minor shows a city, county, or state as the payer and the taxpayer indicated "disabled fireman" or "disabled policeman" on the return ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. Retired ministers are allowed to reduce taxable pension amounts by their housing allowance. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. Generally taxpayers must include as income amounts received from personal injury or sickness through an accident or health plan that is paid for by the employer. Pursue any Form 1099-R IR's unless the taxpayer provides a statement and/or documentation that the income is excludable. The taxpayer may provide any of the following (this list is not all inclusive):

    1. Statement that the distribution is excludable under IRC 104 (i.e.: line of duty injury).

    2. The disability pension was never converted to a normal pension based on length of service.

    3. A Private Letter Ruling from the IRS to a pension plan administrator that the payments are non-taxable for life.

    4. Statement/Documentation from the payer that the income is nontaxable.

    5. Distribution is payment(s) for disability due to injuries received from a terrorist attack or military action.

5.18.1.10.2.3.26.4  (01-28-2010)
Traditional Individual Retirement Arrangements (IRA), Simplified Employee Pensions (SEP), Roth IRA's, and SIMPLE IRA's

  1. Traditional Individual Retirement Arrangements (IRA), Simplified Employee Pensions (SEP), Roth IRA's, and SIMPLE IRA's are tax-favored means of saving for retirement.

  2. Form 8606 is used to figure:

    1. The taxable portion of distributions from Traditional, SEP and SIMPLE IRA's (Part I).

    2. The taxable portion of conversions from Traditional, SEP and SIMPLE IRA's to Roth IRA's (Part II).

    3. The taxable portion of distributions from Roth IRA's (Part III).

  3. Form 8606, Part I, is used to figure the taxable portion of nondeductible contributions to Traditional IRA's as well as distributions from Traditional, SEP and SIMPLE IRA's. The total amount is reported on Form 1040, Form 1040A, IRA Distributions lines a, and the taxable amount from Form 8606, IRA Distributions lines b. If the total of the Traditional, SEP or SIMPLE IRA distribution case minor(s) matches the Form 8606, Distributions from traditional, SEP, and SIMPLE IRAs line amount:

    1. Subtract the Form 8606, Non-taxable Portion line amount from the Form 8606, Distributions from traditional, SEP, and SIMPLE IRAs line amount.

    2. If the result matches the Form 1040, l 1040A, IRA Distributions line bamount, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. If the result does not match the Form 1040, 1040A, IRA Distributions line b, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. If the taxpayer reports a lesser taxable amount and Form 8606, Part II is not completed, consider the difference underreported.

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

    1. The Form 1099–R distribution amount matched the Form 5498 Rollover amount AND

    2. The taxpayer does not report a taxable amount by completing Form 8606 Part II or by reporting 100% of the distribution.

  6. Form 8606, Part II, is used to figure the taxable portion of conversions from Tradition, SEP, or SIMPLE IRA's to Roth IRA's. The total amount is reported on Form 1040, 1040A, IRA Distributions line a, and the taxable amount from Form 8606, Taxable Amount line is included on Form 1040, 1040A, IRA Distributions line b. Consider the 1099–R distribution case minor reported when the taxpayer reports the taxable amount on Form 8606, Taxable Amount Line, Part II (whether or not a matching Form 5498 Rollover is present).

    • If there is no indication the distribution is a Roth IRA conversion, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • Forms 1099-R case minor with Distribution Code "N" or Distribution Code "R" represent recharacterizations. These are corrections of amounts converted from Traditional, SEP or SIMPLE IRA's to Roth IRAs. ≡ ≡ ≡ ≡ any Form 1099-R case minors containing Distribution Code "N" or Distribution Code "R" .

  7. A return of regular contributions from a Roth IRA or qualified distributions from a Roth IRA are considered non-taxable. A qualified Roth IRA distribution generally meets the following conditions:

    1. A taxpayer maintained the Roth IRA for a minimum of 5 years, and

      Caution:

      Any Roth IRA distribution made within the 5–taxable-year period is not a qualified distribution. Payers may identify Roth distributions within the first 5 years with Distribution Code "J."

    2. Made on or after the date the taxpayer reaches age 59 1/2'

    3. Made because the taxpayer was disabled,

    4. Made to a beneficiary or to the taxpayer's estate after his/her death, or

    5. The distribution (up to $10,000) was used for a qualified first-time home purchase.

  8. Form 8606, Part III, is used to figure the taxable portion of non-qualified distributions from Roth IRA's. The total amount is reported on Form 1040, 1040A, IRA Distributions line a and the taxable amount from Form 8606, Taxable Amount is included on Form 1040, 1040A, IRA Distributions line b.

    1. Consider the 1099–R distribution case minor ≡ ≡ ≡ ≡ ≡ when the taxpayer completes Form 8606, Part III and reports the amount from Form 8606, Taxable Amount line on Form 1040, 1040A, IRA Distributions line b (whether or not a matching Form 5498 Roth Contributions is present) OR

    2. Consider the 1099–R Roth distribution to be a return of regular contributions from a Roth IRA when the amount of the distribution matches the Form 5498 Roth Contributions amount.

    3. If the taxpayer does not complete Form 8606, Part III, and/or there is no corresponding Form 5498 Roth Contributions case minor, consider the Form 1099–R distribution amount ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Note:

      If there is no indication that the distribution is a qualified Roth IRA distribution or a return of regular contributions from a Roth IRA, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    4. The 10% premature distribution tax penalty may also apply.

  9. Distributions from a SIMPLE (Savings Incentive Match Plan for Employees) plan are fully taxable as ordinary income. Premature distributions from a SIMPLE plan may be subject to the additional tax on early distributions. Distributions made within the first 2 years are subject to a 25% tax on early distributions and are identified by a Distribution Code "S" .

    1. During the 2-year period, to qualify for a tax-free rollover/transfer, amounts in a SIMPLE IRA must be rolled over/transferred into another SIMPLE IRA.

    2. After the 2-year period, amounts in a SIMPLE IRA can be rolled over/transferred tax-free to either another SIMPLE IRA plan or any qualified IRA/deferred compensation plan.

  10. IRA distributions do not qualify for special tax treatment on Form 4972.

  11. Distribution Code 5 is used for prohibited transactions such as borrowing from an IRA or using an IRA as security on a loan. If either of these transactions occur, treat the entire value of the account as a distribution to the taxpayer. These distributions are subject to the 10% tax on early distributions from qualified plans and cannot be rolled over.

5.18.1.10.2.3.26.5  (01-28-2010)
Lump Sum Distribution

  1. A lump sum distribution is income received within a single tax year of the balance to the credit of an employee from an employer's qualified pension, stock bonus or profit sharing plan, employee stock ownership plan (ESOP), qualified annuity plan, etc.

  2. A lump sum distribution may qualify for special tax treatment on Form 4972, Tax on Lump Sum Distributions. When the taxpayer reports his/her lump sum distributions on Form 4972, determine if he/she reported the total amount.

  3. If the taxpayer reports the total amount of the lump sum distribution on Form 4972, consider the income reported.

  4. If an Eligible capital gains amount is shown on the Form 1099–R case minor, the taxpayer may elect not to receive capital gains treatment. The taxpayer should then report the taxable amount of the distribution.

  5. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ if:

    1. The gross or taxable amount is on Form 1040, 1040A, Pensions and Annuities lines.

      Note:

      Taxpayers often incorrectly report Lump Sum Distributions on Form 1040, 1040A, IRA Distribution lines.. Before considering Lump Sum Distribution case minor's ≡ ≡ ≡ ≡ ≡ ≡ ≡ , review entries on these lines.

    2. The gross or taxable amounts are on Form 4972, Part III, Total Taxable amount line AND the taxpayer includes the lump sum tax on Form 1040.

    3. An amount on the return matches the gross or taxable amount from the Form 1099–R case minor within $1.

    4. The TX/A amount less the Eligible capital gains amount is on Form 1040, Pension and Annuities line b, and the Eligible capital gains amount is reported on Schedule D, Capital Gains line.

  6. The taxpayer may elect to receive capital gains treatment and report the ordinary income and capital gains separately on Form 4972. The entire distribution must be included on the Form 4972, and cannot be allocated between different forms.

    Example:

    The taxpayer cannot report ordinary income from the distribution on Form 4972, line 10, and the Eligible capital gains income from that particular case minor on Schedule D.

  7. Capital gains from a lump sum distribution should not be reported on Schedule D if the taxpayer has elected to report the lump sum income on Form 4972. If the taxpayer has erroneously included a Lump Sum CG on Schedule D, exclude the CG from the Schedule D and include the CG amount on Form 4972. Then determine if there is Under/unreported income.

  8. The taxpayer may elect to treat the entire distribution (Eligible capital gains and Ordinary Income) as ordinary income on Form 4972. The amount from Taxable Amount box minus the amount from box 3 of Form 1099–R should be reported on Form 4972, Part III, Ordinary Income from 1099–R line.

  9. Lump sum distributions do not qualify for the special tax treatment on Form 4972 when:

    1. There is an indication of a partial rollover of a lump sum.

    2. The distribution is an IRA distribution.

    3. The distribution is from a tax-sheltered annuity plan (a 403(b) plan, i.e., Teacher's Retirement).

    4. The distribution is a Civil Service annuity.

  10. If any of the conditions in (8) above apply and the income matches either the gross or taxable amount on a Form 1099–R case minor, consider the taxable amount under/unreported.

  11. Lump sum distributions do not qualify for the special tax treatment on Form 4972 when a portion of the lump sum distribution is from U.S. Retirement Bonds. Disallow the special tax treatment for the bond portion ONLY.

  12. Consider Lump sum distributions ≡ ≡ ≡ ≡ ≡ when the taxpayer cites Section 4 of Rev. Proc. 92-44.

5.18.1.10.2.3.26.6  (01-28-2010)
Employee Savings Plans

  1. Distributions from employee savings plans are reported on Form 1099–R.

  2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ if:

    1. There is an unidentified income amount on Form 1040 or any of its schedules that matches the case minor within $1.

    2. The taxpayer states his/her contributions exceeded the amount of the distribution received.

    3. The taxpayer reports the gross amount on Form 1040, 1040A, Pensions and Annuities lines aand has reported an amount, including zero, on Form 1040, 1040A, Pensions and Annuities lines b.

    4. The taxpayer identifies the taxable portion on Form 1040, Other Income, or on an attachment.

    5. The taxpayer reports a taxable amount identified as being from a savings plan (must be the same payer as the case minor), with or without an explanation of the amount reported.

  3. If a taxpayer is younger than 55, the 10% tax on early distributions from qualified plans should be assessed if the Distribution Code is "L" , "1" , "5" , or "7" .

    Note:

    If the taxpayer is between 55 and 59 years old and the distribution is paid by an employee savings plan, do not assess the 10% tax. If the taxpayer reported the 10% tax on his her employee savings plan, do not modify the employee savings plan case minor. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

5.18.1.10.2.3.27  (01-28-2010)
Rent and Royalties

  1. Rent and royalty income is compensation for the use of property or rights by someone other than the owner.

  2. Rents and royalties are reported on Form 1099–MISC or PTK-1 and SBK-1.

  3. Compare RENT or ROYAL amounts with entries on:

    1. Schedule E, Part I,. If payer names are listed, match specific amounts. If payer names are not listed, add all Rent and Royalty amounts together and compare the total amount to the total reported rents or royalties.

    2. Schedule E, Part II. Amounts must match within $1 or be identified as rents and royalties.

    3. Schedule C, Part 1, line 1 (or Schedule C-EZ, line 1). If the taxpayer is in the business of rental property, or it can be determined from the payer name or business activity that the income is from the same source, compare the total case minor amount to the amount on Gross receipts or sales, line.

      Note:

      When verifying Rents/Royalties income on Schedule C, also consider any additional case minor(s) for NEC, medical payments and/or fishing income to determine the under/unreported amount.

    4. Schedule C, Part 1, Other Income line (if specifically identified as rent/royalty income). ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ if the total Rents/Royalties is less than or equal to the amount reported on Schedule C, Other Income line. If the total of Rent/Royalties case minor income is greater than the amounts reported on Schedule C, Other Income line (Rent/Royalties specifically), ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    5. Schedule F, Part I or Part III.≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and is identified as rent or royalty.

    6. Form 4835, Farm Rental Income and Expenses. Consider the case minors ≡ ≡ ≡ ≡ ≡ ≡ if the gross amount on Form 4835 is large enough to include the Rent/Royalty amount. (As long as distributions from Form(s) 1099 Ag Sub, CCC Loans, and Crop Insurance Proceeds are accounted for first.)

    7. Form 2106, Reimbursements line , columns A and B. The amount must match within ≡ ≡ or must be from the same payer or occupation.

    8. Schedule D, if income is identified as Coal and Timber royalties, patents, rights of way or easements.

    9. If the taxpayer is a member of a federally recognized Native American tribe and there is an indication that the rental income was directly derived from the allotment land directly owned by the taxpayer, See IRM 5.18.1.10.2.3.27.

      Note:

      See IRM 5.18.1.10.2.3.27 for examples.

    10. If the taxpayer identifies the rental amount and cites it is excludable under IRC 280(A) or indicates that the rental was for less than fifteen (15) days, See IRM 5.18.1.10.2.3.27 for further instructions.

    11. Form 1040, Other Income line.The amount must match within $1 See IRM 5.18.1.10.2.3.27.

  4. If there is rent or royalty income reported on which the taxpayer should have paid self-employment tax but did not, consider SE tax unreported

  5. If under/unreported rent or royalty can be identified as coal/timber royalties, patents, rights of way or easements, it should be reported on Schedule D:

5.18.1.10.2.3.28  (01-28-2010)
Conduit Income

  1. Conduit income is the taxpayer's distributive share from a partnership (Form 1065), Small Business Corporation (Form 1120S), or Estates and Trusts (Form 1041).

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

  3. Delete K-1 case minors if the payee or payer area identifies the income as being from:

    • Keogh accounts or 403(b) accounts

    • SEP or IRA accounts

    • Pension Plan or Profit Sharing Plan, including 401(k) plan

    • Municipal Bond funds

  4. Be aware that the taxpayer may have netted the negative K-1 case minors against positive ones. Review all forms, schedules and attached explanations to identify gross income amounts.

    Note:

    Ensure that any amounts reported on attachments are properly included on Schedule E and in the AGI on the tax return.

    Note:

    The taxpayer may combine negative distributive share amounts with Section 179 Expenses and report the total loss on Schedule E, Part II, column (Passive Income from Schedule K-1) or (Section 179 expense deduction from Form 4562). If the taxpayer did not claim the Section 179 Expense on Schedule E, Part II, column (Nonpassive income from Schedule K-1), consider the issue resolved.

  5. Schedules K-1 are not required to be attached to the return. If attached, use them to determine any under/unreported income..

  6. Schedules K-1 should not include W/H. Only backup withholding can be reported on a Schedule K-1. W/H amounts shown on a PTK-1 (Form 1065), SBK-1 (Form 1120S) or TRK-1 (Form 1041) may be the result of erroneously identified/transcribed Schedule K-1 data. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  7. Conduit income may be found elsewhere on the return and/or attachments. Thoroughly review the entire return, schedules and attachments before pursuing discrepant K-1 amounts.

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

    2. Consider each component of a K-1 case minor separately. For example, if the taxpayer only reports the INT/DIV portion of the case minor on Schedule B but fails to report the remaining K-1 income types included on the case minor , follow under/unreported income procedures.

  8. INT is included on Schedule B, Part I. Pursue any under/unreported amounts.

    Note:

    When reporting INT income from TRK-1 (Trusts) case minors, the payer name on the case minor may not match the payer name on the return. Use the dollar match criteria to determine if the income is properly reported.

  9. DIV is included on Schedule B, Part II,. Pursue any under/unreported amounts..

    Note:

    On DIV income from TRK-1 (Trusts), the payer name on the case minor may not match the payer name on the return. Use the dollar match criteria to determine if the income is properly reported.

  10. Group Qualifying Dividends from all case minors (both Form 1099-DIV and Schedule K-1) and compare to Form 1040/1040A, Qualifying Dividends line (Tax Year 2003 and greater)

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

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

  11. Short Term Capital Gain (STCG) is reported on Schedule D, Short Term Capital Gain line Pursue any under/unreported amounts.

  12. Long Term Capitol Gain (LTCG) is reported on Schedule D, Long Term Capital Gain line, column (gain ro loss for the entire year). Pursue any under/unreported amounts.

    Note:

    If the taxpayer did not file a Schedule D, determine if the LTCG is reported directly on the Form 1040, Capital Gain line.

  13. ROYAL is reported on Schedule E, Part I, Royalties received line.

  14. Section 179 Expenses are generally reported on Schedule E, Part II, Column (Nonpassive income from Schedule K-1). Taxpayers may reduce the Ordinary Income, Real Income, Other rental or Gross pay amount by the 179 EX and report the net income on column (Nonpassive loss from Schedule K-1) or (Section 179 expenses deduction from Form 4562). If the Ordinary Income, Real Income, Other rental or Gross pay under/unreported amount matches the 179EX amount on the K-1 case minor AND column (Nonpassive income from Schedule K-1) is blank, consider the case minor reported. If the taxpayer also included the 179EX on column (Nonpassive income from Schedule K-1) this represents a double deduction. Consider the deduction, underreported K-1 income.

  15. Ordinary Income, Real Income, Other rental or Gross pay is reported on Schedule E, Part II, Columns (Nonpassive loss from Schedule K-1) and/or (Nonpassive income from Schedule K-1). If the amount is not found on Schedule E, Part II, Columns (Nonpassive loss from Schedule K-1) and/or (Nonpassive income from Schedule K-1), check for the payer name and/or for the payer EIN.

    • If the taxpayer reports passive income on column (Nonpassive loss from Schedule K-1) or passive loss on column (Passive income from Schedule K-1) AND attaches Form 8582, Passive Activity Loss Limitation, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • If the taxpayer reports income/loss on Schedule E, Part II, AND attaches a completed Form 6198, At Risk Limitation, that matches the payer name and/or EIN ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  16. Business Income and Passive Income are reported on Schedule E, Part III, column (Passive income from Schedule K-1) and/or (Passive loss from Schedule K-1), If the amount is not found on Schedule E, Part III, column (Passive income from Schedule K-1) and/or (Passive loss from Schedule K-1), check column for the payer name and/or for the payer EIN.

    • If the taxpayer reports passive income on column (Passive income from Schedule K-1) and/or (Passive loss from Schedule K-1), AND attaches Form 8582, Passive Activity Loss Limitation, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • If the taxpayer reports income/loss on Schedule E, Part III AND attaches a completed Form 6198, At Risk Limitation, that matches the payer name and/or EIN ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  17. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  18. Consider conduit case minors ≡ ≡ ≡ ≡ ≡ ≡ ≡ if a statement attached to the return indicates:

    • The income is held in trust for someone else.

    • The Partner, Beneficiary or Shareholder filed Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), or uses terminology such as: "inconsistent treatment" or "administrative adjustment request (AAR)" .

    • The Partner or Shareholder filed a Form 8082 AND indicates an election under Rev. Proc. 2003-79 to apply a ratable 4-year spread to the share of the income attributable to a change in the annual accounting period or uses similar terminology.

    • Per IRC 751 or IRC 754, or states the partnership (PTK-1) was an "entire disposition" , or the taxpayer states that he/she disposed of their entire ownership in the partnership.

    • The income was reported by the Partnership, S-Corp or Trust.

    • The Partnership (PTK-1) case minor was from a Publicly Traded Partnership (PTP).

    • The Partnership, S-Corp or Trust files on a fiscal year basis. (Form 1040 calendar year filers that receive income/loss from a fiscal year K-1 are instructed to report the income/loss in the subsequent tax year.

  19. If a Form W-2, 1099-MISC or Schedule K-1 (PTK-1, SBK-1 or TRK-1) case minor 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 case minors is considered fully reported ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. If either case minor is only partially reported or both are fully underreported, pursue both issues.

  20. If multiple conduit case minors are present from the same payer for the same taxpayer take the following action:

    1. Research IDRS CC:IRPTRL for each case minor to determine the On File Date.

    2. Consider the case minor with the latest On File Date as valid and delete the other(s).

    3. If the On File Date is the same for multiple case minors and one is reported, delete the other.

    4. If none of the case minors are reported, consider the total unreported

  21. Pursue all fully ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  22. IDRS research is required to determine if fully under/unreported TRK-1case minors (Trusts) are the result of a fiscal year filling requirement. Using the payer EIN:

    1. Research IDRS CC:BMFOLI to determine the tax period involved (i.e. MFT05 posted with the return indicator of "Y" ).

    2. If the period shown does not correspond with the 12-month tax period on the return consider the issue resolved.

      Note:

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

  23. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ K-1 case minors when they are ≡ ≡ ≡ ≡ ≡ ≡ ≡ reported and the under/unreported amount is less than ≡ ≡ ≡ ≡ ≡ ≡ per income type, per payer.

    Note:

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

5.18.1.10.2.3.29  (10-01-2005)
Patronage Dividends

  1. Patronage dividends are paid by cooperatives. They are considered income unless they are attributable to personal or family items, capital assets, or depreciable assets used in the taxpayer's business.

  2. Patronage dividends are reported to IRS on Form 1099-PATR.

  3. Compare Form 1099-PATR case minor amounts with entries on:

    1. Schedule F, or Form 4835, cooperative distributions lines. If the 1099-PATR is less than or equal to the amount reported on any of these lines, consider the case minors reported..

    2. Schedule E, Part I. If an amount is identified as farm rental AND matches ≡ ≡ ≡ ≡ ≡ ≡ ≡ , consider the Form 1099-PATR case minor(s) reported..

    3. Schedule E, Part II. If the income is from a farming business, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

      Note:

      If it cannot be determined from Schedule E, Part II that the ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    4. Schedule B, Part II. The amount must match ≡ ≡ ≡ ≡ or be identified by payer name.

    5. Schedule C or C-EZ, Other Income line,, if the business activity is fishing related (i.e., Principal Business 2246) or the distribution received is from a cooperative. The amount ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , must be clearly identified as patronage dividends, or must be identified by payer.

  4. If there is a Form W-2 or WAGE case minor present that shows the taxpayer is incorporated (payer name must include INC, PA, PC or SC) in a farming business, and paid wages to himself/herself (payer name and/or address is similar to or matches the taxpayer's name and/or address). ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. If there are reported patronage dividends on which the taxpayer should pay SE tax but did not, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

5.18.1.10.2.3.30  (01-28-2010)
Other Income

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

  2. Compare Form 1099–MISC OTINC amounts with entries on:

    1. Schedule C, Schedule F, Form 4835, Other Income lines.

  3. Comparisons for the following entries must ≡ ≡ ≡ ≡ ≡ ≡ ≡ or be CLEARLY IDENTIFIED as OTINC:

    1. Form 1040, 1040A, 1040EZ wages, salaries, tips, etc. lines.

    2. Form 1040, Other Income line. The taxpayer must provide enough information on the line or an attachment to isolate the amount he/she is reporting from the payer in question.

    3. Schedule E, Part II. Consider Other Income ≡ ≡ ≡ ≡ ≡ here if it can be determined from the payer name or business activity that it is the same income.

    4. Schedule F, Part I, Sales of livestock lines. Consider Other Income ≡ ≡ ≡ ≡ ≡ ≡ ≡ here if it can be determined from the payer name or business activity that it is the same income.

    5. Schedule C, Part I, Gross receipts or sales line. Consider Other Income ≡ ≡ ≡ ≡ ≡ here if it is determined from the payer name or business activity that it is the same income.

    6. Form 2106, Reimbursements line.

  4. If the taxpayer reports a lesser amount, consider the ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , unless documentation is attached to the return (i.e., taxpayer claimed fair market value).

  5. ≡ ≡ ≡ Other Income as ≡ ≡ ≡ ≡ ≡ ≡ if:

    1. The taxpayer is incorporated (payer name must include INC, PA, SC or PC) and pays wages to himself/herself (the name and/or address of the payer is similar to or matches the name and/or address if the taxpayer). ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. The taxpayer appears to be a partner or shareholder as shown on Schedule E, Part II and the payer can be related to the partnership. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. The Other Income amount may represent a court award/settlement amount, as indicated on the taxpayer's attachment. The full amount is to be reported on Form 1040, Other Income line. The following items are to be included as Ordinary Income:

    1. Interest on any award.

    2. Compensation for lost wages or lost profits unless awarded due to personal physical injury or sickness.

    3. Punitive damages. It does not matter if they relate to a physical injury or physical sickness.

    4. Amounts received in settlement of pension rights (if you did not contribute to the plan).

    5. Damages for patent or copyright infringement, breach of contract or interference with business operations that replace ordinary income.

    6. Back pay and damages for emotional distress received to satisfy a claim under Title VII of the Civil Rights Act of 1964.

    7. Damages received for emotional distress due to a personal injury that is unrelated to a physical injury or sickness (e.g., employment discrimination or injury to reputation).

  7. Any legal fees associated with the award/settlement are taken as a deduction on Schedule A. Gains from reimbursements for damages, casualty and theft, etc., are reported on Forms 4684 and 4797.

    1. Taxpayers are only allowed to deduct legal expenses incurred in attempting to produce or collect taxable income. For business related legal expenses, Schedules C, C-EZ, E, part I, and/or F may be used.

    2. If the taxpayer nets the amount for legal fees, consider the deducted amount under/unreported.

  8. Other Income paid by an auto manufacturer to a motor vehicle salesperson is not subject to SE tax and CANNOT be reported on Schedule C or Schedule C-EZ. If reported on Schedule C or Schedule C-EZ:

    1. Consider expenses ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    2. Adjust SE tax as appropriate.

  9. If Other Income is partially reported on Schedule C, C-EZ, or F, treat as self-employment income.

  10. If Other Income is reported and the taxpayer should have paid SE tax but did not, consider the SE tax ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

  11. Form 1099-MISC case minors with Other Income amounts may reflect W/H.

5.18.1.10.2.3.31  (01-28-2010)
Gambling Income

  1. Gambling income represents gross winnings from a gambling activity.

  2. Gambling income is reported on Form W-2G.

  3. Comparisons for the following must match ≡ ≡ ≡ ≡ ≡ ≡ match or be CLEARLY IDENTIFIED as GAMBL:

    1. Form 1040, Form 1040A, Form 1040EZ, Wages, salaries, tips etc. line.

    2. Form 1040, Other Income line.

    3. Schedule C, Schedule C-EZ, Part I, Gross receipts or Other Income lines, if payer or business activity indicates that it is the same income.

    4. Schedule F, Other Income lines.

  4. Do not accept the taxpayer's attempt to report lottery lump-sum payments on Schedule D. Taxpayers who sell their rights to future payments of their yearly lottery installments must report the lump sum payment as "Other Income" . This income≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. If neither gambling income nor gambling losses are reported, consider the entire case minor(s) under/unreported.

5.18.1.10.2.3.31.1  (12-30-2011)
Gambling Losses

  1. If the taxpayer itemizes deductions on Schedule A, he/she may deduct gambling losses equal to gambling winnings. If the taxpayer deducts gambling losses on Schedule A but reports no winnings, disallow the gambling losses on Schedule A.

    Exception:

    If there are under/unreported Gambling case minors, allow the reported Gambling Losses up to the amount of the under/unreported Gambling case minors.

  2. The taxpayer is eligible to itemize deductions when deductions on Schedule A exceed the applicable standard deduction amounts for their filing status.

  3. Disallow Gambling losses if:

    1. They exceed the reported amount of gambling winnings, disallow the excess.

    2. They are deducted twice. (The taxpayer reports net gambling winnings and also deducts gambling losses on Schedule A.)

    3. They are directly deducted from gambling winnings, and the taxpayer is not eligible to itemize deductions. (Gambling losses offset against gambling winnings are less than the standard deduction amount.)

  4. Only taxpayers who conduct gambling as a business (i.e., "professional gambler" ) are permitted to report gambling income and losses on a Schedule C. The taxpayer may claim gambling losses only up to the amount of gambling income. If the taxpayer claims gambling losses in excess of gambling income, disallow the portion of gambling losses in excess of income.

  5. If it appears that gambling is not the primary source of income for the taxpayer (example: the taxpayer lists their occupation as other than "professional gambler" and/or reports significant earned income from non-gambling sources), consider the expenses underreported income.

  6. Form W–2G amounts may reflect W/H.

5.18.1.10.2.3.32  (09-20-2011)
Cancellation of Debt

  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.

    Note:

    Refer TP to the following applicable Publications when pursuing under-reported income:

    1. Pub Publication 908 - Bankruptcy Tax Guide

    2. Pub Publication 4681 - Canceled Debts, Foreclosures, Repossessions and Abandonments

    3. Pub Publication 544 - Sales and Other Dispositions of Assets

  2. Cancellation of Debt is reported on either Form 1099-A or Form 1099-C (box 2) Information Only.

  3. If the creditor has indicated on F1099-C (box 6) that this debt was cancelled in a bankruptcy proceeding, delete the case minor.

  4. On a DBTCN case minor, if the FMV (fair market value) amount is equal to or greater than the DBTCN amount, delete the case minor.

  5. Comparisons for the following entries must ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ or be CLEARLY IDENTIFIED as DBTCN:

    1. Form 1040, Schedule C, Schedule E, Schedule F, Other Income lines.

    2. Give credit for amounts computed or explained on an attachment that are identified as being from the same payer.

    Exception:

    If Form 982, Reduction of Tax Attributes Due to Discharge or Indebtedness, is attached with the total amount of Discharged Indebtedness line, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. If there are two DBTCN case minors with identical payer names and money amounts and one case minor is for the primary taxpayer and the other is for the spouse, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

  7. If the taxpayer reduces the reported DBTCN amount by the INTFG (interest forgiven) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  8. Consider the DBTCN ≡ ≡ ≡ ≡ ≡ when, DBTCN is from a Student Loan, and the taxpayer has indicated ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  9. Form 982 must be completed by the TP in order to claim the exclusion created under the Mortgage Forgiveness Debt Relief Act of 2007 (Section 108(a)(1)(e) and 108(h). This exclusion applies to qualified principle residence indebtedness that is discharged in calendar years 2007 through 2012. The maximum amount that can be treated as qualified principal residence indebtedness is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  10. If the taxpayer has received DBTCN from a Foreclosure or Repossession the loan is either a non-recourse debt or a recourse debt. A non-recourse debtis one where the taxpayer is not personally liable for repaying the debt because the loan is secured by property (e.g. home, boat, car, etc.) A recourse debt is one where the taxpayer "IS" personally liable for repaying the debt. If the taxpayer loses property from either a foreclosure or a repossession, it is treated as a sale or exchange from which the taxpayer may realize a gain, loss, and/or ordinary income.

    1. On a non-recourse debtthe taxpayer figures his/her gain or loss by comparing the balance of the loan amount with the adjusted basis. The difference between the two is the gain or loss amount. Any losses are non-deductible, unless the property was used in a trade or business or held for investment. Losses in excess of gains from sales of property used in a trade or business are deductible. Losses in excess of gains from sale of capital assets held for investment are deductible up to $3,000 ($1,500 for married filing separately), ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ If the taxpayer has indicated the DBTCN amount was from a foreclosure or repossession and was a non-recourse debt (or that he/she is not personally liable), consider the DBTCN case minor(s) ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Exception:

      If the taxpayer has taken a non-deductible loss on Form 1040, Capital Gain line, consider the DBTCN ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. On a recourse debtthe taxpayer has to figure his/her gain or loss as described in (7) above PLUS ordinary income (if applicable) by comparing the fair market value of the property and the canceled debt amount. If the FMV amount is less than the DBTCN amount the difference is includable in income on form 1040, Other Income line.

    Example:

    If the DBTCN amount is $10,000 and the fair market value (FMV) of the property is $9,000 the difference of $1,000 is considered ordinary income. If the adjusted basis of the property is $15,000 and the DBTCN is $10,000, the difference between the basis and the FMV ($6,000) is the loss amount

    1. If the taxpayer has not reported any of the ordinary income, consider the total amount ≡ ≡ ≡ ≡ ≡

    2. If the taxpayer has claimed the non-deductible loss on his/her return, consider the loss as the ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ amount.

  11. If the taxpayer indicates that the income is not taxable because he/she is insolvent, the taxpayer MUST provide a statement showing the amount of his/her insolvency. If the taxpayer does not provide a breakdown of his/her assets and liabilities, DO NOT consider him/her insolvent. The taxpayer is considered insolvent if the net liability amount(s) shown on the attached statement is ≡ ≡ ≡ ≡ than the total fair market value of assets immediately prior to the debt cancellation.

    1. If the DBTCN case minor amount(s) is less than or equal to the insolvency amount, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. If the DBTCN case minor amount(s) is more than the insolvency amount, the amount of the taxpayer's insolvency must be considered. The portion of DBTCN that equals the insolvency amount is not taxable. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Example:

      If the taxpayer is insolvent for $30,000 and we have a DBTCN case minor for $35,000 the difference of $5,000 is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  12. If the taxpayer indicates that he/she did not report the DBTCN income because he/she filed for Chapter 7 or 11 Bankruptcy,≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  13. If the taxpayer states that he/she filed for either Chapter 12 or 13 of the Bankruptcy Code or does not indicate the Chapter, consider the income ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  14. If the taxpayer indicates that the cancellation or discharge of debt was due to qualified farm debt,≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

5.18.1.10.2.3.33  (01-28-2010)
Taxable Grants

  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. Compare GRANT amounts with entries on Form 1040, Other Income line, or an attachment to the return.

    • The amount must ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , or

    • Must be identified as grant income.

  4. If the payer is the US Department of Agriculture, compare grant amount(s) with entries on:

    1. Schedule F, Form 4835,Agricultural Programs, or Other Income lines.

    2. The amount must ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ or be clearly identified as grants.

  5. Form 1099-G case minor(s) with GRANT amounts may reflect W/H.

5.18.1.10.2.3.34  (01-28-2010)
Substitute Payments in Lieu of Dividends or Interest

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

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

  3. Compare Substitute payments in lieu of dividends or interest amounts with entries on Form 1040, Other Income line.

    • The amount must ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , or

    • Must be clearly identified as substitute payments in lieu of dividends income.

5.18.1.10.2.3.35  (12-30-2011)
Securities Sales

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

  2. Securities sales income is reported on Form 1099-B.

  3. Consider 1099-B stock amounts ≡ ≡ ≡ ≡ ≡ ≡ when there is an indication they are:

    • Related to Unit, High Yield, or Bond Trusts

    • Related to Certificates of Deposits (CDs)

    • Related to GNMA (Government National Mortgage Association) Funds

    • Related to FNMA (Federal National Mortgage Association) Funds.

    • Related to FHLMC (Federal Home Loan Mortgage Corporation)

    • Characterized as withdrawal payments

    • Characterized as redemption of bonds

    • Negative 1099–B Stock amount on Form 1099-B case minor

    • Regulated Futures Contracts and Aggregate Profit/Loss amounts

    • "Tax Free Exchange" or "Nontaxable Municipal Bond" shows in the entity section of the Form 1099-B case minor

  4. Some securities sales case minor(s) appear to be duplicates because the account numbers, the amounts, AND the source (paper or tape) are identical. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. Compare 1099–B Stock amounts with entries on:

    1. Schedule D, Part I, sales price lines, column d

    2. Schedule D, Part II, sales price lines, column d.

  6. Comparisons with the following entries must ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ or be CLEARLY IDENTIFIED as 1099-B Stock:

    1. Form 4797, Part II, Commission Fees line and the TP has made a mark-to-market election.

    2. Schedule C, Part I, Commission Fees line and the TP made a mark-to-market election.

    3. Form 6252, Part I. Ensure that entries on Form 6252 are properly carried over to either Form 4797 or Schedule D.

  7. If Stock Option Statements are attached to the return consider them.

    Note:

    Income from Stock Options that are exercised and sold on the same day (Same Day Sale) are not required to be reported on 1099 B and may be included in W 2 earnings.

  8. 1099–B Stock amounts may be taxed on Schedule D at the applicable capital gains.

  9. Form 1099-B case minor(s) with 1099–B Stock amounts may reflect W/H.

5.18.1.10.2.3.35.1  (01-28-2010)
Day Traders

  1. Transactions from trading activities that result in capital gains and losses are reported on Schedule D (Form 1040) or on Form 4797 (when the TP has made a mark-to-market election).

  2. The gain or loss from the trading of securities is not subject to SE tax.

  3. Taxpayers who engage in the business of buying and selling securities (i.e. a trader or day trader) are allowed to claim business related expenses on Schedule C.

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

  5. If there is no indication that a mark-to-market election was made and the TP reports securities gains on Schedule C (Part I, Gross Income line is positive) or Form 4797 (Part II, Gross Income line is positive) and the securities are ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ the 1099-B Stock case minor(s), consider the 1099-B Stock ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. If there is no indication that a mark-to-market election was made and the TP reports securities losses on Schedule C (Part I, Gross Income line is negative) or Form 4797 (Part II, Gross Income line is negative), take the following actions;

    1. If securities reported are ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ the 1099-B Stock case minor(s), consider the 1099-B Stock reported, otherwise the ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Ensure that any capital losses reported on Schedule D are accounted for in determining the overall disallowed losses amount.

    3. Do not make any adjustments to expenses claimed on Schedule C, Part II, Total Expenses line .

    4. Do not make any adjustments to SE TAX paid.

    5. Include the following in the letter to the taxpayer: "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "

5.18.1.10.2.3.36  (01-28-2010)
Bartering

  1. Bartering is an exchange of one taxpayer's property or services for another taxpayer's property or services. The fair market value of property or services received through barter is taxable income.

    Example:

    If a doctor agrees to give an accountant a medical exam in exchange for tax return preparation, the fair market value of the medical exam is taxable to the accountant, and the fair market value of the tax return preparation is taxable to the doctor.

  2. If these exchanges occurred through a barter exchange, they are reported to IRS on Form 1099-B. Form 1099-B shows the value of cash, property, services, credits, or scrip received by the taxpayer.

  3. Bartering income is reported on:

    1. Schedule C, or C-EZ, Gross receipts or sales, Other Income lines.

    2. Schedule F, Sales, Income, Cooperative Distributions, or if the income was included in the taxable income lines. (Consider bartering reported here only if it can determined from the payer name or business activity that it is farm related income.)

  4. Comparisons for the following entries must ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ or be CLEARLY IDENTIFIED as BARTR:

    1. Form 1040, Other Income line.

    2. Schedule D, Sales Price,

      Note:

      Payers may erroneously report securities transactions as bartering since both income types are reported on Form 1099–B.

    3. Schedule E, Rent and Royalties lines.

    4. Form 4835, Cooperative Distributions, or Other Income lines.

  5. Bartering is generally considered self-employment income. If there is reported Bartering on which the taxpayer should have paid SE tax but did not, consider SE tax ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ..

    Note:

    Do not assess SE tax when Barter Income is fully or partially reported on Form 4835, Schedule D, or Schedule E, Part I.

5.18.1.10.2.3.37  (01-28-2010)
Real Estate Transactions

  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. If there are two Form 1099-S case minors with the same REAL amount, ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. Taxpayers can exclude certain real estate gains. See Publication X and 17 for specific year limitations and exclusions. Any gain in excess of the exclusion amount must be reported as income.

  5. Compare Form 1099 S amounts with entries on:

    1. Form 4797, Sale of Business Property,

    2. Form 6252, Installment Sale Income,

    3. Schedule D, lines sales price lines or From Forms 4794 and 6252 .

  6. Consider REAL amount(s) reported if the taxpayer is married filing separate and reports half the case minor amount(s).

  7. Real Estate is potentially under/unreported when the total of all real estate transaction case minors ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ than the appropriate line item entries on the forms and/or schedules.

    Caution:

    If the total of real estate case minor(s) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ amount , consider the entire ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  8. If there is a Schedule C or C-EZ attached to the return and the principal business is listed as real estate broker, real estate sales, building, construction, or remodeling; or the principal business activity code indicates related business, i.e., 233200, 233300, 531210, etc., consider REAL amount(s) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ when:

    1. Gross Receipts on Schedule C or C-EZ are larger than the REAL amount(s),

    2. The taxpayer reports the exact amount of the case minor(s) on Schedule C or C-EZ Gross Sales or receipts lines, or

    3. The taxpayer includes the real estate sale on an attachment.

  9. Form 1099-B case minor(s) with REAL amounts may reflect W/H.

5.18.1.10.2.3.38  (01-28-2010)
Refund of Overpaid Mortgage Interest Deduction

  1. Refund of Overpaid Mortgage Interest Deduction (ROMID) is a refund of interest the taxpayer paid to a lending institution. If the taxpayer receives a refund in the same year he/she paid it, he/she must either:

    1. Reduce the mortgage interest deduction claimed on Schedules A, C, E, F, Forms 4835, 8829, or

    2. Claim the refund amount on Form 1040, Other Income line.

  2. ROMID amounts are reported to IRS on Form(s) 1098, box 3.

  3. Compare ROMID amount(s) with entries on:

    1. Form 1040, Other Income line. The amount must match within $1 or must be clearly identified as ROMID.

    2. Schedules A, C, E, F, Forms 4835, or 8829 where it appears the taxpayer netted (subtracted ROMID amount) the mortgage interest amount reported.

      Note:

      Use MORT case minor amounts for reference ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. If the taxpayer did not itemize deductions in the prior year, the ROMID may still be taxable if the taxpayer claimed a mortgage interest deduction on Schedule(s) C, E, F or Form(s) 4835 or 8829. Research may be done on IDRS using RTVUE to determine if these Schedules or Forms were filed by the taxpayer and if a mortgage interest deduction was claimed. If the taxpayer did not claim the mortgage deduction on his/her prior year return, consider reported.

5.18.1.10.2.3.39  (01-28-2010)
Qualified Tuition Program Payments

  1. Qualified Tuition Program Payments are reported to IRS on Form 1099–Q. Amount indicators on the Form 1099-Q will reflect Gross Distribution (Box 1); Earnings (Box 2); and Basis (Box 3).

  2. Only Box 2 Earnings will be pursued as underreported. Gross Distribution and Basis will be for information only. Underreporter Earnings will be treated as regular income (like interest and dividends) and NOT as earned income for purposes of computing EITC, Child Care Credit, etc.

  3. If there is an indication of a Trustee to Trustee transfer (Form 1099-Q, box 4 is checked), the distribution is nontaxable.

  4. When there are multiple 1099-Q case minor(s), combine positive Earning amounts with any negative Earning amounts.

  5. 1099-Q show a Distribution Type in box 5:

    • Qualified Tuition Program (QTP) from a private educational institution.

    • QTP from a State (or state agent/instrumentality)

    • - Coverdell ESA. IRM 5.18.1.10.2.3.40.

  6. Earnings are taxable ONLY when the distribution exceeds the adjusted qualified higher education expenses. The TP performs a calculation to determine the taxable portion of the Earnings.

  7. Taxable QTP earnings are subject to a 10% additional tax on the amount included as income. Taxpayers report the distribution subject to the 10% tax on Form 5329, Part II.

  8. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ if there is an indication that the QTP distribution was:

    1. Paid by a beneficiary (or the estate of the designated beneficiary) on or after the death of the designated beneficiary.

    2. The beneficiary is disabled.

    3. Included in income only because the qualified education expenses were taken into account in determining the Hope of Lifetime Learning Credit.

    4. Included in income because of attendance at a U.S. Military Academy (such as West Point).

    5. The beneficiary received a qualified scholarship, Veterans educational assistance, employer-provided educational assistance or any other nontaxable (other than gifts or inheritances) payments received for educational expenses.

    6. Made before 2004 and used for qualified education expenses, but included in income because it was paid from a QTP established and maintained by an eligible educational institution.

    Note:

    If the QTP payer is identified as Type- QTP from a State (or state agent/instrumentality), ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ on the return that is clearly identified as Earnings. Consider any QTP case minor(s) with Type QTP from a State (or state agent/instrumentality) ≡ ≡ ≡ ≡ ≡ if the TP indicated the designated beneficiary's qualified education expenses were greater than the QTP distribution.

5.18.1.10.2.3.40  (12-30-2011)
Coverdell ESAs

  1. Coverdell ESAs (CESA) are a trust or custodial account created only for the purpose of paying the qualified education expenses of the designated beneficiary.

  2. Distributions are reported on 1099–Qs. Contributions to an CESA are identified by a Form 5498-ESA. Contributions to an CESA are non-deductible. If the taxpayer claims an IRA deduction and the amount matches a Form 5498-ESA contribution, consider the deduction underreported income.

  3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Gross Distributions and Basis are for information only. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ earnings are treated as regular income (like interest and dividends) and NOT as earned income for purposes of computing EITC, Child Care Credit, etc.

  4. If there is an indication of a Trustee to Trustee transfer (Form 1099 Q, box 4 is checked), the distribution is nontaxable.

  5. If a Form 5498E case minor is present with the literal EROLV (Excess Rollover), and has an amount that matches Form 1099-Q Gross Distribution ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. When there are multiple 1099-Q case minor(s), combine positive earning amounts with any negative earning amounts. If the combined net Earning is negative, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .-

  7. 1099-Q show a Distribution Type Indicator in box 5:

    • Qualified Tuition Program (QTP) from a private educational institution.

    • QTP from a State (or state agent/instrumentality)

    • Coverdell ESA.

  8. Generally, a CESA distribution is non-taxable if it is less than the designated beneficiary's qualified education expenses. The taxable amount is reported on Form 1040, Other Income line. Consider the CESA distribution ≡ ≡ ≡ ≡ ≡ when:

    1. The TP identifies the amount reported on Other Income line as the taxable portion of the CESA case minor. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. The TP indicates the designated beneficiary's qualified education expenses ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ than the CESA distribution.

  9. Taxable CESA earnings are subject to a 10% additional tax on the amount included as income. Taxpayers report the distribution subject to the 10% tax on Form 5329, Part II.

  10. Manually determine 10% of the taxable CESA earnings, and consider the amount ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

  11. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ if there is an indication that the CESA distribution was:

    1. Paid to a beneficiary (or the estate of the designated beneficiary) on or after the death of the designated beneficiary.

    2. The beneficiary is disabled.

    3. Included in income only because the qualified education expenses were taken into account in determining the Hope or Lifetime Learning Credit.

    4. Included in income because of attendance at a U.S. military academy (such as West Point).

    5. A return of an excess contribution (made before the first day of the sixth month of the following year). Additional tax on excess contributions is reported on Form 5329, Part V.

    6. The beneficiary received a qualified scholarship, Veterans educational assistance, Employer-provided educational assistance or any other nontaxable (other than gifts or inheritances) payments received for educational expenses.

5.18.1.10.2.3.41  (01-28-2010)
Archer Medical Savings Account

  1. Archer Medical Savings Account (AMSA) distribution is reported on Form 1099–MSA.

  2. Taxpayers must complete Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, Section A to compute the correct amount of "MSA." The taxpayer may write "AMSA" on the dotted portion of Form 1040, Other Income line, to identify the income.

  3. Compare the Form 1099–MSA amount with the entry on Form 8853, Total Distributions, line 8a.

    1. If the amount is ≡ ≡ ≡ ≡ ≡ the case minor, consider the difference ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    2. If the amount ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , consider the MSA case minor reported.

      Note:

      Correspond for Form 8853 if a Form 1099–MSA is under/unreported and a Form 8853 is not attached to the tax return.

  4. Taxable AMSA distributions prior to age 65 with a distribution code of 1 or 5 are subject to a 15% tax.

  5. If the taxable MSA distributions are listed on Form 8853, Taxable Archer MSA distributions, line 10, but are not added into the taxpayer's AGI:

    1. Consider the Form 8853, line 10 amount ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

  6. If the taxpayer reduces his/her gross medical expenses on Schedule A by the amount of the MSA case minor instead of using Form 8853, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

5.18.1.10.2.3.42  (01-28-2010)
Long Term Care Benefits

  1. Long Term Care Benefits are reported on Form 1099–LTC.

  2. Taxpayers must complete Form 8853, Archer MSAs Section C to compute the correct amount for LTC. The taxpayer may write "LTC" on the dotted portion of Form 1040, Other Income line identify the income.

  3. Form 1099–LTC contains the following information:

    • Box 1 — Gross long term care benefits paid

    • Box 2 — Accelerated death benefits paid

    • Box 3 — Payment Type

    • Box 4 — Qualified Contract

    • Box 5 - Illness Type

  4. 1099-LTC box 3:

    • "0" if the first (Per Diem) and second (Reimbursement) boxes are blank

    • "1" if the first (Per Diem) box is checked

    • "2" if the second (Reimbursement) box is checked

    • "3" if both boxes are checked

  5. 1099–LTC, box 5 indicates the type of illness:

    • "0" if the first (Chronically Ill) and second (Terminally Ill) boxes are blank

    • "1" if the first (Chronically Ill) box is checked

    • "2" if the second (Terminally Ill) box is checked

    • "3" if both boxes are checked

  6. Taxpayers use Form 8853 to determine the taxable portion of either Form 1099–LTC gross long term care benefits or accelerated death benefits paid on a per diem basis.

    Note:

    Taxpayers are instructed not to include per diem accelerated death benefits paid because the insured was terminally ill.

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ LTC when the payment indicator shows a reimbursement.

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ LTC when the illness indicator shows terminally ill.

  7. Compare the Form 1099–LTC amount with the entry on Form 8853, Gross LTC payments, line 19 and the Box 2 amount with the entry on Form 8853, Accelerated death benefits, line 21.

    1. If the amount is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , consider the difference ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. If the amount ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , consider the LTC case minor ≡ ≡ ≡ ≡ ≡

      Note:

      Correspond for Form 8853 if a Form 1099–LTC is under/unreported and a Form 8853 is not attached to the tax return.

  8. If LTC taxable payments are listed on Form 8853, line 28, but are not added into the taxpayer's AGI:

    1. Consider the Form 8853, line 28 amount under/unreported

  9. If the taxpayer reduces his/her gross medical expenses on Schedule A by the amount of the LTC case minor instead of using Form 8853, consider the LTC case minor reported.

5.18.1.10.2.3.43  (09-03-2010)
Withholding

  1. If Withholding is claimed, but not supported by IRP or the taxpayer does not attach any supporting income documents, do the following:

    If Then
    The following items occur:
    • Unsupported withholding is greater than, ≡ ≡ ≡ ≡ ≡ ≡

    1. Make two telephone attempts to contact the taxpayer prior to corresponding in writing.

    2. If unable to contact by telephone, send appropriate correspondex letter or Quick note requesting documentation to substantiate the claim.

    3. If the taxpayer supplies supporting documentation, allow withholding.

    4. If the taxpayer does not reply or supply supporting documentation- disallow unsupported withholding. Correct return. Send 474C letter or Quick note.

    Note:

    If unsupported withholding is less than ≡ ≡ ≡ ≡ ≡ then process the return as filed.

5.18.1.10.2.3.44  (05-19-2009)
Excess Social Security

  1. Social Security Tax/Tier 1 Railroad Retirement Taxes (SST/RRT) are reported by payers on Form W-2.

  2. Refer to IRM 21.6.3.4.2.4(1-2) for information on wage limitations.

  3. Refer to IRM 21.6.3.4.2.4(3-5)if excess social security is claimed on the back of Form 1040.

  4. If the taxpayer is claiming additional Excess Social Security and attaching a Stock Option Transaction statement to support the additional amount(s) claimed, take the following action:

    1. The W/H and/or FICA shown on these documents are already included in the Form W-2 and cannot be claimed again.

    2. DO NOT accept any Stock Option Transaction Statements as documentation to account for the Excess Social Security.

  5. Refer to IRM 21.6.3.4.2.4(6) if an adjustment to Excess Social Security is required.

5.18.1.10.2.3.45  (06-21-2013)
Telephone Excise Tax Refund (TETR)

  1. TETR refers to the Telephone Excise Tax Refund. This is a refundable credit for Tax Year 2006. Taxpayers may request a standard amount, actual amount, or estimation.

    Note:

    The statute for requesting TETR Credit expired on July 27,2012; claim for credit cannot be accepted after this date.

    Note:

    Math error procedures do not apply to the TETR credit claimed on the income tax return.

  2. If the taxpayer requests the standard amount then use the following table for the correct amounts that are to be taken:

    IF the number of exemptions claimed is THEN the standard amount is
    0 $0
    1 $30
    2 $40
    3 $50
    4 or more $60

  3. If the taxpayer requests the actual paid, then Form 8913 must be attached to the return. Follow the IF/THEN chart below:

    IF THEN
    The taxpayer requests the actual amount but does not attach Form 8913
    • Accept the TETR amount if ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • Correspond for Form 8913 when ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ If the taxpayer does not respond, issue a 105C Disallowance letter.

    The taxpayer requests the actual amount and attaches Form 8913
    • Accept the taxpayer's figures when ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • If the amount claimed on Form 8913 differs from the amount reported on the federal income tax return and is greater than ≡ ≡ ≡ ≡ ≡ correspond with the taxpayer.If the taxpayer does not respond, issue a 106C Partial Disallowance letter.

    The taxpayer attaches the original telephone bills to the Form 8913 Return the telephone bills to the taxpayer with instructions to keep them for their records.

  4. Individual taxpayers (sole proprietors, farmers, contractors, owners of rental property) can use the estimation method, but only if they report gross rental and business income totaling more than $25,000.00 on their 2006 federal income tax return. Follow (3) IF/THEN procedures (actual paid) for taxpayers that use the estimation method.

    Note:

    A taxpayer cannot request the standard amount for their personal telephone line and also request the actual amount for their business telephone line.

    Note:

    If returns are not processed within ≡ ≡ days of the IRS received date do not figure the additional credit interest on the TETR portion. IRM 21.6.3.5.13 (2)

5.18.1.10.2.3.46  (08-09-2012)
First Time Homebuyer Credit (FTHBC)

  1. The Housing and Economic Recovery Act of 2008 provided a new refundable tax credit for individuals who were qualified first-time homebuyers of a principal residence in the United States.

    • Taxpayers who purchased a home after April 8, 2008, and on or before Dec. 31, 2008 may claim their credit on their 2008 tax returns

    • The maximum credit is 10 percent of the purchase price, up to $7,500 ($3,750 for married filing separately)

    Note:

    The credit for these 2008 purchases must be repaid in 15 equal installments over 15 years, beginning with the 2010 tax year. Procedures for Recapture of First-Time Homebuyer Credit are found in IRM 21.6.4.4.19.1

  2. The American Recovery and Reinvestment Act of 2009 provided a new refundable tax credit for individuals who were qualified first-time homebuyers of a principal residence in the United States.

    • Taxpayers who purchased a home on or after January 1, 2009, but before December 1, 2009, may claim the credit on either their 2008 or 2009 tax returns

    • The maximum credit is 10 percent of the purchase price, up to $8,000, ($4,000 for married filing separately).

    Note:

    They do not have to repay the credit, provided the home remains their main home for 36 months after the purchase date.

  3. The credit is computed on Form 5405, First-Time Homebuyer Credit, and entered on line 69 of the Form 1040.

  4. The amount of the credit begins to decrease (phase out) when the modified adjusted gross income (MAGI) exceeds the following:

    • For filing status 1,3, and 4 - $75,000.

    • For filing status 2 and 5 - $150,000.

  5. The taxpayer is not entitled to any of the credit when the modified adjusted gross income (MAGI) exceeds the following:

    • For filing status 1,3, and 4 - $95,000.

    • For filing status 2 and 5 - $170,000.

  6. The following taxpayers do not qualify for the first-time homebuyer credit. A homebuyer:

    • Who qualifies for the District of Columbia First-time Homebuyer Credit in the year of purchase or in any prior year

    • Whose home was financed by the proceeds of tax-exempt mortgage revenue bonds

    • Who is a nonresident alien

    • Who disposes of the residence (or it ceases to be the taxpayer's principal residence) before the close of a taxable year for which a credit otherwise would be allowable

  7. There are 2 types of homebuyer credits:

    • First Time Homebuyers


    There are certain documentation requirements for claiming the credit. Taxpayers who claim the credit on their 2009 tax return must file a paper — not electronic — return and attach Form 5405, “First-Time Homebuyer Credit and Repayment of the Credit”; and a properly executed copy of a settlement statement or Form HUD-1 bearing the name(s) of the buyer(s) and the date of the transaction used to complete the purchase.

    • Purchasers of conventional homes should include a copy of Form HUD-1, Settlement Statement, or other settlement statement, showing all parties' names, property address, sales price and date of purchase.

    • Purchasers of mobile homes who are unable to get a settlement statement should include a copy of the executed retail sales contract showing all parties' names, property address, purchase price and date of purchase.

    • Purchasers of newly constructed homes where a settlement statement is not available should include a copy of the certificate of occupancy showing the owner’s name, property address and date of the certificate.

    • Long Time Residents
      The November 2009 legislation extended the credit to long-time residents of the same main home if they purchase a new main home. To qualify, eligible taxpayers must show that they lived in their old homes for a five-consecutive-year period during the eight-year period ending on the purchase date of the new home. Long-time residents claiming the credit must attach any of the following documentation of the five-consecutive-year period:

    • Copy of the closing contract (HUD-1, or Settlement Statement bearing the name(s) of the buyer(s), and date of transaction for the prior residence.

    • Copies of real estate taxes paid for the property for at least 5 consecutive years showing the dwelling /improvements located on the land.

    • Yearly mortgage interest statement Form 1098 for 5 consecutive years.

    • Any other information which shows ownership of the prior residence and the home was used as a principal residence for 5 consecutive years (homeowner insurance policies, utility company statements, school records, etc).
      When adjusting an account for the FTHBC use Credit Reference Number (CRN) 258 to allow/increase the credit and CRN 258 with a minus sign (-) to decrease the credit.

      Note:

      The CRN converts to TC 766/767 Reference Number 258 at Master File. Enter only one of the following reason codes:

    • Use RC 109 (First Time Homebuyer Credit) when the home was purchased in 2008.

    • Use RC 110 (First Time Homebuyer Credit) when the home was purchased in 2009 or 2010.

    • Use RC 125 (First Time Homebuyer Credit) when the home was purchased by a long time resident (up to $6,500).

    • Use RC 126 (First Time Homebuyer Credit) only for homes purchased by first time homebuyers that are military using their one year extension.

    • Use RC 127 (Requirement to repay the First Time Homebuyer Credit Waived) only for military forgiveness.

    • Use RC 128 (First Time Homebuyer Credit) - for homes purchased by first time homebuyer WITHOUT binding contract documentation attached.

    • Use RC 129 (First Time Homebuyer Credit) - for long time residents WITHOUT binding contract or 5 out of 8 year documentation attached.

      Caution:

      It is imperative to use the correct reason code when adjusting the 2008 accounts. This code will be used to identify homes purchased in 2008 that require repayment.

      Note:

      If the required documentation is missing treat the case as a Contact Math Error and request the missing documents from the taxpayer. See also- Contact Math Errors 5.18.1.10.2.3.19.2.

    • If no response is received, the credit can be disallowed. Send a letter or quick note to the taxpayer explaining the reason the credit was disallowed. All Homebuyer credits of $5,000 or more where documentation is included will be referred to Exam per Classification procedures 5.18.1.10.2.3.50

5.18.1.10.2.3.47  (01-24-2012)
Unsigned Returns

  1. A return is not valid without valid signatures. If the filing status is joint, both signatures must be present.

    Exception:

    Decedent Joint Returns

  2. Consider signatures on faxed and/or photocopied returns valid.

  3. The taxpayer signature is required below the jurat (perjury statement) in the "Sign Here" area of the return.

    Note:

    Accept the taxpayer's signature if the taxpayer has arrowed their signature to the appropriate area.

  4. If any signature appears to be altered or there is reason to believe that the signature is not the taxpayer’s or a party authorized to sign on behalf of the taxpayer, follow Fraud Referral procedures. IRM 5.18.1.10.2.3.18.

  5. IF THEN
    There is no signature The tax return is unprocessable and will not be accepted by the service. The tax return is to be mailed back to the taxpayer.
    • Do not date stamp the return with an operation received date.

    • Clerical will prepare F3531 “Request for Missing Information or Papers to Complete Return”

    • Clerical will update AMS history with USR (unsigned return) - and the site abbreviation (F, AU or BSC) to indicate that an unsigned return was received. For example USR-BSC.

      Note:

      The F3531 that ASFR will use is a pink version of the form.

    1. The form is to be attached to the unsigned return and mailed back to the taxpayer after technical screening for all issues.

    2. Once screened the F3531 can be used to identify all issues by checking the applicable box (es).

    3. Mail the F3531 and the return to the taxpayer’s address shown on the return envelope, the return may reflect a prior address. If there is no envelope then use the address of record from IDRS CC ENMOD.

    Exception:

    If the return was received from a tax preparer use the taxpayer’s address not the tax preparer address when mailing the return back to the taxpayer.


    Use local clerical procedures for processing returns to be mailed back to the taxpayer.

  6. If the F3531 is returned without a signature on the return continue the ASFR process.

    IFThe return is received back and it is still unsigned THEN
    and there is a default assessment input TC 290 for .00; update history on AMS.
    and there is no default assessment continue ASFR processing, wait for default; update history on AMS.
    the F3531 and the return come back undeliverable follow undeliverable mail procedures;continue ASFR processing; update history on AMS.

    Note:

    A new Policy for Use of Fax and Signature Stamps (fax policy) has been revised to increase the threshold amount for acceptance of consents to assess additional tax and taxpayer closing agreements by fax. Consents to assess additional tax of ≡ ≡ ≡ ≡ or less can be accepted by fax if the taxpayer contact has been made and case history documents the date of contact and the desire of the taxpayer to submit consent by fax.

5.18.1.10.2.3.48  (05-19-2009)
IDRS Adjustment Fields

  1. All ASFR adjustments are input on IDRS using CC REQ54. The terminal response to REQ54 is the ADJ54 screen. IRM 4.13.7-10 for Adjustments ADJ54 job aid.

  2. Before transmitting your adjustment, verify the data input on the ADJ54 screen. Verify entries against figures transcribed on the case history sheet.

5.18.1.10.2.3.48.1  (01-24-2012)
Blocking Series

  1. The Blocking Series appears as the 9 and 10 digit of the DLN. When adjustments post, the blocking series identifies the type of adjustment. Additionally, certain blocking series direct association of related documents. See Document 6209 for a complete list of Blocking Series.

  2. When inputting an adjustment on an ASFR module, do the following:

    Use blocking series: When:
    54 Inputting an ASFR assessment on modules when a 30-Day Letter was issued.
    32 Inputting an ASFR assessment on modules when a 90-Day Letter was issued.

    Note:

    Mid year 2007 change to IDRS command code ADJ54 prompts the requestor to remember to use Block 32 for MFTs 05, 06, 15, 29, 30, 31 (tax class 0 and 2).

  3. When inputting an adjustment on an ASFR Reconsideration do the following:

    Use blocking series: When:
    00 Inputting a Reconsideration assessment and the source document is an original return.
    05 Inputting a Reconsideration assessment without an original document as the assessment source document.
    18 Inputting a Reconsideration assessment without an original return as a source document and the default assessment posted prior to June 2005.

5.18.1.10.2.3.48.2  (06-21-2013)
Date Fields

  1. Certain Date fields are required on ASFR adjustment. See the chart below to determine when a date should be input

  2. Identifying Date Fields - The table below lists the required date fields in the ADJ54 format and explains the purpose of each field.

    Date Field Purpose
    CORRESP-DT Used when the adjustment is in response to taxpayer correspondence. The date used is the date of the correspondence. If the taxpayer did not date the correspondence, use the postmark date. If the postmark date is unknown, use the date which is three days prior to the IRS received date. This date is shown in the generated response to the taxpayer.
    IRS-RECD-DT Used on all ASFR adjustments. The date used is the earliest IRS received stamped date on the case, or the date the return became processable when an invalid return is received. IRM 25.6.1.6.15 and 25.6.1.6.16 to determine the date the return is considered filed under IRC. This date is shown in the generated response to the taxpayer
    RET-PROC-DT Used in all ASFR adjustments. Normally, the date is the IRS received date. However, IRM 25.6.1.6.16 (when a return is processable for payment of overpayment interest to the taxpayer) and IRM 25.6.1.8.5 (when a delinquent original return claiming a refund is treated as filed using the postmark rule) to determine the date used.
    RFSCDT Used on ASFR adjustments when the RSED has expired. The date used is normally the earliest received date. RFSCDT and override indicator must be input for the adjustment to post. However, IRM 25.6.1.8.5 (when a delinquent original return claiming a refund is treated as filed using the postmark rule) and IRM 25.6.1.6.15 (effect of submission of additional information) to determine the date to use.
    DB-INT-TO-DT Used on restricted Interest adjustments.
    AMD-CLMS-DT Used on ASFR and Reconsiderations where an overpayment adjustment has been made. The date used is normally the earliest received date. See alsoIRM 20.2.4.7.5.4 to determine the date to use.
       

    Note:

    All dates are input in month, day, year (MMDDYYYY) format.

5.18.1.10.2.3.48.3  (01-25-2008)
Source Code

  1. Source Codes generate a literal that appears on the "Notice of Adjustment to Your Account" , CP 21/22, that the taxpayer receives after an adjustment is posted on IDRS. See Document 6209 Chapter 8 for more information on Source Code, including the actual literals that appear on the Notice.

  2. Source Codes (SC) must be entered when processing ASFR returns and Reconsiderations. The following SCs are normally used for ASFR returns and Reconsiderations:

    Source Code: Literal Used When
    0 Does not generate a literal.
    • Inputting a TC 290 for $ .00 amount with no reference number

    • Releasing a freeze, or

    • Associating documents with a filed source document.

    • No literal should appear on the Notice.

    1 As you requested, we changed your account for (YYYYXX) to correct your (RC) IRM 5.18.1.10.2.3.48.4 Use when inputting an ASFR or ASFR Reconsideration adjustment based on a filed return
    2 We changed your tax year account to reflect your Use when processing a return with a math error
    4 We changed your tax account for (YYYYXX) to correct an error we made. We apologize for any inconvenience we caused. The change will correct your (RC). IRM 5.18.1.10.2.3.48.4 Correcting an error made by an IRS employee

    Note:

    See Document 6209 , Chapter 8 for a complete list of Source Codes.

5.18.1.10.2.3.48.4  (01-24-2012)
Reason Codes

  1. Reason Codes should be input on all adjustments based on a filed return. The reason code appears in the source code literal on the Notice. There are four reason code positions on the ADJ54 screen.

    Note:

    See Document 6209 Chapter 8 for more information on Reason Codes, including the actual literals that appear on the Notice.

  2. For ASFR returns, at least one reason code is required, and up to three can be input on the ADJ54 screen.

  3. For ASFR Reconsiderations, use Reason Codes 066, 067, or 068 and if applicable two other reason codes on all adjustments where a return was filed.

    Exception:

    Do not use RC 066, 067 or 068 when adjusting an account and addressing Excess Social Security or RRTA Tier 1 tax withheld and Estimated payments. Use reason codes 051, 055, 065 and 013. IDRS will not allow the input of this particular adjustment unless these reason codes are used.

  4. The fourth position is reserved for penalty reason codes. See Document 6209 Chapter 10 for a complete list of penalty reason codes. IRM 5.18.1.10.2.3.13.11. and IRM 20.1.1.3 for complete instructions on penalty abatement.

5.18.1.10.2.3.48.5  (05-19-2009)
Priority Code

  1. Use Priority Code 2 per IRM 5.18.1.10.2.3.16.

  2. When there is a J- freeze on the module, and the freeze needs to be released, input a Priority 8 on CC REQ54.

  3. For additional instructions on priority codes Document Document 6209, Section 8-123.

5.18.1.10.2.3.48.6  (10-01-2005)
TC Fields

  1. Transactions are input in the TC fields with the applicable money amounts. Unless penalties and interest are manually calculated, the only TC input is the TC 290 for a dollar amount. The TC 290 includes tax per the taxable income, and the following additional taxes:

    • Self Employment Tax - Schedule SE- Schedule SE must be attached if Schedule C or C-EZ shows profit of $400.00 or more (SE income less than $400, the taxpayer is not liable for SE TAX. Refer to Local Exam Procedures if tax is not addressed

    • Social Security /Medicare Tax - Form 4137 - used when the taxpayer received TIPS of $20.00 or more in any month during the tax year.

    • Tax on Qualified Plans - Form 5329- used when taxpayer receives a distribution from an IRA or other Pension Plan prior to reaching the age 591/2

    • Advanced Earned Income Credit - certain taxpayers qualify to receive Earned Income Credit throughout the year included in their wages

    • Household Employment Tax - Schedule H - is used when the taxpayer employs and pays any one household employee wages of $1,100.00 or more during the tax year, the taxpayer withheld federal income taxes at the request of the employee, or the taxpayer paid total cash wages of $1,000.00 or more during any quarter of the tax year they may be liable for Household Employment Taxes.

    • Alternative Minimum Tax-Form 6251 -The AMT applies to taxpayers who have certain types of income that receive favorable treatment, or who qualify for certain deductions, under the tax law. These tax benefits can significantly reduce the regular tax of taxpayers with higher economic incomes. The AMT sets a limit on the amount these benefits can be used to reduce total tax.

5.18.1.10.2.3.48.7  (01-29-2010)
Reference Fields

  1. Input the following credit reference numbers and money amounts, when applicable:

    1. Ref 764 to post earned income credit.

    2. For adjusting accounts where the original return posted December 31, 2006 and prior, input credit reference number (CRN) 806 to allow the excess Social Security or RRTA Tier I tax withheld. Input CRN 807 with a minus (-) to reduce the previously allowed excess Social Security or RRTA Tier I tax. Use Reason Code 055, and the appropriate SC and blocking series.

    3. For adjusting accounts where the original return posted January 1, 2007 and subsequent, input Credit Reference Number (CRN) 252 to allow the excess Social Security or RRTA Tier I tax withheld. Input CRN 252 with a minus (-) to reduce the previously allowed excess Social Security or RRTA Tier I tax. The CRN 252 will generate a transaction code (TC) 766 or TC 767. Use appropriate Reason Code , source code, and SC blocking series.

    4. Ref 878 to post self-employment income, assess only if the income results in SE tax, Schedule SE on a taxpayer return, or from the total self-employment income from the Proposed Individual Income Tax Assessment, Letter 2566 SC/CG.

    5. Ref 879 to post self-employment income on a secondary TIN. Assess if the income results in SE tax only. (Ensure secondary TIN posted to entity for specific year 879 will post.) Take this amount from Schedule SE on taxpayer's return.

    6. Ref 885 to post an advanced earned income credit allowed.

    7. Ref 886 to post amount of taxable income. This amount is total income less adjustments, exemptions and deductions as shown on taxpayer return. On the Proposed Individual Income Tax Assessment, Letter 2566 SC/CG, this is income less exemptions.

    8. Ref 887 to post correct number of exemptions. Input reference number with number of additional exemptions indicated.

    9. Ref 888 to post adjusted gross income when TC 150 posted after 1/1/86. This amount is income less adjustments before any exemptions are subtracted

    10. Ref 889 to post any self-employment tax adjustments.

    11. Ref 891 to post allocated tip income (primary).

    12. Ref 892 to post allocated tip income (secondary).

    13. Ref 895 to post primary TIN medicare income.

    14. Ref 896 to post secondary TIN medicare income.

    15. Ref 898 to post primary medicare TIP income

    16. Ref 899 to post secondary medicare TIP income

    17. Ref 999 - The secondary account based on a primary Account filing

5.18.1.10.2.3.48.8  (10-01-2005)
Source Documents

  1. Source Documents are the case files that are sent to Submission Processing Files for association with Forms 5147. A Form 5147 generates for all adjustments input on IDRS. Form 5147 contains the DLN, and all data input on the ADJ54 screen. Files staples the Form 5147 to the source document and files the source document per the DLN. The ADJ54 contains a required field that notifies Files if a source document is associated with the Form 5147. Valid values for the source document field on the ADJ54 screen are:

    • "Y" - indicates there is a source document, and it will be sent to Files in an "A" folder.

    • "N" - indicates there is no source document.

    • "R" - indicates that there is a source document, but it has been retained by the employee.

    IRM 5.18.1.10.2.3.51

5.18.1.10.2.3.48.9  (10-01-2005)
Remarks on ADJ54

  1. The remarks field is a required entry on the ADJ54 screen. Input a remark that indicates why the assessment was input. See examples below:

    • ASFR Refund Return

    • ASFR Statute Barred Return

    • ASFR Bal Due Return

    • Request for Penalty Abatement denied.

5.18.1.10.2.3.48.10  (06-21-2013)
Lien Fee

  1. A lien fee (TC 360) is assessed by the Service for costs associated with filing a notice of lien. TC 360 is also used to assess other collection costs such as those incurred while conducting a seizure. Regardless of the tax liability, do not reverse the TC 360 unless directed by the Field or Advisory.

    Note:

    If TC360 has not been addressed when an abatement in full is received from the Field, contact the Field RO to determine if the fee should also be abated.

    Exception:

    If it is determined that an ASFR assessment was processed on an ID Theft case, and if when reversed the tax liability is zero, and there is a TC 360 (lien fee assessment) posted, abate the fee.

  2. If a return is received that results in an abatement of all tax liability then review the account for a TC 360. If a fee is present send the TP correspondence advising them they are responsible for the fee. If the taxpayer wishes to pursue abatement of the fee they must contact Advisory to request having the fee removed.

  3. If telephone contact or written correspondence is received from the TP or third party requesting abatement of the fee the TP should be advised that they are responsible for the fee. If the taxpayer wishes to pursue abatement of the fee they must contact Advisory to request having the fee removed.

    Note:

    The Advisory office where the taxpayer currently resides would handle the request.

5.18.1.10.2.3.48.11  (10-03-2012)
Re-initiating Collection on Reconsiderations

  1. ASFR Reconsiderations in TDA status should have a TC 470 input to halt collection enforcement. Take the following actions:

    IF THEN
    The action taken results in a zero or credit balance Input a TC 472.
    The action taken results in a remaining balance due Input a TC 472.
    The action taken results in the case being closed on the 1st day it is worked, there is NO requirement to input TC 470/TC472. Document history/AMS to indicate the case was worked and closed on the same day.

    See Document 6209 conditions

5.18.1.10.2.3.49  (01-25-2008)
Entity Update

  1. Update MF entity information per any return being processed manually.

  2. Use CC ENREQ to update the address, name line and filing status when the MF entity information differs from the return.

5.18.1.10.2.3.50  (12-30-2011)
Examination Classification

  1. All ASFR Returns and ASFR Reconsiderations meeting local SFR Screening Matrix Criteria must be referred to Classification after the return has been processed and the adjustment posted to IDRS.

  2. When Examination Classification referral is needed:

    1. Input assessment.

    2. Retain source document (Taxpayer's Return).

    3. Use IDRS CC ESTAB (T) to recharge to Exam.

    4. Use Form 5101 or locally approved referral form to route cases to Exam.

    5. Close any open ASFR control base on IDRS.

    6. Attach IRPTR or SUPOL print for both primary and secondary taxpayers when under and unreported income is an issue

  3. Forward the closed case file to Exam Classification by use of Form 3210, document Transmittal. Copy of Form 3210 must be retained for one year.

  4. International returns F1040 and F1040NR with F2555 or F2555EZ attached should be sent to Philadelphia Service Center based upon the "Processed International Return Procedures" identified below.

    Processed International Return procedures:

    • Forward on F3210 the processed delinquent International Returns that contain a F2555 or F2555EZ to Philadelphia Service Center.

    • Use a separate F3210 for each of the three programs: ASFR, ASFR Reconsiderations, and Non-Filer (HINF).

    • Send return to:

      Internal Revenue Service

      4–E08.141

      Examination Classification

      2970 Market St.

      Philadelphia, PA 19104

5.18.1.10.2.3.51  (08-11-2009)
Assembly of Source Documents

  1. When adjustment is completed, assemble source documents in the order below:

  2. ASFR cases must have the following documents:

    • Taxpayer return if present, with envelope attached

    • Any taxpayer correspondence and envelope attached

    • Any returned statutory notice, with envelope attached

    • Telephone contact sheet, if applicable

    • A copy of all q-notes generated to the taxpayer by the TE, and/or a copy of LPAGE of all correspondex letters generated to the TP.

    • Attach a copy of the IDAP (Smart) History Sheet if used.

    Note:

    All other ASFR documentation will be stored on the ASFR Archive database.

  3. Reconsiderations must have the following documents:

    • Taxpayer return if present, with envelope attached

    • Any taxpayer correspondence and envelope attached

    • A copy of all q-notes generated to the taxpayer by the TE, and/or a copy of LPAGE of all correspondex letters generated to the TP.

    • Attach a copy of the IDAP (Smart) History Sheet if used.

  4. Based on the value input on the ADJ54 screen source document field, do the following: ( IRM 5.18.1.10.2.3.48.8)

    If on the ADJ54 screen Then
    A "Y" was input in the Source Document field. Place source documents in an "A" folder and route to Files per local procedures.
    A "R" was input in the Source Document field. The source document has been retained and is considered charged out to the employee who input the adjustment. The source document should either be filed or re-charged. IRM 5.18.1.10.2.3.50

5.18.1.10.2.3.52  (10-01-2005)
Updating ASFR When A Filed Return is Assessed on IDRS

  1. When the taxpayer files a return and an assessment is input to IDRS based on the return, update ASFR as follows:

    • Update ASFR to Status 101 if there is $ .00 tax per the return and a TC 290 was $.00 was input on IDRS. IRM 5.18.1.7.11.48

    • Update ASFR to Status 103 or Status 105 if the tax was greater than $ .00 and a TC 290 for an amount greater than $ .00 was input on IDRS. IRM 5.18.1.7.11.50 or IRM 5.18.1.7.11.52

5.18.1.10.2.3.53  (05-19-2009)
ASFR 400 LIST

  1. The ASFR 400 List is a listing of modules that failed TIF checks during weekly processing. The modules are listed by tin, tax period, the ASFR status they were in prior to the validation process, error condition, and what status they have been systemically moved to.

5.18.1.10.2.3.54  (05-19-2009)
ASFR 408 List

  1. The ASFR 408 List is identifies all refund hold modules currently on the system by TIN, tax year, and ASFR Status.

5.18.1.10.2.3.55  (05-19-2009)
ASFR 420 List

  1. ASFR produces the ASFR 420 List when Master File (CAF) indicator (code) on new ASFR TDI is a significant value (1–9), indicating POA authorization probably exists for this module. The modules are listed by TIN , Tax Year, ASFR status that the module is in, and the power-of-attorney name and address.

5.18.1.10.2.3.56  (05-19-2009)
ASFR 421 List

  1. The ASFR 421 List, generated weekly, lists the modules that have been closed off the ASFR system by TIN, Tax Year, Follow-up Date, and Taxpayer Name.

5.18.1.10.2.3.57  (05-19-2009)
ASFR 422 List

  1. The ASFR 422 List is produced when the system attempts to move a modules into Status 090 to produce a 90-Day Letter, but it cannot because of a missing element (e.g., case minor). The modules are listed by TIN, Tin Type, Tax Period, Notice Date, and the missing element.

5.18.1.10.2.3.58  (05-19-2009)
ASFR 423 List

  1. The ASFR 423 list is generated monthly to identify Tax Delinquency Accounts (TDAs) assigned to ASFR. It lists the module by TIN & Type, Area Office location, and RWMS scoring.

5.18.1.10.2.3.59  (05-19-2009)
ASFR 424 List

  1. The ASFR 424 List is a list of modules with expired follow-up dates. The modules are listed by TIN, tax year, status, Follow-up Date, and taxpayer name.


More Internal Revenue Manual