5.19.11  Withholding Compliance Program (Cont. 1)

5.19.11.7 
Responses and Redeterminations

5.19.11.7.1 
Modify Lock-in

5.19.11.7.1.4  (09-08-2014)
Processing the Lock-in Modification

  1. If a modification to the lock-in rate is justified, inform both the taxpayer and the employer.
    Send Letter 2808C to all employers considered in the Modification
    and send Letter 2812C to the taxpayer.
    If the taxpayer has more than one employer, send separate letters to each.

    Note:

    If the additional information does not justify changing our previous determination, notify only the taxpayer using Letter 2810C. Input TC 971 AC 148 to IDRS with the unmodified lock-in rate. Cross-reference the employer's EIN. Update WHCS. IRM 5.19.11.7.2, No Change.

  2. If the modification will result in no tax withheld from the taxpayer's wages, release the lock-in(s) following normal procedures using WHCS Disposition Code "NSW" . Document AMS that the allowance calculation results in no tax withheld.

    1. Release if Withholding Calculator does not come to .00 and balance due(s) are not a result of under withholding or modification that may result in future underwithholding on wages.

    Note:

    Use the Withholding Per Pay Period calculator to compute the amount of tax that will be withheld from the taxpayer's wages.

  3. Input TC 971 AC 148 with the modified lock-in rate to IDRS and update WHCS. Cross-reference the employer's EIN. If the taxpayer has more than one employer, input TC 971 AC 148 with the modified lock-in rate and cross-reference the EIN, for each employer sent a letter.

  4. Ensure that all employers are considered when processing the taxpayer's request. Issue letters as shown in the table below:

    If Then
    Employer has received Letter 2800C previously
    1. Send Letter 2808C to the employer.

    2. Send the taxpayer Letter 2812C using paragraph "D" for multiple employers, if needed.

    3. Input TC 971 AC 148 with employer's EIN and modified lock-in rate to IDRS.

    4. Document the AMS history with the facts and data used to calculate the modified withholding rate.

    5. Update WHCS.

    Employer has not received Letter 2800C previously or received 2800C and responded NLW more than 12 months ago.
    1. Send Letter 2800C to employer with the modified lock-in rate.

    2. Send the taxpayer Letter 2812C instead of Letter 2801C using paragraph "D" for multiple employers.

    3. Conduct research necessary to complete the letters.

    4. Input TC 971 AC 146 with employer's EIN and modified lock-in rate to IDRS.

    5. Document the AMS history with names and EIN's of the additional employers and with the facts and data used to calculate the modified withholding rate.

    6. Add new employer(s) to WHCS and update letters and transaction codes.

  5. If the taxpayer informs you that they have returned to work for an employer who received Letter 2800C and that employer had previously responded that the taxpayer "no longer works" within 12 months of the modification request, take the following actions:

    1. Send Letter 2808C to employer with the modified lock-in rate.

    2. Send the taxpayer Letter 2812C using paragraph "D" for multiple employers.

    3. Research WHCS for the original Letter 2800C transaction date. Input TC 971 AC 146 using the original Letter 2800C transaction date, EIN and Single 00 rate to IDRS. Do not reissue Letter 2800C.

    4. Input TC 971 AC 148, posting delay (1) with employer's EIN, current date and modified lock-in rate to IDRS.

    5. Document the AMS history with names and EIN's of all current employers and with the facts and data used to calculate the modified withholding rate.

    6. Update WHCS with original 2800C letter, transaction date and withholding rate.

    7. Update WHCS with the 2808C letter, transaction code, current transaction date and modification rate.

      Note:

      Regulations require that the employer furnish an employee that is not performing services for the employer as of the date of the notice with the “Employee’s Copy” of the lock in letter if the employer reasonably expects the employee to resume the performance of services for the employer within 12 months of the date of the notice (Lock-in letter).

5.19.11.7.2  (12-04-2009)
No Change

  1. If you determine that the taxpayer's information does not support a change to the marital status and number of allowances

    1. Mail Letter 2810C to the taxpayer.

    2. Input TC 971 AC 148 to IDRS with the unchanged lock-in rate.

    3. Document the AMS history with the reasons the request for change was denied and update WHCS.

5.19.11.7.3  (09-08-2014)
Release of Lock-in

  1. Release the lock-in in the following situations:

    If Then
    Taxpayer meets compliance criteria in ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ or IRM 5.19.11.7.3.2, Release of Lock-in After Period of Continued Compliance
    1. Input TC 972 AC 146 and enter Disposition Code "CPL "

    2. Cross-reference the employer's EIN

    3. Issue Letter 2809C to employer and Letter 2813C to taxpayer

    4. Document the AMS history with the reason for the release(s) and close the case on the WHCS

    Taxpayer was erroneously locked in
    1. Input TC 972 AC 146 and enter Disposition Code "ERR"

    2. Cross-reference the employer's EIN

    3. Issue Letter 2809C to employer and Letter 2813C to taxpayer

    4. Document the AMS history with the reason for the release(s) and close the case on the WHCS

    Insolvency Unit has instructed you to release the lock-in
    1. Input TC 972 AC 146 and enter Disposition Code "BNK"

    2. Cross-reference the employer's EIN

    3. Issue Letter 2809C to employer and Letter 2813C to taxpayer

    4. Document the AMS history with the reason for the release(s) and close the case on the WHCS

    Taxpayer filed bankruptcy, other than Chapter 7, between the date that the Outcome 2 case was selected for the program (generally, cycle 39 or 52) and the date that the lock-in letter was issued. See IRM 5.19.11.10.2., Bankruptcy
    1. Input TC 972 AC 146 and enter Disposition Code "BNK"

    2. Cross-reference the employer's EIN

    3. Issue Letter 2809C to employer and Letter 2813C to taxpayer

    4. Document the AMS history with the reason for the release(s) and close the case on the WHCS

    Taxpayer has a pending or approved Offer in Compromise (OIC) and OIC Unit has instructed you to release the lock-in. See IRM 5.19.11.10.9., Offer in Compromise (OIC) Taxpayers
    1. Input TC 972 AC 146 and enter Disposition Code "OIC"

    2. Cross-reference the employer's EIN

    3. Issue Letter 2809C to employer and Letter 2813C to taxpayer

    4. Document the AMS history with the reason for the release(s) and close the case on the WHCS

    Taxpayer is not subject to withholding
    1. Input TC 972 AC 146 and enter Disposition Code "NSW"

    2. Cross-reference the employer's EIN

    3. Issue Letter 2809C to employer and Letter 2813C to taxpayer

    4. Document the AMS history with the reason for the release(s) and close the case on the WHCS

    Note:

    Release lock-in using disposition code NSW when modification results in .00 withholding.

    Taxpayer is in Combat Zone with active freeze code. See IRM 5.19.11.10.3., Combat Zone
    1. Input TC 972 AC 146 and enter Disposition Code "COM "

    2. Cross-reference the employer's EIN

    3. Issue Letter 2809C to employer and Letter 2813C to taxpayer

    4. Document the AMS history with the reason for the release(s) and close the case on the WHCS

5.19.11.7.3.1  ≡ ≡ ≡ ≡ ≡ ≡
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    Note:

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

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

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5.19.11.7.3.2  (11-18-2013)
Release of Lock-in After Period of Continued Compliance

  1. When contacted by the taxpayer, offer release of lock-in to those taxpayers who are tax compliant with all filing and payment requirements for the three tax years ending with the most recent return due. For withholding compliance purposes, a tax compliant taxpayer is defined as one who has filed all required returns and full paid all tax (i.e., Form 1040 liability), penalties, and interest on time.

    Note:

    If the taxpayer declines release, follow general case processing procedures to modify.

    • Determination of the "most recent return due" is illustrated by the following example: Between January 2, 2011 and April 15, 2011, TY 2009 is the most recent return due unless TY 2010 has been filed by the taxpayer. In that case, TY 2010 becomes the most recent return due. After April 15, 2011, if the taxpayer filed an extension for TY 2010, the most recent return due is still TY 2009 until the extension expires. If no extension was filed, TY 2010 is the most recent return due.

    • "On time" is defined as all tax, penalties and interest paid by the due date of the return. If the taxpayer filed an extension, all tax, penalties and interest must be paid by the regular due date of the return. A late filed refund return will be considered as filed "on time" because the taxpayer is credited with his withholding on the due date of the return. A late filed return that was full paid after the due date or extended due date does not meet the "on time" definition. Additional assessments and/or adjustments to the return which were full paid will be considered as paid on time.

  2. For taxpayers meeting the conditions in (1) above, follow procedures in the table below:

    Note:

    Case records for lock-in letters issued after September 30, 2005 can be found in WHCS. If the taxpayer was locked in before October 1, 2005, the lock-in letter was issued by the defunct Fresno QW-4 program. In most, but not all instances that lock-in record will be found in the QW-4 History section of WHCS.

    If And Then
    Taxpayer requests release Lock-in record is on WHCS
    • Release lock-in; see IRM 5.19.11.7.3(1), Release of Lock-in

    • Document AMS;

    • Update WHCS and IDRS

    Taxpayer requests release Lock-in record is in the QW-4 History section, or lock-in was issued before September 30, 2005 and record is not in WHCS
    • Add case to WHCS using source code "FR"

    • Release lock-in; see IRM 5.19.11.7.3(1), Release of Lock-in

    • Document AMS;

    • Update WHCS and IDRS

  3. The following examples illustrate when the lock-in should be released.

    Example:

    Taxpayer "A" requests a release of lock-in on 5/15/11. They were locked in on 6/15/07 and did not file an extension for TY 2010. The most recent return due is TY 2010. Research shows they filed and full paid his 2008, 2009 and 2010 returns on time. Release the lock-in.

    Example:

    Taxpayer "B" requests a release of lock-in on 5/15/11. They were locked in on 6/15/07 and filed an extension for TY 2010. The most recent return due is TY 2009. Research shows that they filed and full paid their 2008 and 2009 returns on time, but there is a balance due on 2007. Do not release the lock-in. Modify, if appropriate.

    Example:

    Taxpayer "B" calls back on 11/15/11. The most recent return due is now TY 2010 and research shows that they filed a refund return for TY 2010. Tax years 2008, 2009 and 2010 were filed and full paid on time. Release the lock-in.

    Example:

    Taxpayer "C" requests a release of lock-in on 3/15/11. They were locked in on 2/16/2009 and filed a refund return for TY 2010 on 2/15/11. The most recent return due is TY 2010. Although they were under-withheld in TY 2008, they filed and full paid (tax and penalties) their TY 2008 return on 4/15/2009. They filed a refund return for TY 2009 late and meet the three-year compliance rule. Release the lock-in.

    Example:

    Taxpayer "D" requests a release of lock-in on 7/15/11. They were locked in on 2/16/2007 and did not file a return or extension for TY 2010 return. The most recent return due is TY 2010. They filed refund returns for TY 2008 and TY 2009 and tells you that TY 2010 will be a refund return when they file. They do not meet the three-year compliance rule because TY 2010 is unfiled. Do not release the lock-in. Modify if appropriate.

    Example:

    Taxpayer "D" calls back on 9/1/11. Research shows that they filed a refund return for TY 2010 on 8/1/11. He now meets the three-year compliance rule. Release the lock-in.

    Example:

    Taxpayer "E" has their TY 2009 balance due and TY 2010 balance due satisfied by TY 2011 refund. They have not met the three year rule for filing and payment compliance, since TY 2011 has been their only compliant return. Do not release the lock-in. Modify if appropriate

5.19.11.8  (12-04-2009)
Unpostable Transactions

  1. Each area is responsible for resolving its own unpostables.

  2. Unpostables are voided by the Unpostable function at the campuses and forwarded with a computer generated
    Form 5147, IMF–IDRS Transaction Record, and
    Form 4227, Intra-SC Reject or Routing Slip, or
    A computer-generated Form 4251, Return Charge Out.

    Note:

    Every unpostable on a 4251 is assigned a "category code." These two digit alpha numeric codes identify the area that will work the unpostable case.

  3. Only one unpostable code at a time can be indicated on Form 5147 or Form 4227.

    Reminder:

    Correct any other conditions which could cause the record to not post.

  4. See IRM 3.12.32, General Unpostables for a list of unpostable codes (UPC) and detailed processing instructions. Document 6209 also provides a brief description of each unpostable code.

  5. If a nullified unpostable penalty assessment or abatement is received with unpostable code 183, do not attempt to reinput the adjustment. Check IDRS for open CID activity and route case to the lead. The lead will contact CID for further processing instructions.

5.19.11.9  (09-08-2014)
Processing Undelivered Mail

  1. Undelivered mail is any letter, notice or other correspondence sent to an individual or business taxpayer and returned to the IRS with an indication that the individual no longer resides, or the business is no longer located at the address where the mail was sent.

  2. The following sections contain instructions for handling the various kinds of letters returned by the United States Postal Service as undeliverable.

  3. Undeliverable mail is received in Receipt and Control Branch. For the Withholding Compliance program, this mail may include but is not limited to:

    • Letter 2800C

    • Letter 2801C

    • Letter 2804C

    • Letter 2805C

    • Letter 2808C

    • Letter 2809C

    • Letter 2810C

    • Letter 2811C

    • Letter 2812C

    • Letter 2813C

    • Letter 3042C

    • Letter 2645C

    • Letter 4243C

  4. Undelivered mail may contain a "yellow" forwarding label from the United States Postal Service (USPS) or a note indicating the party no longer resides there.

  5. All undelivered Withholding Compliance mail will be batched as undeliverable and reviewed.

    1. If a third party (practitioner, new occupant, ex-spouse) provides a new address, DO NOT update Master File. The address must be verified by the taxpayer or Power of Attorney before Master File can be updated.

  6. Undelivered mail will be processed as shown in the table below:

    Reminder:

    When required to input TC 972 AC 146 to IDRS, check IDRS to see if the TC 971 AC 146 corresponding to the transaction being reversed has posted. If there is no TC 971 AC 146, the TC 972 will unpost. To prevent this, input the TC 971 AC 146, then input the TC 972 with a posting delay of 1, then input the new TC 971 AC 146 with a posting delay of 2.

    If Then
    Letter 2800C is returned with yellow forwarding address label from the USPS
    • Submit request to Lead or Manager to update IDRS and WHCS with the forwarding address from the yellow label after verifying that the undelivered letter and yellow label is for the same employer

    • Input TC 972 AC 146 to IDRS with Disposition Code "UND" , cross-referencing the Employer Identification Number (EIN)

    • Update WHCS (Letters and Transactions section of the Employer Detail screen) with TC 972 AC 146, disposition code "UND"

    • Reissue letter to address indicated using current date

    • Input TC 971 AC 146 to IDRS using current date with posting delay of 1

    • Notate AMS history with "REISSUED" indicating letter number, EIN, new address and source of new address

    • Add reissued letter to WHCS

    • Destroy the letter

    Letter 2800C is returned with yellow forwarding address label from the USPS and research indicates Letter 2808C or Letter 2809C has been issued
    • Resend original letter to the new address

    • Extract contents of original envelope, highlight the issue date on the 2800C letter, staple envelope vertically to front of letter showing yellow sticker; fold letter and remail in an envelope labeled with new address

    • Notate AMS history with "REMAILED." Include
      letter number,
      original issue date and
      new address
      in AMS history.

    • Update IDRS and WHCS with the forwarding address from the yellow label after verifying that the undelivered letter and yellow label is for the same employer

    Note:

    This ensures employer has original lock-in letter for their files.

    Letter 2800C is returned with no forwarding address Research to see if employer is still in business.
    If employer is out of business:
    • Input TC 972 AC 146 to IDRS and WHCS with Disposition Code "OOB" , cross-referencing the employer's EIN

    • Notate the AMS history with actions taken and destroy letter

    If employer is still in business and a new address is found:
    • Input TC 972 AC 146 to IDRS and WHCS with Disposition Code "UND" , cross-referencing the employer's EIN

    • Reissue letter to address indicated using current date

    • Input TC 971 AC 146 to IDRS using current date with posting delay of 1

    • Notate AMS history with "REISSUED" indicating letter number, EIN, and new address

    • Add reissued letter to WHCS and destroy letter

    • DO NOT update the address on IDRS or WHCS

    If no new address is found
    • Input TC 972 AC 146 to IDRS and WHCS with Disposition Code "UND" , cross-referencing the employer's EIN

    • Notate the AMS history with actions taken and destroy letter

    Letter 2800C is returned with no forwarding address and research indicates Letter 2808C or Letter 2809C has been issued
    • If the telephone number is on Master File, research to get the current address

    • If unable to find a telephone number, research to find another address

    • Resend original letter to the new address

    • Extract contents of original envelope, highlight the issue date on the 2800C letter, staple envelope vertically to front of letter; fold letter and remail in an envelope labeled with new address

    • Notate AMS history with "REMAILED." Include letter number, original issue date and new address in AMS history.

    • DO NOT update the address on IDRS or WHCS

    • If no new valid address is found, update AMS history with actions taken and destroy letter

    Letter 2801C is returned with yellow forwarding address label from the USPS
    • Notate on AMS "UNDELIVERED 2801C" , cross- referencing the EIN

    • Update IDRS and WHCS with the forwarding address from the yellow label after verifying that the undelivered letter and yellow label is for the same taxpayer

    • Destroy letter

    Letter 2801C is returned with no forwarding address
    • Destroy letter

    Letter 2804C, Letter 2810C, Letter 2811C, Letter 2812C, Letter 2813C, Letter 3042C, or Letter 4243C are returned with yellow forwarding address label from the USPS
    • Resend letter to the new address

    • Extract contents of original envelope, staple envelope vertically to front of letter showing yellow sticker, fold letter and remail in an envelope labeled with new address

    • Notate AMS history with "REMAILED" with letter number and new address

    • Update IDRS and WHCS with the forwarding address from the yellow label after verifying that the undelivered letter and yellow label is for the same taxpayer

    Letter 2804C, Letter 2810C or Letter 4243C are returned with no forwarding address
    • Notate on AMS "UNDELIVERED XXXXC"

    • Research Command Codes (CC) IMFOLE/ENMOD and the most recent Information Returns Processing Transcripts (IRPTR) available and remail the letter to any new addresses found

    • Notate AMS history with "REMAILED" indicating letter number and new address

    • If no new address is found, notate the AMS history and destroy letter

    Letter 2811C, Letter 2812C, Letter 2813C or Letter 3042C are returned with no forwarding address
    • Destroy letter

    Letter 2808C or Letter 2809C is returned with yellow forwarding address label from the USPS
    • Resend letter to the new address.

    • Extract contents of original envelope, staple envelope vertically to front of letter showing yellow sticker, fold letter and remail in an envelope labeled with new address

    • Notate AMS history with "REMAILED" with letter number and new address

    • Update IDRS and WHCS with the forwarding address from the yellow label after verifying that the undelivered letter and yellow label is for the same employer

    Letter 2808C or Letter 2809C is returned with no forwarding address
    • If the telephone number is on Master File, research to get the current address

    • If unable to find a telephone number, research to find another address

    • Remail original letter to employer’s current address

    • Notate AMS history with "REMAILED" indicating letter number, EIN, and new address

    • DO NOT update the address on IDRS or WHCS

    • If no new valid address is found, update AMS history with actions taken and destroy letter

5.19.11.10  (12-04-2009)
Special Situations

  1. While working correspondence or speaking to the taxpayer by telephone, special situations will arise which may require additional research and actions to resolve the case.

5.19.11.10.1  (12-18-2012)
Payer Agent List (PAL)

  1. If the taxpayer claims that the wage and/or withholding amounts on the Form W-2 are incorrect, check the employer information against the Payer Agent List (PAL).

  2. If the information on the PAL confirms the taxpayer's claim, then redetermine the lock-in decision by calculating the correct number of allowances to which the taxpayer is entitled, based on the correct Form W-2 wage amount(s).

  3. If the calculation reveals that the taxpayer's current withholding rate is correct, take the following actions to release the lock-in:

    1. Issue Letter 2809C to the employer and Letter 2813C to the taxpayer.

    2. Input TC 972 AC 146 to IDRS with Disposition Code "ERR" , cross-referencing the employer's EIN.

    3. Update WHCS (Letters and Transactions section of the Employer Detail screen) with TC 972 AC 146, disposition code "ERR" .

    4. Notate AMS history with actions taken.

  4. If the taxpayer's current withholding rate is incorrect, take the following actions to modify the lock-in:

    1. Issue Letter 2808C to the employer and Letter 2812C to the taxpayer.

    2. Input TC 971 AC 148 to IDRS, cross-referencing the employer's EIN and entering the modified lock-in rate.

    3. Update WHCS (Letters and Transactions section of the Employer Detail screen) with TC 971 AC 148 and the modified lock-in rate.

    4. Notate AMS history with actions taken.

  5. If the information is not on the PAL then

    1. Request taxpayer fax or mail written verification from the employer as to the correct wages and withholding, including a copy of the corrected Form W-2c, Corrected Wage and Tax Statement. .

    2. If a Form W-2c is received, follow the instructions above to release or modify the lock-in based on the new amounts.

    3. Refer the Form W-2c information to the WHC PAL coordinator for inclusion in the PAL.

    4. If the requested documentation is not received, follow normal case processing procedures to modify the taxpayer based on the Form W-2 reported on CC IRPTR.

5.19.11.10.2  (12-04-2009)
Bankruptcy

  1. The Service holds that withholding is not part of the bankruptcy estate. Issuance of the lock-in letter is not considered a violation of the automatic stay.

  2. In most instances, requests for lock-in on bankruptcy cases will be made by field bankruptcy specialists via referral on Form 9045, Withholding Compliance Referral.

    • If you are contacted by Insolvency, follow their instructions.

    • If you are directed to release or modify the lock-in, follow general case processing procedures.

    • Document the AMS history with the name and contact information of the employee providing the direction.

  3. When working the Outcome 3 case listing, DO NOT issue a lock-in letter for a taxpayer in bankruptcy unless you have been previously directed to do so by a field bankruptcy specialist. Check IMFOLI for an open bankruptcy, identified by a literal "-V" . If present, document AMS and close the case.

  4. When working correspondence or incoming calls on Outcome 2 cases, if the taxpayer says that he or she is in bankruptcy and the bankruptcy was filed between the date that the Outcome 2 case was selected for the program (generally, cycle 39 or 52) and the date that the lock-in letter was issued, ask the taxpayer the chapter number of the bankruptcy proceeding and follow the instructions below:

    1. Chapter 7: Follow general case processing to determine whether lock-in should be modified or released.

    2. All other Chapters, or taxpayer doesn't know: Release lock-in. See IRM 5.19.11.7., Responses and Redeterminations for release procedures.

    Reminder:

    If you receive a request for reconsideration or release from a taxpayer in bankruptcy who was locked in prior to filing bankruptcy, DO NOT release the lock-in. Follow general case processing procedures as outlined in IRM 5.19.11.3, General Case Processing.

5.19.11.10.3  (12-31-2010)
Combat Zone

  1. Combat Zone cases are identified by a "-C" freeze code on IMFOLI. See IRM 5.19.10.6.3, Combat Zone Freeze Code for additional information. If you see this freeze code, check the Combat Zone indicator field on IMFOLE to determine if the freeze code is still active: 1 = active and 2 = not active.

    1. If the indicator = 1, do not lock in. Take the following actions.

    2. Issue Letter 2809C to the employer(s) and Letter 2813C to the taxpayer, to release the lock-in.

    3. Input TC 972 AC 146 with disposition code "COM"

    4. Document the history and close the case.

    5. If the indicator = 2, then the taxpayer is no longer in Combat Zone status. Document the history and continue to work the case.

5.19.11.10.3.1  (12-04-2009)
Civilians Working in a Combat Zone

  1. Civilian employees (including civilian defense contractors) serving in a combat zone or qualified hazardous duty area in support of the U.S. Armed Forces, are not exempt from withholding and filing requirements.

  2. However, they may be entitled to relief under IRC section 7508A. If the taxpayer meets the criteria specified in IRM 5.19.10.6.2 , Combat Zone Qualified Individuals and Areas, do not lock him or her in and release any lock-in letters already issued.

5.19.11.10.3.2  (12-04-2009)
Spouses of Taxpayers Entitled to IRC Section 7508 Relief

  1. The spouses of taxpayers entitled to IRC Section 7508 relief are entitled to the same relief with two exceptions:

    • The relief does not apply to a spouse for any tax year beginning more than 2 years after the date the area ceases to be a combat zone, the operation ceases to be a contingency operation, or the operation ceases to be a qualified hazardous duty area.

    • The relief does not apply to a spouse for any period the qualifying individual is hospitalized in the United States for injuries incurred in a combat zone, a contingency operation, or a qualified hazardous duty area.

5.19.11.10.4  (12-04-2009)
Foreign Income Issues

  1. This section contains guidance and procedures for working foreign income issues.

5.19.11.10.4.1  (12-04-2009)
U.S. Citizens Working Abroad

  1. U.S. citizens working abroad may be exempt from or reduce the amount of their U.S. income tax withholding on wages if

    1. The taxpayer reasonably expects to exclude the income under either the foreign earned income exclusion or the foreign housing exclusion.

    2. The taxpayer plans to take a foreign tax credit, they may be eligible for and claim additional withholding allowances on Form W-4.

      Note:

      Using RTVUE, verify if Form 2555, Foreign Earned Income, was filed. In some instances a taxpayer may submit a Form 2555 without a return. Tell the taxpayer that they must file a return before we can use the Form 2555 in the withholding allowance calculation.

  2. The tests that must be met and amounts are covered in Pub 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

  3. The foreign earned income exclusion and foreign housing exclusion do not apply to wages received by employees of the U.S. Government or an agency thereof working in a foreign country.

5.19.11.10.4.2  (12-04-2009)
Nonresident Aliens

  1. Resident aliens are subject to income tax withholding the same as U.S. citizens on their salaries, wages, bonuses, or other pay for personal services ("wages" ). Special rules apply to wages received by nonresident aliens. See Pub 901, U.S. Tax Treaties, and Pub 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.

  2. The residency status assigned to an alien individual by the Service for income tax purposes is not always the same as the status assigned by the U.S. Citizenship and Immigration Services (USCIS) for immigration purposes. Under the Internal Revenue Code, an individual is considered a resident alien for U.S. tax purposes if they are not a citizen or national of the United States and meet either the "green card test" or the "substantial presence test" for the calendar year (January 1 - December 31).

    1. An individual will meet the green card test if they are a lawful permanent resident of the United States at any time during the calendar year.

    2. An individual will meet the substantial presence test if they have been physically present in the United States for at least 31 days during the current calendar year, AND for at least "183 days" (as specifically described below) during the three-year period that includes the current year and the two immediately preceding years.

      Note:

      For purposes of this "183 day" test, each day of presence in the current year is counted as a full day, while each day of presence in the first preceding year is counted as one-third of a day and each day of presence in the second preceding year is counted as one-sixth of a day.

    3. For certain classes of individuals ( e.g. teachers and students who enter the U.S. with F, J, M, or Q visas) special rules apply where the days may not be counted. See Pub 519, U.S. Tax Guide for Aliens, for further information.

  3. Taxpayers may not owe U.S. income tax based on a tax treaty between the U.S. and a foreign country. Research Pub 901, U.S. Tax Treaties, for the applicable treaty article.

    • If the taxpayer's Form W-4 is correct as furnished, send the taxpayer closing Letter 2813C , input appropriate case remarks and close the case. The taxpayer must file a Form 1040NR to claim the treaty benefits.

    • If the taxpayer's Form W-4 is incorrect, adjust the taxpayer's withholding accordingly and send lock-in Letter 2800C and Letter 2800C. Input the appropriate case remarks and close the case.

5.19.11.10.4.3  (11-18-2013)
Wages Subject to Mandatory Withholding of Income Taxes of a Foreign Country

  1. Wages paid to U.S. citizens or resident aliens are not subject to the withholding of U.S. federal income taxes to the extent that such wages are already subject to the mandatory withholding of income taxes of a foreign country or U.S. possession. This exception does not apply if the recipient is a U.S. citizen who is a federal employee.

  2. If the taxpayer and/or representative states that he or she is subject to mandatory withholding of a foreign country, accept his or her word and take the following actions:

    1. Issue Letter 2809C to the appropriate employer and Letter 2813C to the taxpayer to release the lock-in.

    2. Input TC 972 AC 146 to IDRS with Disposition Code "NSW" .

    3. Update WHCS with letters sent and transaction codes input.

    4. Document in the AMS history that the taxpayer is subject to mandatory withholding, specifying the country. Also document the employer's name and EIN, that the appropriate letters were sent, and TC 972 AC 146 (NSW) was input.

    Reminder:

    If there are other wages which should be subject to income tax withholding, work those issues according to general procedures.

  3. If the taxpayer's and/or representative's response is that the taxpayer paid income taxes in a foreign country and there is no mention of the wages being subject to mandatory withholding, leave the lock-in in place and advise the taxpayer and/or representative that we need to see a copy of the return with Form 1116, Foreign Tax Credit, attached to modify the lock-in.

5.19.11.10.5  (09-08-2014)
Frivolous Communications

  1. If the taxpayer's response contains frivolous arguments work the case according to general procedures. DO NOT modify or release the lock-in.

  2. Frivolous arguments may include:

    • Language objecting to Form W-4 requirements

    • Comments on the unconstitutionality of the tax law

    • Quotes or references to the IRC which indicate that the taxpayer is free of any obligation to pay income tax liabilities

    • Statements that the taxpayer is a citizen of an independent entity within the U.S. and not liable for Federal taxes

    • Statements, often in pseudo-legalistic language, that the taxpayer is not subject to appropriate legal action for the accuracy of his/her responses

  3. See IRM 21.5.3.4.16.7, Identifying Frivolous Returns/Correspondence and Responding to Frivolous Arguments for additional information on identifying frivolous arguments.

  4. If the taxpayer is questioning the IRS authority to issue a lock-in letter, send Letter 3042C to the taxpayer. Update AMS and WHCS.

  5. If the taxpayer requests a release or modification without any valid substantiation, send Letter 2810C. Update IDRS with TC 971 AC 148 (unchanged rate), AMS and WHCS.

  6. If both (4) and (5) above apply, send both letters. Update IDRS, AMS and WHCS.

    Reminder:

    When documenting AMS, do not use the term, Illegal Tax Protester (ITP), Fraudulent or similar designation. If you identify any such reference, immediately inform your manager. Terms such as "frivolous argument" or "tax avoidance argument" are acceptable terms to use.

  7. Upon completion of case processing, forward a copy of the correspondence to the Ogden Frivolous Filer Unit.

    • Prepare Form 3210

    • Use address: Ogden Compliance Campus
      1973 N Rulon White Blvd.
      M/S 4450, Attention: Frivolous Return Program
      Ogden, UT 84404

    • Note in the remarks section of Form 3210 that the attached is being sent for information purposes.

    • Forward the original with a fraud indicator check sheet to the Collection Function Fraud Coordinator (CFFC) for review.

    Note:

    If a communication is from a phone call, forward a copy of the AMS history (document the taxpayer's statements verbatim, if possible) along with the fraud indicator check sheet to the CFFC

  8. If you continue to receive frivolous correspondence from the taxpayer after the case is closed, send it on Form 3210 to the Ogden Frivolous Filer Unit at the address shown in (7) above. Ogden will document receipt of the correspondence and send Letter 3175C , if appropriate.

5.19.11.10.6  (12-04-2009)
Household Employees

  1. Employers are NOT required to withhold federal income tax on wages paid to household employees.

  2. Household employees include, but are not limited to, housekeepers, maids, nannies, baby-sitters, private nurses, gardeners and any similar domestic worker. The work is performed in and around the employer's private home.

  3. If the taxpayer says they are a household employee and this is the taxpayer's only source of wages, suggest that the taxpayer talk to their employer about voluntary withholding, or offer to send the taxpayer Form 1040-ESEstimated Tax for Individuals.

  4. If lock-in letters have already been issued and you determine that the taxpayer is a household employee

    1. Issue Letter 2809C to the employer and Letter 2813C to the taxpayer to release the lock-in.

    2. Input TC 972 AC 146 with Disposition Code "NSW" .

    3. Document the history and close the case.

  5. If the household employment is not the only source of wages, subtract the household wages from the total wages and take the following actions:

    1. Compute the number of withholding allowances based on the lesser amount of wages

    2. Issue either a 2800C and 2801C , or 2808C and 2812C , as appropriate

    3. Input the appropriate TC 97X AC 14X

    4. Document the history and close the case

  6. If lock-in letters have not been issued, document the history and close the case.

  7. Follow general lock-in procedures if you determine that the taxpayer is not a household employee.

5.19.11.10.7  (03-15-2012)
Decedents

  1. WHC cases may be created if wages are reported for the taxpayer's SSN more than 24 months after the date of death. For Outcome 2 and Outcome 3 cases, the date of death is displayed on the WHCS Taxpayer Summary screen. It can also be found using IDRS Command Code INOLES.

  2. Decedents' wages are generally reported on Form 1041, U.S. Income Tax Return for Estates and Trusts.

    • If you are contacted by a third party representing the decedent, determine whether the wages reported belong to the decedent.

    • If the wages belong to the decedent, input TC 972 with disposition code "ERR" to IDRS and WHCS.

  3. Wages reported more than 24 months after the taxpayer's date of death may be an indication of identity theft.

    • If you are contacted by the taxpayer and you determine that they are not the true owner of the SSN,

    • follow general procedures for working responses and redeterminations.

5.19.11.10.8  (09-08-2014)
Members of the Clergy and Religious Workers

  1. These taxpayers are generally NOT subject to federal income tax withholding if both the following conditions apply:

    • The taxpayer is a duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry, a member of a religious order (who has not taken a vow of poverty), or a Christian Science practitioner, and

    • The taxpayer's pay is for qualified services.

  2. Qualified services are defined as services performed by the taxpayer in exercise of their ministry or in carrying out their duties as required by the religious organization.

    Exception:

    Ministerial services performed as an employee of the United States, a state, or U.S. Territory or possession, or a political subdivision of the foregoing, the District of Columbia, or foreign government are NOT qualified services and are subject to withholding.

    Example:

    U.S. Army chaplain or a chaplain at a state prison.

  3. Work performed for a nonreligious organization is considered to be qualified services if the services are assigned or designated by the taxpayer's religious organization.

  4. See Pub 517, Social Security and Other Information for Members of the Clergy and Religious Workers, for more information.

  5. If the taxpayer meets the above criteria;

    1. Issue Letter 2809C to the employer and Letter 2813C to the taxpayer to release the lock-in.

    2. Input TC 972 AC 146 with Disposition Code "NSW" .

    3. Document the history and close the case.

5.19.11.10.8.1  (12-04-2009)
Vow of Poverty

  1. When the taxpayer indicates that a significant contribution was made by their employer to a religious order so that they can claim "exempt" , you must determine if they qualify for exemption from taxation based on a vow of poverty.

  2. They must meet the qualifications shown below. A taxpayer can legitimately claim exemption from taxation pursuant to a vow of poverty when the taxpayer performs qualified services as an agent of a church or church agency.

    Example:

    The employer looks directly to the religious order, rather than to the individual member/taxpayer, for performance of services.

    The taxpayer must show that:

    1. a contractual relationship existed between their secular employer and the religious order; and

    2. the religious order controlled or restricted use of the money turned over to it pursuant to the taxpayer's vow of poverty.

  3. If the taxpayer meets both of the criteria above, notate the case file and forward the case to the lead.

  4. Absent a qualified agency relationship, a member of a religious order under vow of poverty is subject to tax on income earned or received in their individual capacity. Proceed with general case processing.

  5. If the taxpayer indicates that contributions were made to a non-traditional church, proceed with general case processing unless the taxpayer provides documentation showing the church is exempt.

5.19.11.10.9  (12-04-2009)
Offer in Compromise (OIC) Taxpayers

  1. Do not lock in a taxpayer who has submitted an OIC for consideration or has had an OIC accepted as identified by either an unreversed TC 480 or TC 780 on IDRS.

  2. Check IMFOLI for the OIC indicator: "-Y." If present, take the following actions:

    1. Issue Letter 2809C to the employer(s) and Letter 2813C to the taxpayer, to release the lock-in.

    2. Advise the taxpayer to adjust their withholding.

    3. Input TC 972 AC 146 with disposition code "OIC" .

    4. Document the history and close the case.

  3. If taxpayer responds that an OIC has been submitted and the OIC indicator is present on IMFOLI, take the actions in (2) above.

  4. If the taxpayer tells you that an OIC has been submitted and there is no evidence of it on IDRS, contact the Compliance Services Offer in Compromise Unit at the campuses. (See SERP under Who/Where tab for OIC Support locations) and follow their instructions.

  5. If you are instructed to release the lock-in, follow instructions in (2) above; document the history with the name of the employee providing the direction.

5.19.11.10.10  (09-08-2014)
Cautious Upon Contact (CAU)

  1. The following criteria have been established for determining CAU status:

    1. Threat of physical harm that is less severe or immediate than necessary to satisfy PDT criteria;

    2. Suicide threat by the taxpayer; or

    3. Filing or threatening to file a frivolous lien or a frivolous criminal or civil legal action against an IRS employee or contractor or an IRS employee's or contractor's immediate family member.

  2. A taxpayer who meets any of the above criteria should be approached with caution. See IRM 25.4.2., Cautious Upon Contact, for additional information.

5.19.11.10.11  (12-04-2009)
Potentially Dangerous Taxpayers (PDT)

  1. Check IMFOLI for the PDT indicator: the literal "PDT." If present,

    • Print the IMFOLI screen,

    • Highlight the indicator and

    • Route to the lead

  2. The lead will contact the Treasury Inspector General for Tax Administration (TIGTA) for information concerning the PDT prior to making any personal contact.

  3. After making contact, document the history and route to the Tax Examiner (TE) for appropriate action.

5.19.11.10.12  (09-08-2014)
Statutory Employees

  1. Wages received as a statutory employee, under IRC Section 3121(d)(3) are exempt from income tax withholding.

  2. Statutory employees include: agent-drivers or commission drivers, full-time life insurance salespersons, home workers, and traveling or city salespersons. For details on statutory employees, see Pub 15-A, Employer's Supplemental Tax Guide (Supplement to Publication 15 (Circular E), Employer's Tax Guide).

  3. If the taxpayer says they are a statutory employee and there are multiple employers, verify which employer(s) is the statutory employer(s). Check IRPTR for the statutory employee indicator(s) for the tax year in question.

  4. If the indicator is present take the following actions:

    1. Issue Letter 2809C to the employer and Letter 2813C to the taxpayer to release the lock-in.

    2. Input TC 972 AC 146 to IDRS with Disposition Code "NSW" .

    3. Document AMS with the employer name and EIN where the taxpayer is not subject to withholding, that appropriate letters were sent, and TC 972 AC 146 (NSW) was input.

    4. Update WHCS.

    Reminder:

    On Outcome 3 cases, do not issue lock-in letters to statutory employers. Update WHCS with TC 972 AC 146 and disposition code "NSW" and document AMS. Do not update IDRS.

  5. If the indicator is not present, tell the taxpayer that we need written verification from that employer (on employer letterhead) confirming the taxpayer's status as a statutory employee. Provide the taxpayer with the appropriate fax number and mailing address to send the documentation.

  6. If there are additional non-statutory employee Form W-2, Wage and Tax Statement, subtract the statutory employee Form W-2 wage amount from the total Form W-2 wage amount and follow general procedures for the remaining employer(s).

5.19.11.10.13  (11-18-2013)
Third Party Sick Pay

  1. Third party sick pay payments are generally shown on IRPTR by the literal "3RD PARTY SICK PAY IND: YES" . Check IRPTR for the indicator. If present, take the actions shown below.

    1. If lock-in Letter 2800C and Letter 2801C have not been issued, document the history and close the case.

    2. If lock-in letters have already been issued
      1. Issue Letter 2809C to payer and Letter 2813C to the taxpayer to release the lock-in.
      2. Input TC 972 AC 146 with Disposition Code "NSW" .
      3. Document the history and close the case.

  2. If there is no 3RD PARTY SICK PAY IND on IRPTR , follow general case processing procedures.

  3. If there are other wages, subtract the 3rd Party Sick Pay amount from the total Form W-2 wages and take the following actions:

    1. Follow procedures in (1) above to release lock-in on the 3rd Party Sick Pay Form W-2

    2. Compute the number of withholding allowances based on the lesser amount of wages

    3. Issue either Letter 2800C and Letter 2801C, or Letter 2808C and Letter 2812C, as appropriate

    4. Input the appropriate TC 97X AC 14X

    5. Document the history and close the case

5.19.11.10.14  (09-08-2014)
Identity Theft

  1. Beginning January 1, 2012, TC 971 AC 522 will include processes to flag accounts at different stages of processing from initial identity theft allegation to closure. Use the following directions when processing Identity theft issues:

    If And Then
    The taxpayer makes an allegation of identity theft Has not provided :
    • A copy of the U.S. Federal or State issued form of identification (i.e. driver's license, state identification card, social security card, passport)

    • A copy of a police report or IRS Affidavit Form 14039, Identity Theft Affidavit.

    Note:

    For more information on required documentation see IRM 10.5.3.2.6, Overview - Identity Theft and Supporting Documentation.

    1. Input TC 971 AC 522 containing the miscellaneous field PNDCLM). (See IRM 10.5.3.2.5, Initial Allegation or Suspicion of Tax-Related identity Theft - Identity Theft Indicators, to determine if input of AC 522 PNDCLM is appropriate.)

    2. Request the taxpayer mail the required documentation.

      • A copy of the U.S. Federal or State issued form of identification (i.e. driver's license, state identification card, social security card, passport)

      • A copy of a police report or IRS Affidavit Form 14039, Identity Theft Affidavit

    3. If the case remains a balance due issue, provide the address for the CSCO balance due site.

    4. If the case is a non-filer issue, provide the address for the CSCO non-filer site.

    5. If the case is assigned to ACS, provide ACSS address

    6. Paper operations should Send a letter to taxpayer and request they provide the required documentation

    7. Document AMS

    Note:

    If IDT documentation is provided by fax, the documentation must be given to the clerical unit to route to Fresno ACSS Specialized unit per IRM 5.19.16.4.1, Taxpayer Delinquent Account (TDA) Batching Procedures.

  2. Non-Owner of the SSN communicates with the IRS and claims the Lock-In letter is incorrect.

    1. If the individual calling is "inappropriately" using another taxpayer's social security number for purposes of employment and a Lock-In letter was issued on the "borrowed" social security number, do not disclose any of the SSN owner information.

    2. The lock-in letter on the non-owner of the SSN will not be release or modified.

    3. Refer them to the SSA for help in getting an SSN. Any employee who is legally eligible to work in the US and does not have a SSN can get one by completing Form SS-5, Application for a Social Security Card, and submit the necessary documentation. The taxpayer can get this form at SSA office, from the SSA website at www.socialsecurity.gov, or by calling 1-800-772-1213.

  3. For further guidance on ID Theft information refer to IRM 10.5.3, Identity Protection Program, or IRM 5.19.1.9, Identity Theft - Overview, for IMF Balance due ID theft or IRM 5.19.2.6, Return Delinquency Identity Theft Procedures, for RD theft issues.

5.19.11.10.15  (09-08-2014)
Taxpayers Employed by International Organizations

  1. Wages paid by international organizations are not subject to federal withholding requirements.

  2. The term "international organization" means a public international organization, designated by Executive Order as being entitled to enjoy privileges, exemptions, and immunities as an international organization under the International Organizations Immunities Act (22 U.S.C. 288-288f). See Exhibit 5.19.11-1, International Organizations Exempt from Federal Withholding Requirements for a list of international organizations.

  3. If the taxpayer or employer responds that the taxpayer works for an international organization and you have confirmed that the organization is listed in Exhibit 5.19.11-1 take the following actions:

    1. Issue Letter 2809C to the employer and Letter 2813C to the taxpayer.

    2. Input TC 972 AC 146 to IDRS with Disposition Code "NSW" .

    3. Document in the AMS history that the taxpayer is employed by an international organization (specifying name and EIN) and is not subject to withholding on those wages. Close the case.

    4. Update WHCS with letters sent and transaction codes input.

    5. If the taxpayer has other wages which are subject to withholding, follow general case processing procedures.

  4. If the organization is not listed in Exhibit 5.19.11-1 verify the employer's status as an international organization. Generally, this will be the number of the Executive Order covering the international organization. Route the case to the lead who will forward this information to Headquarters for a final determination.

  5. If the taxpayer or employer does not furnish the above verification, follow general case processing procedures.

5.19.11.10.16  (12-04-2009)
Litigation

  1. Taxpayers in litigation status are identified by a literal "-W" freeze.

  2. These taxpayers may be locked in if they meet lock-in criteria.

  3. Each "-W" freeze redetermination case will need to be considered on its own merits.

  4. The litigation TC 520 closing codes are 75-81 and 84.

5.19.11.10.17  (09-08-2014)
Native American Tribal Income

  1. The following IRM references will provide the necessary information and guidance needed for verification or Exempt status or non Exempt status. They will explain what documentation is needed for proof of exemption from federal tax.

    • IRM 4.88, Indian Tribal Governments Examination Issues and Procedures.

    • IRM 4.88.1.10.2, Income Derived From Fishing Rights.

    • Form 4.88.1–6, Tax Audit Guidelines for Internal Revenue Examiners.

  2. If the information received is enough to release TP issue Letter 2809C to the company and Letter 2813C to the taxpayer.

  3. Update WHCS and IDRS with TC 971 AC 146 and document AMS.

5.19.11.11  (05-12-2010)
Civil Penalty Determinations

  1. IRC Section 6682 and related tax regulations allow the assessment of a $500 civil penalty for furnishing false information with respect to withholding if

    1. the statement made on the Form W-4, Employee’s Withholding Allowance Certificate results in less income tax withheld than would have been withheld if the Form W-4 had been correctly completed, and

    2. there was no reasonable basis for such a statement at the time that the statement was made.

  2. You may waive the penalty, in whole or in part, if the individual's income tax for the year is equal to or less than the sum of the credits under IRC Sections 21-54 and the estimated tax payments for that tax.

  3. Civil penalty determinations may be required in cases involving a non-payment history, unfiled return(s), frivolous arguments and repeated underwithholding. Penalties must be assessed for the year that appears on the face of the Form W-4, Employee’s Withholding Allowance Certificate.

    Example:

    If the Form W-4 is for tax year 2008, the year on the face of the Form W-4 is 2008. Assess the penalty on tax year 2008.

  4. If the taxpayer has furnished more than one false Form W-4 for the same year, more than one penalty may be assessed for that year.

    Note:

    You must have a copy of the Form W-4, that the taxpayer submitted to the employer in order to assert the civil penalty.

  5. Civil penalty determinations will only be made on referrals or special projects. Referring employees may request assertion of the penalty if they have reviewed the original Form W-4 submitted by the employee and the Form W-4 meets the criteria in (1) above. A copy of the Form W-4 must accompany the referral.

  6. If the penalty was not processed, notify the referring employee within 30 days of disposition. Document the history on AMS with disposition actions and the date you notified the referring employee.

5.19.11.11.1  (12-04-2009)
Creating Entities or Name Lines for Non-Return Civil Penalties

  1. This section covers procedures for assessing civil penalties when there is no entity on IMF Master File.

5.19.11.11.1.1  (03-15-2012)
Information on Establishing Entities

  1. If the taxpayer has no entity on IMF (full name and address showing on CC INOLE), you must establish the account on Master File prior to manually assessing the Withholding Compliance civil penalty on IDRS.

    1. To establish the account, follow TC 000 procedures. See IRM 3.13.5.115, Establishing a New Account (TC 000), for instructions on establishing a new account.

    2. Wait two (2) weeks for the account to post, then input the applicable tax year name line, only if needed.

      Note:

      When a tax return posts (TC 150), it creates a name line for that year.

    3. Wait two (2) weeks for the name line to post, then input the civil penalty.

    4. Place the IDRS control base into "M" status pending posting of the name line.

  2. If the taxpayer's account is established but no applicable tax year name line is present, follow the procedures in (1) b) and c) above.

  3. If the civil penalty needs to be assessed against a spouse (filing as secondary taxpayer on a joint 1040 tax return) and the spouse has no entity established on IMF:

    1. Establish their account on the valid SSN using TC 000 procedures. See IRM 3.13.5.115, Establishing a New Account (TC 000), for instructions on establishing a new account.

    2. Wait two (2) weeks for the account to post, then input the applicable tax year name line.

    3. Wait two (2) weeks for the name line to post, then input the civil penalty.

    4. Place the IDRS control base into "M" status pending posting of the name line.

  4. If the taxpayer's account is already established on IMF (module on Master File) and the applicable tax year name line is present, you can assess the civil penalty with no additional actions required.

  5. If the taxpayer's account is already on Master File and has a Civil Penalty (CVPN), the name line may need to be updated on CC ENREQ (INCHG). (e.g., taxpayer’s current account name is Mary Jones and the CVPN is Mary Smith).

    Example:

    1

    Situation Action
    A joint account is on Master File for John and Mary Doe (John’s is the controlling SSN). A penalty is to be assessed against John. The account has the applicable tax year name line (TC 150 posted). The penalty may be assessed immediately.

    Example:

    2

    Situation Action
    On the same joint account as above, the penalty is to be assessed against Mary Doe. Mary has an account on Master File under her own SSN with the name line of Mary Jones because she filed individually before filing jointly with John Doe. There is no CVPN on her account. Input a name change, address change, (if needed) and applicable tax year name line. Wait two (2) weeks for the updates to post, then assess the penalty.

    Example:

    3

    Situation Action
    On a joint account for John and Mary Doe, the penalty is to be assessed against Mary. However, Mary has no account under her SSN on the Master File. Establish an account for Mary on Master File using her SSN and TC 000 procedures. Wait two (2) weeks for the account to post, then input the applicable tax year name line. Wait two (2) more weeks for the name line to post, then assess the penalty.

    Example:

    4

    Situation Action
    John Doe has a separate account with the applicable tax year name line (TC 150 posted) and a penalty is to be assessed against John. No special action is required, the penalty may be assessed and a CVPN will be generated by Master File.

    Example:

    5

    Situation Action
    John and Mary Doe do not have an account on Master File since they are non-filers. A penalty is to be assessed against John. Establish the account using TC 000 procedures. Wait two (2) weeks for the account to post, then input the applicable tax year name line. Wait two (2) more weeks for the name line to post, then assess the penalty.

5.19.11.11.2  (12-04-2009)
Assessment Procedures for Penalties

  1. Assess the IRC Section 6682 civil penalty using Master File Transaction (MFT) 55 for the calendar year for which the false Form W-4 , Employee’s Withholding Allowance Certificate was signed. Multiple penalties may be assessed on a given module, one for each false Form W-4.

    1. Use TC 290 with Reference Code 616 to assess the $500 civil penalty. IDRS generates a TC 240, Reference Code 616. The reference number uniquely identifies the penalty being assessed and serves as an indicator for generating the first notice to the taxpayer.

    2. Use IDRS CC ADJ54 to input W–4 civil penalty assessments. Use TC 290 with a zero amount to open the MFT 55 module. Enter the three-digit reference number, 616 for W–4, along with a positive money amount to generate a TC 240, Miscellaneous Penalty Assessment. Enter in the remarks area SD (source document) and the appropriate remarks, e.g., assess the W-4 civil penalty. This informs the Returns Files function that a document will be received for association with the adjustment Document Locator Number (DLN).

    3. The three-digit Reference Number 616 posts to the IMF and appears to the right of the TC 240. The TC 290 is a carrier record only and does not post. Place penalty assessments for each module in the 52X Blocking Series for the first assessment on a module, and in the 53X Blocking Series for subsequent assessments. Source code "0" and Reason Code "00" generate automatically.

  2. When assessing IRC Section 6682 civil penalty, input levy source information (the employer’s name, address, and EIN). Remember to update levy source information when a taxpayer informs you of a new or different employer than the one on the W–4.

5.19.11.11.3  (03-15-2012)
Civil Penalty Abatements

  1. The IRC Section 6682 penalty may be abated if the taxpayer demonstrates having a reasonable basis for making the false statement(s) on Form W-4 when it was submitted to the employer. Requests for abatements will be received directly from the taxpayer or may be forwarded from other campuses via Form 3210, Document Transmittal.

  2. If a request for abatement is received, check IDRS for the TSIGN to see if it is assigned to a technical support function, as well as, verifying the penalty was not already abated.

    Note:

    If the penalty has been paid, the taxpayer’s request for waiver or "reasonable basis" abatement request is a claim for refund.

  3. You may find that there was sufficient withholding and credits at the time the W–4, was furnished to cover the liability for the tax year when the form was in effect.

    Example:

    An employee gives their employer a W–4 in November and the form was in effect until the end of the year. The amount of tax withheld up to the date of the W–4 was greater than the tax shown (TC 150) on the subsequently filed Form 1040, U.S. Individual Income Tax Return. The penalty should be waived if proposed, or abated if assessed.

    Note:

    It may still be appropriate to leave the lock-in in effect unless the employee provides additional information to support a redetermination.

  4. Penalties may be abated if there is a reasonable basis, which exists if:

    1. The number of allowances is computed in accordance with the form instructions. See Treas. Reg. 31.6682-1(a).

    2. The taxpayer justifies the withholding allowances claimed on the W–4.

    3. The taxpayer demonstrates that withholding computed at the adjusted or redetermined marital status and number of allowances is the same as or less than the withholding on the original W–4.

      Example:

      A taxpayer furnished an exempt W–4 and is penalized. In a subsequent redetermination and abatement request, the taxpayer shows they are entitled to nineteen allowances. At the taxpayer’s income, no tax would be withheld if withholding were figured at nineteen allowances. Adjust withholding to nineteen allowances, and abate the penalty.

    4. The taxpayer establishes that the W–4 was completed taking into account incorrect information received from a Service employee. See Declaration of Taxpayer Rights at VIII in Pub 1. The assertion that Service error is involved should be verifiable and credible under the circumstances. Misunderstanding publications or the law is not a reasonable basis for furnishing a false W–4.

  5. The reasonable cause standard, which is applicable to abate some penalties (for example, penalties for late filing or late payment) does not apply to the penalty for furnishing an incorrect Form W-4.

  6. The taxpayer's reasonable basis for furnishing an incorrect Form W-4 must be related to expected tax liability. The following lists provides examples of reasons taxpayers may offer for furnishing a false Form W-4 that do NOT meet the reasonable basis standard:

    1. Illness,

    2. Loss of records,

    3. Overpayment of a tax liability.

  7. Do not abate or waive the W–4 civil penalty on moral, religious, political, or constitutional arguments.

  8. Do not abate penalties for reasons relating to personal finances of the taxpayer, either at the time the false W–4 was furnished or in connection with the taxpayer’s ability to pay the penalty.

  9. Penalty abatements must be approved by the manager.

  10. If you decide to abate or waive the penalty, send Letter 2811C to the taxpayer. A notice of adjustment is also automatically generated to notify the taxpayer. If the request is denied, use Letter 2804C and document the case history.

5.19.11.11.3.1  (12-04-2009)
Procedures for Inputting Abatements

  1. To input the abatement on unpaid penalties, use IDRS Command Code ADJ54.

    1. Use TC 290 with a zero amount to open the MFT 55 module.

    2. Enter the three-digit reference number, 616 for W–4,

    3. Place a minus sign (–) after the dollar amount on the ADJ54 screen.

    4. Enter SD (source document) and appropriate remarks, e.g., abate W–4 civil penalty.

    5. Forward the source document to files.

  2. Full or part paid penalties cannot be abated. The taxpayer must file a claim for refund using Form 843, Claim for Refund and Request for Abatement.

5.19.11.11.4  (12-04-2009)
Penalty Appeal Procedures

  1. The taxpayer has the right to appeal denied requests for abatement of the civil penalty. Follow the procedures below for preparing and transmitting a case to Appeals for review.

5.19.11.11.4.1  (12-04-2009)
Case File Preparation

  1. Include the following documents:

    • Form W-4 on which the penalty was based, submitted by the referring Service employee, if available

    • All taxpayer correspondence, including the request for abatement

    • All IRS correspondence

    • IDRS research

    • WHCS research

5.19.11.11.4.2  (12-04-2009)
Transmittal of Case to Appeals

  1. Prepare Form 3210. Complete all applicable blocks on the form including

    • Sender's full name, stop number, mailing address and phone number

    • Full description of item(s) being sent including taxpayer's name, SSN and the tax period on which the penalty was assessed using format 55-yyyy12, where yyyy is the tax year.

  2. Attach Form 3210 to the case file and forward to the appropriate Appeals office. Visit Appeals website to locate the address of the appropriate Appeals office.

5.19.11.11.4.3  (12-04-2009)
Case Processing Procedures

  1. Take the following actions:

    1. If TXMOD control is still open, close with message "To Appeals " .

    2. If TXMOD control is closed, input history item, "To Appeals " , on TXMOD.

    3. Send Letter 86C informing the taxpayer that the case is being transferred to Appeals.

    4. Update AMS history with "Sent to Appeals" and the date.

    5. Update WHCS with Letter 86C and the date.

Exhibit 5.19.11-1 
International Organizations Exempt from Federal Withholding Requirements

International Organization Executive Order Number and Date
African Development Bank 12403 of February 8, 1983
African Development Fund 11977 of March 14, 1977
African Union
(formerly Organization of African Unity)
13377 of April 13, 2005 (revokes 11767 of February 19, 1974)
Asian Development Bank 11334 of March 7, 1967
Border Environmental Cooperation Commission 12904 of March 16, 1994
Caribbean Organization 10983 of December 30, 1961
Commission for Environmental Cooperation 12904 of March 16, 1994
Commission for Labor Cooperation 12904 of March 16, 1994
Commission for the Study of Alternatives to the Panama Canal 12567 of October 2, 1986
Customs Cooperation Council 11596 of June 5, 1971
European Bank for Reconstruction and Development 12766 of June 18, 1991
European Central Bank 13307 of May 29, 2003
European Space Agency (formerly the European Space Research Organization) 11318 of Dec. 5, 1966 and 12766 of June 18, 1991
Food and Agriculture Organization 9698 of February 19, 1946
Global Fund To Fight AIDS, Tuberculosis and Malaria 11395 of January 13, 2006
Great Lakes Fishery Commission 11059 of October 23, 1962
GRECO (Council of Europe in Respect of the Group of States Against Corruption) 13240 of December 18, 2001
Hong Kong Economic and Trade Offices 13052 of June 30, 1997
Inter-American Defense Board 10228 of March 26, 1951
Inter-American Development Bank 10873 of April 8, 1960 and 11019 of April 27, 1962
Inter-American Institute for Cooperation for Agriculture 9751 of July 11, 1946
Inter-American Investment Corporation 12567 of October 2, 1986
Inter-American Statistical Institute 9751 of July 11, 1946
Inter-American Tropical Tuna Commission 11059 of October 23, 1962
International Atomic Energy Agency 10727 of August 31, 1957
International Bank for Reconstruction and Development (World Bank) 9751 of July 11, 1946
International Boundary and Water Commission - the United States and Mexico 12467 of March 2, 1984
International Centre for Settlement of Investment Disputes 11966 of January 19, 1977
International Civil Aviation Organization 9863 of May 31, 1947
International Coffee Organization 11225 of May 22, 1965
International Committee of the Red Cross 12643 of June 23, 1988
International Cotton Advisory Committee 9911 of December 19, 1947
International Cotton Institute 11283 of May 27, 1966
International Criminal Police Organization (INTERPOL) (Limited Privileges) 12425 of June 16, 1983
International Development Association 11966 of January 19, 1977
International Development Law Institute 12842 of March 29, 1993
International Fertilizer Development Center 11977 of March 14, 1977
International Finance Corporation 10680 of October 2, 1956
International Food Policy Research Institute (Limited Privileges) 12359 of April 22, 1982
International Fund for Agricultural Development 12732 of October 31, 1990
International Hydrographic Bureau 10769 of May 29, 1958
International Joint Commission - the United States and Canada 9972 of June 25, 1948
International Labor Organization 9698 of February 19, 1946
International Maritime Organization (formerly the Intergovernmental Maritime Consultative Organization) 10795 of December 13, 1958
International Maritime Satellite Organization 12238 of September 12, 1980
International Monetary Fund 9751 of July 11, 1946
International Organization for Migration
(formerly Provisional Intergovernmental Committee for the Movement of Migrants for Europe and Intergovernmental Committee for European Migration)
10335 of March 28, 1952
International Pacific Halibut Commission 11059 of October 23, 1962
International Secretariat for Volunteer Service 11363 of July 20, 1967
International Telecommunications Satellite Organization (INTELSAT) 11718 of May 14, 1973 and 11966 of January 19, 1977
International Telecommunication Union 9863 of May 31, 1947
International Union for Conservation of Nature and Natural Resources (Limited Privileges) 12986, January 18, 1966
International Wheat Advisory Committee (International Wheat Council) 9823 of January 24, 1947
Interparliamentary Union 13097 of August 7, 1998
Israel-United States Binational Industrial Research and Development Foundation 12956 of March 13, 1995
ITER International Fusion Energy Organization 13451 of November 19, 2007
Korean Peninsula Energy Development Organization 12997 of April 1, 1996
Multilateral Investment Guarantee Agency 12467 of August 22, 1988
Multinational Force and Observers 12359 of April 22, 1982
North American Development Bank 12904 of March 16, 1994
North Pacific Anadromous Fish Commission 12895 of January 26, 1994
North Pacific Marine Science Organization 12894 of January 26, 1994
Organization for Economic Cooperation and Development (formerly the Organization for European Economic Cooperation) 10133 of June 27, 1950
Organization for the Prohibition of Chemical Weapons 13049 of June 11, 1997
Organization of American States (including Pan American Union) 10533 of June 3, 1954
Organization of Eastern Caribbean States 12669 of February 20, 1989
Pacific Salmon Commission 12567 of October 2, 1986
Pan American Health Organization (including Pan American Sanitary Bureau) 10864 of February 18, 1960
South Pacific Commission 10086 of November 25, 1949
United International Bureau for the Protection of Intellectual Property (BIPRI) 11484 of September 29, 1969
United Nations 9698 of February 19, 1946
United Nations Educational, Scientific, and Cultural Organization (UNESCO) 9863 of May 31, 1947
United Nations Industrial Development Organization 12628 of March 8, 1988
United States-Mexico Border Health Commission 11367 of December 21, 2004
Universal Postal Union 10727 of August 31, 1957
World Bank (see International Bank for Reconstruction and Development ) 9751 of July 11, 1946
World Health Organization 10025 of December 30, 1948
World Intellectual Property Organization 11866 of June 18, 1975
World Meteorological Organization 10676 of September 1, 1959
World Tourism Organization 125087 of March 22, 1985
World Trade Organization 13042 of April 9, 1997

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