21.6.3 Credits

Manual Transmittal

September 13, 2018

Purpose

(1) This transmits a revised IRM 21.6.3, Individual Tax Returns, Credits.

Material Changes

(1) Various editorial changes throughout the IRM.

(2) IRM 21.6.3.1.5 - Added Credit for Other Dependents (ODC).

(3) IRM 21.6.3.4 - Added procedures for missing and incomplete forms and schedules.

(4) IPU 18U0102 issued 01-11-2018 IRM 21.6.3.4.1 - Added Form 5884-A.

(5) IRM 21.6.3.4.1 - Updated ordering or credits.

(6) IRM 21.6.3.4.1.3 - Added 2018 gross income amount.

(7) IRM 21.6.3.4.1.5 - Added 2018 AGI limits.

(8) IPU 18U0102 issued 01-11-2018 IRM 21.6.3.4.1.10.1 - Added Employee Retention Credit.

(9) IPU 18U0213 issued 01-31-2018 IRM 21.6.3.4.1.10.1 - Added CAT-A criteria to Employee Retention Credit and routing of claims for those taxpayers in the Hurricane Harvey, Irma, and Maria disaster areas.

(10) IPU 18U0535 issued 03-26-2018 IRM 21.6.3.4.1.10.1 - Added employers affected by the California wildfires.

(11) IPU 18U0323 issued 02-20-2018 IRM 21.6.3.4.1.11 - Added the Biofuel Producer Credit was extended to 2017.

(12) IRM 21.6.3.4.1.11 - Updated the name of the biofuel credit.

(13) IPU 18U0323 issued 02-20-2018 IRM 21.6.3.4.1.16 - Added the Indian Employment Credit was extended to 2017.

(14) IRM 21.6.3.4.1.18 - Added tax year 2018 Orphan Drug credit amount.

(15) IPU 18U0323 issued 02-20-2018 IRM 21.6.3.4.1.21 - Added the Empowerment Zone Credit was extended to 2017.

(16) IRM 21.6.3.4.1.22 - Updated carryback and carryforward rules.

(17) IRM 21.6.3.4.1.23 - Removed reference to tax years 2007 - 2012.

(18) IRM 21.6.3.4.1.24 - Updated entire subsection to add tax year 2018 tax law changes.

(19) IRM 21.6.3.4.1.24.1 - Updated entire subsection to add tax year 2018 tax law changes.

(20) IPU 17U1408 issued 10-11-2017 IRM 21.6.3.4.1.24.1 - Clarified procedures for processing Schedule 8812.

(21) IPU 17U1408 issued 10-11-2017 IRM 21.6.3.4.1.24.2 - Clarified procedures for retroactive claims.

(22) IPU 18U0102 issued 01-11-2018 IRM 21.6.3.4.1.24.2 - Updated TIN assignment date information and added PATH Act Section 208, credit denied due to deficiency procedures.

(23) IRM 21.6.3.4.1.24.3 - Added new subsection titled Credit for Other Dependents.

(24) IRM 21.6.3.4.1.25 - Added unused credits may only be carried forward five years.

(25) IRM 21.6.3.4.1.27 - Deleted District of Columbia First-Time Homebuyer Credit subsection as the credit expired in 2011. Renumbered subsequent subsections.

(26) IPU 18U0323 issued 02-20-2018 IRM 21.6.3.4.1.28 - Added the Residential Energy Credit was extended to 2021, and nonbusiness energy property credit was extended to 2017.

(27) IRM 21.6.3.4.1.28 - Added 2018 information to table; deleted 2015 information.

(28) IRM 21.6.3.4.1.29 - Added 2018 AGI limitations.

(29) IRM 21.6.3.4.1.30 - Added adjustment procedures.

(30) IRM 21.6.3.4.1.31 - Added adjustment procedures.

(31) IRM 21.6.3.4.1.32 - Added adjustment procedures.

(32) IPU 18U0323 issued 02-20-2018 IRM 21.6.3.4.1.33 - Added the Biodiesel and Renewable Diesel Fuels Credit was extended to 2017.

(33) IPU 18U0323 issued 02-20-2018 IRM 21.6.3.4.1.35 - Added the Qualified Railroad Track Maintenance Credit was extended to 2017.

(34) IPU 18U0323 issued 02-20-2018 IRM 21.6.3.4.1.36 - Added the Alternative Motor Vehicle Credit was extended to 2017.

(35) IPU 18U0323 issued 02-20-2018 IRM 21.6.3.4.1.37 - Added the Alternative Fuel Vehicle Refueling Property Credit was extended to 2017.

(36) IRM 21.6.3.4.1.37 - Added bonds repealed by Tax Reform.

(37) IPU 18U0323 issued 02-20-2018 IRM 21.6.3.4.1.39 - Added the credit for 2-wheeled plug-in electric vehicles was extended to 2017.

(38) IRM 21.6.3.4.1.40 - Updated category code and programs

(39) IRM 21.6.3.4.1.41 - Added new subsection titled Employer Credit for Paid Family and Medical Leave.

(40) IPU 17U1488 issued 10-23-2017 IRM 21.6.3.4.2.2 - Clarified backup withholding.

(41) IPU 17U1408 issued 10-11-2017 IRM 21.6.3.4.2.4 - Added link to the CIS guide in (5).

(42) IPU 18U0691 issued 04-23-2018 IRM 21.6.3.4.2.4 - Added Certified Professional Employer Organization to the If/Then table in (5).

(43) IRM 21.6.3.4.2.4 - Added tax year 2018 social security wage amount.

(44) IRM 21.6.3.4.2.6 - Added information about Notice 2018-21.

(45) IPU 18U0102 issued 01-11-2018 IRM 21.6.3.4.2.7.4 - Added the ability to use prior year earned income for those taxpayers in Hurricane Harvey, Irma, and Maria disaster areas.

(46) IPU 18U0213 issued 01-31-2018 IRM 21.6.3.4.2.7.4 - Added routing of claims for those taxpayers in the Hurricane Harvey, Irma, and Maria disaster areas.

(47) IPU 18U0535 issued 03-26-2018 IRM 21.6.3.4.2.7.4 - Added California wildfire disaster area.

(48) IRM 21.6.3.4.2.7.5 - Added tax year 2018 investment income limitation.

(49) IRM 21.6.3.4.2.7.6 - Added tax year 2018 AGI limits.

(50) IPU 18U0102 issued 01-11-2018 IRM 21.6.3.4.2.7.13 - Updated IRM reference for credit recertification throughout this subsection.

(51) IPU 18U0102 issued 01-11-2018 IRM 21.6.3.4.2.7.14 - Moved this subsection to IRM 21.6.3.5, renumbered subsequent subsections.

(52) IPU 18U0102 issued 01-11-2018 IRM 21.6.3.4.2.7.14 - Added additional math error codes, added link to IRM 21.6.3.5, and pointed all recertification issues to that IRM.

(53) IPU 18U0102 issued 01-11-2018 IRM 21.6.3.4.2.8 - Added the ability to use prior year earned income for those taxpayers in Hurricane Harvey, Irma, and Maria disaster areas.

(54) IPU 18U0213 issued 01-31-2018 IRM 21.6.3.4.2.8 - Added routing of claims for those taxpayers in the Hurricane Harvey, Irma, and Maria disaster areas.

(55) IPU 18U0535 issued 03-26-2018 IRM 21.6.3.4.2.8 - Added California wildfire disaster area.

(56) IPU 18U0102 issued 01-11-2018 IRM 21.6.3.4.2.8.2 - Updated caution in (8), adding information about recertifying for the credit.

(57) IRM 21.6.3.4.2.8.3 - Updated earned income threshold.

(58) IPU 18U0102 issued 01-11-2018 IRM 21.6.3.4.2.9 - Added note regarding Form 14095 cutoff date.

(59) IPU 17U1581 issued 11-09-2017 IRM 21.6.3.4.2.9.2 - Added an exception for when Form 13441-A is needed.

(60) IPU 17U1408 issued 10-11-2017 IRM 21.6.3.4.2.9.2.1 - Added payment information found in the HCTC database to this subsection and subsequent section.

(61) IPU 17U1488 issued 10-23-2017 IRM 21.6.3.4.2.9.3 - Added note regarding the payment tracking number.

(62) IPU 17U1488 issued 10-23-2017 IRM 21.6.3.4.2.9.4 - Added Letter 6009, Refund of HCTC Payment.

(63) IRM 21.6.3.4.2.9.4 - Added Letter 6011, Return of HCTC Funds.

(64) IPU 18U0213 issued 01-31-2018 IRM 21.6.3.4.2.9.5 - Added Form 1099-H discrepancies and refunds of premiums paid.

(65) IPU 18U0535 issued 03-26-2018 IRM 21.6.3.4.2.9.5 - Added a note regarding Form 1099-H inquiries.

(66) IRM 21.6.3.4.2.9.5 - Added information regarding applications filed months in advance.

(67) IPU 17U1408 issued 10-11-2017 IRM 21.6.3.4.2.9.6 - Deleted "do not include appeal rights" in (8).

(68) IPU 18U0102 issued 01-11-2018 IRM 21.6.3.4.2.9.6 - Added for tax year 2017, taxpayers must elect HCTC by the due date of the return.

(69) IPU 17U1408 issued 10-11-2017 IRM 21.6.3.4.2.11 - Clarified procedures for retroactive claims.

(70) IPU 18U0102 issued 01-11-2018 IRM 21.6.3.4.2.11 - Updated TIN assignment date information and added PATH Act Section 208, credit denied due to deficiency procedures.

(71) IPU 18U0102 issued 01-11-2018 IRM 21.6.3.4.2.12 - Updated category codes throughout this subsection.

(72) IPU 18U0535 issued 03-26-2018 IRM 21.6.3.4.2.12 - Added Category Code ACA5 for loose forms.

(73) IRM 21.6.3.4.2.12 - Added 2018 contribution and repayment limitation amounts, and added CIS document type in (15).

(74) IPU 17U1408 issued 10-11-2017 IRM 21.6.3.4.2.12.3.4 - Added new ACA letters and moved letters regarding the shared responsibility provision to IRM 21.6.4.

(75) IPU 17U1581 issued 11-09-2017 IRM 21.6.3.4.2.12.4 - Removed references to Business Objects Enterprise since the data is available on Command Code IRPOL.

(76) IPU 17U1581 issued 11-09-2017 IRM 21.6.3.4.2.12.4.1 - Added Form 1095-A.

(77) IPU 17U1488 issued 10-23-2017 IRM 21.6.3.4.2.12.5 - Added caution about verifying Form 8962 data prior to input into the PTC calculator.

(78) IPU 17U1581 issued 11-09-2017 IRM 21.6.3.4.2.12.5 - Added information about verifying policies are allocated.

(79) IPU 17U1488 issued 10-23-2017 IRM 21.6.3.4.2.12.6 - Added caution about verifying Form 8962 data prior to input into the PTC calculator.

(80) IPU 17U1581 issued 11-09-2017 IRM 21.6.3.4.2.12.6 - Added information about verifying policies are allocated.

(81) IPU 18U0691 issued 04-23-2018 IRM 21.6.3.4.2.12.8 - Clarified when posted return data is available to the Marketplace.

(82) IRM 21.6.3.4.2.12.8 - Added a note in (3) about if the taxpayer received a Letter 12C.

(83) IPU 18U0102 issued 01-11-2018 IRM 21.6.3.5 - Added new subsection for credit recertification.

(84) IRM 21.6.3.5 - Added Credit for Other Dependents.

(85) Exhibit 21.6.3-1 - Updated to reflect changes to the Child Tax Credit and added Credit for Other Dependents.

Effect on Other Documents

IRM 21.6.3, Credits, dated Aug. 24, 2017 (effective Oct. 1, 2017), is superseded. This IRM also incorporates Interim Procedural Updates (IPU) 17U1408 (dated 10-11-2017), 17U1488 (dated 10-23-2017), 17U1581 (dated 11-09-2017), 18U0102 (dated 01-11-2018), 18U0213 (dated 01-31-2018), 18U0323 (dated 02-20-2018), 18U0535 (dated 03-26-2018), and 18U0691 (dated 04-23-2018).

Audience

Employees responding to taxpayer inquiries and performing account adjustments pertaining to credits

Effective Date

(10-01-2018)

Karen A. Michaels
Director, Accounts Management
Wage and Investment Division

Program Scope and Objectives

  1. Purpose: This IRM covers information on both nonrefundable and refundable credits.

  2. Audience: The primary users of the IRM are all IRS employees in Business Operating Divisions (BODs) who are in contact with taxpayers by telephone, correspondence, or in person.

  3. Policy Owner: The Director of Accounts Management.

  4. Program Owner: Policy and Program Management, Accounts Management, Wage and Investment (WI).

  5. Primary Stakeholders: The primary stakeholders are organizations that Accounts Management collaborates with; for example; Return Integrity Compliance Systems (RICS), Compliance, and Submission Processing.

  6. Program Goals: Program goals for this type of work are included in the Accounts Management Program Letter as well as IRM 1.4.16, Accounts Management Guide for Managers.

Background

  1. Employees in the Accounts Management (AM) organization respond to taxpayer inquiries and phone calls as well as process claims and other internal adjustment requests.

Authority

  1. Refer to IRM 1.2.21, Servicewide Policies and Authorities, Policy Statements for Customer Account Services Activities, for information.

Responsibilities

  1. The Wage and Investment Commissioner has overall responsibility for policy related to this IRM which is published on a yearly basis.

  2. Additional information is found in IRM 1.1.13.9.4, Accounts Management and IRM 21.1.1, Accounts Management and Compliance Services Overview.

Program Controls

  1. Program Reports: The program reports provided in this IRM are for identification purposes for the Accounts Management Customer Service Representatives (CSRs) and Tax Examiners (TEs). For reports concerning quality, inventory, and aged listings, please refer to IRM 1.4.16, Accounts Management Guide for Managers, for Accounts Management Managers. Aged listings can also be viewed by accessing Control Data Analysis, Project PCD, from the Control-D/Web Access server, which has a login program control.

  2. Program Effectiveness: Program effectiveness is determined by Accounts Management’s employees successfully using IRM guidance to perform necessary account actions and duties.

  3. Program Controls: Goals, measures and operating guidelines are listed in the yearly Program Letter. Quality data and guidelines for measurement are referenced in IRM 21.10.1, Embedded Quality (EQ) for Accounts Management, Campus Compliance, Tax Exempt/Government Entities, Return Integrity and Compliance Services (RICS) and Electronic Products and Services Support.

Acronyms

  1. For a comprehensive listing of any IRS acronyms, please refer to the Acronym Database. Below are acronyms currently not listed in the database.

    Acronym Definition
    ACAX Affordable Care Act Amended Return
    ACM Alternative Calculation for Marriage
    ATAA Alternative Trade Adjustment Assistance
    BUWH Backup Withholding
    DOE Date of Enactment
    EICC Earned Income Credit Correspondence
    EICP Earned Income Credit Phones
    EICN Earned Income Credit Notice
    EICX Earned Income Credit Amended Return
    ESBT Electing Small Business Trust
    HAIA Homebuyer Assistance and Improvement Act
    HCTX Health Coverage Tax Credit Amended Return
    HERA Housing and Economic Recovery Act
    HPA Health Plan Administrator
    ODC Credit for Other Dependents
    QAE Qualified Adoption Expenses
    REIT Real Estate Investment Trust
    RIC Regulated Investment Company
    RTAA Reemployment Trade Adjustment Assistance

Related Resources

  1. Refer to IRM 1.4.2.1.8, Related Resources, for information on related resources that impact internal controls.

What Are Credits?

  1. Nonrefundable credits reduce, and are limited to, the amount of the tax liability for the tax year, excluding taxes from the "Other Taxes" section.

    Note:

    If allowed, the unused amounts of credits can be carried forward from year to year until the credits are absorbed, or the carry forward period expires, whichever is first.

  2. A refundable credit is a credit that is not limited by the amount of tax liability. It is treated as a payment and applied to the tax liability. If total credit(s) and/or payment(s) exceed the tax liability, the excess is refundable. Examples of refundable credits are the Earned Income Tax Credit and the Additional Child Tax Credit. See IRM 21.6.3.4.2, Refundable Credits.

Credits Research

  1. Credits are researched on Integrated Data Retrieval System (IDRS), using Command Codes (CC) RTVUE, IMFOLT, TRDBV and/or TXMODA.

  2. The tax code permits a wide variety of credits. Follow the procedures in the following subsections for nonrefundable and refundable credits.

  3. In order to assist with improving quality and timeliness of the work process, Accounts Management employees who have access are required to use the Integrated Automation Technologies (IAT) tools such as xClaim and REQ54 when appropriate for any case involving credits. See Exhibit 21.2.2-2, Accounts Management Mandated IAT Tools.

  4. If a fraudulent claim is identified that does not have existing procedures, see Exhibit 21.5.3-6, Fraud Referral Claims.

Credits Procedures

  1. This section contains the procedures for nonrefundable and refundable tax credits.

  2. If a required form or schedule is missing, follow procedures in IRM 21.5.1.5.6, Incomplete CIS Claims.

  3. If the form, schedule, or documentation is incomplete and cannot be perfected with available information, follow claim processing in IRM 21.5.3.4, General Claims Procedures.

  4. All credits require the primary taxpayer, secondary taxpayer, and, if applicable, the qualifying child(ren) have a valid Taxpayer Identification Number (TIN). See Exhibit 21.6.3-1, TIN Requirements for Exemptions and Credits.

    Note:

    An Internal Revenue Service Number (IRSN) is not a valid TIN for credit allowance.

  5. The American Opportunity Tax Credit, Additional Child Tax Credit, Child Tax Credit, Credit for Other Dependents, and the Earned Income Tax Credit require the taxpayer, spouse, or qualifying child have the TIN assigned on or before the due date, or extended due date, of the return.

  6. Certain credits, e.g., Child Tax Credit and Earned Income Tax Credit, contain age criteria that must be met for credit allowance.

    1. Use CC INOLE to research IRS and SSA date of birth and date of death information. Use the Real Time System (RTS) to verify the DOB when an Individual Taxpayer Identification Number (ITIN) is involved. See IRM 3.21.263, IRS Individual Taxpayer Identification Number (ITIN) Real Time System (RTS).

    2. If a taxpayer contacts IRS concerning a math error issued as a result of a social security number (SSN) discrepancy, and it cannot be resolved through verification or research, advise the taxpayer to contact his/her local SSA office to resolve the discrepancy.

    3. To substantiate date of birth for tax purposes, taxpayer must provide documentation, e.g. birth certificate, school records, baptism records, etc., for verification.

    4. When the taxpayer provides the appropriate documentation, use CC DM1DT to add, change, or delete data to correct the date of birth. See IRM 2.3.25, Command Codes DM1DT and DTVUE, for CC input.

      Exception:

      Do not use CC DM1DT to update ITIN information. Complete a Form 4442, Inquiry Referral, and fax it along with the taxpayer documentation to the Austin Service Center (AUSC) ITIN unit at 855-854-8381 or 855-854-8382.

  7. On 8/18/03, the IRS published Rev. Rul. 2003-72, which applies a uniform method of determining when a child attains a specific age for certain tax purposes. For ALL tax years, taxpayer inquiries or claims regarding this issue are to be addressed utilizing the following information:

    • A child attains a given age on the anniversary of the date that the child was born. For example, a child born on January 1, 2015, attains the age of 1 on January 1, 2016.

    • The revenue ruling applies to age determination for children regarding dependent care benefits, adoption credits, child tax credits, earned income tax credits, dependent care assistance programs, foster care payments, adoption assistance programs, and dependency exemptions.

  8. If the Child and Dependent Care Credit, Child Tax Credit, Credit for Other Dependents, Earned Income Tax Credit, Adoption Credit and/or Education Credit is being claimed for a TIN for which our records indicate a date of death prior to the tax year, correspond before using math error procedures. In this instance, the Service should take steps to ensure that taxpayers are given notice of the problem and an opportunity to explain. The correspondence should indicate that the TIN at issue is incorrect since SSA records indicate the TIN being used is for a person who was deceased prior to the tax year.

    1. If documentation is received indicating the math error is incorrect, use CC DM1DT to change or delete the DOD. See IRM 2.3.25, Command Codes DM1DT and DTVUE, for additional information.

    2. If appropriate documentation is not received, disallow the credit(s) and send Letter 105C using the following (indicate the specific credits, including exemptions if applicable, in an open paragraph):
      "We are disallowing your claim for the credits below because you omitted a correct social security number. The information provided by the Social Security Administration (SSA) indicates the number provided belongs to an individual who was deceased prior to the beginning of the tax year for which it is being used."

    Note:

    See IRM 21.6.1.6.1, Determining the Exemption Deduction, for information on allowing exemptions.

     

  9. Take the following action on any CP 36, duplicate return or Form 1040X that claim refundable credits as noted below:

    If Then
    A review of any duplicate or amended return shows a claim of social security benefits with refundable credits and the refund is equal to the amount of credits

    Or

    A review of any duplicate or amended return shows Household Employee income of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and a claim for a refundable credit.
    1. Research CC IRPTR to substantiate the income and / or withholding.

    2. "No consider" the request if CC IRPTR does not substantiate the request. Follow procedures in IRM 21.5.3.4.6.3, No Consideration Procedures.

    Note:

    These procedures should be followed even though the refundable credit is below the specified tolerance amount.

  10. See IRM 20.1.2.1.6.2, Incorrect Tax Shown Recorded, to determine if an Item Reference Number (IRN) 871 is required to be input to update the "tax shown" .

  11. Per the Taxpayer Bill of Rights (TBOR), taxpayers have the right to expect a fair and just tax system which provides taxpayers with the opportunity to have their facts and circumstances considered when it might affect their underlying liabilities, ability to pay, or ability to provide information timely.

  12. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service (TAS) if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through normal channels. For additional information, visit the Taxpayer Bill of Rights.

  13. Refer taxpayers to the Taxpayer Advocate Service (TAS) when the contact meets TAS criteria (see IRM 13.1.7, Taxpayer Advocate Service (TAS) Case Criteria) and you cannot resolve the taxpayer's issue the same day. The definition of the "same-day" is within 24 hours. "Same day" cases include cases you can completely resolve in 24 hours, as well as cases in which you have taken steps within 24 hours to begin resolving the taxpayer's issue. Do not refer "same day" cases to TAS unless the taxpayer asks to be transferred to TAS and the case meets TAS criteria. Refer to IRM 13.1.7.4, Same Day Resolution by Operations. When you refer cases to TAS, use Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order), and forward to TAS. For additional information regarding TAS, see IRM 21.1.3.18, Taxpayer Advocate Service (TAS) Guidelines.

Nonrefundable Credits Procedures

  1. Nonrefundable credits are applied in the order that they appear in this section, unless stated otherwise in the specific credit section, form instructions, or publication:

    • Form 1116, Foreign Tax Credit (Individual, Estate or Trust)

    • Form 2441, Child and Dependent Care Expenses

    • Schedule R, Credit for the Elderly or the Disabled

    • Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits)

    • Form 8880, Credit for Qualified Retirement Savings Contributions

    • Form 5695, Residential Energy Credits (the line 30 amount from Part II)

    • Form 8910, Alternative Motor Vehicle Credit (personal part of the credit)

    • Credit for Other Dependents

    • Child Tax Credit

    • Form 8396, Mortgage Interest Credit

    • Form 8839, Qualified Adoption Expenses

    • Form 8859, Carryforward of the District of Columbia First-Time Homebuyer Credit

    • Form 5695, Residential Energy Credits (line 15 amount)

    • Form 8834, Qualified Electric Vehicle Credit

    • Form 3468, Investment Credit

    • Form 5884, Work Opportunity Credit

    • Form 6478, Biofuel Producer Credit

    • Form 6765, Credit for Increasing Research Activities

    • Form 8586, Low-Income Housing Credit

    • Form 8826, Disabled Access Credit

    • Form 8835, Renewable Electricity, Refined Coal, and Indian Coal Production Credit

    • Form 8845, Indian Employment Credit

    • Form 8846, Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips

    • Form 8820, Orphan Drug Credit

    • Form 8874, New Markets Credit

    • Form 8881, Credit for Small Employer Pension Plan Startup Costs

    • Form 8882, Credit for Employer-Provided Childcare Facilities and Services

    • Form 8900, Qualified Railroad Track Maintenance Credit

    • Form 8864, Biodiesel and Renewable Diesel Fuels Credit

    • Form 8896, Low Sulfur Diesel Fuel Production Credit

    • Form 8906, Distilled Spirits Credit

    • Form 8907, Nonconventional Source Fuel Credit

    • Form 8908, Energy Efficient Home Credit

    • Form 8910, Alternative Motor Vehicle Credit

    • Form 8911, Alternative Fuel Vehicle Refueling Property Credit

    • Form 5884-A, Credits for Affected Disaster Area Employers or Certain California Wildfires

    • Form 8844, Empowerment Zone Employment Credit

    • Form 8941, Credit for Small Employer Health Insurance Premiums

    • Form 8994, Employer Credit for Paid Family and Medical Leave

    • Form 8847, Credit for Contributions to Selected Community Development Corporations

    • Trans-Alaska Pipeline Liability Fund Credit, claimed on Form 3800, General Business Credit

    • Form 8912, Credit to Holders of Tax Credit Bonds

    • Form 8801, Credit for Prior Year Minimum Tax - Individuals, Estates, and Trusts

  2. These nonrefundable credits are:

    1. Subtracted from the tax amount.

    2. Limited to the amount of the tax liability.

    3. Used before refundable credits.

    Reminder:

    Nonrefundable credits MUST BE APPLIED in the order they appear in this section.

  3. Credits may be subject to limitation for taxpayers subject to the Alternative Minimum Tax; see Form 6251, Alternative Minimum Tax - Individuals.

  4. All nonrefundable personal credits are allowed to the extent of the full amount of the individual's regular tax and alternative minimum tax (AMT).

  5. Some credits may be eligible for carryback or carryover; refer to the individual form or schedule (see IRM 21.5.9, Carrybacks).

Nonrefundable Credit Inquiries and Procedures
  1. Use the following procedures for nonrefundable credit inquiries.

    Note:

    When nonrefundable credits requiring TIN validation are claimed, see IRM 21.6.1.7, Command Code DUPED and DDBCK, for appropriate use of CC DUPED and DDBCK for updating the Duplicate TIN database.

  2. When a taxpayer inquires by telephone:

    1. Request identifying information from the taxpayer to ensure you have the correct person before disclosing any account information. See IRM 21.1.3.2.3, Required Taxpayer Authentication.

    2. Accept oral statement for account action after disclosure information is verified. See IRM 21.1.3, Operational Guidelines Overview.

    3. Consider all related information and/or examine all documents before making adjustments or answering taxpayer inquiries.

    4. Enter appropriate remarks in the REMARKS section of an on-line adjustment. See IRM 21.5.2.4.6, Remarks Field.

    5. If the adjustment is input on-line and a Form 4442, Inquiry Referral, is not required, no source document is sent to files.

    6. If the adjustment will not be input on-line or by close of business, complete a Form 4442, Inquiry Referral.

  3. Follow this table for all taxpayer inquiries regarding nonrefundable credits. Refer to subsections in this section for specific credit information and procedures.

    If the taxpayer And Then
    Claimed the credit on the original return Provides a copy of the appropriate form or substantiating information Follow the specific subsection in this section and adjust the account.
    Claimed the credit on the original return DOES NOT provide missing information Follow IRM 21.5.4, General Math Error Procedures.
    Credit WAS NOT claimed on the original return   Advise taxpayer to file an amended return.
  4. If written documentation is required, advise taxpayer to send it to the site receiving the contact.

    Reminder:

    A fax is acceptable unless taxpayer's original signature is required. See IRM 21.5.3.4.4, Signature Requirements for Claims.

Adjusting Nonrefundable Credit Modules
  1. Math verify the form or schedule, if one is required.

  2. If the credit requires a qualifying child, use CC INOLE to verify the name control, TIN, and date of birth of the qualifying child.

    Note:

    If the qualifying child is assigned an ITIN, use the Real Time System (RTS) to verify the name control, TIN, and date of birth. See IRM 3.21.263, IRS Individual Taxpayer Identification Number (ITIN) Real Time System (RTS).

  3. Estimated tax penalty is not changed when applying a nonrefundable credit.

    Exception:

    If the credit is claimed on a superseding return, estimated tax penalty is recomputed (see IRM 20.1, Penalty Handbook).

  4. Adjust the credit with Transaction Code (TC) 29X, Reason Code 036, (RC 035 for Education credits), and the appropriate source code and blocking series.

Child and Dependent Care Credit
  1. If a taxpayer paid someone to care for his/her child, spouse, or dependent, the taxpayer may be able to reduce his/her tax by claiming the Child and Dependent Care Credit on his/her federal income tax return, per IRC § 21.

  2. A completed Form 2441, Child and Dependent Care Expenses, must be submitted when claiming the credit.

  3. The taxpayer must file a joint return, if married, unless the taxpayer is legally separated or meets the criteria to be considered unmarried.

  4. The taxpayer must furnish a valid TIN for every qualifying person. This number may be:

    • An SSN issued by the Social Security Administration

    • An ITIN issued by the IRS if taxpayer is not eligible for an SSN.

    • An Adoption Taxpayer Identification Number (ATIN) issued by the IRS for a child while an adoption is pending

      Note:

      For taxpayers indicating a religious (e.g. Amish/Mennonite) or conscience-based objection to obtaining a TIN, refer to IRM 21.6.1.6.1, Determining the Exemption Deduction.

  5. A qualifying person is a taxpayer's:

    1. Dependent qualifying child under the age of 13.

      Note:

      If the child turned 13 during the tax year, he/she is a qualifying person for the part of the year he/she was under age 13.

      Example:

      For a child turning 13 on Sept. 16, count only those expenses through Sept. 15.

    2. Spouse (of any age), if physically or mentally unable to care for him/herself, who lived with the taxpayer for more than half the year.

    3. Disabled person (of any age), if physically or mentally unable to care for him/herself, who lived with the taxpayer for more than half the year and is the taxpayer's dependent.

    4. Disabled person (of any age) who lived with the taxpayer for more than half the year and who would have been the taxpayer's dependent except that he/she received gross income of $4,150 for 2018 ($4,050 or more for both tax year 2016 and 20170, ($4,000 for 2015 and $3,950 for 2014), filed a joint return or could be claimed as a dependent on another taxpayer's return.

    Note:

    See IRM 21.6.3.4, Credits Procedures, for more information determining a specific age.


     

  6. See Publication 17, Your Federal Income Tax For Individuals, and/or Publication 503, Child and Dependent Care Expenses, for detailed information.

Form 2441 Taxpayer Inquiry
  1. Use the following table for taxpayer inquiries:

    If the taxpayer And Then
    Claimed the credit on the original return The missing information is provided
    1. Validate the TIN if submitted for the qualifying person or care provider.

    2. Adjust the account following IRM 21.5.4.5.3, Processing Responses to Math Error Notices.

    Claimed the credit on the original return DOES NOT provide missing information Follow IRM 21.5.4, General Math Error Procedures.
    Claims "due diligence" was used to secure the provider's TIN The provider's TIN still cannot be secured Follow the guidelines in Publication 17, Your Federal Income Tax (For Individuals), under Form 2441, for Provider Identification Test. If due diligence is established, allow the credit.
    Credit WAS NOT claimed on the original return   Advise taxpayer to file an amended return and include Form 2441.
Form 2441 - Adjusting the Credit
  1. If Form 2441 is attached, the following items must be completed:

    • Line 1(a) - Provider’s Name must be present

    • Line 1(c) - Provider’s TIN must be present, unless the provider is an exempt organization, such as churches, schools, YMCA, or other nonprofit organizations

    Note:

    Correspond for Form 2441 ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    Note:

    Do not correspond for the missing TIN when more than one provider’s name is entered on Line 1, and at least one provider’s TIN is present.

  2. The provider’s TIN is not required when the taxpayer has exercised "due diligence" in his/her attempt to comply with the requirement. Due diligence applies only when:

    • the provider has moved and the taxpayer is unable to find the provider to get the TIN, or

    • the provider has refused to give the TIN to the taxpayer

    Note:

    Notations that indicate the taxpayer is unable to get the TIN, that the TIN is unavailable, unknown, pending, applied for, or any notation other than those above are not acceptable statements.

  3. If the taxpayer does not provide requested information, follow claim processing in IRM 21.5.3, General Claims Procedures.

  4. Math verify the Form 2441, Child and Dependent Care Credit.

  5. Use CC INOLE to verify the name control and the TIN of the qualifying person(s).

    Note:

    If the qualifying person is assigned an Individual Taxpayer Identification Number (ITIN), use the Real Time System (RTS) to verify the name control, TIN, and date of birth. See IRM 3.21.263, IRS Individual Taxpayer Identification Number (ITIN) Real Time System (RTS).

  6. When adjusting the credit:

    1. Use TC 291 with a money amount to allow/increase the credit.

    2. Use TC 290 with a money amount to decrease the credit.

    3. Use RC 036 and the appropriate source code and blocking series.

Schedule R, Credit for the Elderly or the Disabled
  1. A taxpayer may be able to reduce his/her tax liability by claiming the Credit for the Elderly or Permanently and Totally Disabled provided under IRC § 22. The taxpayer may claim the credit if:

    • the taxpayer and/or spouse is age 65 or older at the end of the tax year

    • the taxpayer and/or spouse is of any age and one or both (a) is retired on permanent and total disability and (b) have taxable disability income

    Note:

    A taxpayer is considered age 65 on the day before the 65th birthday.

  2. Schedule R (Form 1040) as a write-in on Line 54 or Schedule 3 (Form 1040A ) must be submitted.

    • Filing status/age must be checked.

    • A physician's statement must certify the disability condition or the box must be checked to indicate the statement was filed or obtained in a previous year.

    • On a joint return, if both spouses are disabled, both must submit a statement.

    • The taxpayer may request the IRS to compute the credit.

  3. When adjusting the credit:

    1. Use TC 291 with a money amount to allow/increase the credit.

    2. Use TC 290 with a money amount to decrease the credit.

    3. Use RC 036 and the appropriate source code and blocking series.

  4. See Publication 17, Your Federal Income Tax (For Individuals), Publication 524, Credit for the Elderly or the Disabled, or Publication 554, Tax Guide for Seniors, for detailed information.

Form 8863, Education Credits
  1. Taxpayers may claim an education credit, Lifetime Learning Credit and American Opportunity Tax Credit (AOTC), for qualified tuition and related expenses paid to an eligible educational institution, including accredited colleges, universities, and vocational schools.

  2. A taxpayer can elect, for any year, only one of the credits for each student.

  3. If a taxpayer claims / lists an exemption for a dependent who is an eligible student, then only that taxpayer can claim a credit for the student's qualified education expenses.

  4. Taxpayers cannot claim the credit if:

    • Student is claimed as a dependent on another person's tax return

    • Filing status is married filing separately

    • Nonresident alien

    • Modified adjusted gross income equals or exceeds the following amounts:

    Credit Filing Status 2018 2017 2016
    AOTC
    1. Married Filing Jointly

    2. All others

    1. $180,000

    2. $90,000

    1. $180,000

    2. $90,000

    1. $180,000

    2. $90,000

    Lifetime Learning Credit
    1. Married Filing Jointly

    2. All others

    1. $134,000

    2. $67,000

    1. $132,000

    2. $66,000

    1. $131,000

    2. $65,000

  5. Students under age 24 do not qualify for the refundable portion of the AOTC if all the following apply:

    • Under age 18 at the end of the year, or age 18 at the end of the year and their earned income was less than one-half of their support, or a full-time student over age 18 and under age 24 at the end of the year and their earned income was less than one-half of their support.

    • At least one of the student's parents was alive at the end of the year.

    • The student is not filing a joint return.

  6. The credit may be for expenses of the taxpayer, the taxpayer's spouse, or the taxpayer's eligible dependent claimed on the taxpayer's return.

  7. All students claimed on Form 8863 must have a valid TIN. A valid TIN includes an SSN, ITIN or ATIN.

    Note:

    For taxpayers indicating a religious (e.g., Amish/Mennonite) or conscience-based objection to obtaining a TIN, refer to IRM 21.6.1.6.1, Determining the Exemption Deduction.

  8. Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits), must be submitted.

    Reference - IRC § 25A
    Publication 970, Tax Benefits for Education

Lifetime Learning Credit
  1. The Lifetime Learning Credit:

    1. Applies to qualified education expenses, such as tuition and certain related expenses required for enrollment in a course at an eligible educational institution.

    2. Is 20% of the first $10,000 of out-of-pocket expenses for all eligible students in the family.

    3. There is no course-load requirement, the credit is available for all years of post-secondary education (including graduate studies), and may be claimed for an unlimited number of years.

  2. A taxpayer can elect, for any year, only one of the education credits for each student.

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

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    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "
  4. In addition to (3), if there are any other circumstances that make the claim questionable, or if the Form 1098-T cannot be verified, no consider the claim.

Form 8863 - Adjusting the Credit
  1. If the form is incomplete and cannot be perfected with available information, follow claim processing in IRM 21.5.3, General Claims Procedures.

  2. Use CC INOLE to verify the name control and Taxpayer Identification Number (TIN) of the student(s).

    Note:

    For taxpayers indicating a religious (e.g., Amish/Mennonite) or conscience-based objection to obtaining a TIN for the student, refer to IRM 21.6.1.6.1, Determining the Exemption Deduction.

    Note:

    If the student is assigned an Individual Taxpayer Identification Number (ITIN), use the Real Time System (RTS) to verify the name control, TIN, and date of birth. See IRM 3.21.263, IRS Individual Taxpayer Identification Number (ITIN) Real Time System (RTS).

  3. If considering AOTC, see IRM 21.6.3.4.2.11, American Opportunity Tax Credit, for information regarding retroactive claims.

    Caution:

    Retroactive claim processing only applies to AOTC, not the Lifetime Learning Credit.

  4. For information regarding ITIN renewal math errors, see IRM 21.6.1.6.6.2, ITIN Renewal Math Error Adjustments.

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

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

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

    When sending to CAT-A, select "AOTC" from the drop down listing of reason referred. See Exhibit 21.5.3-3, Examination Criteria (CAT-A) - Credits.

  6. When adjusting the credit:

    1. Use TC 291 with a money amount to allow/increase the credit.

    2. Use TC 290 with a money amount to decrease the credit.

    3. Use RC 035 and the appropriate source code and blocking series.

Form 1116, Foreign Tax Credit
  1. To qualify for the credit, taxpayer must have paid or accrued income tax in a foreign country or U.S. possession.

  2. The taxpayer may claim the credit against U.S. income tax or deduct the foreign tax as an itemized deduction.

  3. If an amended return is filed on which the amount of the credit changes as a result of a refund of foreign taxes paid, manually compute and assess interest per IRM 20.2, Interest. Contact the taxpayer to determine the refund date, if necessary.

    Reminder:

    If the refund of foreign taxes included no interest, restriction of the account can be avoided by using TC 298; enter the refund date in the interest computation field of the adjustment.

  4. Form 1116, Foreign Tax Credit, must be submitted unless all of the taxpayer's foreign source income is passive, total creditable foreign taxes are not more than $300 ($600 if married filing a joint return), and all the income and foreign taxes paid on the income were reported on a qualified payee statement. Accept the taxpayer's figures if under those thresholds.

    Caution:

    See IRM 25.6.1.10.2.8.4, Foreign Tax Credit, for important information regarding the statute period for these types of claims.

  5. If the total Foreign Tax Credit claimed is above the threshold amounts shown in (4), or the amended return requires math verification (see IRM 21.5.3.4.5, Math and Master File Verification of Claims and Amended Returns) and Form 1116 is attached, (both situations require a change to the Foreign Tax Credit), reassign the claim to IMF International. Send through the Correspondence Imaging System (CIS) via IMF International, or mail to:
    2970 Market Street
    1 D08.113
    Philadelphia, PA 19104

    Note:

    If sending a Form 1040-X to International, change the category code to IXRT and the CIS data as follows: function 710, program 33080, and update the "Work Type" to "IMF INTL" . For correspondence, use category code ITRQ, program 33040. International claims are processed using IRM 21.8.1.4, Foreign Tax Credit (Form 1116).

    Reminder:

    The input of a TC 971 AC 016 is required when routing to International.

  6. See Form 1116, Foreign Tax Credit, Publication 17, Your Federal Income Tax (For Individuals), and Publication 514, Foreign Tax Credit for Individuals, for detailed information.

  7. To adjust the account, input a TC 29X, RC 036.

Form 8907, Nonconventional Source Fuel Credit
  1. To qualify for the credit, taxpayers must have been engaged in the domestic production and sale of oil produced from shale and tar sands, gas produced from geopressured brine, Devonian shale, coal seams or a tight formation, or biomass, liquid, gaseous, or solid synthetic fuels produced from coal (including lignite), including such fuels when used as feedstocks, and coke or coke gas, per IRC § 45K.

  2. The nonconventional source fuel credit is not available for fuel sold after 2013.

  3. For Tax Year 2006 and subsequent, the credit is claimed as a general business credit on Form 3800, General Business Credit.

  4. For additional information, see IRM 21.7.4.4.8.3.10, Form 8907, Nonconventional Source Fuel Credit

  5. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

    • Input Item Reference Number (IRN) 883 to record the credit. Use a positive amount to increase the credit or a negative amount to decrease the credit.

Form 8834, Qualified Electric Vehicle Credit
  1. Form 8834, Qualified Electric Vehicle Credit, is used to claim any qualified electric vehicle passive activity credits from prior years, per IRC § 30.

  2. Form 8834, Qualified Electric Vehicle Credit, must be submitted. (The credit must be carried to Form 3800, General Business Credit, for purposes of figuring the allowable general business credit.) For personal uses, the amount of line 38 of Form 3800 is carried to line 54 of the Form 1040 to claim the credit.

  3. Information regarding qualified plug-in motor vehicles can be found in IRM 21.6.3.4.1.38, Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit.

  4. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

  5. See Form 8834, Qualified Electric Vehicle Credit, or Publication 17, Your Federal Income Tax (For Individuals), for detailed information.

Form 3468, Investment Credit
  1. The investment credit consists of the sum of the qualifying advanced coal project credit, qualifying advanced energy project credit, qualifying therapeutic discovery project credit, qualifying gasification project credit, rehabilitation credit, and energy credit.

  2. Form 3800, General Business Credit, must also be filed if two or more credits are claimed.

  3. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

  4. See Form 3468, Investment Credit, for detailed information.

Form 5884, Work Opportunity Credit
  1. To qualify for the credit, the taxpayer must have paid or incurred wages for employees who are certified as members of a targeted group. Wages shall not include any amount paid or incurred to an individual who begins work for the employer after Dec. 31, 2019.

  2. Beginning in 2016, the credit also applies to employers who hire qualified long-term unemployed individuals.

  3. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

  4. See Form 5884, Work Opportunity Credit, and instructions for detailed information.

Employee Retention Credit
  1. The Disaster Tax Relief and Airport and Airway Extension Act of 2017, enacted on Sept. 29, 2017, as amended by the Bipartisan Budget Act of 2018, provides an Employee Retention Credit for eligible employers affected by Hurricanes Harvey, Irma, and Maria, as well as those affected by California wildfires.

  2. The credit is an amount equal to 40% of the qualified wages with respect to each eligible employee of the employer. The amount of qualified wages which may be considered for each employee shall not exceed $6,000.

  3. An eligible employer is one that conducted an active trade of business in the following disaster areas on the following dates:

    • Hurricane Harvey - August 23, 2017

    • Hurricane Irma - September 4, 2017

    • Hurricane Maria - September 16, 2017

    • California wildfires - October 8, 2017


    The eligible employer must have been inoperable on any day after the dates above and before January 1, 2018, because of damage sustained by the disaster.

  4. An employee is one whose principal place of employment was in the disaster area on the dates above. Qualified wages are those paid or incurred after the dates above.

    Note:

    Qualified wages include wages paid without regard to whether the employee performs no services, performs services at a different place of employment, or performs service at the principal place of employment before significant operations have resumed.

  5. Employees who qualify for the Work Opportunity Credit do not qualify for the Employee Retention Credit.

  6. The credit is computed on Form 5884-A, Credits for Affected Disaster Area Employers (for Employers Affected by Hurricane Harvey, Irma, or Maria, or Certain California Wildfires), and carried over to Form 3800, General Business Credit.

  7. These claims are centralized in Austin and Philadelphia (International). Reassign the case per the AM Site Specialization Temporary Holding Numbers. Use category code KATX and OFP 710-82365 when processing these claims.

  8. If the credit claimed is ≡ ≡ ≡ ≡ ≡ ≡ ≡ , route to CAT-A.

  9. To adjust the account:

    • Input a TC 291 to allow/increase the credit

    • Input a TC 290 to decrease the credit

    • Input RC 036 and the appropriate source code and blocking series

Form 6478, Biofuel Producer Credit
  1. Form 6478, Biofuel Producer Credit, is used to claim the Second Generation Biofuel Credit (previously called the Cellulosic Biofuel Credit) for second generation biofuel used, or sold for use, as fuel in a trade or business. See IRM 21.7.4.4.8.3.4, Form 6478, Biofuel Producer Credit, for more information.

  2. The credits are effective for fuels sold or used before January 1, 2018. For prior year credits, see previous versions of the Form 6478 and instructions.
    Effective Jan. 2, 2013, biofuels produced from algae, cyanobacteria, or lemna feedstocks may be eligible for the credit.

  3. Taxpayers may be required to submit Form 6478, Biofuel Producer Credit. See Form 6478, Biofuel Producer Credit, and its instructions for detailed information.

  4. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

    • Input Item Reference Number (IRN) 884 to record the credit.

Form 6765, Credit for Increasing Research Activities
  1. Generally, to qualify for the credit, taxpayer must have qualified research expenses paid or incurred in carrying on an active trade or business.

  2. The credit must be claimed as a general business credit on Form 3800, General Business Credit.

  3. Taxpayers may be required to attach Form 6765, Credit for Increasing Research Activities, to claim the credit.

  4. For more information about Form 6765, see IRM 21.7.4.4.8.3.5, Form 6765, Credit for Increasing Research Activities.

  5. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

  6. See Instructions for Form 6765, for detailed information.

Form 8586, Low-Income Housing Credit
  1. To qualify for the credit, taxpayers must own residential rental buildings providing low-income housing.

  2. The credit must be claimed as a general business credit on Form 3800, General Business Credit. Generally, the Form 8586 must also be filed unless the taxpayer is exempt from filing this form. See Form 8586 for details.

  3. Form 8609, Low-Income Housing Credit Allocation and Certification, is issued by the state or local housing credit agency authorized to make credit allocations to the building receiving the credit. The taxpayer is required to make a one-time submission of this form to the Low-income Housing Credit Unit at the Philadelphia Campus to the address specified in the instructions of the form.

  4. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

  5. See Form 8586, Low Income Housing Credit, and Form 8609, Low-Income Housing Credit Allocation and Certification, for detailed information.

Form 8826, Disabled Access Credit
  1. To qualify for the credit, the taxpayer must have an eligible small business which has eligible access expenditures.

  2. If Form 8826, Disabled Access Credit, is filed with an amended return, one of the following must be present on the original return in order to allow the credit:

    • Schedule C

    • Schedule E

    • Schedule F

    • "Other Income" claimed on Form 1040, or the equivalent on Form 1040-X.

      Note:

      The absence of these items indicates the taxpayer has no business ownership or participation.

      Note:

      If Form 8826, or Form 3800, General Business Credit, claiming the credit is filed with an amended return and the criteria above are met, follow Category A procedures in Exhibit 21.5.3-2, Examination Criteria (CAT A) - General, if the amount claimed is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. If these schedules or items are not present, disallow the credit and use the following language when explaining the disallowance:
    "We have not allowed your claim for the Disabled Access Credit. The Disabled Access Credit is a business credit. There is no indication of business ownership or activity based on your tax return information for this tax year."

  4. The credit must be claimed as a general business credit on Form 3800, General Business Credit.

  5. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

  6. See Form 8826, Disabled Access Credit, for detailed information.

Form 8835, Renewable Electricity, Refined Coal, and Indian Coal Production Credit
  1. To qualify for the credit, a taxpayer must sell electricity produced in the U.S. or U.S. possessions from qualified energy resources at a qualified facility to an unrelated person, per IRC § 45.

  2. For Tax Year 2006 through 2016, the credit, which is figured in Part II of Form 8835, can be claimed as a general business credit on Form 3800, General Business Credit. For wind facilities, the credit expires Dec. 31, 2019.

  3. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

  4. See IRM 21.7.4.4.8.3.9, Form 8835, Renewable Electricity, Refined Coal, and Indian Coal Production Credit, and Form 8835, Renewable Electricity, Refined Coal, and Indian Coal Production Credit, for detailed information.

Form 8845, Indian Employment Credit
  1. To qualify for the credit, the taxpayer must be an employer who pays wages and health insurance costs for American Indians who are qualified employees. The Indian employment credit provides a credit on the first $20,000 of qualified wages paid to each qualified employee who works on an Indian reservation.

  2. For Tax Year 2006 through 2017, the credit can be claimed as a general business credit on Form 3800, General Business Credit.

  3. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

  4. See Form 8845, Indian Employment Credit, for detailed information.
    Reference - IRC § 45A

Form 8846, Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips
  1. To qualify for the credit, the taxpayer must be an employer and have:

    1. Paid or incurred employer social security and Medicare taxes on tips during the tax year.

    2. Employees who received tips from customers for providing, delivering, or serving food or beverages for consumption where tipping is customary.

  2. The credit is calculated on Form 8846, Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips, and can be claimed as a general business credit on Form 3800, General Business Credit.

  3. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

  4. See Form 8846 for detailed information.

Form 8820, Orphan Drug Credit
  1. The Orphan Drug Credit is, for tax years 2018 and subsequent, 25% of the qualified clinical testing expenses paid or incurred by the taxpayer during the tax year (50% for tax years 2017 and prior), per IRC § 45C.

  2. The credit must be claimed as a general business credit on Form 3800, General Business Credit.

  3. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

  4. See Form 8820, Orphan Drug Credit, for detailed information.

Form 8847, Credit for Contributions to Selected Community Development Corporations
  1. To qualify for the credit, the taxpayer must have made qualified contributions to selected community development corporations.

  2. The credit must be claimed as a general business credit on Form 3800, General Business Credit.

  3. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

  4. See Form 8847, Credit for Contributions to Selected Community Development Corporations, for detailed information.

Trans-Alaska Pipeline Liability Fund Credit
  1. To qualify for the credit, the taxpayer must have made payments into the Trans-Alaska Pipeline Liability Fund.

  2. There is no supporting schedule or form for this credit. The taxpayer must claim the credit on Form 3800, General Business Credit.

  3. See IRM 21.7.4.4.8.3.17, Trans-Alaska Pipeline Liability Fund Credit, for more details.

  4. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

Form 8844, Empowerment Zone Employment Credit
  1. To qualify for the credit, the taxpayer must have paid or incurred qualified wages, which can include certain training or educational expenses, to a qualified empowerment zone employee who lives and works in an empowerment zone.

  2. The Empowerment Zone Employment Credit is available for tax years 2017 and prior.

  3. Form 8844, Empowerment Zone Employment Credit, must be submitted. The data on Form 8844 (for IMF) is carried to Form 3800.

  4. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

  5. See Form 8844, Empowerment Zone Employment Credit, for detailed information.

Form 3800, General Business Credit
  1. If more than one of the credits listed on Form 3800, General Business Credit, are claimed, the total credit must be summarized on Form 3800 and if applicable, the appropriate credit form must be attached. Form 3800 must be submitted.

    Note:

    See the specific credit form for filing requirements.

  2. If attached, Form 8582–CR, Passive Activity Credit Limitations, must be math verified.

    Note:

    See Form 8582–CR and its Instructions for detailed information.

  3. For tax years 2018 and subsequent, credits may generally be carried forward indefinitely. For tax years 2017 and prior, credits may generally be carried back one year and then carried forward twenty years. See IRM 21.5.9, Carrybacks, for more information.

  4. Form 3800, General Business Credit, must be math verified.

  5. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

    Note:

    Some credits captured on Form 3800 require specific item reference numbers. See the appropriate IRM section before adjusting the module.

  6. See Form 3800, General Business Credit, and its instructions for detailed information.

Form 8801, Credit for Prior Year Minimum Tax - Individuals, Estates, and Trusts
  1. To qualify for the credit, the taxpayer must have:

    1. An alternative minimum tax liability and adjustments or preferences (other than exclusion items) in the prior tax year, or

    2. A minimum tax credit carryforward from the prior year to the current tax year, or

    3. A qualified electric vehicle credit disallowed for the prior tax year because use of the credit was limited by taxpayer's tentative minimum tax.

  2. Form 8801, Credit for Prior Year Minimum Tax - Individuals, Estates, and Trusts, may be attached but is not required in most cases.

  3. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

  4. See Form 8801, Credit for Prior Year Minimum Tax - Individuals, Estates, and Trusts, for detailed information.

Child Tax Credit
  1. The Child Tax Credit is a nonrefundable credit which is used to reduce the taxpayer's tax liability. The credit has different rules depending on the tax year.
    For tax years 2018 - 2025:

    • credit is $2,000 per child, $1,400 is refundable

    • qualifying child must have an SSN issued before the due date of the return (including extensions)

    • the total of Child Tax Credit and Credit for Other Dependents is phased out by $50 for each $1,000 the AGI exceeds $400,000 in the case of a joint return, $200,000 for all other filers.


    For tax years 2017 and prior:

    • credit amount is $1,000 per child

    • qualifying child must have a valid ITIN, SSN, or ATIN. For returns / amended returns filed after Dec. 18, 2015, the TIN must be issued on or before the due date of the return (including extensions).

    • credit is phased out by $50 for each $1,000 that the AGI exceeds $110,000 for married filing jointly; $55,000 for married filing separately; and $75,000 for all other filers

    .

    Note:

    For taxpayers indicating a religious (e.g., Amish/Mennonite) or conscience-based objection to obtaining a TIN, refer to IRM 21.6.1.6.1, Determining the Exemption Deduction.

  2. A portion of the Child Tax Credit may be refundable. See IRM 21.6.3.4.2.8, Additional Child Tax Credit (ACTC), for additional information.

  3. For tax years 2018 - 2025, Schedule 8812 is required for those taxpayers claiming ACTC. For tax years 2012 - 2017, Schedule 8812 is required to claim the Additional Child Tax Credit, and for dependents with an ITIN, the nonrefundable Child Tax Credit. Schedule 8812 be submitted.

    Reference - IRC § 24

Child Tax Credit Qualifications
  1. To qualify for the credit, the child(ren) must:

    • be claimed as a dependent on the return

    • be the taxpayer's son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them

    • Under age 17 at the end of the calendar year. Command Code (CC) INOLE, or in the case of an ITIN, the Real Time System (RTS) can be used to verify date of birth. See IRM 3.21.263, IRS Individual Taxpayer Identification Number (ITIN) Real Time System (RTS).

    • Did not provide over half of his or her own support for the tax year

    • Generally, live with the taxpayer for more than half of the tax year

    • A U.S. citizen, U.S. national, or a resident of the United States

    Note:

    If the child is 17 or older at the end of the calendar year and the tax year is 2017 and prior, disallow the claim. See IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures.

    See Publication 972, Child Tax Credit, for additional information. For tax years 2018 - 2025, if the child does not qualify for CTC, they may qualify for the Credit for Other Dependents (ODC), see IRM 21.6.3.4.1.24.3, Credit for Other Dependents.

    Example:

    A taxpayer claimed CTC for a child age 18. The child does not qualify for CTC, but would qualify for ODC. The claim should be partially disallowed.

     

  2. The taxpayer must furnish a valid TIN for each qualifying child. This number may be:

    • An SSN issued by the Social Security Administration.

    • An ITIN issued by the IRS if the individual is not eligible for an SSN.

    • An ATIN issued by the IRS for a child while an adoption is pending.

    Reminder:

    For tax years 2018 - 2025, qualifying children must have an SSN before the due date of the return, including extensions.

    Note:

    See IRM 3.13.5.81, Individual Taxpayer Identification Numbers (ITINs), and IRM 3.13.5.82, Adoption Taxpayer Identification Numbers (ATINs), for information regarding ITIN/ATIN issues. Also see IRM 21.6.3.4, Credits Procedures, for information regarding valid/correct TIN information.

  3. For tax years 2017 and prior, taxpayers claiming the Child Tax Credit for dependents with an ITIN must attach Schedule 8812 and answer the questions on the substantial presence test (as a general way of determining whether a child was a resident of the United States. See Pub 519, U.S. Tax Guide for Aliens, for information regarding the substantial presence test and other tests for determining if an individual is a resident of the United States. If the question(s) in Part I are checked "no" , disallow the credit. If checked "yes" , allow the credit. Correspond if the Schedule 8812 is incomplete.

CTC - Adjusting the Credit
  1. When claiming the Child Tax Credit, the name(s) and TIN(s) of the child(ren) must be shown on the original or amended return. If the name or TIN of the child is omitted, recompute the tax liability and deny the credit following math error procedures in IRM 21.5.4.5.1, Setting the Initial Math Error Action.

  2. Verify each qualifying child's TIN is valid and the age requirement is met, then compute the Child Tax Credit using the worksheet located on Account Management Services (AMS) or in the Form 1040 instruction booklet.

    Reminder:

    For tax years 2018 - 2025, qualifying children must have an SSN before the due date of the return, including extensions.

    Note:

    Publication 972, Child Tax Credit, must be used to figure the credit if any of the following are present:

    • Form 8839, Qualified Adoption Expenses

    • Form 8396, Mortgage Interest Credit

    • Form 5695, Residential Energy Credits, Part I.

    • Form 8859, Carryforward of the District of Columbia First-Time Homebuyer Credit

    • Taxpayer is excluding income from Puerto Rico

    • Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion

    • Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa

  3. The "Protecting Americans From Tax Hikes (PATH) Act of 2015" , Section 205, signed into law December 18, 2015, prohibits an individual from retroactively claiming the child tax credit by amending (or by filing an original or supplemental return) for any year in which the taxpayer, spouse, or qualifying child, did not have a valid TIN issued on or before the due date, or extended due date, of the return. This provision applies to any return or claim filed after December 18, 2015.
    When adding a new credit, or a new qualifying person, you must verify all TINs associated with the credit (the primary taxpayer, secondary taxpayer, and all qualifying children) (current SSNs and previous ITINs) were assigned on or before the due date of the return. This applies to amended returns, math error responses, duplicate returns, etc.
    To determine the validity of the request, see the following table for the appropriate action.

    Note:

    This provision applies to filing status changes only to the extent of any additional CTC / ACTC being claimed, it does not require or allow for the removal of CTC / ACTC previously claimed.

    Note:

    If the account needs to be merged with another TIN, take the merge actions first to ensure all actions below are taken under the new TIN. See IRM 21.6.2.4.1, Resequencing Accounts. If an ITIN is showing as inactive, see IRM 21.6.1.6.6.2, ITIN Renewal Math Error Adjustments.

    Reminder:

    For those taxpayers who were recently assigned an SSN, if they had an ITIN prior to the due date of the return, they qualify for the credit (CTC / ACTC).

    If Then
    The "TIN ASGNMT" field on CC INOLE contains a date on or before the due date of the return

    Note:

    ITINs assigned within 7 days of the return due date are considered timely.

    Allow the credit if all other criteria are met
    The "TIN ASGNMT" field is all zeros Allow the credit if all other criteria are met
    The "TIN ASGNMT" field contains a date after the due date of the return

    Exception:

    For ITINs assigned prior to 2017, if the ITIN assignment date is 90 days or less after the due date or extended due date of the return, access RTS to verify the received date of the Form W-7. If received prior to the due date, allow the credit.

    Note:

    For a Form W-7 received after Jan. 1, 2017, the TIN assignment date field reflects the actual received date of the Form W-7.

    • Disallow the credit. See IRM 21.5.3.4, General Claims Procedures. Use the "PATH" paragraph in the Letter 105C or 106C.

    • Input a TC 971 AC 112 using CC REQ77 or the REQ77 IAT tool. The TC 971 enables the Service to track these claims and report the dollars saved.

    • Input the credit amount in the "Freeze-Release-AMT" field. No transaction date is needed.

      Note:

      If ACTC, EITC, and/or AOTC are also being claimed, combine the amounts.

    Example:

    A taxpayer files a 2014 amended return on Jan. 3, 2016, claiming an additional dependent who qualifies for CTC. CC INOLE research shows the child’s ITIN was assigned Dec. 14, 2015. Since the ITIN assignment date is after the return due date, disallow the credit.

    Example:

    A taxpayer files a 2013 amended return on Feb. 20, 2016, stating he forgot to claim CTC on his original return. CC INOLE research shows the primary, secondary and child’s SSN were all issued prior to Apr. 15, 2014. Allow the credit.

    Note:

    A change of income which impacts the credit is not a retroactive claim.

  4. When disallowing or partially disallowing a claim, see IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures. For a no consideration, see IRM 21.5.3.4.6.3, No Consideration Procedures.

  5. For information regarding ITIN renewal math errors, see IRM 21.6.1.6.6.2, ITIN Renewal Math Error Adjustments.

  6. When processing amended returns, if the taxpayer was allowed the credit during original processing, but is not entitled to all or a portion of the credit based on changes made with the 1040X:

    1. If the taxpayer didn’t address the change, follow the procedures in IRM 21.5.4.5.1, Setting the Initial Math Error Action.

    2. Explain to the taxpayer the adjustment was made and he will receive a notice explaining the adjustment and his appeal rights.

    Example:

    An amended return increasing income that now subjects the credit to limitation.

  7. The PATH Act of 2015, Section 208, provides that taxpayers who are denied Child Tax Credit/Additional Child Tax Credit as a result of deficiency procedures, will be denied the credit as a mathematical error. The following taxpayer notice codes are used to identify these errors:

    • 819 - We disallowed the amount claimed as Child Tax Credit and/or Additional Child Tax Credit on your tax return. Our records indicate that we’ve banned you from claiming Child Tax Credit/Additional Child Tax Credit for this tax year.

    • 820 - We disallowed the amount claimed as Child Tax Credit and/or Additional Child Tax Credit on your tax return. Our records indicate that we’ve banned you from claiming Child Tax Credit/Additional Child Tax Credit for two tax years.

    • 821 - We disallowed the amount claimed as Child Tax Credit and/or Additional Child Tax Credit on your tax return. Our records indicate that we’ve banned you from claiming Child Tax Credit/Additional Child Tax Credit for ten tax years.


    Taxpayers who are denied the credit due to deficiency procedures must recertify for the credit, follow procedures in IRM 21.6.3.5, Credit Recertification.

  8. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

Credit for Other Dependents
  1. IRC § 24 provides a $500 nonrefundable credit, Credit for Other Dependents (ODC), for each dependent who is not a qualifying child for the Child Tax Credit. The dependent must be a U.S. citizen, U.S. national, or a U.S. resident. The credit is for tax years 2018 - 2025. Taxpayers will indicate eligibility for the credit by checking the "Credit for Other Dependents" box on page 1 of Form 1040.

  2. Dependents, such as children and other relatives, must meet eligibility criteria, as shown in Pub 17, Your Federal Income Tax (For Individuals). The dependent must have a valid ITIN, SSN, or ATIN issued on or before the due date of the return (including extensions).

  3. ODC is calculated with the Child Tax Credit in the instructions for Form 1040 or Pub 972, Child Tax Credit. The total of Child Tax Credit and ODC is phased out by $50 for each $1,000 the AGI exceeds $400,000 in the case of a joint return, $200,000 for all other filers.

  4. If CTC and/or ACTC were denied in a previous year due to deficiency procedures, taxpayers must recertify for ODC; follow procedures in IRM 21.6.3.5, Credit Recertification.

  5. To adjust the account:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 173 and the appropriate source code and blocking series.

Form 8839, Qualified Adoption Expenses
  1. IRC § 23 provides that a taxpayer who paid qualified adoption expenses (QAE) to adopt an eligible child in the tax year the adoption became final may be able to reduce their tax liability by claiming the Adoption Credit on Form 8839, Qualified Adoption Expenses. This is a nonrefundable credit for tax years prior to 2010 and after 2011. For tax years 2010 and 2011, the adoption credit was refundable per IRC § 36C.

    Note:

    See Form 8839, Qualified Adoption Expenses, and its instructions for detailed qualification information.

    Note:

    The Adoption Credit is entered as a write-in on Form 1040, line 54. Taxpayers are instructed to check box c on that line and enter “8839” in the space next to box c.

  2. The eligible child must be:

    1. Any child under age 18. If the child turned 18 during the year, the child is eligible for the part of the year he/she was under age 18.

    2. Any age, if physically or mentally incapable of caring for him/herself.

  3. Many provisions of the adoption credit (for example, the definition of QAE, the dollar limitation and the modified adjusted gross income limitation) apply to any type of adoption. For more information, see the rules and examples contained in the Instructions to Form 8839. However, each category of adoption (domestic, foreign, or special needs) also has rules that apply only to that category.

  4. A domestic adoption (including an in-process or a never-completed adoption attempt) is one in which the child was a citizen or resident of the U.S. when the adoption process began.
    The timing of the adoption credit depends on when (if ever) the adoption becomes final. As a general rule, a taxpayer paying QAE in a domestic adoption claims the credit in the year after the payment is made.

    • If the QAE is paid in the year the domestic adoption becomes final, the credit is claimed in the year of payment.

    • If the QAE is paid in a year after a domestic adoption becomes final (post-finality QAE), the credit is claimed in the year of payment.


    For example, if the taxpayer pays QAE in Year 1, Year 2, and Year 3, and the adoption becomes final in Year 3. In year 4, the taxpayer pays post-finality QAE.

    • The taxpayer may not claim an adoption credit for Year 1.

    • In Year 2, the taxpayer may claim the credit for the QAE paid in Year 1.

    • In Year 3 (the year of finality), the taxpayer may claim the adoption credit for the QAE paid in Year 2 and Year 3.

    • In Year 4, the taxpayer may claim the adoption credit for the post-finality QAE paid in that year.

  5. A foreign adoption is one in which the child was not a citizen or resident of the U.S. when the adoption process began. An adoption is classified as a foreign adoption even if the child is re-adopted in the U.S. (although the re-adoption expenses are QAE). The adoption credit for QAE paid before or during the year of finality may be claimed only in the year of finality.
    If QAE is paid after the year of finality (for example, in connection with post-placement visits by a social worker), the adoption credit may be claimed in the year of payment. The Instructions to Form 8839 contain information on determining the year of finality of a foreign adoption.

  6. In the case of a child with special needs, the adoption credit may be claimed in the year the adoption is final, even if the taxpayers never pay any QAE.

  7. The adoption of a special needs child is an adoption in which all the following statements are true.

    • The child was a citizen or resident of the United States or its possessions at the time the adoption effort began (U.S. child).

    • A state (including the District of Columbia) has determined that the child can't or shouldn't be returned to his or her parents' home.

    • The state has determined that the child won't be adopted unless assistance is provided to the adoptive parents.

  8. Sometimes, particularly in the case of an in-process or never-finalized domestic adoption, the taxpayer is unable to provide complete information in Part I, Form 8839, Qualified Adoption Expenses. In those circumstances, the taxpayer should complete the entries they can. Other entries should be left blank.

  9. IRC §137 allows employees to exclude employer-provided adoption assistance from their gross income. The exclusion is taken in the year of payment.

  10. All nonrefundable adoption credit claims are worked at the Andover Campus. Control to category SPC1. Reassign through CIS to IDRS number 0830141335.

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  13. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

     

    Caution:

    If the taxpayer's claim references the Child Tax Credit, Publication 972, Child Tax Credit, must be used to figure the credit.

  14. Taxpayers may file amended returns for earlier periods to release carryforward of the adoption credit.

    Note:

    If the Service has the necessary information to establish a taxpayer was entitled to the credit in a prior year, an amended return is not required for the earlier period.

    1. Unused credits may only be carried forward five years.

    2. Prior year claims, including carryforwards, do not require adoption documentation.

    3. Do not reject prior year claims with carryforwards because the adoption documentation is missing.

    Note:

    Although married taxpayers generally have to file a joint return in order to qualify for the credit, a carryforward may be claimed with a Married Filing Separate filing status.

  15. When working an Adoption Credit carryforward case, determine if all tax periods are controlled to the earliest tax period first and are being worked by one employee. Work the case as follows:

    1. Review the earliest tax period claim first.

    2. Verify the amount of the carryforward for the earliest tax period. If the claim is not a statute period, apply the adoption credit amount listed on Form 8839 to the taxpayer's tax liability. Statute year periods are addressed in paragraphs 16 and 17 below.

    3. The Adoption Credit may change the priority order of other nonrefundable credits, such as the Child Tax Credit. See IRM 21.6.3.4.1, Nonrefundable Credits Procedures.

    4. Take any remaining balance of the carryforward to the next period and repeat the steps above.

    Example:


    - At the end of 2014, a taxpayer has $10,650 in qualified adoption expenses that cannot be used to offset the 2014 tax liability. Accordingly, the taxpayer is entitled to carry forward that $10,650 into 2015 (the first carryforward year).
    A taxpayer files a 2015 amended return to claim the carryforward of $10,650 in expenses.
    - The 2015 original return had a tax liability (before credits) of $8,850 and a child tax credit of $2,000. The 2015 module shows a TC 150 of $6,850.
    - After using the worksheets shown in Pub 972, Child Tax Credit, you determine the taxpayer is entitled to an Adoption Credit of $8,850, and a refundable Additional Child Tax Credit of $2000. This leaves $1,800 available to be carried forward to the next year ($10,650 carryforward from 2014 - $8,850 tax liability = $1,800 carryforward to next year).
    - Process the 2015 Form 1040-X with a TC 291 for $6,850, and a Credit Reference Number 336 for $2,000.
    - Send a 288C letter informing the taxpayer you have recorded the carryforward amount of $1,800.

    - The same taxpayer also has a Form 1040-X for 2016 claiming $3,800 in adoption expenses carryforward.
    - However, you have math verified the correct carryforward amount remaining is $1,800.
    - The taxpayer is expecting a refund of $3,800.
    - Since the refund amount will only be $1,800, you will need to follow IRM 21.5.4.5.1, Setting the Initial Math Error Action.
    - Block the adjustment in 77 / 78 and send a Letter 474C explaining the error to the taxpayer and that they will only be receiving $1,800.

  16. If a statute period claim comes in showing no change in tax liability or refundable credits and only a carryforward:

    1. Input a TC 290 .00 with a BS 05 and RC 36.

    2. Send a Letter 288C with the following fill-in language:
      Thank you for your Form 8839. We have recorded your carryforward amount of (provide the appropriate amount).

  17. If a statute period claim comes in requesting a change in tax liability or refundable credits, follow procedures in IRM 25.6.1, Statute of Limitations Processes and Procedures.

  18. If the statute period claims are returned to Accounts Management, process as follows:

    1. Input a TC 290 .00 with a BS 98 / 99 to disallow the change in tax liability or refundable credits due to the expired refund statute.

    2. Send a Letter 106C to explain the disallowance of the tax refund, but explain you have recorded the carryforward amount and provide the appropriate amount.

Form 8396, Mortgage Interest Credit
  1. To qualify for the credit, a taxpayer must have a mortgage credit certificate (MCC) issued under a qualified MCC program in connection with the taxpayer's principal residence.

  2. Form 8396 must be submitted and math verified.

  3. If the amount claimed is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , route to CAT-A.

  4. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

  5. See Form 8396, Mortgage Interest Credit, Publication 17, Your Federal Income Tax (For Individuals), or Publication 530, Tax Information for Homeowners, for detailed information.

Form 5695, Residential Energy Credits
  1. The Energy Policy Act of 2005 provides for a Nonbusiness Energy Property Credit (IRC § 25C) and a Residential Energy Efficient Property Credit (IRC § 25D) to qualified taxpayers who made energy efficient purchases. Since the enactment, subsequent legislation has amended and extended these credits.

  2. Form 5695, Residential Energy Credits, is divided into two parts:

    1. Residential Energy Efficient Property Credit - provides taxpayers a credit of 30% of the qualified expenditures for adding qualified solar electric property, solar water heating equipment, small wind energy property, geothermal heat pump property, or a fuel cell property to his/her existing and newly constructed homes in the United States. Generally, there is no limitation on this portion of the credit, however, fuel cell property is limited to $500 for each half kilowatt of capacity of the qualified fuel cell property. The credit is available for property placed in service before January 1, 2022. However, for property placed in service after December 31, 2019, the credit is reduced. See Instructions for Form 5695 for detailed information.

    2. Nonbusiness Energy Property Credit - provides taxpayers a credit for improving the energy efficiency of an existing home. The credit is available for costs related to items such as high efficiency heating and cooling systems, water heaters, windows, doors and insulation. For tax year 2011 and subsequent, the credit is limited to $500 and reduced by any amounts received in prior years. This credit does not apply to any property placed in service after Dec. 31, 2017.

  3. If the Residential Energy Credit is claimed in addition to the:

    • Child Tax Credit

    • Mortgage Interest Credit

    • Adoption Credit, or

    then these credits must be computed before completing the carryforward section of Form 5695.

  4. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

  5. See Form 5695, Residential Energy Credits, for detailed information. Additional information can be found in Notice 2013-70.

Form 8880, Credit for Qualified Retirement Savings Contributions
  1. A taxpayer may be able to take a credit of up to $1,000 ($2,000 if married filing jointly) for making eligible contributions to one of the items below. Taxpayers claim this credit on Form 8880, Credit for Qualified Retirement Savings Contributions.

    1. Contributions (other than rollover contributions) to a traditional or Roth IRA

    2. Elective deferrals to a 401(k), 403(b), governmental 457, SEP, or SIMPLE plan

    3. Voluntary employee contributions to a qualified retirement plan as defined in section 4974(c) (including the federal Thrift Savings Plan)

    4. Contributions to a 501(c)(18)(D) plan (tax-exempt organization)

  2. An eligible individual must:

    • Be 18 or older at the end of the tax year

    • Not be claimed as a dependent on someone else's tax return

    • Not be a full-time student

      Note:

      For this purpose, an individual is a student if during any part of 5 calendar months during the tax year he or she was enrolled as a full time student or took a full time on-farm training course given by a school or a state, county or local government agency.

    • Have adjusted gross income equal or less than:

      Filing Status 2018 2017 2016
      Single or Married Filing Separately $31,500 $31,000 $30,750
      Head of Household $47,250 $46,500 $46,125
      Married Filing Jointly $63,000 $62,000 $61,500
  3. Form 8880 must be submitted.

  4. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

  5. See Form 8880, Credit for Qualified Retirement Savings Contributions, Pub 590-A, Contributions to Individual Retirement Arrangements (IRAs), or Publication 17, Your Federal Income Tax (For Individuals), for detailed information.

Form 8881, Credit for Small Employer Pension Plan Startup Costs
  1. For information concerning the Credit for Small Employer Pension Plan Startup Costs, see IRM 21.7.4.4.8.3.20, Form 8881, Credit for Small Employer Pension Plan Startup Costs.

  2. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

Form 8882, Credit for Employer Provided Childcare Facilities and Services
  1. For information concerning the Credit for Employer-Provided Childcare Facilities and Services, see IRM 21.7.4.4.8.3.19, Form 8882, Credit for Employer-Provided Childcare Facilities and Services.

  2. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

Form 8874, New Markets Credit
  1. For information concerning the New Markets Credit, see IRM 21.7.4.4.8.3.21, Form 8874, New Markets Credit.

  2. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

Form 8864, Biodiesel and Renewable Diesel Fuels Credit
  1. Form 8864, Biodiesel and Renewable Diesel Fuels Credit, is used to claim a credit for the tax year in which the sale or use occurs. The credit is not available after tax year 2017. The credit consists of:

    • Biodiesel Credit

    • Renewable Diesel Credit

    • Biodiesel Mixture Credit

    • Renewable Diesel Mixture Credit, and

    • Small Agri-Biodiesel Producer Credit

  2. For Tax Year 2006 through 2017, the credit can be claimed as a general business credit on Form 3800, General Business Credit. Taxpayers must attach Form 8864 to their return. See Form 8864, Biodiesel and Renewable Diesel Fuels Credit, and its instructions, for detailed information.

  3. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

Form 8896, Low Sulfur Diesel Fuel Production Credit
  1. The Low Sulfur Diesel Fuel Production Credit generally is 5 cents for every gallon of low sulfur diesel fuel produced at a particular facility by a qualified small business refiner during the tax year.

    Note:

    Although the qualified costs cannot be incurred after Dec. 31, 2009, the credit can be claimed until the total credits equal the qualified costs.

  2. For Tax Year 2006 and subsequent, the credit can be claimed as a general business credit on Form 3800, General Business Credit. Taxpayers may need to attach Form 8896 to their return. See Form 8896, Low Sulfur Diesel Fuel Production Credit, and its instructions, for detailed information.

  3. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

Form 8900, Qualified Railroad Track Maintenance Credit
  1. Form 8900, Qualified Railroad Track Maintenance Credit, generally is 50 percent of the qualified railroad track maintenance expenditures paid or incurred by an eligible taxpayer during the tax year.

  2. The credit is available for tax years 2006 through 2017, and must be claimed as a general business credit on Form 3800, General Business Credit.

  3. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

  4. See Form 8900, Qualified Railroad Track Maintenance Credit, for detailed information.

Form 8910, Alternative Motor Vehicle Credit
  1. Form 8910, Alternative Motor Vehicle Credit, is used to claim a credit for the purchase of new qualified fuel cell motor vehicles. The credit is available for purchases through December 31, 2017, per IRC § 30B.

  2. A qualifying fuel cell vehicle is a motor vehicle that is propelled by power derived from one or more cells which convert chemical energy directly into electricity by combining oxygen with hydrogen fuel.

  3. The credit can be claimed as a general business credit on Form 3800, General Business Credit, if the vehicle is property that is subject to an allowance for depreciation.

  4. See IRM 21.7.4.4.8.3.28, Form 8910, Alternative Motor Vehicle Credit, for additional information.

  5. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

  6. See Form 8910, Alternative Motor Vehicle Credit, or the instructions for detailed information.

Form 8911, Alternative Fuel Vehicle Refueling Property Credit
  1. Form 8911, Alternative Fuel Vehicle Refueling Property Credit, is used to claim a tax credit for a portion of the cost of qualified alternative fuel vehicle refueling property placed in service after December 31, 2005, and before January 1, 2018, per IRC § 30C. The refueling property may be used in the taxpayer's trade or business or installed at the taxpayer's principal residence. Taxpayers are allowed a credit of up to 30% of the cost of the installation of the qualified alternative fuel vehicle refueling property, up to a maximum of $30,000, for a property subject to depreciation. If the property is not subject to depreciation, the credit is limited to $1,000.00.

  2. The credit can be claimed as a general business credit on Form 3800, General Business Credit, if the property is subject to an allowance for depreciation.

  3. See IRM 21.7.4.4.8.3.29, Form 8911, Alternative Fuel Vehicle Refueling Property Credit, for additional information.

  4. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

  5. See Form 8911, Alternative Fuel Vehicle Refueling Property Credit, for detailed information.

Form 8912, Credit to Holders of Tax Credit Bonds
  1. Form 8912, Credit to Holders of Tax Credit Bonds, is used to claim the credit for various tax credit bonds.

  2. The Tax Reform Act of 2017 repealed IRC § 54, Clean Renewable Energy Bonds, § 54A, Qualified Tax Credit Bonds, § 54B, Qualified Forestry Conservation Bonds, § 54C, New Clean Renewable Energy Bonds, § 54D, Qualified Energy Conservation Bonds, § 54E, Qualified Zone Academy Bonds, § 54F, Qualified School Construction Bonds, and § 54AA, Build America Bonds, effective for bonds issued after December 31, 2017. Form 8912 continues to be used by taxpayers holding tax credit bonds issued before January 1, 2018.

  3. When adjusting the credit:

    • Use TC 291 with a money amount to allow/increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

  4. See Form 8912, Credit to Holders of Tax Credit Bonds, for detailed information.

Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit
  1. Form 8936, Qualified Plug-In Electric Drive Motor Vehicle Credit (Including Qualified Two- or Three-Wheeled Plug-in Electric Vehicles), is used to claim a credit for qualified plug-in electric drive motor vehicles placed in service during the tax year. The credit is capped at $2,500 for 2- and 3-wheeled plug in electric vehicles and $7,500 for other qualified plug-in electric drive motor vehicles, per IRC § 30D.

    Note:

    Qualified 3-wheeled plug-in electric vehicles must be acquired after December 31, 2011 and before January 1, 2014.

    Note:

    Qualified 2-wheeled plug-in electric vehicles must be acquired after December 31, 2011 and before January 1, 2014, or after December 31, 2014 and before January 1, 2018.

  2. The credit can be claimed as a general business credit on Form 3800, General Business Credit, if the vehicle is property subject to an allowance for depreciation.

  3. See IRM 21.7.4.4.8.3.38, Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit, for additional information.

  4. When adjusting the credit:

    • Use TC 291 with a money amount to allow / increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 036 and the appropriate source code and blocking series.

  5. See Form 8936, Qualified Plug-In Electric Drive Motor Vehicle Credit, for detailed information.

Form 8941, Credit for Small Employer Health Insurance Premiums
  1. IRC § 1421, Credit for Employee Health Insurance Expenses of Small Business, of the Patient Protection and Affordable Care Act, P.L. No. 111-148, added IRC § 45R to the Internal Revenue Code. This section offers a nonrefundable tax credit to certain eligible small employers that provide health insurance coverage to their employees.

  2. The credit is designed to encourage small employers to offer health insurance coverage to their employees for the first time or to maintain existing coverage. The credit is effective for taxable years beginning in 2010. The credit is calculated on Form 8941, Credit for Small Employer Health Insurance Premiums, and is claimed on Form 1040. Impacted IMF taxpayers could be Schedule C or F sole proprietors with employees, Schedule H household employers, or Schedule E filers.

  3. In order to qualify for the credit, the small employer must have met the following conditions:

    1. Have fewer than 25 full time equivalent (FTE) employees for the tax year, and

    2. Employees must have an average annual wage of less than $53,000 per FTE for 2017 ($52,000 for 2015 and 2016, $51,000 for 2014) (for details, see instruction to Form 8941), and

    3. Beginning in 2010, the employer must pay a uniform percentage (not less than 50%) of the premiums for each employee enrolled in single (employee-only) coverage and no less than an equivalent amount for each employee enrolled in family coverage.

    4. Beginning in 2014, the employer must have participated in the Small Business Health Options Program (SHOP), unless they qualify for transition relief as indicated on Form 8941.

      Note:

      More information about the SHOP can be found at HealthCare.gov.

  4. For tax years prior to 2014, the maximum health insurance credit is generally equal to 35% (25% for tax-exempt small employers) of the lesser of the premiums paid by the employer, subject to a cap determined by the small group market in the rating area in which the employee enrolls for coverage.

  5. For tax year 2014 and subsequent, the maximum health insurance credit is generally equal to 50% (35% for tax-exempt small employers) of the lesser of the premiums paid by the employer, subject to a cap determined by the small group market in the rating area in which the employee enrolls for coverage.

  6. The credit phases out gradually for the eligible small employers if the number of FTEs exceeds 10 or if the average annual wages exceed $25,000 (for tax years 2014 and subsequent, the dollar amount in effect is equal to $25,000, multiplied by the cost-of-living adjustment for the calendar year). For an employer with both more than 10 FTEs and average annual wages exceeding $25,000, the total reduction is the sum of the two reductions. This may reduce the credit to zero for some employers in this instance. See Notice 2010-044 for specific information on computing the phase out credit.

  7. For tax years 2014 and subsequent, the credit is limited to 2 consecutive taxable years. Command Codes (CC) ENMOD and IMFOLE will display a 45R year indicator (in a 45R YR1 > YYYY / 45R YR2 > YYYY format).

    Exception:

    Schedule E filers are not subject to the limitation (these can be identified by Form 8941 with only lines 15 and/or 16 completed), nor will the indicator be set.

  8. The small business credit for the qualifying Schedule C or F small proprietor and Schedule H household employer is claimed on Form 8941, carried onto Form 3800 and then onto Form 1040. Schedule E filers, whose only source of this credit is from a pass-through entity, are not required to complete Form 8941. Instead, they can report this credit directly on Form 3800.

  9. This credit is a nonrefundable business credit. For tax years after 2010, the unused portion of the credit can be carried back one year and then forward for 20 years.

  10. Verify the taxpayer has filed a Schedule C, E, F or H. If neither schedule was filed, follow no consideration procedures.

  11. Action required:

    IF THEN
    Tax year 2014 or subsequent amended returns
    • Verify the SHOP checkbox on Form 8941 was checked "yes." If checked "no," disallow the claim. If checked yes and no or blank, reject as an incomplete claim.

    • Verify the 45R year indicator on CC ENMOD. Update the 45R year indicator as appropriate using CC ENREQ / INCHG. Ensure the 1st and 2nd year indicators accurately display the year(s) the credit was claimed.

    • If the taxpayer is trying to claim the credit for a 3rd year, disallow the claim.

      Caution:

      Updates to the 45R year cannot be done in the same input as an address change or name change.

      Note:

      On joint returns, the 45R year indicator is displayed on the entity of the SSN reported on the Form 8941. In cases where both spouses file a Form 8941, the indicator will be present on both spouse's entity

      Note:

      To remove the indicator, input 9999 in the 45R YR field.

    Any year
    • Math verify the Form 8941

    • Input a TC 291 to increase the credit

    • Input a TC 290 to decrease the credit

    • Input item reference number 870 to increase or decrease the credit. For example, when increasing the credit for $500, input an item reference number 870 $500 along with your TC 291 $500-

      Note:

      Item reference number 870 is effective for tax year 2011 and subsequent.

  12. For tax year 2014 and subsequent, control amended returns claiming the 45R credit using category code ACAX (program 40320) and correspondence using category code ACA7 (program 40310).

  13. See the Instructions to Form 8941 for more specific information. Additional information can be found on irs.gov/.

Employer Credit for Paid Family and Medical Leave (FMLA)
  1. IRC § 45S provides employers with a nonrefundable tax credit for wages paid or incurred to qualifying employees while on family and medical leave. The minimum percentage is 12.5% and is increased by 0.25% for each percentage point by which the amount paid to the employee exceeds 50% of the employee’s wages. The maximum credit amount is 25%.

  2. The credit is effective for tax years 2018 and 2019. The credit is claimed on Form 8994, Employer Credit for Paid Family and Medical Leave, and carried to Form 3800, General Business Credit.

  3. To be eligible for the credit, an employer must have a written policy providing for at least two weeks of paid family and medical leave to qualifying employees, and that paid leave cannot be less than 50% of the wages normally paid to the employee.

  4. A qualifying employee is any employee as defined under the Fair Labor Standards Act who:

    • has been employed by the employer for one year or more

    • total prior year compensation did not exceed $72,000

      Note:

      Compensation includes pre-tax amounts paid to 3rd parties, such as an employee’s share of health insurance.

  5. In general, the allowable credit must not exceed the normal hourly wage of the employee and the number of hours for which FMLA is taken. For non-hourly wages earners, the credit will be prorated to an hourly wage.

  6. When adjusting the credit:

    • Use TC 291 with a money amount to allow / increase the credit.

    • Use TC 290 with a money amount to decrease the credit.

    • Use RC 172 and the appropriate source code and blocking series.

Refundable Credits

  1. Refundable credits addressed in this section are:

    • Withholding (W/H)

    • Estimated(ES) tax payments

    • Excess Social Security and Railroad Retirement Tax Act (RRTA) Tax Credits

    • Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains

    • Form 4136, Credit for Federal Tax Paid on Fuels

    • Earned Income Tax Credit (EITC)

    • Schedule 8812, Additional Child Tax Credit

    • Form 8885, Health Coverage Tax Credit

    • Form 5405, First-Time Homebuyer Credit

    • Form 8863, Refundable American Opportunity Credit

    • Form 8839, Qualified Adoption Credit Expenses.

    • Form 8962, Premium Tax Credit

  2. In lieu of a refund, taxpayer may request all or a portion of the overpayment to be credited to the subsequent tax year as an estimated payment.

  3. If the credit requires a qualifying child, use CC INOLE to verify the name control, TIN, and date of birth of the qualifying child.

  4. When refundable credits requiring TIN validation are claimed, see IRM 21.6.1.7, Command Code DUPED and DDBCK, for appropriate use of CC DUPED and DDBCK for updating the Duplicate TIN database.

Outstanding Balance Considerations Prior to Refund or Credit-Elect
  1. An overpayment is refunded or applied as credit-elect only after all other outstanding obligations are satisfied (spousal obligations, non-tax debts, etc.).

    Reminder:

    If a manual refund is planned, be sure to check Non-Master File accounts for any outstanding balance.

    If And Then
    A tax return for a period more than one year prior to the current processing year The "TO" module (module to be credited) is exactly one year later (not a short period), and/or does not contain TC 150 A credit-elect is generated, for the first attempt only.
    The credit-elect posted is less than the original return requested The date is prior to the end of the processing year in which the credit-elect originated The computer continues to auto-offset as more credit becomes available until the full credit elect amount is satisfied.

    Example:

    A credit elect from 2016 to 2017 will be systemically applied thru Dec. 31, 2017. The adjustment must be posted by the end of the year.

    An additional credit-elect amount should be applied The adjustment may not post until after the computer generated credit-elect auto-offset capability has ended. Credit-elect is transferred with TC 830/710 (use hold code on adjustment).
    A TC 832 was previously input A math/clerical error indicator is present The computer will not generate a secondary TC 836.
    Taxpayer's claim requests application of an overpayment as credit-elect to the next year The computer generated credit-elect auto-offset capability has ended Credit-elect is transferred with TC 830/710 (use hold code on adjustment).
    Return was coded with Computer Condition Code (CCC) "F" (TC 540 was generated) The return was coded in error Reverse the TC 540 with TC 542 (corrects mail file requirement).

    Note:

    Computer-generated credit-elects greater than $24.99 will be compared against a non-tax debtor file provided by Bureau of Fiscal Services (BFS). If a debt is found, a refund is issued up to the amount of the debt for offset by FMS. Remaining credit, if any, will be applied to the subsequent tax period.

Withholding (W/H) Tax Credit
  1. Employers are required to withhold income tax on wages paid to employees. A Form W-2, Wage and Tax Statement, is issued to the employee by January 31 following the end of the tax year. This form shows the wages and the total withholding (W/H) deducted for the year. The amount withheld is allowed as a credit to the employee on the employee's individual tax return.

  2. For information on Backup Withholding (BUWH), see IRM 21.7.4.4.10, Federal Income Tax Withheld (FITW)/Backup Withholding (BUWH) on Income Tax Returns.

  3. W/H may be deducted from various other types of income which the taxpayer may receive. Verify the W/H amount is picked up from the correct box.

  4. Taxpayer must furnish:

    • Form W-2, Wage and Tax Statement, or

    • Form W-2G, Certain Gambling Winnings, or

    • Form 1099–R, Distribution from Pensions, Annuities, Retirement, or Profit Sharing Plans, IRAs, Insurance Contracts, etc. or

    • Form 4852, Substitute for Form W–2, Wage and Tax Statement, or Form 1099–R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRA, Insurance Contracts, etc., or

    • Form 8959, Additional Medicare Tax (see IRM 21.6.4.4.19, Additional Medicare Tax, or

    • Schedule K-1, or

    • Similar documentation

    Caution:

    If the W/H amount is altered, refer the case to Return Integrity Compliance Services (RICS) only if it is a current year return and not yet available on IRPTR. Send an e-4442 (by selecting the AMS category "RICS IVO - Complex Issue Not ID Theft" ).

  5. Examine all documents and related information before making adjustments or answering taxpayer inquiries.

  6. Do not return an original Form W-2, Copy C, to the taxpayer. If no adjustment is necessary, refile with the original return. If filed electronically, destroy as classified waste. Treat photocopies as classified waste.

  7. If a taxpayer receives a notice showing math error code 283 or 582, refer to IRM 21.5.4, General Math Error Procedures.

  8. If withholding documentation is not available, use CC IRPTR, or the Transcript Delivery System (TDS), to access a summary of the Information Returns Master File data extracted from Forms W–2/W–2G and Forms 1099.

    Reminder:

    The tax-withheld summary may be used to allow W/H over the tolerance amount if it appears the taxpayer reported all income, otherwise "no consider" the claim following procedures in IRM 21.5.3.4.6.3, No Consideration Procedures.

  9. Verify original return information using CC RTVUE, CC IRPTR, or CC IMFOL, as appropriate. Request the return only as a last resort.

  10. Federal Income Tax Withholding (FITW) reported on a Form 1041, U.S. Income Tax Return for Estates and Trusts, in the Trust's or Estate's name and Employer Identification Number (EIN) CANNOT be transferred from the Trust or Estate to an individual taxpayer's (beneficiary's) Form 1040, U.S. Individual Income Tax Return, account. There are no provisions of law that allow us to distribute FITW to beneficiaries. Backup withholding distributed to the beneficiary should be reported on Schedule K-1.

    Exception:

    Withholding on a grantor trust can be reported on an individual return. For information about a grantor trust, see IRM 21.7.4.4.1.1.3, Types of Trusts.

  11. Consider the following before deciding to allow the W/H:

    If Then
    The W/H amount ≡ ≡ ≡ ≡ ≡ of the income amount on Form W-2 or other income document and cannot be verified per CC IRPTR. No consider the claim.

    Note:

    If CC IRPTR has not been fully loaded for the current tax year, refer the case to RICS. Document the CIS case information on an e-4442 (by selecting the AMS category "RICS IVO ITIN Only Wage/WH Verification" ). Suspend the CIS case.

    The W/H amount is equal/similar to the FICA (Social Security and Medicare taxes) on the same amount of income The taxpayer has mistaken FICA for W/H. Allow W/H amount from the Form W-2.
    The total payment is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , but no entries are in the "payment" section Do not adjust the taxpayer's figures. (Code and Edit allowed the amount as "W/H" during processing.)
    If CC RTVUE shows W/H was reported/transcribed as refundable credit (i.e., EITC, ES Payment) Adjust the withholding.
    Form 1099-R or Schedule K-1 shows the credit as back-up withholding Allow taxpayer's figures.

    Caution:

    Submission Processing and Accounts Management are receiving original and amended returns claiming fraudulent income and withholding based on frivolous Form(s) 1099-MISC. Most of the forms have been processed and appear on IRP data. The Forms 1099-MISC are associated to major banks and lending institutions and the common way to identify a false filing is inflated withholding credit. Some of the forms have withholding greater than ≡ ≡ ≡ , or it matches exactly. They may also have state tax withheld, which the taxpayer is deducting on Schedule A. They are not legitimate, regardless if the Form 1099-MISC is posted to IRP and should not be used for verification of income. Refer to IRM 21.5.3.4.16.7, Identifying Frivolous Returns/Correspondence and Responding to Frivolous Arguments, for additional information on referring the information to Ogden. Do not work the Form 1040-X.

  12. Allow withholding requests of up to ≡ ≡ ≡ ≡ ≡ with oral statement or written request, if ALL the following criteria are met:

    1. The W/H credit amount was incorrectly reported, incorrectly processed, or not reported at all.

    2. The W/H relates to income already included on the original, a previously processed amended return or the amended return currently being processed.

    3. A previous adjustment has not been made to the W/H tax credit for this module.

    4. Neither paragraph below applies.

  13. Take the following actions on any type of request that claims withholding associated with social security (SSA) benefits or other types of income where the withholding may be questionable:

    • Determine if the refund is equal to the withholding

    • Research CC IRPTR to verify the withholding

    • No consider the request if CC IRPTR does not substantiate the request. See IRM 21.5.3.4.6.3, No Consideration Procedures.

    Note:

    These procedures should be followed even though the withholding is below the specified tolerance amount.

    Note:

    Do Not treat these cases as ID Theft and do not assign these cases to the Andover holding number.

  14. A taxpayer not eligible for an SSN must use an ITIN when filing his/her return. The taxpayer provides an SSN to the employer in order to obtain employment. Thus, the employer withholds income tax on the taxpayer's wages under the SSN the taxpayer provided, and any Form W-2 or Form 1099 filed with the IRS will contain the SSN.

    Note:

    For inquiries regarding Form 1042-S, see IRM 21.8.1.12.14, 180-Day Interest Free Period for Chapter 3 and Chapter 4 Withholding.

    1. When the taxpayer files his/her return and claims the credit for income tax withheld, the taxpayer will need to demonstrate he/she truly earned wages for which the withholding credit is being claimed before the IRS can allow the credit. The taxpayer can provide documentation such as Form W-2, Form 1099, a paystub, earnings statement, or a statement from his/her employer to verify the amount of federal income tax withheld.

    2. When an ITIN taxpayer files an amended or supplemental return and the additional income and/or withholding is reported under an SSN, or when the name on the return doesn't match the name on the W-2, if you are able to verify the wages and withholding has been reported using CC IRPTR, allow the income and withholding.

      Note:

      IRPTR data may also be found under the taxpayer's ITIN.


      If the wages and withholding cannot be verified on current year returns prior to IRPTR being fully loaded, document the CIS case information on an e-4442 (by selecting the AMS category "RICS IVO ITIN Only Wage/WH Verification" ) and route to IVO. Suspend the CIS case. Within 30 days, IVO will verify the income and withholding, add history to AMS stating "income verified good" or "unable to verify income" , and update the IDRS control base activity to alert the employee IVO's process is complete. Allow or disallow the claim based on IVO's response, or based on IRPTR for prior years, see IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures.

      Note:

      Do not request verification of income and/or withholding allowed during original processing.

Withholding Adjustments
  1. Check for possible estimated tax (ES) penalty changes. (Refer to IRM 20.1.3, Estimated Tax Penalties)

    If And Then
    TC 176/177 is on the module   ES penalty is systemically recomputed

    Reminder:

    Priority Code 8 is not required

    TC 170/171 is on the module Document Locator Number (DLN) doc code is 17, 18, 24, 47, 51, 52 or 54
    • Manually recompute and adjust the ES penalty as necessary.

    • Priority Code 8 is not required if a TC 170 or TC 171 is input.

    • Priority Code 8 is required if the ES penalty is not being adjusted.

    .
    TC 170 is on the module Has the same DLN as the TC 150 (DLN doc code is not 17, 18, 24, 47, 51, 52, or 54) The ES penalty systemically recomputes but is adjusted only if ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    Reminder:

    Use of Priority Code 8 is not required.

  2. Input an adjustment to allow the W/H credit using:

    1. TC 290 .00, if no tax change is required.

    2. CRN 806 to increase the posted credit, or CRN 807 with a minus (-) to decrease the posted credit.

      Note:

      If decreasing the withholding because the taxpayer overstated his/her federal income tax withholding credit on a previously filed return or claim for refund, see IRM 21.4.5.5.3, Category B Erroneous Refunds, to ensure using a TC 807 is appropriate.

    3. RC 051 with the appropriate source code, and blocking series.

Estimated Tax (ES)
  1. Estimated tax (ES) is the method used to pay:

    • Tax on income not subject to withholding

    • Tax when the amount withheld is not enough

    • Income tax and self-employment tax, as well as other taxes and amounts reported on the return

      Note:

      See Form 1040-ES, Estimated Tax For Individuals, and its instructions, or Publication 17, Your Federal Income Tax (For Individuals), and Publication 505, Tax Withholding and Estimated Tax, for detailed information on ES payments and penalty.

  2. Estimated tax payments are submitted with Form 1040-ES, Estimated Tax For Individuals. Payment due dates for a calendar year return (unless the due date falls on a Saturday, Sunday, legal holiday, or as otherwise extended) are:

    • April 15

    • June 15

    • September 15

    • January 15 of the following year

  3. Taxpayer requests to apply current year estimated tax payments to a previous year's outstanding tax liability cannot be honored. IRC Section 6402(a) provides that in the case of an overpayment, the Secretary, within the applicable period of limitations, may credit the amount of the overpayment against any liability in respect of an internal revenue tax on the part of the person who made the overpayment and shall refund any balance to such person. The Service is authorized to make a refund only if an overpayment exists. Therefore, the Service does not have the authority to apply an estimated tax installment to an outstanding tax liability until the estimated tax installment constitutes an overpayment. An "overpayment" cannot be determined until after the close of the tax year when the tax liability is determined.

    Exception:

    The restriction above does not apply to a payment incorrectly processed as an estimated tax payment due to an IRS processing error. This can be verified by reviewing the payment document and/or requesting the payment Document Locator Number (DLN).

    Exception:

    Obvious taxpayer errors, such as AMS history shows the taxpayer called for a payoff amount and that amount posted as an ES payment.

  4. If the taxpayer is not liable for ES payments based on the account history (i.e. no prior ES payment history, SE income, etc.), or current income situation, and a payment is posted as an ES payment, it can be refunded back to the taxpayer. Disregard any properly completed ES voucher. The payment can either be refunded back to the taxpayer or applied to the correct year's balance due.

  5. Taxpayers who do not report payments they made (estimated tax payments or a credit elect) of ≡ ≡ ≡ ≡ ≡ ≡ ≡ on their return will be sent a Letter 12C. Individual Return Incomplete for Processing, asking them to verify the dates and amounts of these payments. If a taxpayer calls in response to the 12C letter, do not provide the payment amounts, dates or a transcript of the account. Advise the taxpayer to respond in writing to the address provided on the letter.

ES Penalty
  1. An ES penalty is charged if the taxpayer did not pay sufficient ES payments when due or did not have adequate tax withheld from income earned during the tax year.

    1. Taxpayers may compute the penalty on Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts, or Form 2210-F, Underpayment of Estimated Tax by Farmers and Fishermen, or have the IRS compute the penalty, if appropriate.

    2. Generally, the penalty may be avoided if the taxpayer paid either 90% of the current year's tax liability or 100% of the tax liability shown on the prior year's tax return. For higher income taxpayers (i.e., an individual with adjusted gross income for the preceding tax year in excess of $150,000), substitute 110% as the applicable percentage of the tax liability shown on the prior year's tax return.

    3. Specific instructions for computing the ES penalty are in IRM 20.1.3, Estimated Tax Penalties.

ES for Decedents
  1. Deceased taxpayers are liable for ES payments due on installment due dates occurring prior to the date of death.

  2. When the primary taxpayer on a joint return is the decedent:

    1. The TC 150 posts with a Computer Condition Code (CCC) "F" and filing status 2.

    2. The secondary taxpayer account (if not currently on Master File) is established with a generated TC 000, blocking series 999.

    3. The generated TC 000 is resequenced for one cycle.

    4. One cycle after the TC 150 posts on the primary decedent's account the computer automatically transfers credit-elect and/or payment(s).

  3. Special handling may be required.

    If And Then
    A return is filed showing the primary taxpayer as deceased with credit-elect requested The secondary (surviving spouse) account was not established during the settlement cycle A "CR EL DECD" transcript generates.
    A return is filed showing the primary taxpayer as deceased with ES tax payments on the subsequent tax period The secondary account was not established during the settlement cycle A "DECD ES CR" transcript generates.
    Computer transcript "CR EL DECD" or "DECD ES CR" generates The secondary account is not established within two cycles of the transcript and both the valid and invalid SSNs were researched
    1. Input TC 000.

    2. Transfer the credit-elect, payment(s), and/or ES tax payment(s) to the surviving spouse's account.

    Computer transcript "CR EL DECD" or "DECD ES CR" generates The secondary account is established on either the valid or invalid SSN Transfer credit elect or ES tax payment(s) to the surviving spouse's account.
    Either transcript generates The entity is erroneously coded as deceased Update the entity. If a TC 540 is present, reverse it with a TC 542.
    Either transcript generates Both taxpayers are deceased Send a Letter 112C, Payment/Overpayment/Credit Applied; No Record of Return Filed, to the address on record.
    Either transcript generates The credit is statute barred from refund Prepare Form 8758, Excess Collections File Addition.

    Note:

    The surviving spouse should be:

    1. Sent a Form 1040-ES, Estimated Tax For Individuals, package.

    2. Advised to remit future ES tax payments under his or her own SSN.

    3. Reminded to update his or her name with SSA (if CC INOLE indicates a discrepancy).

ES Joint Allocation
  1. If both spouses file separate returns that divide the aggregate amount of the ES payments between them, this is evidence the parties reached an agreement on the allocation and there is nothing for you to allocate.

  2. Use the following table for all other ES payments and joint allocation issues:

    If And Then
    Taxpayer requests to have all or a portion of ES payments and/or credit elect credited to his/her individual account You determine the taxpayer made separate ES payments (request the ES voucher, if necessary).
    • You must determine the taxpayer's share of joint liability for the credit elect overpayment.

    • Transfer the appropriate ES payment to the separate account.

    • Transfer the allocated portions of credit elect to the appropriate accounts.

    Taxpayer requests to have all or a portion of ES payments credited to his/her individual account You determine the taxpayer made joint ES payments Advise the taxpayers they must allocate the payments between themselves.
    Taxpayer has been previously advised the payments must be allocated Both taxpayers cannot agree on an allocation of the joint payments Advise taxpayer to submit a computation indicating the allocation of the ES credit in proportion to each spouse's separate tax.
    Taxpayer submits computation with the allocation   Transfer the allocated ES credit to taxpayer's account. (Apply in four equal installments, unless directed otherwise.)
    Taxpayer cannot provide an allocation of joint payment You can determine allocation of payments per ratio of each spouse's separate tax Transfer the allocated ES credit to taxpayer's account. (Apply in four equal installments, unless directed otherwise.)
    Taxpayer resides in a community property state   Refer to Pub 555, Community Property.
ES Form 1041-T (Trusts)
  1. A trust fiduciary may elect to treat any amount of ES payment(s) for any tax year of the trust as a payment made by the beneficiary of the trust.

    1. Input TC 290 .00, if no tax change is required.

    2. To transfer the credit appropriately, refer to IRM 21.7.4.4.1.12, Form 1041-T, Allocation of Estimated Tax Payments to Beneficiaries.

    3. Use the appropriate SC, RC(s), and blocking series.

  2. For information on balance due notices on IMF accounts involving Form 1041-T, Allocation of Estimated Tax Payments to Beneficiaries, credit transfers, see IRM 21.7.4.4.1.12.4, Balance Due Notices on IMF Accounts.

Forms 1041-T Filed by Electing Small Business Trusts (ESBTs)
  1. Treasury Regulation section 1.641(c)-1(a) provides guidelines that an ESBT is treated as two separate trusts for purposes of determining income tax. For complete instructions regarding ESBTs, refer to IRM 21.7.4.4.1.1.3, Types of Trusts.

Excess Social Security and RRTA Tier I Tax Credits
  1. Employees are subject to social security tax and the equivalent portion of the RRTA Tier I Tax based on various wage limitations:

    YEAR MAXIMUM SOCIAL SECURITY WAGES PERCENT EMPLOYEE TAX W/H MAXIMUM SOCIAL SECURITY TAX W/H
    2018 $128,400 6.2 $7,960.80
    2017 $127,200 6.2 $7,886.40
    2015 / 2016 $118,500 6.2 $7,347.00
  2. Employees are subject to the employee portion of Medicare tax (shown separately on Form W-2, Wage and Tax Statement), at the rate of 1.45%. There is no wage base limit for Medicare tax. All wages are subject to the tax. Thus, there is no excess Medicare tax credit.

  3. For withholding purposes, the above social security tax (and equivalent portion of the RRTA Tier I tax) maximum applies separately with respect to each employer for whom an employee works. If an employee works for one employer and receives the maximum social security wages and also works for another employer in the same calendar year, the second employer is also required to deduct social security tax from the employee's wages up to the maximum social security tax.

  4. If more than the maximum social security tax (or equivalent portion of the RRTA Tier I tax) is deducted from the wages of the employee, the employee can receive a credit for the social security tax or RRTA Tier I withheld in excess of the maximum social security tax or RRTA Tier I tax. This credit is available only if such withholding is the result of the employee working for two or more employers. This credit is taken in the payment section of Form 1040.

  5. If an employee has more than the maximum social security or RRTA Tier I taxes deducted from his or her total wages, appropriate action depends on the information that has been entered on the Forms W-2 received by the employee.

    If Then
    The employee has one Form W-2 on which more than the maximum social security or RRTA Tier I tax was withheld Return the claim to the taxpayer and inform the taxpayer of the following:
    • He/She cannot claim excess social security withheld from the same employer as a credit against his/her income tax.

    • He/She will need to contact the employer to get a refund of the excess social security tax withheld.

    • Include Publication 505, Tax Withholding and Estimated Tax, and refer taxpayer to information under "Employer's Error" under the topic "Excess Social Security or Railroad Retirement Tax Withholding,"

    • Inform taxpayer that if he/she cannot obtain reimbursement from the employer, he/she will need a signed statement from the employer indicating the employee had not authorized employer to file a claim, nor had employee been reimbursed for amount over-withheld.

    • Taxpayer will need to submit Form 843.

    • Include Form 843 and instructions.

      Note:

      Form 843 claims for excess social security, utilize the "Update Case Data" function on CIS to change the information from one case type to another, including the TIN and MFT, and select the appropriate BMF campus (Cincinnati or Ogden) based on the CIS Guide. Do not route to the address below.


      Form 843 claims for RRTA Tier I or Tier II, route to:
      IRS
      Large Corp/Technical Unit
      Stop 537G
      201 W. Rivercenter Blvd.
      Covington, KY 41011

    The employee has separate Forms W–2 with different EINs The employee can claim a credit for excess social security or RRTA Tier I tax. See (7) below.
    The employee has separate Forms W–2 with the same EIN The employee can claim a credit for excess social security or RRTA Tier I tax withheld if:
    • the "Employer's Name" box (Box c) on the Form W-2 reflects the fact that the wages were paid as agent for another employer and such excess withholding was the result of paying wages as agent for one or more other employers. See instructions to Form W-2 (Special Reporting Situations).

    • it appears that a parent company and one or more of its subsidiaries are responsible for the excess amount

    • the W-2 was issued by a Certified Professional Employer Organization (CPEO).

      Note:

      The Form W-2 will not show it was issued by a CPEO, but if the taxpayer indicates the W-2 was issued by a CPEO, verify the employer shown on the W-2 is listed on the List of CPEOs. The credit can be allowed if shown.

  6. If FICA taxes were withheld when the taxpayer is not liable for FICA tax, see IRM 21.7.2.4.6.4.2, Excess Social Security and Medicare Tax Withheld - Employee Claims for Refund.

  7. If an adjustment is required, take the following action:

    1. Verify the overpayment of social security or RRTA Tier I tax withheld based on Forms W–2.

    2. 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.

      Note:

      Input an override code "N" on CC ADJ54.

    3. Use Reason Code 055, and the appropriate source code and blocking series

    4. Refer to IRM 20.1, Penalty Handbook, for possible estimated tax penalty adjustment.

      Note:

      The excess amount of social security or RRTA Tier I tax withheld must be computed separately for each spouse on a married filing joint return.

  8. For information regarding RRTA Tier I, Tier II or CT-1 claims, see IRM 21.7.2.6.5.7, Claims filed on Form CT-1X and Form 843. Excess RRTA Tier 1 and Tier II tax credits must be claimed on Form 843, not the Form 1040.

Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains
  1. A Regulated Investment Company (RIC) or Real Estate Investment Trust (REIT) that does not distribute all of its net capital gain to its shareholders must pay tax on the undistributed part. The RIC or REIT may issue a Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains, to each of its shareholders to designate the amount of the undistributed long-term capital gains required to be reported on the shareholder's Form 1040, Schedule D. In addition, Form 2439 includes the shareholder's share of the tax paid by the RIC or REIT on the undistributed long-term capital gains. That amount may be claimed by its shareholders as a credit or refund on his/her respective Forms 1040.

  2. The shareholder should attach Form 2439, Copy B, to the original or amended tax return.

    Note:

    Do not reject for a missing Form 2439 if the taxpayer ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. Loose Forms 2439, Copy A and/or B, may be received. If "NOMINEE" is noted at the top of the form, no adjustment is made to the taxpayer's account. Associate the form with the return of the taxpayer who appears in the "Shareholder's" name and address box. If this refers to a Form 990, refer to Ogden AM per IRM 21.7.7.4.3.7, Composite Form 990-T. If this is a company entity refer to IRM 21.7.4.4.9.2.2, Loose Form 2439, Copies A and B, for BMF instructions.

  4. Action required if "NOMINEE" is not noted:

    • Input TC 290 .00, if no other adjustment is required.

    • Use credit reference number 766 to allow the credit.

    • Use credit reference number 767 (with a minus) to decrease a previously posted credit.

    • Use RC 057 and the appropriate source code and blocking series.

Form 4136, Credit for Federal Tax Paid on Fuels
  1. Form 4136, Credit for Federal Tax Paid on Fuels, is used to claim certain nontaxable uses (or sales) of fuel during the income tax year. The corresponding Credit Reference Number applicable to the type fuel tax paid is shown in column (e) of the Form 4136.

    Note:

    The credits for biodiesel mixtures, renewable diesel mixtures, and alternative fuels were retroactively extended through calendar year 2017. Taxpayers can use Form 4136 to claim the credit for such mixtures or fuels that met the sale or use requirements during 2017.

    Note:

    See Notice 2018-21 for the one-time claim procedure for claiming the retroactively extended biodiesel mixture, renewable diesel mixture, or alternative fuel credit on the Form 8849. The one-time claim procedure does not affect Form 4136 claims.

  2. Form 4136 must be attached to an income tax return (Form 1040) or an amended tax return (Form 1040-X), if the credit claimed is ≡ ≡ ≡ ≡ ≡ ≡ ≡ and must be filed within the statute of limitations.

  3. Amounts previously claimed on Form 8849, Claim for Refund of Excise Taxes, or Form 720, Quarterly Federal Excise Tax Return, (Schedule C, Claims), cannot be included on Form 4136. For information regarding Form 8849 claims, refer to IRM 21.7.8.4.5, Form 8849, Claim for Refund of Excise Taxes, and for Form 720 claims, refer to IRM 21.7.8.4.1.6, Form 720, Schedule C Claims.

  4. The same documentation required for Form 8849 must be included with Form 4136.

  5. Form 4136 claiming a credit of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . See Exhibit 21.5.3–3, Examination Criteria (CAT A) - Credits.

  6. Claims on Form 4136, Part 1, Nontaxable Use of Gasoline, cannot be made for personal use. If the taxpayer does not show any business activity, such as a Schedule C, E, or F, follow no consideration procedures shown in IRM 21.5.3.4.6.3, No Consideration Procedures.

  7. Prior to 2016, Fuel Credits processed with the original return posted without a credit reference number (CRN). Beginning in 2016, Fuel Credits post as a CRN 450. Subsequent adjustments post to Masterfile without a CRN. Beginning in 2017, subsequent adjustments will post with a CRN 450.

Fuel Tax Claims
  1. The Form 4136, Credit for Federal Tax Paid on Fuels, is:

    1. Processed in the receiving campus.

    2. Submitted with Form 1040, U.S. Individual Income Tax Return, to claim the entire year's credit.

  2. Any Form 8849, Claim for Refund of Excise Taxes, will be referred to and processed at the Cincinnati Campus.

Form 4136, Adjustment Action
  1. The applicable CRN is listed in column (e) of the Form 4136, Credit for Federal Tax Paid Fuels.

    Note:

    If Form 4136 is not attached (under tolerance), and the specific fuel type cannot be determined, process using CRN 362.

  2. Input an adjustment to reflect the correct fuel credit:

    1. Input TC 290. 00, if no other adjustment is required.

    2. Use RC 061, the appropriate source code and blocking series.

    3. Use the applicable CRN and credit amount. Do NOT input CRN 450. The CRN converts to TC 766/767 at Masterfile.

    4. The 45-day interest free period procedures apply. Enter the amended claims date on ADJ54.

      Note:

      Tax increases or decreases must be addressed.

    5. Allow computer generated refund and/or offsets when possible.

  3. If the claim is disallowed in full or in part:

    1. Send the appropriate certified C letter.

    2. Input TC 290.00 with Source Code 0, Reason Code 061 and Hold Code 3.

    3. Use the appropriate source code and blocking series.

Earned Income Tax Credit (EITC)
  1. Earned Income Tax Credit (EITC) is available for certain low-income individuals who meet earned income, adjusted gross income (AGI) and certain other requirements. EITC greater than the tax liability may be refunded to the taxpayer.

  2. Use CC DDBCK when processing all returns received in the current processing year and two prior years amended returns/Forms 1040X resulting in an increase to EITC due to adding, changing, or deleting a qualifying child. When adding or increasing EITC, DDBCK will determine if the claim meets CAT-A criteria, and in most cases, will update the Duplicate TIN database. CC DDBCK must be used in conjunction with the appropriate IRM procedure to determine subsequent actions.

    Exception:

    Employees who do not have access to CC DDBCK should review the amended return for CAT-A criteria. See Exhibit 21.5.3-2, Examination Criteria (CAT-A) - General. If the claim does not meet CAT-A criteria and all other requirements are met, allow the EITC. Update CC DUPED, if appropriate.

    Exception:

    If CC DDBCK cannot be used on current year amended returns involving EITC increases, then CC DUPED should be used to update DUPOL. See IRM 21.6.1.7.2, Command Code DDBCK, for a list of exceptions when CC DDBCK cannot be used.

EITC Eligibility Criteria
  1. Taxpayers may be eligible for EITC if:

    • Earned income is at least $1, but less than the established limits (IRM 21.6.3.4.2.7.4, EITC Earned Income).

    • AGI is less than the established limits (IRM 21.6.3.4.2.7.6, Adjusted Gross Income).

    • Investment income is not more than the established limits. (IRM 21.6.3.4.2.7.5, Investment Income Limitation).

    • Filing status is other than married filing separately (FS 3).

    • The taxpayer (and spouse, if filing jointly) is not the qualifying child of another person for the same year.

    • Does not file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion.

    • Has a valid social security number. For returns / amended returns filed after Dec. 18, 2015, the SSN must be issued on or before the due date of the return (including extensions).

      Note:

      U.S. military personnel stationed outside the U.S. on extended active duty are considered to live in the U.S. during that duty period for purposes of the EITC.

  2. For additional information, refer to Publication 17, Your Federal Income Tax (For Individuals), or Publication 596, Earned Income Credit (EIC).

Taxpayer with No Qualifying Child
  1. Taxpayers with no qualifying child must also meet the following requirements:

    • Must be at least age 25 but under age 65 (either spouse, if a joint return).

    • The taxpayer's principal residence must be in the U.S. for more than one-half of the tax year (both spouses, if joint).

    • Must be able to claim his/her exemption on the return (both spouses, if joint).

  2. The application of age criteria for a taxpayer claiming EITC without qualifying children must be made in the most taxpayer favorable manner at both ends of the 25 - 65 range.

    • For a taxpayer whose birthday is on January 1st and is turning age 25 on January 1st of a year immediately subsequent to the tax year (e.g., taxpayer turns 25 on January 1st, 2018 and is filing a tax year 2017 return), allow the claim for EITC, provided other eligibility criteria are met.

    • For a taxpayer whose birthday is on January 1st and is turning age 65 on January 1st of a year immediately subsequent to the tax year (e.g., taxpayer turns 65 on January 1st, 2018 and is filing a tax year 2017 return), allow the claim for EITC, provided other eligibility criteria are met.

EITC With Qualifying Children
  1. Children on Schedule EIC are qualifying children if they meet four tests. The four tests are:

    • Relationship

    • Age

    • Residency

    • Joint Return

  2. Relationship-- A child meets the relationship test if he/she is the taxpayer's:

    • Son

    • Daughter

    • Stepchild

    • Descendant of the taxpayer's child or stepchild

    • Brother, sister, half-brother, half-sister, stepbrother, stepsister

    • A descendant of the taxpayer's brother, sister, half brother, half sister, stepbrother, or stepsister

    • An eligible foster child (a child placed lawfully with the taxpayer by an authorized placement agency or by judgement, decree, or other order of any court of competent jurisdiction)

    Note:

    An adopted child, including a child placed lawfully with the taxpayer for adoption is treated the same as a biological child.

  3. Age-- The child meets the age requirement if he/she is:

    • Under the age of 19 at the end of the calendar year and younger than the taxpayer (or spouse, if filed jointly), OR

    • Under the age of 24 at the end of the calendar year, a student, and younger than the taxpayer (or spouse, if filed jointly)

      Note:

      A student is defined as a student who is enrolled for the number of hours or courses the school considers to be full-time attendance. The child must be a full-time student during some part of each of any five calendar months during the tax year. The five calendar months need not be consecutive.

      OR

    • Any age, if permanently and totally disabled at any time during the tax year

  4. Residency-- The child must live with taxpayer in the U.S. for more than half the tax year. Temporary absences, such as for schooling, medical care, or vacation are counted as time lived at home. If a child fails the residency test solely because the child was born or died during the tax year, the child is treated as meeting the test, if the child lived with taxpayer for more than half the time the child was alive during the tax year.

    Note:

    Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, does not allow a taxpayer to claim EIC.

    Note:

    See IRM 21.6.3.4, Credits Procedures, if research and/or CC DDBCK indicates a date of death for the qualifying child prior to the tax year involved.

  5. Joint Return --To meet this test, the child cannot file a joint return except if it is filed only as a claim for refund of income tax withheld or estimated tax paid.

Kidnapped Child
  1. A taxpayer's kidnapped child can meet the residency requirement. The following requirements must be met:

    1. The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of the family of the child or the taxpayer.

    2. The child must have had, for the tax year in which the kidnapping occurred, the same principal place of abode as the taxpayer for more than half of the portion of the year before the date of the kidnapping.

  2. If these requirements are met, the child is treated as meeting the residency requirement for all taxable years ending during the period that the child is kidnapped.

  3. This rule applies for all tax years ending during the period that the child is kidnapped. It does not apply as of the first tax year beginning after the year in which the child is determined to be dead (or, if earlier, the year in which the child would have reached age 18).

EITC SSN Requirements
  1. To claim the EITC, the taxpayer and spouse, if filing jointly, must have valid SSNs. Any EITC qualifying child(ren) listed on Schedule EIC must also have a valid SSN. For any return filed after December 18, 2015, the SSN must be issued on or before the due date or extended due date of the return. A valid SSN does not include an ITIN (Individual Taxpayer Identification Number), ATIN (Adoption Taxpayer Identification Number child only) or an IRSN (Internal Revenue Service Number). See the following references for information on how to identify these types of TINs:

    • ITIN IRM 3.13.5.22, Individual Taxpayer Identification Number (ITIN) Format

    • ATIN IRM 3.13.5.24, Adoption Taxpayer Identification Number (ATIN) Format

    • IRSN IRM 3.13.5.23, Internal Revenue Service Number (IRSN) Format

  2. For purposes of the EITC, a valid SSN is a number issued by the Social Security Administration (SSA) to (1) a U.S. citizen, or (2) a noncitizen who obtained the SSN for purposes other than to obtain a benefit partially or fully funded by the Federal Government. Examples of these benefits include Medicaid and food stamps. Below are several examples of Social Security cards you may receive.

    1. Taxpayer submits a copy of a Social Security card containing either no legend or a legend that says, "valid for employment only with INS (or DHS) authorization" . If the card is for the primary or secondary taxpayer, allow the EITC. If the card is for the qualifying child, allow the EITC on the basis of that child.

    2. Taxpayer submits a copy of a Social Security card with "not valid for employment" legend and says the SSN was obtained to receive a federally funded benefit. If the card is for the primary or secondary taxpayer, do not allow EITC. If the card is for a qualifying child, do not allow EITC on basis of this child. Explain the SSN requirements to the taxpayer.

    3. Taxpayer submits a copy of a Social Security card with "not valid for employment" legend in response to a math error and does not indicate reason why the SSN was obtained. If the card is for the primary or secondary taxpayer or for a qualifying child, follow procedures in IRM 21.5.4.5.5, Math Error Unsubstantiated Protest Processing.

  3. If the taxpayer meets all the EITC requirements for the tax year and is currently going through the immigration process to become a legal resident and cannot obtain an SSN until the process is completed, advise the taxpayer he/she will qualify for EITC if the SSN is obtained prior to the due date / extended due date of the return.

  4. Before allowing EITC, verify the validity of the name(s) and SSN(s) provided by the taxpayer for the qualifying individual(s). Research using CC INOLE, CC NAMES, and CC RTVUE to verify the name, number, and date of birth.

    Note:

    See IRM 21.6.3.4.2.7.14, EITC and Command Code DDBCK and IRM 21.6.1.7, Command Code DUPED and DDBCK, for appropriate usage of CC DUPED and CC DDBCK.

    Reminder:

    CC RTVUE will show the validity of the primary/secondary taxpayer(s) and up to four qualifying children shown on the original return. The qualifying child’s TIN will show an indicator of "2" if the account is not present on the NAP and a "9" if invalid.

    If And Then
    EITC was previously claimed for the tax year and was not allowed Name and SSN are valid Taxpayer is eligible for EITC if all other eligibility criteria are met.
    EITC was previously claimed for the tax year and was not allowed Name and SSN are not valid Taxpayer is not eligible for EITC.
    EITC qualifying child was born in the U.S. and died in the same tax year Does not have an SSN Allow EITC if all other eligibility criteria are met.
    EITC qualifying child is in the process of a domestic adoption An SSN from SSA has not been issued. Parent has applied for an ATIN for the child. EITC is not allowed with an ATIN.
    EITC qualifying child is in the process of a foreign adoption The child is ineligible for an SSN from SSA. Parent has applied for an ITIN for the child. EITC is not allowed with an ITIN.

    Reminder:

    EITC is not allowed for "Amish" , "Mennonite" , "Exempt Form 4029" , or "conscience-based objection" without a valid SSN, although the dependency exemption and other credits may be allowed.

  5. See IRM 21.6.3.4, Credits Procedures, for additional information regarding incorrect SSNs due to the child being deceased prior to the tax year for which EITC is being claimed.

EITC Earned Income
  1. Earned income includes all employee compensation subject to income tax, net earnings from self-employment, and gross income received by a statutory employee.

    Note:

    A taxpayer (or the spouse, if married filing jointly) receiving nontaxable combat pay may elect to include the amount when figuring his/her earned income for purposes of computing EITC.

  2. Taxable earned income includes:

    • Wages

    • Salaries

    • Tips

    • Strike pay

    • Sick pay

    • Union strike benefits

    • Disability benefits (not disability social security) received by taxpayers under minimum retirement age (normally, this is reported on the Form 1040, U.S. Individual Income Tax Return, as wages).

      Note:

      Minimum retirement age may vary.

    • Net earnings from self-employment (SE) or gross income received by a statutory employee.

      Note:

      Net earnings from self-employment may not appear on Schedule SE if under $400.

      Caution:

      Earned income for EITC purposes does not include amounts inmates in penal institutions are paid for work while an inmate.

      Note:

      Earned income does not include workfare payments to the extent subsidized under a state program for work experience (including work associated with the refurbishing of publicly assisted housing if sufficient private sector employment is not available), certain Medicaid waiver payments (see IRM 21.6.6.4.37, Qualified Medicaid Waiver Payments/Difficulty of Care Payments, for more information), or for work in community service programs.

  3. For EITC purposes, use SE income as reported on Schedule SE, minus the 50% deduction of SE tax or use EITC Worksheet B in Publication 596, Earned Income Credit.

    If Then
    Schedule SE is not present because the net earnings from self-employment shown on Schedule C, C-EZ, or F (or the combined net earnings) are less than $400 Use the amount of net profit or loss reported on Schedule C, C-EZ or F.
    Schedule SE is not present and net earnings from self-employment appear to be $400 or more See IRM 21.6.3.4.2.7.7, EITC and Self- Employment Tax.
    SE income is a loss Subtract the amount from other earned income.
    The optional method is used Use the optional amount as income; do not subtract the SE loss.
    Taxpayer is a statutory employee (indicated on Form W-2, box 15) Use Schedule C or C-EZ, line 1, as earned income.

    Caution:

    If taxpayer receives wages from ministerial duties, some of the income reported as wages on Form 1040, may also be shown on Schedule SE, line 2. Subtract the Schedule SE, line 2 amount from taxpayer's other earned income.

    Note:

    If taxpayer receives wages from ministerial duties and also receives a housing allowance or the rental value of a parsonage, the housing allowance or rental value is included in net earnings from self-employment. Thus, this amount is earned income, even though it is not subject to regular income tax.

  4. Income not included in earned income includes:

    • Interest

    • Dividends

    • Welfare payments

    • Pensions

    • Veteran benefits

    • Taxable scholarships or fellowship grants not reported on Form W-2

    • Alimony

    • Child support

    • Social Security and Railroad Retirement benefits

    • Worker's compensation benefits

    • Unemployment compensation (insurance)

  5. For ministers or members of religious orders, CC ENMOD shows the ministerial indicator (MIN-SE) when Form 4029, Application for Exemption from Social Security and Medicare Taxes and Waiver of Benefits, or Form 4361, Application for Exemption from Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, is approved or denied.

    If Then
    Form 4361 is approved Income from ministerial duties performed as an employee is earned income. Form W-2 will not reflect any FICA wages, or FICA tax withheld.
    Any income for services unrelated to ministerial duties (whether as an employee or a non-employee) is earned income.

    Income from non-employee ministerial duties is not earned income.

    Note:

    See Publication 517, Social Security and Other Information for Members of Clergy and Religious Workers, for additional information.

    Form 4029 is approved All wages, salaries, tips, and other employee compensation are earned income, even if FICA tax is not withheld.
    Amounts received from self-employment are not earned income.
    Losses from Schedule C, C-EZ, or F cannot be subtracted from wages.
  6. The Disaster Tax Relief and Airport and Airway Extension Act of 2017, enacted on Sept. 29, 2017, as amended by the Bipartisan Budget Act of 2018, added a special rule for certain taxpayers affected by Hurricanes Harvey, Irma, and Maria, and the California wildfires. Qualified individuals whose earned income in 2017 is less than the earned income in 2016 may elect to use their 2016 earned income when figuring EITC. Taxpayers should enter "PYEI" and the dollar amount of the prior year earned income on the dotted line for EITC.
    The main home of qualified individuals must have been in:

    • the Hurricane Harvey disaster area on August 23, 2017

    • the Hurricane Irma disaster area on September 4, 2017

    • the Hurricane Maria disaster area on September 16, 2017

    • the California wildfire disaster area on October 8, 2017

    Note:

    Verify the taxpayer was in the hurricane disaster area via the IRS Disaster Assistance Program.


    These claims are centralized in Austin and Philadelphia (International). Reassign the case per the AM Site Specialization Temporary Holding Numbers. Use category code KATX and OFP 710-82365 when processing these claims.

Investment Income Limitation
  1. EITC is denied if taxpayer receives investment income (sometimes referred to as disqualified income) of more than a certain amount. The maximum amount of investment income is:

    • $3,500 for tax year 2018

    • $3,450 for tax year 2017

    • $3,400 for tax year 2015 and 2016

  2. Investment income includes:

    • Interest

    • Dividends

    • Capital gain net income (Form 1040) does not include gain from selling certain business assets such as from the sale of "culled" cows. This income is reported in Part 1 of Form 4797, Sales of Business Property. Subtract the gain, if any, from Form 4797, line 7, column (g) (or from line 9, column (g), if lines 8 and 9 were completed), from the amount on Form 1040, line 13. Include only the result, if more than zero, in investment income.

    • Child's interest and dividends from Form 8814, Parents' Election to Report Child's Interest and Dividends, included on Line 21 of Form 1040. For more details see Publication 596, Earned Income Credit (EITC).

    • Royalty income (Schedule E, line 4, minus the related expenses on Schedule E, line 21).

    • Net income from rentals of personal property not used in a business (the rental income included on Form 1040, line 21, minus the PPR (rental of personal property) amount deducted on Form 1040, line 36).

    • Income from passive activities included on Schedule E, lines 26, 28 column (g), 33 column (d), and 39, minus the losses from passive activities included on Schedule E, lines 26, 28 column (f), 33 column (c), and 39.

    Exception:

    Do not consider any royalty income or loss included on line 26 of Schedule E or any amount included in taxable income as income related to passive activities. These amounts are used in computing "Royalties and Rental Income from Personal Property" .

Adjusted Gross Income
  1. Adjusted Gross Income (AGI) is used in determining the earned income tax credit. The amounts vary depending on the year, filing status and number of qualifying children. AGI must be less than:
    2018

    • $49,194 ($54,884 for married filing jointly) if three or more qualifying children,

    • $45,802 ($51,492 for married filing jointly) if two qualifying children,

    • $40,320 ($46,010 for married filing jointly) if one qualifying child,

    • $15,270 ($20,950 for married filing jointly) if no qualifying child


    2017

    • $48,340 ($53,930 for married filing jointly) if three or more qualifying children,

    • $45,007 ($50,597 for married filing jointly) if two qualifying children,

    • $39,617 ($45,207 for married filing jointly) if one qualifying child,

    • $15,010 ($20,600 for married filing jointly) if no qualifying child


    2016

    • $47,955 ($53,505 for married filing jointly) if three or more qualifying children,

    • $44,648 ($50,198 for married filing jointly) if two qualifying children,

    • $39,296 ($44,846 for married filing jointly) if one qualifying child,

    • $14,880 ($20,430 for married filing jointly) if no qualifying child


    2015

    • $47,747 ($53,267 for married filing jointly) if three or more qualifying children,

    • $44,454 ($49,974 for married filing jointly) if two qualifying children,

    • $39,131 ($44,651 for married filing jointly) if one qualifying child,

    • $14,820 ($20,330 for married filing jointly) if no qualifying child

EITC and Self-Employment Tax
  1. Taxpayer's failure, during original processing, to compute self-employment (SE) tax on income which appears to be subject to SE tax, will result in:

    1. Assessment of SE tax if less than the EITC claimed on the original return. (EITC is not allowed if the income is not considered earned income.)

    2. Assignment of Unallowable (UA) 99 if the SE tax will exceed the amount of allowable EITC. UA 99 is worked by the Examination function.

  2. If the taxpayer was assessed SE tax on original filing and states the income is earned income for purposes of EITC, but not subject to SE tax, verify the income source to determine whether the SE tax should be abated.

    If Then
    Income is not subject to SE tax Abate the SE tax using the appropriate item reference number(s), SC, RC, and blocking series.
    Income is subject to SE tax Reply to taxpayer and explain the issue thoroughly.
    Income is not earned income for EITC purposes Refer to the Examination function with Form 5101. In remarks, state: EITC allowed on original return; SE tax assessed; income may not be "earned income" .
    Taxpayer requests the SE tax be eliminated, but is unable or unwilling to provide the information needed (after receiving a full explanation of the law's provisions) Follow the unsubstantiated math error procedures in IRM 21.5.4.5.5, Math Error Unsubstantiated Protest Processing.
  3. Taxpayer states the income reported on the original return was SE income and subject to SE tax.

    If And Then
    Reply includes a CP 19/20 and/or there is an open AIMS base   Refer the reply to Examination function.
    There is no open Examination base Taxpayer reports an SE tax amount and signs the reply Compute the SE tax based on the original return, taking the new information into consideration.
    The SE tax is equal to or less than the amount of EITC the taxpayer reported   Assess SE tax and allow EITC (if proper).
    The SE tax exceeds the amount of EITC the taxpayer reported   Refer with Form 5101, Examination Referral Slip, to the Examination function.
    Examination returns the referral for adjustment  
    1. Assess the SE tax up to the total amount of EITC claimed.

    2. Use the appropriate item reference number(s), SC, RC, and blocking series.

    3. Correspond with the taxpayer, if necessary.

  4. A taxpayer files a claim/amended return claiming and qualifying for EITC but fails to compute SE tax on income which appears to be subject to SE tax. Compute EITC and SE tax.

    If Then
    SE tax does exceed the amount of EITC claime
    1. Refer to Examination function with Form 5101 as CAT A if the SE income is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

      Note:

      The case will be handled by Examination; corresponds to the Unallowable (UA) 99 considerations set for pipeline processing.

    2. If the SE income is under ≡ ≡ ≡ ≡ ≡ , assess the SE tax up to the amount of EITC. Set the math error freeze, see IRM 21.5.4.5.1, Setting the Initial Math Error Action.

    The SE tax does not exceed the amount of EITC claimed, or if Examination returns the referral for adjustment
    1. Set the math error freeze per IRM 21.5.4.5.1, Setting the Initial Math Error Action.

    2. Assess the SE tax up to the amount of EITC.

    3. Use SC 6, RC 044/053 and appropriate item reference number(s) (see IRM 21.6.4.4.14.2, Self-Employment Tax Adjustments) and blocking series.

    4. Correspond with taxpayer, if necessary.

    Note:

    If taxpayers who are Native American tribe members report Form 1099 MISC, Miscellaneous Income, tribal related income on the "Other Income" line of Form 1040, these amounts are not considered "earned income" for EITC purposes. Do not assess SE tax if any of the following literals are provided:

    • Indian gaming

    • Indian gaming proceeds

    • IGP

    • Indian tribal distribution

    • Indian tribal income

    • Indian tribal fund

    • Indian tribal earnings

    • Native American distribution

    • Alaska Permanent Fund

    • Alaska Permanent Fund DIV

    • APF

    • APFD

EITC CP 09 / CP 27
  1. If taxpayer appears to qualify for EITC but did not claim it on his/her original return:

    • A CP 09, Earned Income Credit - You May Be Entitled to EIC, will be issued to taxpayers with qualifying child(ren).

    • A CP 27, EIC Potential for T/P Without Qualifying Children, will be issued to taxpayers with no qualifying children.

    Exception:

    The CP 09/27 will only generate for tax returns with no unallowable conditions.

    Note:

    A TC 971 Action Code (AC) 503 indicates the CP 09/27 notice was suppressed.

  2. The notice advises the taxpayer to allow 8 weeks for receipt of refund or correspondence. Take the following action if contacted by the taxpayer:

    If And Then
    Less than 8 weeks have passed since taxpayer submitted CP 09/ CP 27 There is no open IDRS control, and adjustment has not been made
    or
    Research shows a tax examiner/unit has an open control, but adjustment has not been made
    Advise the taxpayer to allow 8 weeks for normal processing time.
    8 weeks have passed since taxpayer submitted CP 09/ CP 27 Research indicates no record of receiving taxpayer's response Advise the taxpayer to complete Form 1040-X, Amended U. S. Individual Income Tax Return, and attach Schedule EIC, if applicable.
    8 weeks have passed since taxpayer submitted CP 09/ CP 27 The taxpayer's response has been received, there is an open control, adjustment has not been made
    • Prepare Form 4442, Inquiry Referral, and route it to the employee/unit with the open control.

    • Advise taxpayer to allow 30 days for response.

    Note:

    Do not prepare a referral if the taxpayer is calling only to check on the status of their claim.

  3. Generally, a completed CP 09 or CP 27 is considered an informal claim. However, if the taxpayer returns the CP 09 or CP 27 notice indicating he/she is not eligible for EITC (no other issue involved), a reply is not necessary. Destroy as classified waste per IRM 21.5.1.4.10, Classified Waste.

  4. Taxpayers must complete, sign, and return the CP 09 notice or the CP 27 notice, if qualified. If the CP 09/27 is incomplete, follow IRM 21.5.3.4, General Claims Procedures.

  5. See IRM 21.6.3.4.2.7.3, EITC SSN Requirements, to verify SSN validity for qualifying child(ren)'s SSNs. If SSN provided for qualifying child is not valid, disallow the credit.

  6. Compute the EITC amount using normal procedures. If the taxpayer is not eligible for EITC based on our computation, eligibility criteria, or other reason:

    • Deny the credit

    • Input a TC 290 .00, BS 05, SC 1, RC 054

    • Send Letter 76C using the open paragraph to deny the credit

    • Input a TC 971 AC 112, if the criteria in IRM 21.6.3.4.2.7.10, EITC Claims, is met.

  7. When allowing EITC based on a CP 09/27, use:

    • Blocking series 05

    • Source code 1

    • Reason Code (RC) 017 and 053. The RC 017 is for tracking purposes only; nothing prints on the CP 21 / CP 22.

    • Priority Code 3 when allowing the credit. Refer to IRM 20.2.4.7.5.5, 45-Day Rule and IRS Initiated Adjustments, for more information.

    • CRN 764

     

    Note:

    Do not input the amended claims date.

    Note:

    The Additional Child Tax Credit may have to be recomputed if EITC is allowed and the taxpayer claimed three or more qualifying children for the Child Tax Credit. See the instructions for Schedule 8812 for more information.

  8. If current year, update Command Code DUPED when allowing EITC based on a CP 09.

  9. Unpostable CP 27 adjustments input in the pipeline are forwarded to Accounts Management.

EITC - Adjusting the Credit
  1. EITC allowed on the original return posts as a computer-generated TC 768 with a minus after the amount.

  2. Action required to adjust EITC:

    1. Verify the EITC on any claim involving an income change. EITC must be recalculated when earned income changes, even if taxpayer does not address it. Advise the taxpayer of any resulting change to EITC.

    2. Do not research CC DUPOL; do not use information found on DUPOL to disallow EITC.

    3. When adjusting an account that changes, adds or deletes an EITC qualifying child's SSN, see IRM 21.6.1.7, Command Code DUPED and DDBCK, and IRM 21.6.3.4.2.7.14, EITC and Command Code DDBCK.

    4. Use CRN 764 to allow/increase EITC.

    5. Use CRN 765 to decrease EITC.

    6. Use RC 053 when increasing or decreasing the credit claimed. Use RC 054 if all EITC on the current claim is being disallowed.

      Note:

      Use RC 103 in addition to RC 053 when CC DDBCK indicates "OK to input adjustment if eligibility met, enter reason code 103" and the taxpayer is part of the certification program.

    7. Use PC 8 ONLY if the adjustment contains TC 764 and there is a previously posted TC 29X on the module (except a previously posted TC 290 with PC 6 or TC 290 with Julian Date 999).

    8. Use the Letter 3050C, EITC/Dependent/Child Dependent Care Credit - Math Error, to notify taxpayer of any change in the amount of EITC requested, or if taxpayer claims EITC on an amended/duplicate return which was previously allowed/corrected during pipeline processing.

      Exception:

      Do not use Letter 3050C, when disallowing the amount of EITC requested. See IRM 21.6.3.4.2.7.10, EITC Claims.

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

    Note:

    Follow normal adjustment procedures for missing or incomplete information in IRM 21.5.1.4.3, Incomplete Inquiry.

EITC Claims
  1. The following items are necessary for EITC to be claimed on an amended return (See IRM 21.5.3.4, General Claims Procedures):

    • Schedule EIC is required to be attached if a qualifying child (not claimed as a qualifying child originally) is being claimed for EITC

    • Schedule EIC must contain the qualifying children's SSN information

    • The type of income must be identified

     

    Note:

    Loose Schedules EIC supporting an entry claimed on the original return do not require a signature for adjustment. However, if EITC was not claimed on the original return, and a Schedule EIC is being submitted, an amended return is required. Review CC RTVUE to determine if a return EITC line item was transcribed from the original return.

  2. The "Protecting Americans From Tax Hikes (PATH) Act of 2015" , Section 201(b), signed into law December 18, 2015, prohibits refunds of EITC before the 15th day of the second month following the close of the taxable year (Feb. 15 for calendar year filers). Do not input any current year EITC adjustments (increases) before that date, unless the taxpayer is responding to a math error and the module contains a C- freeze. A C- freeze will prevent any refund until Feb. 15. If the taxpayer is responding to a math error and a C- freeze was not set, advise the taxpayer to call back.

  3. The PATH Act, Section 204, also prohibits an individual from retroactively claiming EITC by amending (or by filing an original or supplemental return) for any year in which the taxpayer, spouse, or qualifying child, did not have an SSN issued on or before the due date, or extended due date, of the return. This provision applies to any return or claim filed after December 18, 2015.
    When adding a new credit, or a new qualifying person, you must verify all SSNs associated with the credit (the primary taxpayer, secondary taxpayer, and all qualifying children) were assigned on or before the due date of the return. This applies to amended returns, math error responses, duplicate returns, etc.
    To determine the validity of the request, see the following table for the appropriate action.

    Note:

    This section of the PATH Act applies to filing status changes only to the extent of any additional EITC being claimed, it does not require or allow for the removal of EITC previously claimed (IRM 21.6.3.4.2.7.11, EITC and Filing Status Changes, still applies for claims filed with an ITIN).

    Note:

    If the account needs to be merged with another TIN, take the merge actions first to ensure all actions below are taken under the new TIN. See IRM 21.6.2.4.1, Resequencing Accounts.

    If Then
    The "TIN ASGNMT" field on CC INOLE contains a date on or before the due date of the return Allow the credit if all other criteria are met
    The "TIN ASGNMT" field is all zeros Allow the credit if all other criteria are met
    The "TIN ASGNMT" field contains a date after the due date of the return
    • Disallow the credit. See (4) and (5) below. Use the "PATH" paragraph in the Letter 105C or 106C.

    • Input a TC 971 AC 112 using CC REQ77 or the REQ77 IAT tool. The TC 971 enables the Service to track these claims and report the dollars saved.

    • Input the credit amount claimed in the "Freeze-Release-AMT" field. No transaction date is needed.

      Note:

      If CTC/ACTC and/or AOTC are also being claimed, combine the amounts.

    Example:

    A taxpayer files 2013 and 2014 amended returns on Dec. 28, 2015, stating she now qualifies for EIC since SSA just issued her an SSN. CC INOLE research shows the SSN was assigned after the due date of the return. Since the SSN was issued after the due date of the return, disallow the EITC.

    Example:

    A taxpayer files a 2014 amended return on Jan. 20, 2016, adding a Form W-2, which increases previously reported EIC. This is not a retroactive claim and the table above does not apply.

  4. When disallowing or partially disallowing a claim, see IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures. For a no consideration, see IRM 21.5.3.4.6.3, No Consideration Procedures.

  5. If taxpayer is not entitled to the full amount of EITC claimed, allow the amount of EITC (RC 053) to which the taxpayer is entitled following procedures in IRM 21.5.4.5.1, Setting the Initial Math Error Action. When disallowing EITC, use RC 054.

    Note:

    See IRM 21.6.1.7, Command Code DUPED and DDBCK, for appropriate use of DUPED and DDBCK and IRM 21.6.3.4.2.7.14, EITC and Command Code DDBCK, for information on verifying claim information and subsequent actions.

  6. Accept the taxpayer's figures when a discrepancy in the allowable EITC is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . Do not consider tolerance if a Schedule EIC is required but missing.

EITC and Filing Status Changes
  1. If the taxpayer changes filing status from Married Filing Jointly (MFJ) or Married Filing Separately (MFS) to Single (S) or Head of Household (HOH), the taxpayer must clearly be eligible. These procedures apply to cases being worked as an amended or superseding return.

    Note:

    DO NOT change the account unless taxpayer meets all criteria for "Single" or "Head of Household Considered Unmarried" in the instructions for filing status in Publication 501, Exemptions, Standard Deduction, and Filing Information and Publication 17, Your Federal Income Tax (For Individuals), or has submitted marital status documentation, such as a Dissolution of Marriage.

    Caution:

    For information regarding retroactive claims, see IRM 21.6.3.4.2.7.10, EITC Claims.

  2. The taxpayer can provide documentation such as court documents showing the marriage was not valid, copy of divorce decree or separate maintenance, documents verifying the taxpayers did not live together during the last six months, such as a lease agreement, utility bills, etc.

  3. If the taxpayer does not provide proper documentation, refer to IRM 21.5.3.4, General Claims Procedures.

  4. The taxpayer may reply to the previous situation and:

    If Then
    Reply is acceptable information (e.g., a copy of the divorce decree) Adjust the account appropriately.
    Reply includes no substantiation (e.g., taxpayer informs he/she was not married during the tax year) Review the prior year tax account (under primary and secondary TIN, if available). Continue with 3rd or 4th If/Then.
    Prior year shows taxpayer was married to the same spouse Disallow the claim informing taxpayer of the prior year filing status.
    Prior year shows taxpayer was NOT married, OR NOT married to the same spouse Allow the claim and adjust the account appropriately.
  5. If the taxpayer changes filing status from Married Filing Jointly to Head of Household and indicates the spouse is a nonresident alien (NRA), use the table below to determine if the taxpayer has submitted a binding election or a timely revocation of election. Even with a timely revocation of election, the taxpayer is not entitled to the EITC unless he meets the remaining four requirements to be considered unmarried. (See Publication 501, Exemptions, Standard Deduction, and Filing Information, and Publication 519, U.S. Tax Guide for Aliens, for more information.)

    Caution:

    A taxpayer who filed jointly with an NRA spouse and claims EITC must submit a valid SSN for both spouses and qualifying child(ren).

    If And it is Then
    This is the first year a joint return was filed Prior to the return due date, including extensions Taxpayers may change his/her election with a written request. Follow normal procedures to make the changes per IRM 21.6.1.5.6, Only One Spouse Requesting Filing Status Change.
    This is the first year a joint return was filed After the return due date, including extensions Taxpayers are not eligible to change from joint to head of household. Disallow the claim per IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns.
    Taxpayers filed as joint with the same spouse in the prior year Prior to the return due date, including extensions Taxpayers may change his/her election for this year with a written request.
    Taxpayers filed as joint with the same spouse in the prior year After the return due date, including extensions Taxpayers are not eligible to change from joint to head of household. Disallow the claim per IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns.
  6. If the taxpayer filed as Single or Head of Household and received EITC and subsequently files a MFS return or joint return with a spouse who has an ITIN or invalid SSN, the taxpayers are not eligible for EITC.

    1. Change to MFS or joint filing using normal procedures.

    2. Back out the EITC using normal procedures.

    3. Set the math error if additional EITC was claimed or if the taxpayer did not consider the previously received EITC when completing the subsequent return (see IRM 21.5.4.2, General Math Error Procedures Overview).

    4. Send the Letter 3050C, EITC/Dependent/Child Dependent Care Credit - Math Error, to thoroughly explain the math error to taxpayers.

EITC Erroneously Allowed
  1. If EITC was erroneously allowed on the account, either in full or part, but the refund is frozen due to an invalid TIN condition, the account will have an "I-" freeze.

    1. If taxpayer's SSN is not a valid SSN, EITC should not be allowed and must be reversed.

    2. Remove the EITC using normal procedures.

    3. Set the math error, see IRM 21.5.4.5.1, Setting the Initial Math Error Action.

    4. Send Letter 3050C, EITC/Dependent/Child Dependent Care Credit - Math Error, to the taxpayer to thoroughly explain the math error.

  2. If EITC was erroneously allowed after initial processing (e.g., freeze release, adjustment action):

    If Then
    Refund can be stopped Follow normal procedures to correct the account.
    Refund was issued Follow erroneous refund procedures in IRM 21.4.5, Erroneous Refunds.
EITC Math Errors
  1. A math error notice will be issued if a taxpayer fails to:

    • Include a valid SSN for the either the primary taxpayer, secondary taxpayer, and/or EITC qualifying child

    • Pay SE tax on SE income (SE tax will be assessed to the extent of allowable EITC; if SE tax is over the allowable EITC amount, it will be assigned an Unallowable code 99)

    • Correctly compute AGI (EITC may be reduced or eliminated)

    • Correctly consider investment income in the EITC computation (EITC may be reduced or eliminated)

    • Meet the age requirement

  2. If Taxpayer Notice Codes (TPNC) 701/702/741/743/745/748 are used, a special math error notice (CP 11A/ 12A/ 13A) is issued to the taxpayer. Additional TPNCs may be present on the math error notice. Use CC IMFOLR to determine the TPNC(s). (See Document 6209, for the complete TPNC listing and wording.)

  3. In addition, a math error notice will be issued if a taxpayer's claim for EITC was denied as the result of deficiency procedures and the taxpayer claims EITC in a subsequent year without attaching a properly completed Form 8862, Information to Claim Certain Credits After Disallowance. TPNCs 653, 814, 815 and 816 are used for these types of errors. See IRM 21.6.3.5, Credit Recertification, for procedures.

  4. See IRM 21.6.3.4.2.7.10, EITC Claims, before adjusting EITC.

EITC Math Error Reply
  1. Taxpayers may reply to an EITC math error or submit a claim, amended, or duplicate return to request EITC. Perform SSN validity check, as needed.

    Note:

    See IRM 21.6.3.5, Credit Recertification, for EITC recertification math errors.

  2. The age requirement for taxpayers claiming EITC will be reviewed for correctness. A math error will be issued for taxpayers without a qualifying child and for the qualifying child(ren) when the year of birth does not match SSA records or fall within the age range (see IRM 21.6.3.4.2.7.1, EITC Eligibility Criteria).

  3. If the case has a -L freeze, forward to the Examination function via Form 5101, Examination Referral Slip.

  4. If taxpayer agrees with the math error on a debit balance account:

    1. Input TC 290 .00 with priority code 6 to release the -G freeze.

    2. Use the appropriate reason code, source code, and blocking series.

  5. If a response to the math error requires EITC allowance, math verify the EITC if the amount is ≡ ≡ ≡ ≡ ≡ . (If EITC was claimed on the original return it was not math verified during original processing). If available, use CC RTVUE to determine if non-taxable earned income (NEI) was transcribed. Do not pull the return solely for NEI review; use the information on CC RTVUE. See IRM 21.6.3.4.2.7.14, EITC and Command Code DDBCK.

  6. If a taxpayer submitted an original return for the IRS to compute, a CP 51 was issued. Math error TPNCs set by Error Resolution System (ERS) will not print on the notice. Take this into consideration if the taxpayer replies.

    If Then
    Taxpayer inquires about EITC Verify SSN
    SSN is not a valid SSN
    1. DO NOT allow EITC.

    2. Set a math error by inputting TC 290 .00, HC 3, SC 2, RC 053, blocking series 77/78. (Creates a G freeze.)

    3. Send the Letter 3050C, EITC/Dependent/Child Dependent Care Credit - Math Error, to thoroughly explain the math error issue.

    SSN is a valid SSN Allow EITC using normal procedures.

    Reminder:

    EITC was not math verified at this point.

  7. Mixed Entity/Scrambled SSN EITC case considerations:

    If Then
    EITC is claimed on a mixed entity case (See IRM 21.6.2.4.2, Scrambled SSN Case Procedures) Do not allow EITC until the mixed entity condition is resolved. Once resolved use CC DUPED, if current year return, to update DUPOL. Do not use CC DDBCK when processing mixed entity cases.
    It is a "true" scrambled SSN case (both taxpayers are moved to IRSNs because SSA issued the same SSN to multiple taxpayers) Allow EITC for both taxpayers. For all other scrambled cases, refer to IRM 21.6.2.4.2, Scrambled SSN Case Procedures.
Inquiries Concerning EITC Math Error Notices
  1. If a taxpayer makes a statement, asks a question, or indicates a misunderstanding of the EITC math error(s):

    1. DO NOT follow unsubstantiated math error procedures.

    2. Close the case with a Letter 3050C, EITC/Dependent/Child Dependent Care Credit - Math Error, explaining the EITC criteria.

  2. If taxpayer does not provide the correct information and requests the account adjustment be made, follow the unsubstantiated math error procedures in IRM 21.5.4.5.5, Math Error Unsubstantiated Protest Processing.

    Note:

    If the -G freeze is no longer present on the account then see IRM 21.5.4.5.3, Processing Responses to Math Error Notices.

  3. Taxpayers with an invalid SSN may have EITC erroneously allowed and refunded if a TC 510 was input in a prior year. If a taxpayer requests an adjustment which will increase EITC:

    1. DO NOT begin erroneous refund procedures to recover the EITC previously refunded.

    2. DO NOT allow additional EITC.

    3. Input an adjustment to set the math error per IRM 21.5.4.5.1, Setting the Initial Math Error Action; consider other changes requested by the taxpayer.

    4. Send the Letter 3050C to the taxpayer to thoroughly explain the math error.

  4. A taxpayer who is incarcerated, as shown in the address or on a Form W-2, Wage and Tax Statement, requires additional research if EITC is claimed.

    1. If a taxpayer reports an additional Form W-2 with wages from a penal institution, refer to Examination.

    2. If a taxpayer reports information other than income earned while in a penal institution and:

      If Then
      No EITC allowed previously on the account
      1. The taxpayer cannot claim EITC for amounts received for services while an inmate, (includes on a work-lease program or in a halfway house). It does not matter if income is from a penal institution (e.g., telemarketing from prison). If the taxpayer worked prior to or following incarceration, that income could be earned income.

      2. Research to determine if the wages/income on which the EITC is based was received for services provided while an inmate in a penal institution. (Use CC IRPTR, review of the return, etc.)

      EITC was allowed previously on the account Research to determine if the wages/income on which the EITC is based was received for services provided while taxpayer was an inmate in a penal institution. (Use CC IRPTR, review of the return, etc.)
      EITC allowed based on penal institution income Refer to Examination.
      EITC allowed appropriately Follow normal procedures to process the claim.
CP 54 Notices with Math Error Involvement
  1. When a primary taxpayer's TIN is invalid, the taxpayer may receive a CP 54 and/or math error notice. Written responses to CP 54 notices that do not involve EITC are worked in Entity. If taxpayer attaches correspondence in response to a math error notice or attaches correspondence inquiring about a math error issue, these will be worked in Accounts Management. See the following IRMs to resolve the issues:

    • IRM 3.13.5, Individual Master File (IMF) Account Numbers, for resolving invalid TINs and IRCHG instructions

    • IRM 21.6.1.6.4, Missing or Invalid Exemption TINs Procedure, for correcting exemptions

    • IRM 21.6.3.4.2.7, Earned Income Tax Credit, and IRM 21.6.3.4.2.7.13.1, EITC Math Error Reply, for addressing EITC math errors

EITC and Command Code DDBCK
  1. Command Code DDBCK must be used on all returns received in the current processing year and two years prior for:

    • Form 8862

    • TIN-related math errors (TIN related math errors include ME 604 / 605 / 610 / 701 / 702 / 741 / 743 / 745 / 748.

      Note:

      CC DDBCK should not be used when working EITC Non-TIN related math error responses (such as ME 285, 286, 289, 542, etc.). For ME 653, 814, 815, and 816, see IRM 21.6.3.5, Credit Recertification.

    • Amended returns claiming EITC

    • To determine if the claim meets Examination selection criteria and/or

    • To update Duplicate TIN database (DUPOL)

    Exception:

    Employees who do not have access to CC DDBCK should review the amended return for CAT A criteria. See Exhibit 21.5.3–3, Examination Criteria (CAT-A) - Credits. If the claim does not meet CAT A criteria and all other requirements are met then allow the EITC. Update CC DUPED, if appropriate.

    Note:

    See IRM 21.6.1.7.2, Command Code DDBCK, for all other exceptions.


    Command Code DDBCK must be used when a phone call or correspondence is received which corrects an EITC TIN related math error. These cases will be scored but not selected and DUPOL will be updated. During the scoring process, DDBCK will identify if the math error meets the criteria to be referred for review by Exam Classification.

    If the CC DDBCK response is to adjust the account, review the required actions in (10) of IRM 21.6.1.7.2, Command Code DDBCK, prior to adjusting the module.

  2. See IRM 21.6.3.4, Credits Procedures, if the DDBCK return summary screen or response screen indicates a date of death prior to the tax year involved for the qualifying child.

  3. When processing claims involving EITC, DUPOL is required to be updated when changing, adding, or deleting EITC qualifying children.

  4. CC DDBCK updates DUPOL on cases when the response includes "OK to input ADJ54" .

  5. CC DDBCK does not update DUPOL on cases when the response includes "Follow IRM" , "Selected" , or "Send as CAT A"

    • If working a current processing year claim and CC DDBCK's response is "Follow IRM" and following the IRM procedure results in the adjustment being made, CC DUPED must be used to update DUPOL.

    • If working a current processing year claim and CC DDBCK's response is "Selected" do not use CC DUPED to update DUPOL. The claim is being referred to Examination for further review.

    • If working a current processing year claim and CC DDBCK's response is "Send as CAT A" and the claim is later returned by Examination "accepted as filed" CC DUPED must be used to update DUPOL.

  6. CC DDBCK will determine if a claim with an EITC increase meets examination selection criteria, and if so, will systemically input a TC 971 Action Code 013 and open the case on AIMS. If a TC 971 Action Code 010 is present, the Customer Service Representative (CSR) must manually input the TC 971 Action Code 013.

    Reminder:

    All tax increases and/or credit decreases must be input before routing a case to Examination. See IRM 21.5.3.4.7, Processing Claims and Amended Returns with Examination Involvement.

    Note:

    When working Non-Correspondence Imaging System (CIS) cases that are selected, manually route the case to Examination within 3 business days.

  7. When working EITC TIN-related math error responses, overlay the "YYYYMMDD" on DDBCK's Return Summary Screen, under Change Dates, with the received date of the Form 1040-X / Correspondence / Phone Call.

    Note:

    CC DDBCK will reflect an indicator of "X" for each dependent claimed on the Schedule EIC. Overlay the "X" with an "A" on CC DDBCK when adding that qualifying child for EIC purposes.

  8. For claims involving an original claim for EITC or an increase to the amount of EITC claimed, input the "Category Code" , "Claim Amount" , "AGI INC/DEC Amount" (if applicable), and the "EIC Increase Amount."

  9. Input one of the following in the "Category Code" field:

    • EICX - EITC increases claimed on an amended return/CP 36 / DUPF cases which do not involve an EITC math error.

    • EICC - EITC increases due to a correspondence/amended return/CP 36 / DUPF case which corrects an EITC TIN related math error.

    • EICP - EITC increases due to a phone call which corrects an EITC TIN related math error.

      Note:

      Category Code EICN is used when decreasing EITC. Additional case scenarios are listed in IRM 21.6.1.7.2,Command Code DDBCK.

  10. The "Claim Amount" is the end result of the amended return (REQ54) or correction to the math error. The end result of the claim can be:

    • Net Zero - enter "0" as the "Claim Amount" .

    • Overpayment - enter the amount of the overpayment as the "Claim Amount" but not more than "9999" .

    • Balance due - enter the amount of the balance due as the "Claim Amount" . This amount must be input as a positive amount since the "Claim Amount" will not accept a negative figure.

      Reminder:

      The "claim amount" is the net result of the adjustment (REQ54) and may differ from the taxpayer's computation on the refund/balance due on the amended return. Do not include any balance due into the computation.

  11. If applicable, use the amount of the increase or decrease to the Adjusted Gross Income (AGI) being claimed when inputting the "AGI INC/DEC Amount" .

  12. Use the amount of the increase to EITC being claimed when inputting the "EIC Increase Amount" .

  13. Update the Schedule C (SCHED-C) indicator field on DDBCK with a "Y" when the taxpayer is claiming EITC and:

    • Submits a new Schedule C or

    • Submits a Schedule C which amends a previously filed Schedule C or

    • Claims additional income (except Schedule F, Schedule E, Schedule K-1, or minister income) which is subject to self-employment tax

      Example:

      Form 1040-X reflects self-employment tax due to non-employee compensation from a Form 1099–MISC. The Schedule C indicator would be "Y" . The non-employee compensation income shown on the Form 1099–MISC would be the amount of the "Gross Receipts" and the "Net Profit" on the DDBCK Return Update Screen - Schedule C.

    An "N" is input when a Schedule C is attached but it is a duplicate of a previously filed Schedule C or a Schedule C is not attached, unless specified above.

  14. See IRM 21.6.1.7.2, Command Code DDBCK, for a table showing possible DDBCK responses and appropriate subsequent actions.

  15. If the CC DDBCK response screen indicates "Validation Failed, Reject/Disallow # Child" (# indicates the number of children failing validation), and # equals the total number of children being claimed/added to the taxpayer's account:

    • Answer "Process Update" question with an "N."

    • See IRM 21.5.3.4, General Claims Procedures, for applicable procedures.

  16. If the CC DDBCK response screen indicates "Validation Failed, Reject/Disallow # Child" (# indicates the number of children failing validation),

    and # does not equal the total number of children being claimed/added to the taxpayer's account:

    If Then
    The child failed validation due to an invalid TIN/name issue
    1. Following normal procedures, input an adjustment for the child passing validation.

    2. Set a math error (See IRM 21.5.4.5.1, Setting the Initial Math Error Action) for the child failing validation and issue a Letter 3050C, explaining the issue.

    3. Reinput CC DDBCK to reflect the TIN/Name of the child passing validation, and the applicable EITC amount in the "Amount of EIC Claimed" field. Answer "Process Update" question with a "Y" .

    The child failed validation due to reasons other than an invalid TIN/Name issue See IRM 21.6.3.4.2.7.10, EITC Claims, for appropriate procedures.
EITC Criminal Investigation Referrals
  1. The Criminal Investigation (CI) function reviews original returns deemed suspicious. CI:

    1. Intercepts questionable paper refunds with CC NOREF or CC NOREFE.

    2. Stops electronic funds transfer refunds with CC CRMNLE TC 916.

    3. Codes the original return with a Computer Condition Code (CCC) 3 to generate TC 570 and an R freeze to hold the credit.

  2. See IRM 21.5.6.4.51, Z – Freeze, for the appropriate action(s) to take.

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Additional Child Tax Credit (ACTC)
  1. Certain individuals who get less than the full amount of the nonrefundable child tax credit are entitled to this refundable credit. The additional child tax credit may result in a refund even if no tax is owed. See IRM 21.6.3.4.1.24, Child Tax Credit, for rules and regulations pertaining to the child tax credit prior to addressing Additional Child Tax Credit.

  2. Taxpayers must claim the qualifying child as a dependent to be a qualifying child for the Child Tax Credit.

  3. For tax year 2015 and subsequent, filers of Form 2555 or Form 2555-EZ cannot claim the credit.

  4. For taxpayers indicating a religious (e.g., Amish/Mennonite) or conscience-based objection to obtaining a TIN, refer to IRM 21.6.1.6.1, Determining the Exemption Deduction.

  5. A bona fide resident of Puerto Rico must have 3 or more children to qualify for the Additional Child Tax Credit if he / she is excluding all of his/her income under IRC section 933.

    • Bona fide residents of Puerto Rico do not have taxable income if it is excluded under IRC section 933, which applies to income derived from sources within Puerto Rico.

    • Amounts received for services performed as an employee of the United States or any agency thereof is not subject to exclusion under IRC section 933.

    • If a taxpayer has U.S. Government wages, he/she must file Form 1040 or Form 1040A and use Schedule 8812 to claim the additional child tax credit. If the taxpayer has excluded income under IRC section 933 or is filing Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion, he/she must use the worksheet in Publication 972, Child Tax Credit, to compute the child tax credit. Depending on the circumstances, the taxpayer may be entitled to claim the child tax credit, as well as the additional child tax credit, even if he/she has fewer than three qualifying children.

    • See IRM 3.38.147.9.2, Additional Child Tax Credit (ACTC)(Refundable), for additional information. If the taxpayer calls regarding additional child tax credit on a Form 1040PR, prepare a Form 4442, if applicable.

  6. The Disaster Tax Relief and Airport and Airway Extension Act of 2017, enacted on Sept. 29, 2017, as amended by the Bipartisan Budget Act of 2018, added a special rule for certain taxpayers affected by Hurricanes Harvey, Irma, and Maria, and the California wildfires. Qualified individuals whose earned income in 2017 is less than the earned income in 2016 may elect to use their 2016 earned income when figuring ACTC. Taxpayers should enter "PYEI" and the dollar amount of the prior year earned income on the dotted line for ACTC.
    The main home of qualified individuals must have been in:

    • the Hurricane Harvey disaster area on August 23, 2017

    • the Hurricane Irma disaster area on September 4, 2017

    • the Hurricane Maria disaster area on September 16, 2017

    • the California wildfire disaster area on October 8, 2017

    Note:

    Verify the taxpayer was in the hurricane disaster area via the IRS Disaster Assistance Program.


    These claims are centralized in Austin and Philadelphia (International). Reassign the case per the AM Site Specialization Temporary Holding Numbers. Use category code KATX and OFP 710-82365 when processing these claims.

ACTC -Taxpayer Inquiries
  1. A taxpayer may inquire concerning the credit.

    If the taxpayer And Then
    Claimed the credit on the original return The missing information is provided. Refer to IRM 21.6.3.4.1.24.1, Child Tax Credit Qualification, for more information. Adjust the account. See IRM 21.5.4.5.3, Processing Responses to Math Error Notices
    Claimed the credit on the original return DOES NOT provide missing information Follow IRM 21.5.4, General Math Error Procedures
    Credit WAS NOT claimed on the original return   Advise the taxpayer to file an amended return.
ACTC - Adjusting the Credit
  1. If present, math verify the Additional Child Tax Credit on Schedule 8812.

    Note:

    Recompute the Additional Child Tax Credit if there is a change to other nonrefundable credits impacting the amount of Child Tax Credit allowed.

  2. If a taxpayer (or the spouse if married filing jointly) received nontaxable combat pay, he/she must include the amount in figuring his/her earned income when figuring the additional child tax credit.

  3. If Schedule 8812 is incomplete (for tax year 2012 - 2017, Part I must be completed by the taxpayer) and cannot be perfected or "dummied in" with available information, follow claim processing in IRM 21.5.1, General Adjustments. If the schedule is required but missing, see IRM 21.5.3.4, General Claims Procedures.

  4. Determine if the ES penalty should be computed or recomputed on any refundable portion of the credit. Refer to IRM 20.1, Penalty Handbook.

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    Exception:

    For a claim with both ACTC and EITC, if CC DDBCK returns the EITC result "ok to input REQ54" , do not refer as CAT-A for manual classification of ACTC.

  6. The "Protecting Americans From Tax Hikes (PATH) Act of 2015" , Section 201(b), signed into law December 18, 2015, prohibits refunds of ACTC before the 15th day of the second month following the close of the taxable year (Feb. 15 for calendar year filers). Do not input any current year ACTC adjustments (increases) before that date, unless the taxpayer is responding to a math error and the module contains a C- freeze. A C- freeze will prevent any refund until Feb. 15. If the taxpayer is responding to a math error and a C- freeze was not set, advise the taxpayer to call back.

  7. For information regarding ITIN renewal math errors, see IRM 21.6.1.6.6.2, ITIN Renewal Math Error Adjustments.

  8. When adjusting the credit:

    • Use Credit Reference Number (CRN) 336 to allow/increase the credit.

    • Use CRN 336 with a minus sign (-) to decrease the credit.

    • Use RC 061 and the appropriate source code and blocking series.

    Caution:

    Prior to adjusting ACTC, read IRM 21.6.3.4.1.24.2, CTC - Adjusting the Credit, for information and requirements regarding retroactive claims and when taxpayers are required to recertify for the credit.

    Reminder:

    The CRN will convert to TC 766 Ref 336 at Master File.

  9. When processing amended returns, if the taxpayer was allowed the credit during original processing, but is not entitled to all or a portion of the credit based on changes made with the 1040X:

    1. Follow the procedures in IRM 21.5.4.5.1, Setting the Initial Math Error Action.

    2. Explain to the taxpayer the adjustment was made and he will receive a notice explaining the adjustment and his appeal rights.

    Example:

    An amended return increasing income that now subjects the credit to limitation.

CP 08, Additional Child Tax Credit
  1. The CP 08, You May Qualify for a Refund From the Additional Child Tax Credit, is generated if specific criteria based on the original return are met. Taxpayers will be issued a CP 08, informing them of their potential eligibility to claim the Additional Child Tax Credit, when they:

    1. Compute an amount for the Child Tax Credit, have no tax liability, and fail to use the remaining portion of the credit to claim the Additional Child Tax Credit, or

    2. Indicate eligibility for the Child Tax Credit (by checking the Child tax credit box on Form 1040), do not claim the Child Tax Credit due to no tax liability and do not claim the Additional Child Tax Credit.

  2. Taxpayers must complete, sign, and return the CP 08 notice, if qualified.

  3. The notice advises the taxpayer to allow 8 weeks for receipt of refund or correspondence. Take the following action if contacted by the taxpayer:

    If And Then
    Fewer than 8 weeks have passed since taxpayer submitted CP 08 There is no open IDRS control, and adjustment has not been made
    or
    Research shows a tax examiner/unit has an open control, adjustment has not been made
    Advise Taxpayer to allow 8 weeks for normal processing time.
    8 weeks have passed since taxpayer submitted CP 08 Research indicates no record of receiving taxpayer's response Advise Taxpayer to complete Form 1040-X, Amended U. S. Individual Income Tax Return, and attach Form 8812.
    8 weeks have passed since taxpayer submitted CP 08 The taxpayer's response has been received, there is an open control, adjustment has not been made
    • Prepare Form 4442, Inquiry Referral, and route it to the employee/unit with the open control.

    • Advise taxpayer to allow 30 days for response.

  4. Generally, a completed CP 08 is considered an informal claim. However, if the taxpayer returns the CP 08 notice indicating the taxpayer is not eligible for the Additional Child Tax Credit (no other issue involved), a reply is not necessary. Destroy as classified waste per IRM 21.5.1.4.10, Classified Waste.

  5. When adjusting a module based on a CP 08:

    1. Use Credit Reference Number (CRN) 336 to allow the credit.

    2. Use RC 061, SC 1 and the appropriate blocking series.

    3. Use Priority Code 3 to allow interest to be systemically calculated as an IRS initiated adjustment. Refer to IRM 20.2.4.7.5.5, 45-day Rule and IRS Initiated Adjustments, for more information and procedures when a manual interest computation is required.

    4. Do not input the amended claims date.

  6. Compute the amount of the credit based on the qualifying children claimed on the CP 08 that meet the following criteria:

    • A dependency exemption was allowed for the same child.

    • The child was under 17 years old at the end of the calendar year.

  7. Partially / completely deny the claim by inputting a TC 290 .00, BS 05 and sending a Letter 76C if:

    • the taxpayer claims additional children on the CP 08 for whom the taxpayer did not claim a dependency exemption on the original return

    • the taxpayer claims any children on the CP 08 for whom a dependency exemption was disallowed to the taxpayer

    • the taxpayer does not meet all of the criteria (see IRM 21.6.3.4.1.24, Child Tax Credit)

  8. Follow the procedures below when a taxpayer claimed the Child Tax Credit on his/her original return, and submits a CP 08 with fewer than 3 qualifying children claimed, and does not submit Schedule 8812, Additional Child Tax Credit:

    1. Verify the taxpayer meets the criteria for receiving the Child Tax Credit, and if eligible, compute the amount of the Additional Child Tax Credit per Schedule 8812 instructions.

    2. If the refundable portion of the tax credit is determined with reference to the taxpayer's earned income, the credit is refundable to the extent of 15% of earned income greater than $2,500 for tax years 2018 - 2025, $3,000 for tax years 2017 and prior.

    3. If the "combat zone" identifier is not present, adjust the account accordingly.

    4. If the identifier is present, research CC RTVUE to determine if the taxpayer used nontaxable combat pay when figuring his/her earned income tax credit, if claimed, and include that amount when figuring the amount for earned income on Form 8812.

    5. If the identifier is present and the taxpayer did not use an amount for nontaxable combat pay when figuring EITC, or if EITC was not claimed, correspond and include Form 8812.

  9. If a taxpayer submits CP 08 with 3 or more qualifying children and does not include Schedule 8812, correspond for the missing form.

Health Coverage Tax Credit
  1. The Health Coverage Tax Credit (HCTC) is a refundable credit that pays for 72.5% of health insurance premiums for eligible individuals. The credit is claimed on Form 8885, Health Coverage Tax Credit.

  2. The credit was originally effective Dec. 01, 2002, thru Dec. 31, 2013. However, the credit was reauthorized by the Trade Preferences Extension Act of 2015, enacted June 29, 2015, and extended through Dec. 31, 2019. The legislation also made the credit available retroactively for qualified health insurance coverage maintained in 2014 and 2015, including coverage through the Health Insurance Marketplace. For tax years 2016 through 2019, coverage through the Marketplace will not qualify for HCTC.

  3. Taxpayers can receive a full credit for insurance premiums paid upon filing Form 8885, Health Coverage Tax Credit, with their return, or can receive the benefit of an advance monthly credit to help cover the cost of insurance premiums. Taxpayers must register with the IRS to receive the benefit of an advance monthly credit. Taxpayers who choose the advance credit option are required to submit 27.5% of their total health insurance costs to the IRS. The IRS contributes the remaining 72.5% (the advanced monthly credit), for a total of 100% of the insurance premiums, paid directly to his/her third party administrator (TPA) or health plan administrator (HPA).

    Note:

    The HPA / TPA must be able to receive payment via electronic funds transfer (which is done by completing Form 3881) in order for the taxpayer to get advance payment, otherwise, the taxpayer will have to wait to claim the credit when filing their return.

  4. Taxpayers can request reimbursement for premiums they paid (for the current year only) while waiting to be accepted into the advance monthly program. Form 14095, The Health Coverage Tax Credit (HCTC) Reimbursement Request Form, is used to request reimbursement. Taxpayers must be a monthly HCTC participant or have an HCTC registration in process.

    Note:

    Due to program constraints, Form 14095 has an annual cutoff of Oct. 1 and will resume after the beginning of the new year. Any reimbursement requests received after Oct. 1 will need to be claimed on the taxpayer’s return using Form 8885.

  5. Each January, taxpayers receive a list of the advance payment amounts made on their behalf in the prior year. The payments are reported on Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments. Taxpayers should use Form 1099-H to complete Form 8885. For tax year 2017 and subsequent, the Service issued Form 1099-H. For tax year 2016, the form was issued by the HCTC participant's third party administrator or health plan administrator.

  6. Since HCTC-qualified health insurance coverage may have been obtained through the Marketplace for tax years 2014 and 2015, taxpayers may also qualify for the Premium Tax Credit (PTC) (for information on PTC, see IRM 21.6.3.4.2.12, Premium Tax Credit). Taxpayers are required to elect HCTC. Once the election is made for an eligible coverage month, the election covers each subsequent eligible coverage month in the tax year. PTC cannot then be allowed for the same coverage for the month(s) subject to the election. The HCTC election is irrevocable for the tax year in which it is made.

  7. HCTC paper is centralized at the Andover campus. If not trained to work HCTC, update the category code to HCTC or HCTX as appropriate and reassign to 0830141335. HCTC can also be claimed on Form 1040-SS and Form 1040 (PR), those claims are processed in Philadelphia.

  8. HCTC phone calls regarding advance payment eligibility and registration are answered at the Andover and Atlanta campuses. If not trained on those subjects, transfer the call to 1109. Account related calls cannot be transferred directly to Andover. If unable to answer the call, have the taxpayer write to the address on their notice.

HCTC Eligibility
  1. The following individuals meet the HCTC requirements:

    • A Pension Benefit Guaranty Corporation (PBGC) payee who is age 55 or older

    • An eligible Trade Adjustment Assistance (TAA), Alternative TAA (ATAA), or Reemployment TAA (RTAA) recipient

    • A qualifying family member of an individual who fell under one of the categories listed above at the time of the individual’s death or divorce

  2. General requirements taxpayers and qualifying family members must meet:

    • Be covered by qualified health insurance coverage

    • Not be entitled to Medicare, which is generally available to people age 65 or older, or, for the first 24 months after the taxpayer is entitled to Medicare, have a qualifying family member enrolled in qualified health insurance coverage

    • Not be enrolled in Medicaid or the Children’s Health Insurance Program (CHIP)

    • Not be enrolled in the Federal Employees Health Benefits Program (FEHBP)

    • Not be eligible for benefits under the U.S. military health system (TRICARE)

    • Not be imprisoned under federal, state, or local authority

    • Not be claimed as a dependent on someone else's return

  3. Qualified health insurance coverage is any of the following:

    • COBRA continuation coverage through the taxpayer's or spouse's former employer where they pay more than 50% of the monthly premiums

    • A state-qualified heath plan

    • Coverage under a group health plan available through the spouse's employer where the spouse pays more than 50% of the total monthly premium with after-tax dollars (PBGC payees and TAA recipients) or the spouse pays 100% of the total premium with after-tax dollars (ATAA and RTAA recipients)

    • Coverage under a health plan funded by a Voluntary Employees' Beneficiary Association (VEBA) that was established through a bankruptcy court

    • Coverage under a non-group / individual health insurance plan, however coverage through the Marketplace will not qualify for tax years after 2015.

    Note:

    Coverage through the HCTC-eligible individual’s employer is qualified health insurance coverage only if it is COBRA continuation coverage paid to a former employer. Coverage through the HCTC-eligible individual’s current employer is never qualified health insurance coverage.

  4. See the instructions for Form 8885 for additional information.

HCTC Registration
  1. Taxpayers must register to receive the benefit of advance HCTC. Form 13441-A, Health Coverage Tax Credit (HCTC) Monthly Registration and Update, must be submitted with required supporting documentation.

  2. Taxpayers cannot register for the monthly program for coverage through a spouse’s current employer. Taxpayers must complete Form 8885 after the end of the tax year to determine if the HCTC is allowed for coverage through a spouse’s current employer.

  3. Supporting documentation includes a copy of the taxpayer's health insurance bill dated within the last 60 days that includes all of the following:

    • Taxpayer's name

    • Monthly premium amount

    • Monthly premium due date

    • Date of coverage

    • Health plan administrator name and phone number

    • Health plan identification numbers

    • Address for mailing payments


    If the taxpayer has COBRA, he/she must provide:

    • A copy of their completed and signed COBRA election letter or form

    • A letter from their employer or COBRA administrator showing start and end dates, home address, health plan name, covered family members, dates of birth, relationship, and SSNs

    • A copy of the "Notice of Rights to Continue Coverage" and proof the bill was paid

     

  4. Registration processing is handled by the enrollment team, located in Austin Submission Processing. AM will answer basic questions about the registration process. Changes to any of the information above requires an updated Form 13441-A from the taxpayer.

    Exception:

    During open enrollment (November/December), TPAs can submit an attestation spreadsheet for current participants with rate changes only. Taxpayers do not need to submit a Form 13441-A for premiums changes during this period.

  5. When a taxpayer ages out of the program (age 65) but pays for qualified health insurance coverage for a qualifying spouse or dependent, the taxpayer should send a letter to the enrollment team advising them they are aging out of the program and send a new Form 13441-A, Health Coverage Tax Credit (HCTC) Monthly Registration and Update, for the qualifying spouse or dependent. The enrollment will be cancelled and a letter will be issued to the participant to confirm cancellation. The qualifying spouse or dependent will receive a new enrollment letter with a new HCTC Participant Identification Number.

HCTC Enrollment Database
  1. AM employees will answer basic questions about the registration process. Employees will have access to the HCTC enrollment database (as read only) to answer questions such as:

    • Was their application received

    • Has the application been processed

    • Was payment made to their insurance company

    Note:

    If data cannot be found in the database, the application has not been processed. The enrollment team generally processes applications within 6 weeks.

  2. Records can be obtained by searching by SSN, name or participant identification number. Prior to disclosing any data, you must know with whom you are speaking. Since the data being discussed is found in the HCTC database, not IDRS, verify the information shown on the "Summary" page of the HCTC database. Use of the IAT Disclosure Tool is not needed since you are not accessing IDRS. Follow disclosure guidelines shown in IRM 21.1.3.2, General Disclosure Guidelines, for the protection of the HCTC data. Only the individuals shown on the "Summary" tab or "Family" tab are authorized to receive information. 3rd party designees are required to provide a five digit designee PIN created by the participant during the registration process. 3rd party designee data can be found in the "Accessibility" section.

  3. Requests to update incorrect information found in the database, non-receipt of letters, or a change of address, should be referred to the Austin enrollment team via Form 4442. Send referrals to Austin SP, Stop 6098, Austin, TX, 78741, or fax to 1-855-250-1731.

  4. The database contains a comments section. Comments can be added with read-only access. Comments left by the enrollment team may aid in responding to taxpayer inquiries. If the comments section does not resolve the inquiry, a Form 4442 referral may be needed.

HCTC Payments
  1. Taxpayers must submit their 27.5% payment, along with their payment coupon, by the 10th of each month. Form 13973, Health Coverage Tax Credit (HCTC) Blank Payment Coupon, can be obtained from irs.gov. Taxpayers must enter their participant identification number on their payment coupon. If the taxpayer cannot make their payment by the 10th of the month, they must pay 100% of the monthly payment and claim the credit on their tax return using Form 8885.

  2. US Bank supports the HCTC program by providing the following services:

    • Processing payments

    • Processing HPA / TPA returned funds

    • Depositing payments into the HCTC appropriation fund

    • Generating and mailing reject letters to taxpayers no longer eligible to receive the benefit of an advance payment

    Payments should be mailed to:
    U.S. Bank - HCTC (made out to U.S. Treasury)
    P.O. Box 970023
    St. Louis, MO 63197-0023

    Caution:

    Taxpayers who have not received verification of enrollment should not send their payment to US Bank.

  3. Overpayments and underpayments will be returned to the taxpayer. Underpayments disqualify the taxpayer from receiving the benefit of advance payments for that month. If the taxpayer underpays, the bank will issue a Payment Ineligible Letter. Information about underpayments may be found in AMS or in the database.

  4. Payments are sent to the taxpayer’s insurance company on the 20th of each month. TC 971 action codes identify payments have been made:

    • 170 - represents the taxpayer’s 27.5% payment

    • 171 - represents the 72.5% government contribution


    Since HCTC is a yearly program, the TC 971 indicators are only placed on the account once, in January. As long as the taxpayer remains eligible, payments continue each month.

  5. The HCTC database doesn’t show the taxpayer’s payment was received, but does show the payment was sent to the insurance provider.

    Note:

    Do not provide the payment tracking number to the taxpayer, it will not help the insurance provider locate the payment. The tracking number is used for Lockbox processing.

HCTC Letters
  1. The following letters are associated with the HCTC program:

    • Letter 3772, End of Program Letter - issued to inform the taxpayer they are no longer enrolled in the monthly HCTC program.

    • Letter 4510, IRS HCTC Reimbursement Request - Denial - issued to deny the taxpayer’s request for premium reimbursement.

    • Letter 4511, IRS HCTC Reimbursement Request - Insufficient Documentation - issued to inform the taxpayer their request for reimbursement could not be processed because required supporting documentation has not been received.

    • Letter 4540, HCTC Candidate Eligibility Denial System Letter - issued to inform the taxpayer their Form 13441-A, Health Coverage Tax Credit (HCTC) Monthly Registration and Update, cannot be processed due to missing supporting documents, unable to confirm family member information, or unable to confirm eligibility.

    • Letter 4541, HCTC Candidate Insufficient Documentation System Letter - issued to inform the taxpayer their HCTC registration could not be completed due to an incomplete Form 13441-A, Health Coverage Tax Credit (HCTC) Monthly Registration and Update.

    • Letter 4545, HCTC QFM Approval System Letter - issued to inform the taxpayer they have successfully registered for HCTC and provides payment and due date information, as well as their participant identification number.

    • Letter 5758, Processing Registration Form - issued to inform the taxpayer their registration form and supporting documentation are being processed (interim letter).

    • Letter 5831, Health Coverage Tax Credit - Advance Monthly Payments - issued to health plan administrators or third party administrators to inform them of HCTC start-up.

    • Letter 5945, HCTC Reimbursement Approval Letter - issued to inform the taxpayer their request for reimbursement has been approved. Payment should be issued within 3 weeks from the date of the letter.

    • Letter 5974, Annual HCTC Vendor Renewal Letter - issued to each HCTC vendor requesting them to submit an updated Form 3881-A, ACH Vendor / Miscellaneous Payment Enrollment - HCTC, to the Austin enrollment team.

    • Letter 6009, Refund of HCTC Payment - issued to inform the taxpayer their monthly payment is being returned and should arrive within 3 weeks from the date of the letter.

    • Letter 6011, Return of HCTC Funds - issued to inform a participant they received an overpayment in error. These funds are not posted to the taxpayer’s account, and are monitored by the HCTC Program Office.

    • U.S. Bank Payment Ineligible Letter - issued to inform the taxpayer their payment was rejected and why.

  2. HCTC letter history can be found in the history section on AMS.

  3. All paper responses should be routed to Austin SP, Stop 6098, Austin, TX, 78741, or faxed to 1-855-250-1731.

HCTC Inquiries
  1. Direct callers as follows:

    If the taxpayer is calling about Then
    Eligibility see IRM 21.6.3.4.2.9.1, HCTC Eligibility
    Enrollment / Registration see IRM 21.6.3.4.2.9.2, HCTC Registration

    Note:

    Applications (Form 13441-A) can take up to 6 weeks to be processed. If it has not been 6 weeks since the taxpayer mailed their application, instruct the taxpayer to call back after 6 weeks if they haven’t received any notification.

    Note:

    Applications filed in advance of the effective date are not processed until the 20th of the month before the effective month.

    General information Refer taxpayers to the program website at www.irs.gov/hctc
    Assistance with form preparation Refer taxpayers to the instructions for Form 8885 and/or the program website at www.irs.gov/hctc
    Insurance plans or qualified coverage Refer taxpayer to the program website at www.irs.gov/individuals/hctc-health-plans-q-and-a
    Reimbursement, returned funds, or Form 3881 Refer the taxpayer to their HPA or TPA
    Updating enrollment information
    • Changing enrollment information, such as updating family members, or changing health insurance information, advise the taxpayer to complete Form 13441-A and send to Austin

    • Requests to update incorrect information found in the database, such as when data was transcribed incorrectly, or a change of address, should be referred to the Austin enrollment team via Form 4442. Fax referrals to Austin SP, at 1-855-250-1731

    Underpayment due to not receiving updated approval letter or health insurance company not being paid Prepare a referral to the Austin enrollment team via Form 4442. Fax referrals to Austin at 1-855-250-1731

    Note:

    Submission Processing will research the issue and may return the 4442 with information to provide to the taxpayer via a return phone call.

    Cancelling the advance payment Advise the taxpayer the request must be in writing and to send the request to the Austin address above.
    Eligibility letter from external stakeholders Advise the taxpayer to contact the Department of Labor or PBGC
    Form 1099-H discrepancy Prepare a referral to the Austin enrollment team via Form 4442. Fax referrals to Austin at 1-855-250-1731

    Note:

    Form 1099-H reflects the months the taxpayer made payments. We cannot issue a Form 1099-H based on when the payments were applied as the HPA / TPA determines how to apply the payments.

    Refunds of premiums paid Advise the taxpayer to cash the check. Send a Form 4442 to the Austin enrollment team for research. Fax to 1-855-250-1731.
    Obtaining their participant identification number Access the enrollment database and provide the identification number (after verifying disclosure)
    Other issues not identified above (out of scope) Advise the taxpayer to submit their question via email to the HCTC mailbox at *WI HCTC STAKEHOLDER ENGAGEMENT@irs.gov

    Note:

    The Austin enrollment team will never call the taxpayer. If the taxpayer requests direct contact, refer the taxpayer to the HCTC mailbox shown above.

HCTC Claim Processing
  1. Claim processing is centralized at the Andover campus. If not trained to work HCTC, update the category code to HCTC or HCTX as appropriate and reassign to 0830141335. HCTC can also be claimed on Form 1040SS and Form 1040PR, which should be sent to Philadelphia.

  2. The presence of a TC 971 Action Code (AC) 172 on TXMOD for the specific tax year will indicate the taxpayer is potentially eligible for the credit. Research must be conducted on the primary and secondary SSNs to determine taxpayer eligibility.

  3. Periodic updates will be applied to accounts for HCTC eligibility. The TC 971/972 AC 172 will reflect the appropriate date of the revision. If a taxpayer has filed his/her return prior to the update, and claimed HCTC, the credit may have been allowed or disallowed incorrectly.

  4. Taxpayers enrolled in Medicare, Part A or B, or entitled to Medicare, are not eligible to claim HCTC for coverage months after their date of Medicare enrollment or eligibility. Generally, Medicare is available for people age 65 or older. Verify the taxpayer’s date of birth using CC INOLE. If the taxpayer was 65 or older on the first day of the tax year, or turned age 65 during the year, disallow or partially disallow the claim per IRM 21.5.3, General Claims Procedures.

    Note:

    A taxpayer remains eligible for the credit for 24 months from the date the taxpayer enrolled in Medicare / Medicaid if the taxpayer has a qualifying family member enrolled in qualified health insurance coverage. The taxpayer can claim the credit only for the premiums for those qualifying family members.”


    Use the following text in the disallowance letter:
    We did not allow the amount of $(amount of credit claimed) claimed for the Health Coverage Tax Credit. You are not entitled to claim the credit for qualifying family members after 2 years from the date the Medicare eligible taxpayer enrolled in Medicare.
    OR
    We did not allow the amount of $(amount of credit claimed) claimed for the Health Coverage Tax Credit. As a spouse/dependent, you are not entitled to claim the credit after 2 years from the date the Medicare eligible taxpayer enrolled in Medicare.

  5. A deceased taxpayer will no longer qualify for the credit for coverage months after their date of death. However, the decedent’s spouse and/or dependent may still qualify. Taxpayers filing under these conditions will need to state as such and provide the necessary documentation. Check each claim for a date of death.

  6. Taxpayers must check the appropriate boxes in Part I, Form 8885, indicating the months they were eligible to receive the credit and provide verification of eligibility (eligibility letter), invoices, and proof of payments. In addition, tax year 2014 and 2015 claims should have a letter of eligibility from PBGC or DOL.

    • If no boxes are checked in Part I treat it as an incomplete claim, see IRM 21.5.3, General Claims Procedures.

      Reminder:

      When corresponding for Part I information, include information requesting invoices and proof of payments (e.g. cancelled checks (front and back) or credit card statement) if not present, for any amounts included on line 2 of Form 8885.

    • If no invoices, proof of payments or eligibility letters are attached, verify eligibility by checking CC IRPTR for the primary and/or secondary taxpayer for a Form 1099-H issued by the TPA or HPA.

    • If unable to determine eligibility from CC IRPTR, research the enrollment database.

    • If unable to verify eligibility, suspend the case for 40 days and issue a Letter 3064C to request the missing information. Use the following verbiage in the open paragraphs:
      Provide a letter of eligibility from PBGC or DOL, invoices, and proof of payment for the amount you claimed on line 2, Form 8885. If the insurance plan is through your spouse's employer, include copies of pay stubs showing the health coverage deductions for the qualified months and a letter from the employer confirming the amount the employer paid to the cost of the coverage.
      For COBRA Continuation Coverage, include any of the following: a notice of rights to continue coverage in an employer's plan, a signed election form confirming enrollment, a letter or statement from an employer or third party benefits administrator that confirms enrollment. For an HCTC State Qualified Plan, include the group number provided by the plan.

    • If no response is received, no consider the claim.

    • If eligibility is verified, input a TC 971 AC 172, if not present. If adjusting a joint account and the TC 971 AC 172 is on the secondary taxpayer's account only, input the TC 971 on the primary taxpayer's account. Use a posting delay code 1 on the adjustment to avoid an unpostable when inputting a TC 971.

    • If the taxpayer is attempting to claim 72.5% of out-of-pocket expenses and received the 72.5% in advance payment, disallow the claim. Explain the credit pays a total of 72.5% of eligible health insurance costs which the taxpayer received through the advance monthly payment.

  7. For tax year 2017 and subsequent, taxpayers must elect HCTC (by filing Form 8885) by the due date of the return, including extensions, to qualify for the credit. A timely election is needed even if the taxpayer received the benefit of advance monthly payments during the year. Failure to make a timely election will result in a repayment requirement of any advance payment received.
    Claims received after the due date of the return should be disallowed. Any repayment requirement will be resolved by Compliance at a later date.

  8. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ send the claim to CAT-A, (See Exhibit 21.5.3-3, Examination Criteria (CAT A) - Credits). When referring these claims to Exam via CIS, select "HLTHCVRGTC" from the drop down listing of reasons referred.

  9. Since the law was retroactive, some taxpayers may have enrolled in a Marketplace and be eligible for the Premium Tax Credit. For tax year 2014 and 2015 claims, if a Form 8962 is not attached, use the Search CDR Data tool found in AMS to check for Form 1095-A data, see IRM 21.6.3.4.2.12.4, Tools for Accessing ACA-Related Taxpayer Data, for more information.

    • If no CDR data found, process the HCTC claim.

    • If CDR data is found and APTC was paid, send a Letter 178C or 324C requesting the taxpayer file Form 8962. Suspend the case. If no response, disallow the claim.

      Note:

      A Form 8962 is not required if APTC was not paid.

    • If a Form 8962 is attached, refer to the table below for how it should be completed. Since taxpayers cannot claim HCTC and PTC for the same months for the same coverage, any APTC made on behalf of the taxpayer must reduce the PTC claimed or must be repaid. Taxpayers with a repayment requirement do not get the benefit of having their repayment limited. For information regarding processing the Form 8962, see IRM 21.6.3.4.2.12.6, Premium Tax Credit Amended Returns.

      Note:

      If the taxpayer submitted a Form 8962 repaying all APTC following instructions for tax year 2014 and 2015, recompute Form 8962 if sufficient information is available. If sufficient information is not available, such as premiums and SLCSP, correspond for an updated Form 8962.

    If HCTC elected And Then Form 8962 should be completed as follows
    All 12 coverage months on Form 8885 are checked so that the election applies to all coverage months No APTC was made Do not complete Form 8962
    All 12 coverage months on Form 8885 are checked so that the election applies to all coverage months APTC was made
    • Enter a family size of -0- on line 1

    • Complete lines 9 and 10 as instructed and Part IV if applicable

    • Complete line 11, column (f), or lines 12 - 23, column (f)

    • Complete line 25 and enter this amount on lines 27 and 29. Leave line 28 blank.

    Fewer than 12 coverage months checked and PTC taken for coverage months not checked No APTC was made Complete Form 8962 for the months PTC is being claimed
    Fewer than 12 coverage months checked and PTC taken for coverage months not checked APTC was made
    • Complete Form 8962 for the months PTC is being claimed.

    • Enter APTC in column (f) of line 12 - 23 for all months APTC was paid, even those coverage months checked on Form 8885.

    • If Part III is required, enter the amount from line 27 on line 29 and leave line 28 blank.

  10. For tax years 2016 and subsequent, coverage through the Marketplace does not qualify for HCTC. In addition, coverage provided by the taxpayer’s current employer is never qualified health insurance coverage (taxpayers may submit a Form 1095-C as supporting documentation). Disallow or partially disallow the credit as appropriate.

  11. If the taxpayer is also claiming self-employed health insurance deduction, the deduction cannot include amounts reported on Form 8885.

  12. Adjust the account following procedures in IRM 21.6.3.4.2.9.7, Adjusting the Credit.

Adjusting the Credit
  1. Math verify Form 8885, Health Coverage Tax Credit.

  2. Action required:

    • Input TC 290 for zero (.00), if no other adjustment is required.

    • Use credit reference number 250 to allow/increase the credit.

    • Use credit reference number 250 with a minus (-) to decrease a previously posted credit.

    • Use RC 072 and the appropriate source code and blocking series.

    • Use Category Code HCTX if inputting the adjustment via Form 1040-X.

    • Use Category Code HCTC if inputting the adjustment via correspondence.

First-Time Homebuyer Credit
  1. The Housing and Economic Recovery Act of 2008 (HERA) (PL 110-289), enacted on July 30, 2008, allows a taxpayer who is a first time homebuyer a refundable tax credit of the lesser of $7,500 ($3,750 for Married Filing Separate) or 10% of the purchase price. The law is effective for qualifying homes purchased on or after April 9, 2008, and on or before December 31, 2008.

  2. The American Recovery and Reinvestment Tax Act of 2009 (ARRA) (PL 111-5), enacted on February 17, 2009, allows a refundable tax credit of the lesser of 10% of the purchase price of the residence or $8,000. The credit is available for first time homebuyers who purchased a home after December 31, 2008 and before December 1, 2009.

  3. The Worker, Homeownership, and Business Assistance Act of 2009 (WHBAA) (PL 111-92), enacted on November 6, 2009, extends the eligibility period for the first time homebuyer credit to purchases made before May 1, 2010. Taxpayers who have entered into a written binding contract before May 1, 2010, must close on the home before July 1, 2010 to qualify. This bill also establishes special rules for long-time residents and members of the Armed Services, Foreign Service officers and the intelligence community.

  4. The Homebuyer Assistance and Improvement Act of 2010 (HAIA) (PL 111-198), enacted on July 2, 2010, extends the deadline to purchase a home to October 1, 2010, for taxpayers who have entered into a written binding contract before May 1, 2010, to close before July 1, 2010.

  5. For homes purchased in 2008, the credit is treated as a 15 year interest-free loan. The credit is recaptured over fifteen years beginning the second year after the home is purchased.

  6. For homes purchased in 2009 and 2010, the taxpayer must repay the credit only if the home ceases to be the taxpayer's main home within the 36 month period beginning on the purchase date.

  7. A "home" must be the taxpayer's primary and principal residence and be located in the United States.

  8. A "home" must meet the definition of a house, condo, co-op, mobile home, house trailer, or houseboat that has sleeping, cooking and toilet facilities.

  9. If a taxpayer is constructing a new home, the home will be treated as "purchased" by the taxpayer on the date the taxpayer first occupies the home as the principal residence. This also applies to manufactured homes installed on a new site.

  10. The credit cannot be claimed if the taxpayer is a nonresident alien or for the purchase of a residence after 2008, if the taxpayer qualifies for the DC First Time Homebuyer Credit.

The Housing and Economic Recovery Act of 2008 (HERA) and the American Recovery and Reinvestment Act of 2009 (ARRA)
  1. For eligible purchases made in 2008, the credit must be claimed on the 2008 tax return or amended return.

  2. For eligible purchases made in 2009, an election can be made to claim the credit on either the 2008 tax return, amended 2008 tax return, or the 2009 tax return.

  3. For eligible purchases made in 2010, an election can be made to claim the credit on either the 2009 tax return, amended 2009 tax return or their 2010 tax return.

  4. For purchases made on or before November 6, 2009, the modified adjusted gross income (MAGI) is computed by the AGI increased by any foreign income under IRC 911, 931 or 933.

    1. The phase out of this credit begins when the MAGI exceeds $75,000 ($150,000 if Married Filing Joint).

    2. The credit is eliminated when the MAGI reaches $95,000 ($170,000 if Married Filing Joint).

  5. Homes purchased in 2009 that do not fall under the fifteen year repayment criteria and are claimed on the original 2008 return will be coded with a SPC "H" by Document Perfection. This can be identified on Master File on CC RTVUE.

Worker, Homeownership and Business Assistance Act of 2009 (WHBAA)
  1. Under WHBAA, the First-Time Homebuyer Credit of up to $8,000 was extended from December 1, 2009, to April 30, 2010.

  2. Long time residents of the same principal home may qualify for a credit of up to $6,500, based on the purchase of a new home.

  3. In addition, taxpayers who enter into a binding contract before May 1, 2010, to close on the purchase of a principal residence before October 1, 2010, also qualify for the credit.

    Example:

    A taxpayer enters into a binding contract on April 1, 2010 to purchase a home. The taxpayer then closes on the home on June 17, 2010 (receives a properly executed settlement statement). The taxpayer submits Form 5405 with required documentation claiming the credit.

  4. Form 5405 cannot be electronically filed with Form 1040 series returns for the 2010 filing season due to the required documentation.

  5. For the 2010 filing season, the Form 5405 "Date Purchased" entry will be a transcribed field, so SPC "H" will not be necessary to identify these returns as not falling under the fifteen year repayment criteria.

WHBAA Date of Enactment- November 6, 2009
  1. The Date of Enactment (DOE) for WHBAA of 2009 is November 6, 2009. Certain changes are applicable to the credit on purchases made after this date. These are:

    1. Allowing qualifying long time residents to claim a credit up to $6,500.

    2. Dollar limit in MAGI increased to $125,000 ($225,000 for Married Filing Joint).

    3. No credit allowed for home purchase over $800,000.

    4. The taxpayer must be at least 18 years old on the date of purchase and if married, only one spouse must meet this requirement.

    5. Credit cannot be claimed from property purchased from individuals related to family of a spouse.

    6. No credit is allowed for taxpayers who are eligible to be claimed as a dependent on another taxpayer's return.

      Note:

      These changes are not retroactive.

WHBAA Military Exceptions Credit Extension
  1. WHBAA allows members of the military and certain other federal employees serving outside the U.S. to have an extra year to buy a principal residence in the U.S. and qualify for the credit.

  2. An eligible taxpayer must buy before May 1, 2011, or alternatively, enter into a binding contract before May 1, 2011, to buy a principal residence before July 1, 2011.

  3. Members of the uniformed services, members of the Foreign Service and employees of the intelligence community are eligible for this special rule.

  4. This applies to any individual (and, if married, the individual's spouse) who serves on qualified official extended duty service outside of the U.S. for at least 90 days during the period beginning December 31, 2008, and ending before May 1, 2010.

  5. Additional documentation is not required for the military. Taxpayers must check Part I, Line D on Form 5405 to indicate they are part of the military.

WHBAA Long-Time Residents Credit
  1. WHBAA allows for a long-time resident of the same principal home to qualify for a credit of up to $6,500, based on the purchase of a new home.

  2. The taxpayer(s) must have lived in the same principal home for any five consecutive year period during the previous eight years ending on the purchase date of the new home.

    Note:

    If the taxpayers are Married Filing Joint, BOTH taxpayers must have owned and used the home as the principal residence for the five consecutive years. However, please note that only one taxpayer could be shown as "owner" on mortgage or interest statements.

    Example:

    #1- Single - The taxpayer owned and used a home as a principal residence for five years in a row (2002-2007) and then moved to a rental apartment for two years. At the time of the move, the taxpayer either sold the home or converted it to rental property. The taxpayer now decides to buy a principal residence to live in again and once it is purchased (after November 6, 2009) is entitled to a credit up to $6,500. If the taxpayer had lived in the apartment for three years, he would qualify for up to $8,000 as a First-Time Homebuyer.

    Example:

    #2- MFJ - The taxpayers both own and used the same home as a principal residence since November 6, 2004. They purchase a new home and close after November 6, 2009. They are entitled to a credit up to $6,500.

First-Time Homebuyer Math Error Responses
  1. The majority of First-Time Homebuyer Credit math errors can be adjusted based on oral statement and do not require additional documentation. Unless indicated in this section of the IRM, these math error responses are not required to be run through xClaim.

  2. Responses to First-Time Homebuyer Credit math errors for missing settlement statements (TPNC 691) and missing Forms 5405 (TPNC 683) bypass original return processing filters. When responses come into Accounts Management, this requires the use of the FTHBC tool in xClaim tool to assure the taxpayer is in compliance with other Exam criteria before allowing the credit.

  3. If a taxpayer submits a missing Form 5405 or a settlement statement in response to a math error notice, or a late reply is forwarded from Submission Processing, run the response through the FTHBC tool in xClaim. Disallow or send to CATA if indicated on the FTHBC tool. If no filters are identified by the FTHBC tool, allow the FTHBC as claimed on the original return.

    Note:

    If the taxpayer calls in about the missing Form 5405 or settlement statement, have them send in a copy of the form or document to the center to process the adjustment.

  4. If the taxpayer receives a math error due to a missing settlement (TPNC 691), the settlement statement must be received to allow the credit. This document could be faxed or mailed in.

    Note:

    If the taxpayer calls in about the missing Form 5405 or settlement statement have them send in a copy of the form or document to the center to process the adjustment.

  5. TPNC 641 is a math error based on specific filter checks made during processing of the original return which review data over the last two years. This math error states "We have disallowed the amount claimed for First Time Homebuyer Credit on page 2 of your tax return. Our records indicate you have a prior homeownership that would make you ineligible to claim the credit." If there is any mortgage interest found during the past two years, the First Time Homebuyers Credit will not be allowed and a TPNC 641 will be assigned.

  6. For TPNC 641, acceptable explanations of no previous home ownership must be submitted in writing. Taxpayers can submit the documentation via fax. The taxpayer must provide a reasonable explanation that any prior year mortgage interest/real estate tax was for something other than a principal residence. Some examples are:

    1. Timeshare or vacation property.

    2. Rental property and the mortgage interest/real estate tax was claimed on Schedule A instead of Schedule E.

    3. Taxpayer erroneously claimed interest in a previous year (i.e., did not pay the mortgage interest and the mortgage interest is not on IRPTR L. Note: Tell the taxpayer to amend the prior year but do not hold up adjusting the account waiting for the Form 1040-X.

      Note:

      If it is evident the taxpayer is claiming the Long Time Residents Credit and an error was made, documentation is not needed. If the taxpayer originally claimed FTHBC and now states he wants LTRC, an amended return must be filed.

      Note:

      Keep in mind, the taxpayer must submit their acceptable explanation in writing with TPNC 641. This information can be faxed and the account adjusted. The examples listed above are not all-inclusive and the taxpayer may provide other explanations.

      Note:

      For informational purposes, CSR can run the tool for specifics of the TPNC 641 assignment. If any secondary CATA criteria exists, disregard.

  7. If a taxpayer's explanation is not considered acceptable for TPNC 641, follow procedures in IRM 21.5.4.5.5, Math Error Unsubstantiated Protest Processing.

  8. When a taxpayer submits a previously disallowed claim based on prior year homeownership over the past two years and the new information is not acceptable as described in 6 above, forward to Appeals.

  9. If a taxpayer is responding to a math error notice from the original return or a disallowance letter and states they are "appealing" the disallowance of FTHBC, do not refer to the Office of Appeals. These are responses to math error notices and should be resolved by the assistor. Specific examples of erroneous referrals to Appeals would include:

    • Taxpayer calls and wishes to "appeal" a math error notice related to the FTHBC and the taxpayer is referred to the Appeals Customer Service Line. The math error should be explained to the taxpayer.

    • Taxpayer calls indicating they wish to appeal the disallowance of the FTHBC and research indicates a 105C letter was issued and shows a disallowance letter was issued and there is a disallowance adjustment. As outlined in the 105C letter information provided to the taxpayer, the request for appeal must be submitted in writing.

    Note:

    Just because the taxpayer uses the word "appeals" in his statement, does not necessarily indicate the taxpayer should be given the Appeals telephone number. Taxpayers may only be trying to obtain a status on their account. Only refer to Appeals if there is a clear-cut indication on AMS the account is in Appeals.

  10. Math error responses for disallowance for the FTHBC include the following disallowance literals:

    • 638- Disallowance of FTHBC due to sale of property to a person related to you or spouse.

    • 639- Disallowance of FTHBC due to purchase price of residence exceeding $800,000.

    • 640- Disallowance of FTHBC due to settlement statement not attached to return.

    • 641- Disallowance of FTHBC due to prior homeownership.

    • 683- Disallowance of FTHBC due to missing or incomplete Form 5405.

    • 685- Disallowance of FTHBC due to home being purchased before April 8, 2008 or after July 1, 2010.

    • 686- Disallowance of FTHBC due to taxpayer or spouse (if married filing joint) must be 18 or older.

    • 690- Disallowance of FTHBC due to home being purchased prior to year tax year being filed.

    • 691- Disallowance of FTHBC due to properly executed settlement statement not attached.

    • 692- Disallowance of FTHBC due to modified AGI being exceeded.

First-Time Homebuyer Adjusting Accounts
  1. When adjusting an account, review CC IMFOLF or CC ENMOD prior to allowing the FTHBC to ensure the credit was not previously taken on another tax period. If there is an entry in the primary and/or secondary credit amount fields, the credit was previously taken.

  2. 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:

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

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

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

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

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

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

    7. 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:

    For any home purchased in 2010 and the Form 5405 is for a 2009 tax period, input a reference code 880 .10, RC 121 (primary), or RC 000 (joint) along with the appropriate RC 110, 125, 126, 128, or 129. This is necessary to show the correct year of purchase on CC IMFOLF.

    Note:

    For any home purchased in 2011 (military), input a reference code 880 .11 and use the appropriate RCs. Input RC 121 (primary) or RC 000 (joint) as well.

  3. Use the appropriate source code and blocking series.

  4. When adjusting the "year" the home was purchased, use item reference number 880 with a two year digit indicator (including the decimal.)

    Example:

    The primary taxpayer mistakenly entered a purchase date of 07/08/09 on Form 5405 and submits a Form 1040-X with a corrected date of 07/08/08. We would show the adjustment as follows: TC 290 .00, IRN 880 .08, RC109, RC 121, BS 05.

    Note:

    Use Reason Code 121- (internal use only) adjust primary FTHBC year or Reason Code 122 - (internal use only) adjust secondary FTHBC year with TC 880 credit reference code.

  5. If two valid Forms 5405 need to be adjusted onto one account, Priority Code 9 will be needed in order to override any unpostable condition.

    Example:

    Two single taxpayers purchase separate homes. They were both single first time homebuyers. They then marry. Both purchases then qualify for the credit provided each residence is the principal residence of the purchasing taxpayer. In this case, we could get two Forms 5405 if they decide to file an amended return. We would need to use PC 9 on our adjustment.

  6. When backing out or reducing the FTHBC on an account, always check the entity on CC IMFOLF to assure the FTHBC credit amount field has data posted. If the field is blank, you must first bring the data back from the cross reference account before backing out the tax module account. Failure to do this will cause an unpostable.

    1. Reverse the credit amount shown on CC IMFOLF using a reference number 875 for the primary amount (negative), or a 975 for the secondary amount (negative), RC 109, 110, 125 or 126.

    2. To create the FTHBC entity on the account where the FTHBC is being back-out or reduced, input the same transaction in (a) above with a positive.

    3. Wait until the following week to work the remainder of the case to assure posting of these transactions or use a posting delay code of 1.

  7. Due to a systemic problem, there may be instances where the FTHBC has been backed out of an account, but still shows on CC IMFOLF. CC IMFOLF information must be removed with item reference code 875 / 975 as listed in the example above, one cycle prior to posting the FTHBC or the adjustment will unpost.

Recapture of First-Time Homebuyer Credit
  1. Refer to IRM 21.6.4.4.18.1, Recapture of First-Time Homebuyer Credit, for more information.

American Opportunity Tax Credit
  1. The American Opportunity Tax Credit (AOTC) is a tax credit of up to $2,500 of the cost of tuition and related expenses paid during the tax year. This credit is one of two credits reported on Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits), and is the only refundable education credit. Taxpayers will receive a tax credit based on 100% of the first $2,000 of tuition and related expenses (including books) paid during the tax year and 25% of the next $2,000 of tuition and related expenses paid during the tax year. 40% of the credit would be refundable. For more information on Education Credits and the nonrefundable portion of the American Opportunity Tax Credit, refer to IRM 21.6.3.4.1.5, Form 8863 Education Credits.

  2. AOTC is available for tax years 2009 and subsequent.

  3. A taxpayer can elect, for any year, only one of the education credits for each student.

  4. The "Protecting Americans From Tax Hikes (PATH) Act of 2015" , Section 206, signed into law December 18, 2015, prohibits an individual from retroactively claiming AOTC by amending (or by filing an original or supplemental return) for any year in which the taxpayer, spouse, or student for whom the credit is claimed did not have a valid TIN issued on or before the due date, or extended due date, of the return. This provision applies to any return or claim filed after December 18, 2015.
    When adding a new credit, or a new qualifying person, you must verify all TINs associated with the credit (the primary taxpayer, secondary taxpayer, and all qualifying children) (current SSNs and previous ITINs) were assigned on or before the due date of the return. This applies to amended returns, math error responses, duplicate returns, etc.
    To determine the validity of the request, see the following table for the appropriate action.

    Note:

    The PATH Act applies to filing status changes only to the extent of any additional AOTC being claimed. The Path Act does not require or allow the removal of AOTC previously claimed.

    Note:

    If the account needs to be merged with another TIN, take the merge actions first to ensure all actions below are taken under the new TIN. See IRM 21.6.2.4.1, Resequencing Accounts. If an ITIN is showing as inactive, see IRM 21.6.1.6.6.2, ITIN Renewal Math Error Adjustments.

    Reminder:

    For those taxpayers who were recently assigned an SSN, if they had a ITIN assigned prior to the due date of the return, they qualify for the credit.

    If Then
    The "TIN ASGNMT" field on CC INOLE contains a date on or before the due date of the return

    Note:

    ITINs issued within 7 days of the return due date are considered timely.

    Allow the credit if all other criteria are met
    The "TIN ASGNMT" field is all zeros Allow the credit if all other criteria are met
    The "TIN ASGNMT" field contains a date after the due date of the return

    Exception:

    For ITINs assigned prior to 2017, if the ITIN assignment date is 90 days or less after the due date or extended due date of the return, access RTS to verify the received date of the Form W-7. If received prior to the due date, allow the credit.

    Note:

    For a Form W-7 received after Jan. 1, 2017, the TIN assignment date field reflects the actual received date of the Form W-7.

    • Disallow the credit. See IRM 21.5.3.4, General Claims Procedures. Use the "PATH" paragraph in the Letter 105C or 106C.

    • Input a TC 971 AC 112 using CC REQ77 or the REQ77 IAT tool. The TC 971 enables the Service to track these claims and report the dollars saved.

    • Input the credit amount claimed in the "Freeze-Release-AMT" field. No transaction date is needed.

      Note:

      If CTC/ACTC and/or EITC are also being claimed, combine the amounts.

    Example:

    A single taxpayer files a 2014 amended return on Feb. 21, 2016, stating she forgot to claim AOTC on her original return. CC INOLE research shows her SSN was issued prior to Apr. 15, 2015. Allow the credit.

    Example:

    A joint taxpayer files a 2014 amended return Dec. 27, 2015, adding an additional dependent who qualifies for AOTC. CC INOLE research shows the dependent’s ITIN was assigned May 7, 2015. No extension was filed. Since the ITIN assignment date is after the due date of the return, disallow the AOTC.

  5. For information regarding ITIN renewal math errors, see IRM 21.6.1.6.6.2, ITIN Renewal Math Error Adjustments.

  6. The PATH Act of 2015, Section 208, provides that taxpayers who are denied AOTC as a result of deficiency procedures, will be denied the credit as a mathematical error. The following taxpayer notice codes are used to identify these errors:

    • 822 - We disallowed the amount claimed as Education Credit (American Opportunity Tax Credit) on your tax return. Our records indicate that we’ve banned you from claiming American Opportunity Tax Credit for this tax year.

    • 823 - We disallowed the amount claimed as Education Credit (American Opportunity Tax Credit) on your tax return. Our records indicate that we’ve banned you from claiming American Opportunity Tax Credit for two tax years.

    • 824 - We disallowed the amount claimed as Education Credit (American Opportunity Tax Credit) on your tax return. Our records indicate that we’ve banned you from claiming American Opportunity Tax Credit for ten tax years.


    Taxpayers who are denied the credit due to deficiency procedures must recertify for the credit, follow procedures in IRM 21.6.3.5, Credit Recertification.

  7. AOTC is for taxpayers who paid qualified education expenses to an eligible postsecondary education institution (college) for themselves, their spouse or their child for whom they claimed a dependency exemption. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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  8. In addition to (7), if there are any other circumstances that make the claim questionable, if the Form 1098-T cannot be verified, no consider the claim.

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    When sending to CAT-A, select "AOTC" from the drop down listing of reason referred. See Exhibit 21.5.3-3, Examination Criteria (CAT-A) - Credits.

  10. When disallowing or partially disallowing a claim, see IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures. For a no consideration, see IRM 21.5.3.4.6.3, No Consideration Procedures.

  11. When adjusting the credit:

    1. Use credit reference number 260 to allow/increase the credit.

    2. Use credit reference number 260 with a minus sign (-) to decrease the credit.

      Reminder:

      The credit reference number will convert to a TC 766/767 Reference Number 260 at Master File.

    3. Use RC 106 (Refundable American Opportunity Credit) and the appropriate source code and blocking series for the refundable credit portion of the adjustment.

Premium Tax Credit
  1. The Patient Protection and Affordable Care Act (ACA) (PL 111-148), as amended by the Health Care and Education Reconciliation Act of 2010 (PL 111-152), created IRC § 36B, which provides a refundable tax credit to help individuals and families afford health insurance purchased through the Health Insurance Marketplace. The Premium Tax Credit (PTC) is effective for tax years 2014 and subsequent.

  2. The amount of a taxpayer's PTC is based on the taxpayer's household income, family size and the cost of health insurance available to the taxpayer's coverage family.

  3. The Marketplace offers health insurance plans at four standardized levels: bronze, silver, gold and platinum. The coverage for all plans at a certain level will be the same, but costs and providers may differ. Bronze plans have the lowest premiums and cover 60% of health care costs; platinum plans have the highest premiums and cover 90% of costs.

  4. A taxpayer’s total PTC is determined as the smaller of the taxpayer’s enrollment premiums or the premiums for the Second Lowest Cost Silver Plan (SLCSP) available to the taxpayer’s coverage family (also known as the benchmark plan) minus the taxpayer’s contribution amount.

  5. The contribution amount is the amount of premiums the taxpayer would be required to pay if the taxpayer’s coverage family enrolled in the benchmark plan. The contribution amount is computed by multiplying the taxpayer’s household income by a percentage.

    • 2018 - the percentages range from 2.01% to 9.56%. For taxpayers with household income less than 133% of the Federal Poverty Line (FPL) for the taxpayer’s family size, the range begins at 2.01%, and for taxpayers with household income between 300% and 400% of the FPL, the range ends at 9.56%.

    • 2017 - the percentages range from 2.04% to 9.69%. For taxpayers with household income less than 133% of the Federal Poverty Line (FPL) for the taxpayer’s family size, the range begins at 2.04%, and for taxpayers with household income between 300% and 400% of the FPL, the range ends at 9.69%.

    • 2016 - the percentages range from 2.03% for taxpayers with household income less than 133% of the Federal Poverty Line (FPL) for the taxpayer’s family size to 9.66% for taxpayers with household income between 300% and 400% of the FPL.

    • 2015 - the percentages for 2015 range from 2.01% to 9.56%

    • 2014 - the percentage ranged from 2% to 9.5%

    The PTC is computed on a month-by-month basis and involves many special rules.

    Note:

    FPL tables change from year to year. The appropriate table to use is the table in effect at open enrollment, so for tax year 2018, the 2017 FPL table is used.

  6. To claim the credit, taxpayers must complete Form 8962, Premium Tax Credit.

  7. Eligible taxpayers can choose to have advance payments of the premium tax credit made on their behalf to help cover the cost of insurance premiums. The Health Insurance Marketplace (not IRS) determines eligibility and the amount of advance payment by using information from a variety of sources (e.g. tax data provided by the IRS, information provided by the applicant, data from other government agencies, etc.). The Bureau of the Fiscal Service issues the advance payment directly to the insurance provider on a monthly basis.

  8. Taxpayers who choose to receive advance payments must reconcile the amount of the advance payment with the amount of the PTC the taxpayer is allowed. The reconciliation and the computation of the PTC are done on Form 8962, Premium Tax Credit. A taxpayer who has excess advance payments (the advance payment is more than the allowed PTC) must treat the excess amount as a tax liability, subject to a limitation for taxpayer whose household income is below 400% of the FPL for their family size (limitations do not apply in all circumstances). Taxpayers whose net PTC exceeds the amount of advance payment for the tax year may receive the excess as a refundable credit.

  9. The repayment limitation for advance payments are as follows:
    2018

    • $300 for single ($600 for all other filing statuses) with household income under 200% of the FPL

    • $775 for single ($1,550 for all other filing statuses) with household income at least 200% but less than 300% of FPL

    • $1,300 for single ($2,600 for all other filing statuses) with household income at least 300% but less than 400% of the FPL

    • There is no limitation if the taxpayer's household income is 400% or more of the FPL


    2016 and 2017

    • $300 for single ($600 for all other filing statuses) with household income under 200% of the FPL

    • $750 for single ($1,500 for all other filing statuses) with household income at least 200% but less than 300% of FPL

    • $1,275 for single ($2,550 for all other filing statuses) with household income at least 300% but less than 400% of the FPL

    • There is no limitation if the taxpayer's household income is 400% or more of the FPL


    2014 and 2015

    • $300 for single ($600 for all other filing statuses) with household income under 200% of the FPL

    • $750 for single ($1,500 for all other filing statuses) with household income at least 200% but less than 300% of FPL

    • $1,250 for single ($2,500 for all other filing statuses) with household income at least 300% but less than 400% of the FPL

    • There is no limitation if the taxpayer's household income is 400% or more of the FPL

    The taxpayer's liability is the smaller of the excess advance payment or repayment limitation.

  10. Taxpayers who received the benefit of advance payments for health insurance coverage must file a tax return for that year and attach Form 8962 to reconcile the advance payment. Taxpayers must file and reconcile even if they do not otherwise have a filing requirement. In addition, failure to reconcile advance payments may jeopardize the taxpayer's eligibility for advance payments for subsequent years.

    Example:

    A person applying for health insurance through a Health Insurance Marketplace for 2017 in November 2016 will not be eligible for advance payment until he or she reconciles the 2014 and 2015 advance payments.

  11. Taxpayers who enrolled or enrolled a dependent in health insurance through an Health Insurance Marketplace will receive a Form 1095-A, Health Insurance Marketplace Statement. The data on Form 1095-A will assist taxpayers in completing Form 8962. This information is reported to the IRS.

  12. Individuals with a qualified health plan that covers at least one individual in their tax family and at least one individual not in their tax family, may have to allocate policy amounts (enrollment premiums, SLCSP premiums, and/or advance payments) using Form 8962, Part IV - Allocation of Policy Amounts. See Form 8962 instructions for more information on allocation of policy amounts.

    Note:

    If allocating policy amounts, taxpayers must complete the monthly calculation in Part II.

  13. Taxpayers who submit Form 8962, Premium Tax Credit, must use Form 1040, Form 1040A or Form 1040NR. They cannot use Form 1040EZ.

  14. Additional information can be found in Pub 974, Premium Tax Credit (PTC).

  15. Control cases as follows:

    Type Category Code Program CIS Document Type
    Loose Forms ACA5 40313 ACA-Loose Forms
    Correspondence ACA7 40310 ACA-Correspondence
    Spanish ACAC 40317 ACA-Spanish
    Form 1040-X ACAX 40320 ACA-1040X
Affordable Care Act (ACA) Terminology
  1. Healthcare related issues add many new terms. To understand terminology used in later sections, below are some terms to be familiar with:

    • ACA Verification Service (AVS) – the bridge between Account Management Services (AMS) and accessing data in CDR. AVS is the system that calculates the premium tax credit and identifies math errors or 3rd party data discrepancies.

    • Advance Payment of Premium Tax Credit (APTC) – payments made on behalf of a taxpayer to an insurance provider that covers all or a part of the taxpayer’s monthly premiums for a Marketplace health plan. Located on Form 1095-A, Part III, Column C, entered on Form 8962, Lines 11 or 12, Column f.

    • Coverage Data Repository (CDR) – the database that stores all the insurance data as provided by the Department of Health and Human Services, accessed via AMS.

    • Coverage Family - the members of the tax family who enrolled in a qualified health plan and not eligible for other non-Marketplace health insurance such as employer coverage or Medicare; coverage family may change from month to month.

    • Excess Advance Payment of PTC – the amount of APTC in excess of the Total PTC. Form 8962, Part III, Line 27.

    • Excess Advance Premium Tax Credit Repayment – the amount of tax liability a taxpayer incurs as a result of the taxpayer’s Excess Advance Payment of PTC. Form 8962, Part III, Line 29.

    • Exemption Certificate Number (ECN) – an identifying number provided by the Health Insurance Marketplace to the taxpayer for a coverage exemption.

    • Family Size - the total number of exemptions claimed on Form 1040.

    • Health Coverage Exemption – if an individual is eligible for an exemption, the SRP will not be imposed. Health coverage exemptions are granted by the marketplace or by IRS and can be for specific months or the entire year.

    • Health Insurance Marketplace – a state or federally run program, also referred to as an "Exchange" , where people can purchase health insurance, obtain exemptions from coverage and APTC.

    • Household Income (HHI) - the aggregate of the MAGI of the taxpayer, his or her spouse if filing jointly, and the taxpayer’s dependents who have a filing requirement because their income meets the filing threshold.

    • Net Premium Tax Credit (PTC) – the excess of a taxpayer’s PTC over his or her APTC. Shown as Net Premium Tax Credit on Form 8962, Part II, Line 26.

    • Repayment Limitation - the maximum amount of excess advance payment a taxpayer must repay. Form 8962, Part III, Line 28.

    • Shared Responsibility Payment (SRP) – the penalty imposed if an applicable individual in a tax household lacks minimal essential coverage for any month or does not qualify for a coverage exemption.

    • Tax Family - all the individuals claimed as a personal exemption on a tax return.

    • Total Premium Tax Credit – the annual or monthly premium tax credit a taxpayer computes on Form 8962 before the reduction for APTC. Form 8962, Part II, Line 24.

Qualifications
  1. To be eligible to receive PTC, an individual must:

    • Have obtained health insurance through a Health Insurance Marketplace.

    • Have household income for the tax year at least 100%, but not more than 400%, of the FPL for the taxpayer's family size for the tax year.

      Note:

      Taxpayers at less than 100% of the FPL can claim PTC when they are not eligible for Medicaid due to citizenship status or when the taxpayer was projected to fall between 100% and 400% of the FPL and received advanced payment.

    • Have paid enrollment premiums by the due date of the return (not including extensions).

    • Not have access to minimum essential coverage (MEC), such as Medicare, Medicaid, or affordable employer-sponsored coverage.

    • Have a filing status other than married filing separately, unless an exception applies.

    • Be a United States citizen, or lawfully present and not incarcerated.

    • Claim self as an exemption on his/her tax return.

  2. Household income is defined as an amount equal to the sum of the:

    • Modified adjusted gross income (MAGI) of the taxpayer and his or her spouse if filing jointly, plus

    • Aggregate MAGI of all dependents claimed on the return who have a return filing requirement

  3. MAGI is defined as the taxpayer's adjusted gross income plus:

    • Foreign earned income exclusion (Line 45, Form 2555 or Line 18, Form 2555-EZ)

    • Housing deduction (Line 50, Form 2555)

    • Tax-exempt interest

    • Non-taxable social security benefits including lump sum payments

  4. A married taxpayer who does not file a joint return with his or her spouse may qualify for PTC if one of the exceptions below apply:

    Exception 1. Taxpayers not divorced or legally separated under a court decree at the end of the tax year are considered unmarried if all the following apply:

    • Lived apart from their spouse for the last 6 months of the tax year

    • File a separate return from their spouse

    • Paid over half the cost of keeping up the home for the tax year

    • The home was the main home of their child, stepchild, or foster child for more than half of the tax year

    • Claim the child as a dependent or executed a Form 8332 allowing the non-custodial parent to claim the child



    Exception 2. Taxpayer is a victim of domestic abuse or abandonment, files a return as married filing separately and meets the following:

    • Lives apart from his or her spouse at the time of filing the tax return

    • Unable to file a joint return because her or she is a victim of domestic abuse or spousal abandonment


    If either exception above applies, the taxpayer must certify on their tax return they meet this exception by checking the "exception" check-box on Form 8962, Premium Tax Credit

    Note:

    If neither exception applies, the taxpayer cannot claim PTC and must generally repay 50% of the APTC shown on the Form 1095-A for the coverage of the taxpayer’s family, subject to the repayment limitation for taxpayers with household income below 400% of the FPL for his or her family size. However, if neither the taxpayer nor any of the taxpayer’s dependents were enrolled in the policy for which APTC was paid, the other spouse must reconcile all of the APTC.

  5. For purposes of determining the excess advance premium tax credit repayment, taxpayers who married during the tax year can elect to compute the repayment using the Alternative Calculation for Year of Marriage (ACM). The spouses compute excess advance credits for the pre-marriage months separately as if each were unmarried and had annual household income equal to one-half of the actual household income for the year. For these pre-marriage months, the spouses must determine their family sizes based on the numbers of individuals in their pre-marriage families. They may include a dependent of both spouses in either family for the pre-marriage months. For the months when they were married, the repayment amount is computed using actual household income and family size for the year.

  6. Taxpayers who divorced during the tax year must allocate the applicable benchmark premium amount, the actual premium cost, and the advance payments for the period the taxpayers were married. The allocation can be made in any proportion, but if the taxpayers cannot agree on a proportion, they are allocated 50% to each taxpayer.

Form 8962 Overview
  1. Form 8962, Premium Tax Credit, is broken down into 5 parts:

    1. Part I: Annual and Monthly Contribution Amount - This section provides the family size and household income. The household income is then compared with the FPL to obtain the Federal poverty line percentage (i.e., the household income divided by the Federal poverty line amount). The taxpayer uses the FPL percentage to locate an applicable figure in the table in the Form 8962 instructions. The applicable figure is used to calculate the taxpayer's annual contribution and monthly contribution, which are used in Part II.

      Note:

      The dependent's modified AGI (MAGI) is not a computed figure, it is provided by the taxpayer.

      Caution:

      Line 4, Federal poverty line, if the taxpayer lived in Alaska or Hawaii during the year, the taxpayer should use the table with the higher dollar amounts for his or her family size, regardless of their state of residence on December 31. As such, the taxpayer must complete line 4.

    2. Part II: Premium Tax Credit and Reconciliation of Advance Payment of Premium Tax Credit - This section is where the taxpayer enters their policy information reported on Form 1095-A, such as enrollment premiums and advanced payments. If the tax family had coverage from January - December with no changes to the monthly enrollment premiums or monthly Second Lower Cost Silver Plan (SCLSP) premiums, the taxpayer can complete the annual totals on line 11. Otherwise the taxpayer must enter the monthly amounts on lines 12-23. This section is also where the taxpayer computes their Total Premium Tax Credit, compares the credit to any advance payments (APTC), and if the total premium tax credit is more than the advance credit payments, determines the refundable credit amount (PTC).

    3. Part III: Repayment of Excess Advance Payment of the Premium Tax Credit - This section is for those taxpayers whose advanced payments (APTC) are more than the total PTC computed in Part II. When a taxpayer with household income below 400% of the FPL has an excess advance payment of PTC, the taxpayer compares the excess amount to the amount in the Additional Tax Limitation Table that applies to the taxpayer to determine if all or part of the excess advance payment has to be repaid.

    4. Part IV: Allocation of Policy Amounts - This section allows multiple tax families covered under one insurance policy to allocate the policy premiums, the premiums for the SLCSP, and the advance payment among themselves. Taxpayers determine the percentage to allocate, but must use the same allocation percentage for all policy amounts (premiums, SLCSP, and APTC).

    5. Part V: Alternative Calculation for Year of Marriage - This section allows taxpayers who marry during the taxable year to use the alternative method to compute the repayment for a year in which they were single for part of the year and married for the remainder of the year.

      Note:

      To qualify for Part V, taxpayers must file a joint return and report APTC repayment.

  2. For more information, see the instructions for Form 8962.

At-Filing Overview
  1. Upon receipt of an originally filed Form 1040, Form 1040A or Form 1040NR, with a Form 8962, Premium Tax Credit, attached, Submission Processing will use AVS to calculate the form and identify mismatches between the taxpayer and 3rd party data for enrollment premium(s), SLCSP(s) premiums and APTC amounts. In addition, Submission Processing will also check CDR on all returns to verify if APTC was paid and the taxpayer reconciled the advance payment.

  2. Math error authority can apply when a taxpayer's entry differs from an IRS computed value, such as addition or multiplication errors, an incorrect entry from an FPL table, or an entry on Form 8962 does not match information on Form 1040. However, when there is 3rd party data (CDR) mismatch, math error procedures cannot be used, and the return may be referred to Compliance.

  3. When 3rd party data discrepancies exist, in most instances Submission Processing will correspond with Letter 12C to try to resolve the discrepancy. If the discrepancy is resolved or below tolerance, the return continues through processing. If the discrepancy cannot be resolved and is above tolerance, the return is processed as filed, the refund is frozen or partially frozen, and the return is referred to Compliance. Tolerances can be found in IRM 21.6.3.4.2.12.6.1, 8962 PTC Calculator Response.

  4. The following sub-sections provide math error conditions and Compliance criteria.

Math Error Conditions
  1. The following table provides PTC math error conditions:

    Error Point TPNC AVS Error Code
    Form 8962 is not attached, no APTC received, and Taxpayer reports APTC Repayment in Form 1040 or Form 1040A N/A, sets Computer Condition Code "U" 270
    Taxpayer’s entry for MAGI does not equal IRS computed MAGI 784 271
    Taxpayer’s entry for household income (HHI) does not equal IRS computed HHI 784 271
    Taxpayer’s entry for family size on Form 8962 differs from the number of exemptions claimed on Form 1040 784 271
    Taxpayer’s entry for FPL does not equal IRS computed FPL for family size (table) 784 271
    Taxpayer’s entry for HHI as a percent of FPL does not equal IRS computed entry 784 271
    Taxpayer’s entry for applicable percentage does not equal IRS computed applicable percentage (table) 784 271
    Taxpayer’s entry for annual contribution does not equal IRS computed annual contribution 784 271
    Taxpayer’s entry for monthly contribution does not equal IRS computed monthly contribution 784 271
    Taxpayer using the alternative calculation for marriage (ACM), but the taxpayer’s ACM monthly contribution for primary does not match IRS computed ACM monthly for primary 785 273
    Taxpayer using ACM, but the taxpayer’s ACM monthly contribution for spouse does not match IRS computed ACM monthly for spouse 785 273
    Taxpayer’s total PTC on Form 8962 does not equal IRS computed total 786 274
    Taxpayer’s total APTC on Form 8962 does not equal IRS computed total 787 275
    Taxpayer’s entry for Net PTC on Form 8962 does not equal IRS computed total 788 346
    Taxpayer’s entry for Advance PTC Repayment on Form 1040 does not equal IRS computed amount 789 276
    Taxpayer filing status is MFS and no hardship indicated, and No APTC 790 345
    Taxpayer’s HHI as a percent of FPL is greater than 400%, and no APTC received 791 345
    Taxpayer did not claim exemption for self, spouse, or dependent, but claimed PTC 792 345
    Taxpayer used ACM, but did not report APTC on Form 8962 – ineligible for ACM 793 272
    Taxpayer indicates an ACM family size, but filing status is not MFJ – ineligible for ACM 793 272
    Missing Form 8962, PTC claimed and no APTC received 794 344


    International math error codes can be found in IRM 21.8.1.27.3, PTC math error notices for International.

    Note:

    The AVS error code is populated when AVS identifies a math error condition (or 3rd party data discrepancy, discussed later). See IRM 21.6.3.4.2.12.4, Tools for Accessing ACA-Related Taxpayer Data, for more information.

Compliance Conditions
  1. PTC 3rd party data mismatch errors requiring correspondence with the taxpayer will be given unique error codes to route the case for treatment if the taxpayer fails to respond, or does not provide sufficient information. Error codes indicate one of the following conditions exist:

    • The taxpayer is most likely eligible for PTC but based on error checks, there is a problem in the calculation; PTC is recomputed using CDR data and compared to the taxpayer’s calculation; the difference is recorded as an exposure amount which is used to prioritize Compliance case selection

    • The taxpayer fails the most basic eligibility check of enrollments in a qualified health plan at the Marketplace

    • The taxpayer is ineligible for PTC but attempts to claim PTC, or received APTC but did not attach Form 8962

  2. When PTC is frozen from refund, a "PTC Exposure Amount" (PTC-EXP-AMT) field will be populated in the posted return section on CC TXMOD.

  3. A list of the 3rd party data error codes can be found in IRM 21.6.3.4.2.12.6.1, 8962 PTC Calculator Response.

  4. Procedures for responding to refund inquiries involving a pre-refund Compliance condition can be found in IRM 21.5.6.4.10, -E Freeze.

Correspondence Letters
  1. Various Correspondence Letters include the ACA toll-free number (1-866-682-7451). The toll-free number also contains a 3-digit extension so if the taxpayer calls, the call can be routed to the appropriate agent group.

  2. Letters requesting additional information, the Letter 12C, Letter 178C, and the Letter 324C, contain extension 568, which is answered by those employees who received basic ACA training. See the Responding to Correspondence Letters Requesting Additional ACA Information job aid.

  3. Closing letters, the Letter 105C, Letter 106C, and the Letter 474C, contain extension 569, which is answered by those employees who received full scope ACA account training.

  4. When issuing a letter pertaining to the Premium Tax Credit and there is potential for a call back, be sure to use the ACA toll-free number paragraph and not another toll-free number paragraph.

Advance Premium Tax Credit Notices
  1. Various notices were sent addressing issues with reconciling APTC.

  2. Below is a list of the notices issued and required actions. If a response to one of these notices result in an overpayment, input the adjustment using a priority code 3. Do not input an amended claims date. See IRM 20.2.4.7.5.5, 45-Day Rule and IRS Initiated Adjustments, for more information.

    • Letter 6000 (September 2017) - issued to APTC recipients who did not file a return to reconcile their APTC.

    • Letter 6001 (September 2017) - issued to APTC recipients with an extension of time to file who did not file a return to reconcile APTC.
      Both of the letters warn the taxpayer they may not be eligible for financial assistance for Marketplace health insurance coverage in 2018.

    • Letter 5858 (August / September 2016) - issued to APTC recipients who did not file a return to reconcile their APTC.

    • Letter 5862 (October / November 2016) - issued to APTC recipients with an extension of time to file who did not file a return to reconcile their APTC. Additionally, warns the taxpayer they may not be eligible for financial assistance for Marketplace health insurance coverage in 2017.



    Taxpayers who were issued one of the letters above received a Form 1095-A from the Marketplace showing advance payments of the premium tax credit were made, but we have no record that a return was filed to reconcile those payments.

    Taxpayers must file as soon as possible
     

    • Letter 5598 (December 2015) - issued to taxpayers who filed a return but did not reconcile their APTC (above tolerance).

    • Letter 5599 (January 2016) - issued to taxpayers who filed a return but did not reconcile their APTC (below tolerance).


    These taxpayers received a Form 1095-A from the Marketplace showing advance payments were made but when they filed their return, did not attach Form 8962 to reconcile APTC. These taxpayers would have normally received a Letter 12C, but due to the unavailability of CDR data at the time of filing, a Letter 12C was not sent.
    Letter 5598 advised taxpayers to file an amended return, Letter 5599 advised taxpayers they should file an amended return and attach Form 8962, Premium Tax Credit.
    An amended return is not required to adjust these accounts, follow procedures found in IRM 21.6.3.4.2.12.6, Premium Tax Credit Amended Returns.
    If the taxpayer disagrees with notice, research CDR / IRPOL and if no data is found, apologize to the taxpayer. If data is found but reported under the wrong SSN, advise the taxpayer to contact the Marketplace so they can correct their records. If the letter is correct, advise the taxpayer to reconcile.
     

    • Letter 5591 (July/August 2015) - issued to APTC recipients who did not file a return to reconcile the APTC.

    • Letter 5591-A (July/August 2015) - issued to APTC recipients who did not file a return to reconcile the APTC. Additionally, warns the taxpayer they may not be eligible for financial assistance for Marketplace health insurance coverage in 2016.

    • Letter 5596 (July/August 2015)- issued to APTC recipients with an extension of time to file who did not file a return to reconcile the APTC. Additionally, warns the taxpayer they may not be eligible for financial assistance for Marketplace health insurance coverage in 2016.


    These taxpayers received a Form 1095-A from the Marketplace showing advance payments of the premium tax credit were made but we have no record that a return was filed to reconcile those payments.
    Taxpayers must file as soon as possible.
     

  3. Additional resources:

Tools for Accessing ACA-Related Taxpayer Data
  1. AMS provides tools to verify taxpayer health care related information and for computing Form 8962. The tool pulls information from posted return data, FPL tables and insurance data from CDR, including any APTC paid on behalf of an individual.

  2. Since all data and reference material, except for posted return information, is maintained outside of IDRS, an Integrated Automation Technologies (IAT) tool cannot be used to research or calculate, but IAT can still be used to adjust accounts.

  3. To access taxpayer data, pull up the taxpayer’s account on AMS following normal procedures. Select the ACA tools menu option.

  4. The "8962 PTC Calc" tool will:

    • Provide the user the ability to select Form 8962 data by year (the default is the current processing year ending in 12, Fiscal Year filers must be set to active prior to accessing the tool)

    • Retrieve and display Form 8962 data reported on the original return

    • Allow the user to submit a PTC calculation with or without CDR verification

    • Retrieve and display PTC calculation along with two types of errors; math error descriptions and/or 3rd party data verification discrepancies

    • Calculate and display the calculated amounts which may require adjustment action



    The 8962 PTC Calc screen will be pre-populated with posted return and Form 8962 data, if available. The user will then input or update the data prior to recalculating. After clicking the calculate button, the AVS Figures column will be returned and displayed to the right of the taxpayer’s figures.

    The 8962 PTC Calc provides an option to calculate with CDR validation or without CDR validation (the tool defaults to with CDR validation and that is the recommended option). Using the calculator WITHOUT the CDR validation only performs math verification. Using the calculator WITH CDR validation performs math verification and conducts a 3rd party data check. CDR validation is required when:

    • Form 8962 data is not on file (not filed with original return)

    • when enrollment premiums, SLCSP premiums, or APTC amounts are changing

    • when adding an exemption (dependent or spouse)


    A job aid is available to help employees understand how the calculator is populated and where the corresponding Form 8962 data is placed, see ACA Populating Form 8962 PTC Calculator.

  5. The "Search CDR Data" tool provides the ability to search by SSN, name, address, date of birth, policy number, and ECN. AMS also provides the ability to search reference tables such as the FPL, payback limitation and applicable percentage tables.

    Note:

    Since the SSN of covered individuals doesn't have to be provided on data sent to the Service, searching by an individual's name may provide better results.

  6. AMS does not have the ability to store the AVS responses to the calculation / verification requests.

  7. AMS is the primary method of accessing health insurance data for both research and PTC calculations. However, if AMS or CDR data is unavailable, CC IRPOL can be used to research Form 1095-A data. For more information on CC IRPOL, see IRM 2.3.86, Command Code IRPOL.

Disclosure of Taxpayer Data
  1. General disclosure guidelines are found in IRM 21.1.3.2, General Disclosure Guidelines. The following information provides disclosure guidelines related to providing 3rd party health insurance data of another taxpayer, such as a health insurance policy purchased by an ex-spouse that includes a dependent of the taxpayer as an enrollee on the policy.

  2. When a 3rd party data discrepancy exists, advise the taxpayer of the discrepancy and how to address it. Do not provide 3rd party data unless the taxpayer is unable to secure it from the Marketplace (see The Health Insurance Marketplace for a list of contact telephone numbers) or the owner of the policy. While Coverage Data Repository (CDR) should be used for research, if providing the 3rd party data, only data from the Form 1095-A can be provided (the Form 1095-A is the authoritative source). Do not provide CDR data.

    Note:

    Form 1095-A data belonging to one individual may be disclosed to another taxpayer if the use of that data is directly related to resolving the other taxpayer's filing / reporting requirements. However, disclosure of another individual's Form 1095-A data can only be made after the filing of Form 1040 / Form 1040-X where the reconciliation of APTC and/or the eligibility or amount of PTC is at issue.

  3. Form 1095-A data can be accessed via CC IRPOL. The format for CC IRPOL is: IRPOLAnnnnnnnnnvyyyydd. The document code (dd) for Form 1095-A is 07. For more information on CC IRPOL, see IRM 2.3.86, Command Code IRPOL.

  4. If a taxpayer requests assistance in obtaining another individual's Form 1095-A data, the following information can be provided so that the taxpayer may comply with his or her own filing or reporting requirements:

    • Recipient's name

    • Policy number

    • Covered individual(s) name (those shown on the return)

    • Number of covered individuals

    • Enrollment Premium amount / month(s)

    • SLCSP premium amount / month(s)

    • APTC amount / month(s)

  5. Data that cannot be disclosed include:

    • Recipient / spouse SSN

    • Recipient / spouse DOB

    • Recipient spouse's name

    • Address

    • Covered individual(s) not being claimed on the taxpayer's return (the person requesting the data)

  6. CC IRPOL prints can be provided to the taxpayer, but data shown in (5) must be sanitized.

    Note:

    The Quick Command Code (QCC) IAT tool cannot be used to sanitize IRPOL.

  7. The following are examples of when a taxpayer may request Form 1095-A data of another taxpayer:

    Example:

    Taxpayer A files a return claiming his daughter as a dependent. His ex-wife (Taxpayer B) enrolled herself and the daughter in health insurance coverage via the Marketplace and advance payments of the premium tax credit were made for the coverage. Even though the daughter was part of Taxpayer's B policy, Taxpayer A is required to reconcile the advance payment made for his daughter's coverage (by completing Part IV, Allocation of Policy Amounts).

    Example:

    Taxpayer A files a return claiming his son as a dependent. His son purchased insurance through an insurance marketplace and advance payments of the premium tax credit were paid on his behalf.


    In both of these examples, Form 1095-A data belonging to another taxpayer may be disclosed to Taxpayer A who is required to reconcile the APTC even though the Form 1095-A is not his/her data. Keep in mind, the disclosure can only be made after Taxpayer A files and the discrepancy is identified.

  8. For inquiries regarding an individual's own Form 1095-A or non-receipt of Form 1095-A, see IRM 21.3.6.5, Health Coverage Statements.

Premium Tax Credit Notice / Letter Responses
  1. Explaining PTC math errors can generally be done using Command Code (CC) RTVUE / CC TRDBV, CC TXMOD, using the math error notice table found in IRM 21.6.3.4.2.12.3.1, Math Error Conditions, and/or using the 8962 PTC calculator with PTC calculated using the at-filing data.

  2. The majority of PTC math errors can be resolved without additional documentation, see IRM 21.5.2.4.2, Adjustments With Oral Statement. As with other credits, math errors impacting other areas of the return, such as filing status, exemptions and total income, can have an impact on PTC, and must be taken into consideration when computing PTC.

  3. The following paragraphs address entering data into the PTC calculator, consider the following prior to input:

    • A Form 8962 cannot be "dummied" , but can be edited. Per the instructions for Form 8962, if a taxpayer lived in Alaska or Hawaii at any time during the year, they can use the FPL table with the higher dollar amounts. As such, we can’t determine which FPL table applies.

    • We will not determine a dependent’s MAGI, but you can edit the Form 8962 if the taxpayer entered their MAGI in the dependent’s MAGI field.

    • Ensure the MAGI and family size shown are correct.

    • If a Form 1095-A is attached, ensure the data is entered correctly on the Form 8962, such as monthly calculation is used when all 12 months are not the same. Failure to do so could result in an incorrect calculation.

    • If a Form 1095-A is attached, ensure the taxpayer allocated policies if it appears multiple tax families are covered on the Form 1095-A.

      Note:

      If it appears the taxpayer did allocate but did not complete part IV, if AVS does not return an error message, accept the Form 8962 as filed. If AVS returns an error, request allocation.

  4. When a taxpayer provides substantiation that the math error condition is incorrect, or sends a late response to a Letter 12C, and there is no Compliance freeze on the module, recalculate the Form 8962 using the "8962 PTC Calc" , found in the AMS ACA tools. 3rd party data validation (CDR) is not needed in most instances. Refer to IRM 21.6.3.4.2.12.6.1, 8962 PTC Calculator Response, for processing the calculator response. However, if a Form 8962, Premium Tax Credit (PTC), was not attached to the return, see (5), or if correcting an SSN to allow an exemption, see (6).

    Note:

    Whether or not a math error has been charged, if the taxpayer didn't respond to the Letter 12C in a timely manner, assistors can update the account without having an amended return as long as a discrepancy as shown in (6) is not identified. When doing so, if a PTC credit is allowed that was not claimed on the original return and the credit results in a refund, input a priority code 3. Do not input an amended claims date.

    Note:

    If the taxpayer's filing status is Married Filing Separately, PTC is not allowed unless the taxpayer meets the exception criteria, as shown in IRM 21.6.3.4.2.12.2, Qualifications.

  5. When a taxpayer provides a missing Form 8962, 3rd party data verification (CDR) must be conducted. Input the data into the "8962 PTC Calc" tool and calculate with CDR validation to verify the amounts reported for premium(s), SLCSP(s) and APTC.

    Reminder:

    The PTC calculator can identify two types of errors; math errors and/or 3rd party data discrepancies (mismatches).

  6. When correcting an SSN, 3rd party verification (CDR) must be conducted to verify if APTC was paid on behalf of the person for whom the exemption is being allowed.

    Note:

    If APTC was paid on behalf of the individual for whom the exemption is being allowed, a Form 8962 must be provided to reconcile the APTC before correcting the TIN related math error. If a Form 8962 was filed with the original return, determine the impact, if any, using the AMS “8962 PTC Calc” tool. If a Form 8962 was not filed, research CDR to see if APTC was reported for that individual.

  7. For both (5) and (6), if AVS returns a 3rd party data discrepancy error code (see IRM 21.6.3.4.2.12.6.1, 8962 PTC Calculator Response, for a list of the error codes), the account cannot be adjusted. Advise the taxpayer he/she must file an amended return and attach documentation addressing the discrepancy, and no action will be taken at this time to address any math error.

    Note:

    Unsubstantiated math error processing does not apply to 3rd party data discrepancies.

    Exception:

    If the taxpayer attached Form(s) 1095-A that addresses all conditions, run the tool again without CDR verification and adjust the account accordingly.

    Note:

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  8. See IRM 21.6.3.4.2.12.7, Adjusting Accounts, for the appropriate reference numbers and reason codes.

Loose Forms
  1. A loose Form 1095-A and/or Form 8962 received in Accounts Management may be a response to a 12C letter, an attempt to claim a credit or report additional tax owed, or as an attachment to the taxpayer's return.

  2. When a loose Form 1095-A and/or Form 8962 is received and a return has not posted, refer to the following table:

    If Then
    The return is in ERS suspense and ERS requested the Form 1095-A (as shown on CC ENMOD, Letter 12C, paragraphs 6, 8, 9, a, b, or e), and/or Form 8962 (Letter 12C, paragraphs 5, 6, 7, 8, b, c, or d) Fax the Form 1095-A and/or Form 8962 to the appropriate ERS campus, see IRM 21.4.1.4.1.2.4, Error Resolution System (ERS) Status Codes, for fax numbers.
    The return is not in ERS suspense, or ERS did not request the Form 1095-A and/or Form 8962 See IRM 21.5.1.4.4, Processing of Loose Forms or Schedules
  3. When a loose Form 1095-A and/or Form 8962 is received and a return has posted, refer to the following table:

    If Then
    Compliance activity on the module See IRM 21.5.6.4.10, -E Freeze and IRM 21.5.10.4.1.2, Compliance Refund Hold Projects
    You can determine that no adjustment will be necessary, such as a Form 8962 is on file and the data matches. Add a case note to identify the loose form.
    An adjustment is needed (data doesn't match) and sufficient information is available

    Note:

    A Form 8962 cannot be "dummied" . Per the instructions for Form 8962, if a taxpayer lived in Alaska or Hawaii at any time during the year, they can use the FPL table with the higher dollar amounts. We cannot make that determination of which FPL table applies. In addition, we will not determine a dependent’s MAGI. Editing of the Form 8962 is acceptable.

    See IRM 21.6.3.4.2.12.5, Premium Tax Credit Notice / Letter Responses.

    Reminder:

    If the account contains an I- freeze, be sure to follow procedures found in IRM 21.5.6.4.17, I- Freeze, for updating the return processable date.

    You are unable to determine an adjustment is needed, or an adjustment is needed but sufficient information is not available to make the adjustment (such as only Part I completed) Advise the taxpayer that a Form 1040-X is required to amend the original return.

    Note:

    A Form 1095-A marked as Void means the form is no longer valid. The taxpayer is not liable for any APTC originally reported on the form, nor are they eligible for any credit for data originally reported. A Form 8962 does not have to be submitted to update the account.

Premium Tax Credit Amended Returns
  1. Generally, amended returns impacting PTC / APTC repayment will be run through “8962 PTC Calc” tool in AMS. For some amended returns the impact will be obvious, such as a Form 8962, Premium Tax Credit (PTC), attached, or PTC claimed on the amended return. For others, the impact to PTC will not be obvious, such as a change to income, adding/deleting a dependent, or changing a filing status but a Form 8962 is not attached nor addressed on the amended return. For these types of amended returns, review Command Code (CC) TXMOD or CC IMFOLR / T for the presence of the PTC associated data elements shown in IRM 21.6.3.4.2.12.7, Adjusting Accounts. If present, or adding a dependent or spouse, follow the table in (6) below. Otherwise, follow normal procedures.

  2. The "8962 PTC Calc" tool provides an option to calculate with CDR validation or without CDR validation. CDR validation is required when:

    • Form 8962, Premium Tax Credit, data is not on file (not filed with the original return)

    • Changing data elements on Form 8962 such as enrollment premium amounts, SLCSP premiums, APTC or family size

    • Adding an exemption (dependent or spouse)

    • Updating the TIN of an exemption

  3. Depending on which method of calculation is used, how we arrive at CAT-A criteria is different.

    • With CDR validation - CAT-A criteria is when the exposure amount is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • Without CDR validation - CAT-A criteria is the net change to PTC / APTC of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . This can be a PTC increase, APTC decrease, or a combination of the two.

    See Exhibit 21.5.3-3, Examination Criteria (CAT-A) - Credits.

  4. The appropriate actions to take to process an amended return claiming PTC, reporting APTC or impacting PTC depends on what is being requested, what information is being provided and what information we currently have on file.

  5. Taxpayers can claim both a self-employed health insurance deduction and PTC for the same premiums; however, the sum of deduction and the Total PTC (Form 8962, line 24) cannot exceed the taxpayer’s enrollment premiums. See Pub 974, Premium Tax Credit (PTC). When the amount of the self-employment health insurance deduction plus total PTC exceed enrollment premiums (Form 8962 line 11a or the sum of lines 12a - 23a), send a Letter 178C with the following paragraphs:
    Publication 974 states taxpayers eligible for both a self-employed health insurance deduction and the PTC for the same premiums, can use any computation method that results in reporting amounts that satisfy the rules for both the deduction and PTC, as long as the sum of the deduction claimed for the premiums and the PTC computed is less than or equal to the enrollment premiums.
    Because your deduction and PTC exceed the enrollment premiums, we need for you to provide supporting documentation of the amount claimed as the self-employment health insurance deduction for insurance obtained outside of the Marketplace. If your only insurance is through the Marketplace, calculate the deduction and/or credit using Publication 974 worksheets.

    • If the taxpayer later provides proof of insurance obtained outside the Marketplace - allow the claim

    • If the taxpayer later provides a computation based on the worksheets - allow the claim

  6. The following table provides initial actions for amended returns impacting PTC / APTC repayment, however, consider the following:

    • A Form 8962 cannot be "dummied" , but can be edited. Per the instructions for Form 8962, if a taxpayer lived in Alaska or Hawaii at any time during the year, they can use the FPL table with the higher dollar amounts. As such, we can’t determine which FPL table applies.

    • We will not determine a dependent’s MAGI, but you can edit the Form 8962 if the taxpayer entered their MAGI in the dependent’s MAGI field.

    • Ensure the MAGI and family size shown are correct.

    • If a Form 1095-A is attached, ensure the data is entered correctly on the Form 8962, such as monthly calculation is used when all 12 months are not the same. Failure to do so could result in an incorrect calculation.

    • If a Form 1095-A is attached, ensure the taxpayer allocated policies if it appears multiple tax families are covered on the Form 1095-A.

      Note:

      If it appears the taxpayer did allocate but did not complete part IV, if AVS does not return an error message, accept the Form 8962 as filed. If AVS returns an error, request allocation.

    If And Then
    Form 8962 is attached to Form 1040-X, or a loose Form 8962   Input the Form 8962 data into the 8962 PTC calculator, then follow IRM 21.6.3.4.2.12.6.1, 8962 PTC Calculator Response
    Form 8962 is NOT attached to Form 1040-X -
    *PTC associated data elements are present on the module
    Form 1040-X is reporting an increase / decrease in income, adding / deleting an exemption, and/or reporting an additional / corrected Form 1095-A Input the updated AGI, exemption data, and/or corrected Form 1095-A data into the 8962 PTC calculator and follow IRM 21.6.3.4.2.12.6.1, 8962 PTC Calculator Response
    Form 8962 is NOT attached to Form 1040-X -
    *PTC associated data elements are present on the module
    Form 1040-X is NOT reporting an increase / decrease in income, adding / deleting an exemption, and/or reporting an additional / corrected Form 1095-A
    • Form 1040-X filed to increase PTC - reject as an incomplete claim, see IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing

    • Form 1040-X filed to decrease PTC - **input the requested adjustment and correspond for the missing form, see IRM 21.5.3.4.1, Tax Increase or Credit Decrease Processing

    • Form 1040-X filed to decrease Excess APTC Repayment - reject as an incomplete claim, see IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing

    • Form 1040-X filed to increase Excess APTC Repayment - input the requested adjustment and correspond for the missing form, see IRM 21.5.3.4.1, Tax Increase or Credit Decrease Processing

    Form 8962 is NOT attached to Form 1040-X -
    *PTC associated data elements are NOT present on the module
    Form 1040-X is adding an exemption Use the "Search CDR Data" tool to determine if APTC was paid on behalf of the individual being added to the account.

    APTC was paid - suspend and contact the taxpayer for the missing Form 8962
    • Form 8962 provided - input the Form 8962 data into PTC calculator and follow IRM 21.6.3.4.2.12.6.1, 8962 PTC Calculator Response

    • Form 8962 NOT provided - "no consider" the claim, see IRM 21.5.3.4, General Claims Procedures. Taxpayers claiming the exemption are required to reconcile any APTC.



    APTC was NOT paid - follow normal procedures for adding exemption
    Form 8962 is NOT attached to Form 1040-X - PTC is NOT on the module 1040-X reporting a PTC credit Reject as an incomplete claim, see IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing
    Form 8962 is NOT attached to Form 1040-X - APTC is NOT on the module 1040-X reporting Excess APTC Repayment **Input the requested adjustment and correspond for the missing form, see IRM 21.5.3.4.1, Tax Increase or Credit Decrease Processing

    *The PTC exposure amount field is not considered a data element.
    **The amount for the item reference number(s) shown in IRM 21.6.3.4.2.12.7, Adjusting Accounts, cannot be determined. For a tax increase, input a TC 290, reason code 152. For a credit decrease, input a credit reference number (CRN) 262, reason code 151. No other PTC related item reference numbers should be used.

    Note:

    A Form 1095-A marked as Void means the form is no longer valid. The taxpayer is not liable for any APTC originally reported on the form, nor are they eligible for any credit for data originally reported. A Form 8962 does not have to be submitted to update the account.

8962 PTC Calculator Response
  1. After data is entered into the calculator, the response provided dictates the course of action. The PTC calculator will be returned to the top of the tool where, if applicable, the exposure amount and an alert that error conditions were found will be displayed. Specific error conditions will be displayed at the top of each section of the calculator. See the table below for specific actions.

    Note:

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

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    ≡ ≡ ≡ ≡ ≡ ≡ ≡
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    If Then
    No math error or 3rd party data error codes are returned Adjust the account as requested by the taxpayer. See IRM 21.6.3.4.2.12.7, Adjusting Accounts, for the appropriate reference numbers and reason code(s).
    AVS identifies a math error condition only (such as addition or multiplication errors or an incorrect entry from a table)

    Note:

    See IRM 21.6.3.4.2.12.3.1, Math Error Conditions, for a list of math error conditions. Be sure to select the appropriate paragraph in the 474C letter that best describes the math error.

    Adjust the account following procedures in IRM 21.5.4, General Math Error Procedures, and IRM 21.6.3.4.2.12.7, Adjusting Accounts.

    Note:

    Use the AVS figures provided to adjust the PTC data elements.

    AVS returns a 3rd party data error code, as shown below Continue with the next paragraph
  2. If AVS returns a 3rd party data error code, the corresponding CDR policy data is provided by the tool as part of the error message. The calculation provided is only based on the taxpayer's figures. Attach a PDF print of the AVS response in CIS. Below is a list of the 3rd party data discrepancy (mismatch) error conditions and corresponding error code:

    3rd Party Data Error Condition AVS Error Code
    F8962 is not attached, APTC received, and Taxpayer claims PTC in F1040/1040A 190
    F8962 is not attached, APTC received, and Taxpayer reports APTC Repayment in F1040/1040A 190
    F8962 is not attached, APTC received, and Taxpayer reports APTC Repayment equal to APTC 190
    F8962 is not attached, taxpayer received APTC, no PTC claimed, and no APTC Repayment reported on 1040 190
    Ineligible for PTC based on Citizenship, FPL% is less than 100%, and no APTC 191
    Taxpayer entry for dependent MAGI on Form 8962 exists, but does not claim at least one dependent as an exemption on tax return 192
    Taxpayer's Dependent MAGI amount equal to computed MAGI amount 192
    Taxpayer indicates an alternative calculation for year of marriage (ACM) family size, but ACM family size is greater than or equal to computed family size 193
    Incorrect ACM start and stop month (Start or stop month is not present, or stop month is before the start month) 193
    Taxpayer indicates an ACM family size, but the sum of ACM family sizes does not equal computed family size 193
    Incomplete Allocation Method Data (Taxpayer does not complete all the entries required for an allocation. Required entries are Allocated Policy Number, Allocation SSN, at least one Allocation Percentage, and start/stop months) 194
    Incorrect Allocation Method Data (Start month is before stop month) 194
    Incomplete Allocation Method Data (Taxpayer did not provide any of percentage of allocation for enrollment premiums, percentage of allocation for SLCSP premiums, and percentage of allocation for APTC) 194
    Allocation Policy Mismatch with Exchange Policy 194
    Failed Exchange Enrollment 195
    Invalid use of annual calculation, Exchange data shows premium and SLCSP are not the same values for all 12-months 196
    Taxpayer provides annual calculation, but Form 8962 includes entries for ACM or shared policy allocation 196
    Annual Premium Exchange data match failure 197
    Monthly Premium Exchange data match failure (January – December) 197
    Annual Premium for SLCSP Exchange data match failure 198
    Monthly Premium for SLCSP Exchange data match failure (January – December) 198
    Annual APTC Exchange data match failure 199
    Monthly APTC Exchange data match failure (January – December) 199
    F8962 is not attached, APTC received, and Taxpayer claims PTC in F1040/1040A 344
  3. When a 3rd party data discrepancy is identified:

    1. Compare the AVS data to CC IRPOL or Form 1095-A, if attached. If the Form 1095-A is hand-written, use CC IRPOL data.
      If CC IRPOL or Form 1095-A data matches the taxpayer’s figures, run the calculator again without CDR validation.
      If CC IRPOL data matches AVS, or doesn’t match but is different than the taxpayer’s figures, continue with 2.

    2. Determine if correspondence was previously sent addressing the issue, such as a Letter 12C or Letter 178C.
      If correspondence was previously sent, follow the incomplete or no response procedures below.
      If correspondence was not sent, send Letter 178C or Letter 324C, using the appropriate ACA paragraphs, and suspend the case for 40 days.

  4. If a response is received, or no response and the suspense period has expired, see the following table for the appropriate action.

    Note:

    Cases will be referred to CAT-A when the exposure amount is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    If And Then
    Response received that completely addresses the error condition   Input the information into the PTC Calc Tool. Perform a calculation only. Adjust the account as appropriate.
    Incomplete or no response CAT-A criteria is met Refer the case to Exam as CAT-A criteria. Document the exposure amount, as provided by AVS (shown at the top of the calculator), in CIS.
    TC 976 processing - Incomplete or no response The APTC Repayment Calculator (not to be confused with the 8962 PTC calculator found in AMS) identifies an exposure amount Review the instructions tab on the calculator to determine CAT-A criteria, which may be different than the amount shown above.
    CAT-A criteria is met
    • Refer the case to Exam as CAT-A criteria.

    • Document the exposure amount in CIS.


    CAT-A criteria is NOT met - accept PTC / APTC as filed.

    Note:

    If a PTC credit is claimed but a Form 8962 is not provided, do not allow the credit.

    CAT-A criteria is NOT met Error code is 190 or 344
    • Form 1040-X reporting PTC - reject as an incomplete claim, see IRM 21.5.1.5.6, Incomplete CIS Claims

    • Form 1040-X reporting Excess APTC Repayment - accept as filed

    • Form 1040-X reporting neither - accept as filed

    CAT-A criteria is NOT met Error code is 191 Masterfile indicates:
    • PTC - do not allow PTC if reported on Form 1040-X and remove previously allowed PTC

    • Excess APTC Repayment - do not allow PTC if reported on Form 1040-X, do not remove previously assessed liability

    • Neither - do not allow PTC if reported on Form 1040-X, however, do assess Excess APTC Repayment reported on the form

    See IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns
    CAT-A criteria is NOT met Error code is other than one listed above Form 1040-X reporting:
    • Increase to PTC or decrease to Excess APTC Repayment - no consideration

    • Decrease to PTC or increase to Excess APTC Repayment - accept as filed

    • Neither - accept as filed

    See IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns
Adjusting the Account
  1. PTC allowed on the original return posts as a computer-generated Transaction Code (TC) 766, credit reference number 262. Excess APTC Repayment is included in the total tax.

  2. Posted PTC associated data can be viewed in the posted return section of CC TXMOD and CC IMFOLR. Below are the data elements and the applicable credit reference number (CRN) and item reference number (IRN):

    Data Element CRN / IRN Form 8962, Line # IMFOLR Term TXMOD Term
    Premium Tax Credit 262 26 TC 766 TC 766
    Advance Premium Tax Credit 865 25 TOTAL APTC ADV PTC AMT
    Total Premium Tax Credit 866 24 TOTAL PTC PTC AMT
    Excess APTC Repayment 867 29 APTC REPMT PTC LIAB AMT
    Excess Advance Payment Above Limitation 868 * LIMIT AMT PTC LIMITATION AMT
    ** PTC Exposure Amount N/A N/A PTC EXPSR PTC EXP AMT


    * the difference between line 27 and line 28 if line 27 is greater than 28
    ** ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ This is not an adjustable field and should not be considered one of the PTC data elements described in previous sections.

    Note:

    Premium Tax Credit (CRN 262) and Total Premium Tax Credit (IRN 866) are not the same. IRN 866 - IRN 865 (if smaller) = CRN 262.

    Reminder:

    When performing a calculation using the PTC calculator, the figures provided in the AVS column are the end result. Adjust the posted data on IDRS to match the AVS figures using the appropriate reference numbers as shown on the PTC calculator screen.

    Exception:

    When Form 8962, Part 5, Alternative Calculation for Year of Marriage, is completed, if the calculator returns what appears to be a refundable credit, but the Net PTC field is blank, adjust the Total PTC to match the Total APTC when adjusting the module.

  3. When adjusting PTC related data, use the following reason codes, as appropriate:

    • 151 - PTC (refundable credit issue)

    • 152 - Excess Advance PTC Repayment (tax liability issue)

  4. A priority code 3 is required for any IRS initiated adjustment resulting in an overpayment, such as a Letter 12C response or one of the notices shown in IRM 21.6.3.4.2.12.3.4, ACA Notices.

  5. Adjustments to PTC and APTC repayment can be input using the xClaim tool, Line 6 - Tax, and Line 15 - Other Credits.

  6. When adjusting the module, use the appropriate source code and blocking series.

Failure to Reconcile Advanced Payment of the Premium Tax Credit
  1. The IRS provides filing history, or "flags" , to the Marketplace to be used by the Marketplace when determining APTC eligibility. Those "flags" are:

    • Failure to file (taxpayer hasn’t filed a return)

    • Taxpayer filed an extension

    • Taxpayer filed but didn’t reconcile APTC

  2. Each week, IRS compiles posted return data and provides information to the Marketplace upon request. Taxpayers whose return or amended return was not posted prior to the beginning of the weekly update could receive a flag.

  3. Taxpayers may contact IRS after receiving notification from the Marketplace that they may not be eligible for APTC. Taxpayers are not advised which flag was triggered, and which of the two latest tax years, or both, could have triggered it. Take the following action:

    If Then
    Taxpayer has not filed a return Advise the taxpayer:
    • to file a return and attach a completed Form 8962.

    • of return processing time frames and when updated information may be available to the Marketplace

    Taxpayer has filed a return, but did not reconcile APTC Advise the taxpayer:
    • to file an amended return and attach a completed Form 8962

      Exception:

      If the taxpayer received a Letter 12C, see IRM 21.6.3.4.2.12.5, Premium Tax Credit Notice / Letter Responses

    • of return processing time frames and when updated information may be available to the Marketplace

    Taxpayer did reconcile Determine when the data posted to IDRS and provide an estimate of when updated information may be available to the Marketplace.

    Note:

    If APTC was reconciled on the original return and their Marketplace will accept a transcript as proof, the taxpayer can order a return transcript. Amended return data is not populated on transcripts.

    Note:

    Return processing time frames can be found in IRM 21.4.1.4, Refund Inquiry Response Procedures.

Credit Recertification

  1. Due to the complex nature of the recertification process, this section and following subsection (IRM 21.6.3.5.1, Credit Recertification Math Errors), should be read in the entirety. Adhere closely to all procedures.

  2. Taxpayers who are denied one of the following credits as a result of deficiency procedures, will be denied the credit(s) as a mathematical error for the subsequent year(s) unless they provide information that demonstrates eligibility for the credit and file Form 8862, Information to Claim Certain Credits After Disallowance, with their subsequent return.

    • Additional Child Tax Credit (ACTC)

    • American Opportunity Tax Credit (AOTC)

    • Child Tax Credit (CTC)

    • Earned Income Tax Credit (EITC)

    Note:

    Generally, Form 8862 is required only for the first return filed claiming any of these credits after disallowance. However, if the taxpayer files a second return (subsequent tax year) before demonstrating eligibility with respect to the first return, Form 8862 must be attached to the second return.

  3. Taxpayers who are denied ACTC, AOTC, CTC, and/or EITC as a result of deficiency procedures:

    • will be denied the credit(s) (including the Credit for Other Dependents (ODC)) for the tax year(s) filed after the denial unless the taxpayer attaches a Form 8862 to his/her return and otherwise demonstrates eligibility for the credit.

      Note:

      For tax year 2018 returns, although ODC was not denied via deficiency procedures, since the credit falls under the IRC governing CTC/ACTC, recertification procedures apply.

      Note:

      If the taxpayer is claiming AOTC and/or EITC without a qualifying child, Form 8862 is not required.

    • will be denied the credit(s) for two tax years if the claim is determined to be due to reckless or intentional disregard of the rules and regulations.

    • will be denied the credit(s) for ten tax years if the claim is determined to be due to fraud.

  4. When ACTC, AOTC, CTC, and/or EITC are disallowed due to deficiency procedures, a CP 79, Denied Credit Eligibility Requirement, is sent to the taxpayer explaining the credit disallowance and the requirement to attach Form 8862 to their next return. A Recertification Indicator is set based on the result of the examination (indicators are shown in IRM 21.6.3.5.1, Credit Recertification Math Errors).

  5. Below are possible inquiries regarding Form 8862 and how to respond to them:

    If Then
    A taxpayer submits Form 8862 for a year other than the current tax year Research CC TXMOD to determine if the form was submitted in response to a math error on a late filed prior year return. If the form was filed in response to a math error, see IRM 21.6.3.5.1, Credit Recertification Math Errors, for appropriate procedures.
    A taxpayer submits Form 8862 for the year in which the deficiency assessment occurred Return Form 8862 to the taxpayer explaining the form does not certify them for the credit claimed on a prior return. Refer the taxpayer to Pub 3598, What You Should Know About the Audit Reconsideration Process. You can use paragraph Q in Letter 32C, EIC Qualifications and Adjustments, as a guide.
    A taxpayer submits Form 8862 prior to filing his or her first tax return after the deficiency assessment Return Form 8862 to the taxpayer and explain the requirement to file the form with the next tax return on which he or she claims ACTC, AOTC, CTC, EITC, and/or ODC.
    Form 8862 is received without the return and the return has posted Research to see if a math error notice was issued. If filed in response to a math error, see IRM 21.6.3.5.1, Credit Recertification Math Errors.
    The taxpayer calls and states his/her return was filed but Form 8862 was not attached, or the taxpayer wants to fax Form 8862 Advise the taxpayer he/she will receive a math error notice and to send in the form when the notice is received.
  6. If the taxpayer received a CP 79 and the reason for the contact is for information or clarification concerning the notice or the recertification process, explain:

    • ACTC, AOTC, CTC, EITC, and/or ODC was disallowed in full or in part as the result of an examination.

    • In order to claim the credit(s) on the next return, the taxpayer must file Form 8862 with the return.

    • If the return is filed claiming ACTC, AOTC, CTC, and/or EITC and a Form 8862 is not attached, the credit(s) will be denied.

    • If the return is filed with Form 8862 attached, the refund may be delayed until the taxpayer’s entitlement to claim the credit(s) is verified.

  7. When the 2 or 10 year ban is set, a CP 79A, Denied Credit Two Year Ban and Eligibility Requirement, or CP 79B, Denied Credit Ten Year Ban, is issued advising the taxpayer of the ban and the next year he/she will be eligible to claim the credit(s).

  8. When the Recertification Indicator is removed, a CP 74, You’ve Successfully Re-certified for the Credits You Claimed, is issued informing the taxpayer they have recertified for the credit(s) and will receive a refund within 6 weeks, provided they owe no other taxes or debts the IRS is required to collect.

  9. If the taxpayer has additional information to submit, or requests reconsideration, follow procedures in IRM 21.5.10, Examination Issues.

Credit Recertification Math Errors

  1. Once ACTC, AOTC, CTC, and/or EITC is disallowed through deficiency procedures, taxpayers must file Form 8862, Information to Claim Certain Credits After Disallowance, with the next return on which the taxpayer claims the credit(s). See instructions for Form 8862 for exceptions. Exam reviews all returns with Form 8862 to determine if the credit(s) is allowable.

  2. The entity module will reflect a Recertification Indicator if the credit was disallowed through deficiency procedures, or if Exam determines recertification is no longer required. CC ENMOD displays the indicator under the literal "RECERT-IND" . The entity module will also provide the following literals:

    • The ENMOD literal "TXPD>" identifies the tax year the ban was set.

    • The ENMOD literal "EL-TXPD>" identifies the tax year the ban will be lifted.

    • The IMFOLE literal "RECRT TXPD>" identifies the tax year the ban was set.

    • The IMFOLE literal "ELG TXPD>" identifies the tax year the ban will be lifted.


    Each credit has its own literal (CTC is captured under ACTC).

  3. If the taxpayer responds to a recertification math error and does not understand the reason for the notice, explain:

    • the prior disallowance

    • the need to file Form 8862 if the taxpayer believes he/she is entitled to the credit for the current tax year

    • if the taxpayer files Form 8862, Exam may review to determine if the credit is allowable

  4. If the taxpayer cannot or will not file Form 8862 and demands the credit(s), follow procedures in IRM 21.5.4.5.5, Math Error Unsubstantiated Protest Processing.

  5. Follow the procedures below when the account contains a Recertification Indicator (RI) and an inquiry in response to a recertification math error is submitted or a claim is filed. When applying tolerance criteria below, and the taxpayer submits Form 8862 for multiple tax years, treat each year as a separate case.

    Reminder:

    The claim or inquiry must include a Form 8862 if recertification is required.

    Note:

    Telephone calls only: If math error 100 (with a recertification indicator), 653, 814 - 816, and/or 819 - 824 is present, do not access CC DDBCK, tell the caller we will correct their account when they mail Form 8862. Faxes cannot be accepted. If there are multiple math errors, ensure the taxpayer addresses those issues in their response.

    Caution:

    When working math error 100, 653, 814 - 816, and/or 819 - 824 responses and accessing DDBCK, do not use blocking series 74 unless directed to IRM 21.5.4.5.5, Math Error Unsubstantiated Protest Processing.


    CC DDBCK has a new field titled "RefCR (L15)" , for credits shown on line 15 of Form 1040-X. ACTC and AOTC should be entered in that field.

    RI is and Action: unable to access DDBCK Action: able to access DDBCK
    Blank or 00 Recertification is no longer required Verify eligibility is met and allow the credit(s). Do not use BS 74. Verify eligibility is met and allow the credit(s). Do not use BS 74.
    1 Recertification is required Total credit is:
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    • Input the data into CC DDBCK

    • On DDBCK’s Return Summary Screen, overlay "YYYYMMDD" , under "Claim Rcvd Dates" , with the received date of the Form 8862 or Form 1040-X. Use Category Code "EICC"

    • See IRM 21.6.1.7.2 (10), Command Code DDBCK, for the appropriate actions

    9 Recertification is required
    RI 9 indicates the taxpayer’s credit was adjusted due to an adjustment to income
    Total credit is:
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    • Input the data into CC DDBCK

    • On DDBCK’s Return Summary Screen, overlay "YYYYMMDD" , under "Claim Rcvd Dates" , with the received date of the Form 8862 or Form 1040-X. Use Category Code "EICC"

    • See IRM 21.6.1.7.2 (10), Command Code DDBCK, for the appropriate actions

    2 The tax year is less than the EL-TXPD
    Taxpayer is under a 2 year ban and is not entitled to the credit
    • Filed within 60 days of the math error notice - follow procedures in IRM 21.5.4.5.5, Math Error Unsubstantiated Protest Processing.
    •Filed after 60 days of the math error notice, or this is the first time the taxpayer is claiming the credit for the year - deny the credit and send Letter 474C using the appropriate paragraph indicating the reason for the ban.
    • Input the data into CC DDBCK

    • On DDBCK’s Return Summary Screen, overlay "YYYYMMDD" , under "Claim Rcvd Dates" , with the received date of the Form 8862 or Form 1040-X. Use Category Code "EICC"

    • See IRM 21.6.1.7.2 (10), Command Code DDBCK, for the appropriate actions

    Note:

    If the DDBCK response is "RECERT IND Present - Follow IRM" , follow procedures to the left for employees unable to access DDBCK.

    2 The tax year is greater than or equal to the EL-TXPD
    Recertification is required
    Total credit is:
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    • Input the data into CC DDBCK

    • On DDBCK’s Return Summary Screen, overlay "YYYYMMDD" , under "Claim Rcvd Dates" , with the received date of the Form 8862 or Form 1040-X. Use Category Code "EICC"

    • See IRM 21.6.1.7.2 (10), Command Code DDBCK, for the appropriate actions

    3 The tax year is less than the EL-TXPD
    The taxpayer recertified for the credit after the disallowance, but is still under a ban for the banned years.
    • Filed within 60 days of the math error notice - follow procedures in IRM 21.5.4.5.5, Math Error Unsubstantiated Protest Processing.
    • Filed after 60 days of the math error notice, or this is the first time the taxpayer is claiming the credit for the year - deny the credit and send Letter 474C using the appropriate paragraph indicating the reason for the ban.
    • Input the data into CC DDBCK

    • On DDBCK’s Return Summary Screen, overlay "YYYYMMDD" , under "Claim Rcvd Dates" , with the received date of the Form 8862 or Form 1040-X. Use Category Code "EICC"

    • See IRM 21.6.1.7.2 (10), Command Code DDBCK, for the appropriate actions

    3 The tax year is greater than or equal to the EL-TXPD
    Recertification is not required
    Total credit is:
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    • Input the data into CC DDBCK

    • On DDBCK’s Return Summary Screen, overlay "YYYYMMDD" , under "Claim Rcvd Dates" , with the received date of the Form 8862 or Form 1040-X. Use Category Code "EICC"

    • See IRM 21.6.1.7.2 (10), Command Code DDBCK, for the appropriate actions

    4 The tax year is less than the EL-TXPD
    The taxpayer is under a 10 year ban and is not entitled to the credit.
    • Filed within 60 days of the math error notice - follow procedures in IRM 21.5.4.5.5, Math Error Unsubstantiated Protest Processing.
    • Filed after 60 days of the math error notice, or this is the first time the taxpayer is claiming the credit for the year - deny the credit and send Letter 474C using the appropriate paragraph indicating the reason for the ban.
    • Input the data into CC DDBCK

    • On DDBCK’s Return Summary Screen, overlay "YYYYMMDD" , under "Claim Rcvd Dates" , with the received date of the Form 8862 or Form 1040-X. Use Category Code "EICC"

    • See IRM 21.6.1.7.2 (10), Command Code DDBCK, for the appropriate actions

    Note:

    If the DDBCK response is "RECERT IND Present - Follow IRM" , follow procedures to the left for employees unable to access DDBCK.

    4 The tax year is greater than or equal to the EL-TXPD
    Recertification is required
    Total credit is:
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    • Input the data into CC DDBCK

    • On DDBCK’s Return Summary Screen, overlay "YYYYMMDD" , under "Claim Rcvd Dates" , with the received date of the Form 8862 or Form 1040-X. Use Category Code "EICC"

    • See IRM 21.6.1.7.2 (10), Command Code DDBCK, for the appropriate actions

  6. The following procedures are for claims or correspondence that do not reflect a recertification math error:

    If And Then
    The taxpayer did not claim AOTC and/or EITC on the original return Files Form 1040-X claiming AOTC and/or EITC for self/spouse only and the recertification indicator is 1
    • Allow the credit(s) if eligibility is met

    • Return Form 8862 to the taxpayer, if attached, explaining the need to file the form when claiming AOTC and/or EITC with a qualifying child.

    The taxpayer did not claim AOTC, CTC/ACTC, and/or EITC on the original return Files Form 1040-X with Form 8862 attached, claims the credit for a qualifying child(ren), the recertification indicator is 1 or 9 and the amount claimed is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    • Update CC DDBCK using Category Code "EICX" .

    • Follow DDBCK responses shown in IRM 21.6.1.7.2, Command Code DDBCK.

      Note:

      TC 971 AC 056 (EITC), AC 160 (AOTC), AC 161 (CTC/ACTC) are not required as the DDBCK system removes the recertification indicator


    If unable to access DDBCK:
    • Allow the credit if eligibility is met.

    • Input TC 971 AC 056, 160, and/or 161 to remove the recertification indicator.

    The taxpayer did not claim AOTC, CTC/ACTC, and/or EITC on the original return Files Form 1040-X with Form 8862 attached, claims the credit for a qualifying child(ren), the recertification indicator is 1 or 9 and the amount claimed is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    • Update CC DDBCK using Category Code "EICX" .

    • Follow DDBCK responses shown in IRM 21.6.1.7.2, Command Code DDBCK.


    If unable to access DDBCK:
    • Verify eligibility is met.

    • If eligibility is met, route to Exam as CAT-A.

    The taxpayer did not claim AOTC, CTC/ACTC, and/or EITC on the original return Files Form 1040-X without Form 8862 attached, claims the credit for a qualifying child(ren) and the recertification indicator is 1
    • Reject the claim per IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns.

    • Advise the taxpayer the credit(s) was disallowed in a previous year and he/she must submit a completed Form 8862 with the claim.

    The taxpayer files Form 1040-X to increase AOTC, CTC/ACTC, and/or EITC previously claimed The recertification indicator is 1 or 9 and the case is open on AIMS Reroute the case to the open Exam control using Form 5101, Examination Referral Slip
    The taxpayer did not claim AOTC, CTC/ACTC, and/or EITC on the original return Files Form 1040-X claiming the credit(s) and the recertification indicator is 2 or 4 Follow the same procedures for recertification indicator 2 or 4 in (5) above.

TIN Requirements for Exemptions and Credits

The tables below provide TIN requirements for exemptions and certain credits.

Note:

EITC, CTC, ACTC, AOTC, and ODC require all TINs be issued before the due date, or extended due date, of the return.


Exemptions:

  Allowed with valid SSN Allowed with valid ITIN Allowed with valid ATIN
Primary TIN Yes Yes N/A
Secondary TIN Yes Yes N/A
Dependent TIN Yes Yes Yes


Earned Income Tax Credit

Note:

The SSNs for the primary, secondary (if a joint return), and the EITC qualifying child(ren), ALL must be valid before EITC can be allowed.

  Allowed with valid SSN Allowed with valid ITIN Allowed with valid ATIN
Primary TIN Yes No No
Secondary TIN Yes No No
Dependent TIN Yes No No


Child and Dependent Care Credit

  Allowed with valid SSN Allowed with valid ITIN Allowed with valid ATIN
Child care provider TIN on Form 2441 Yes Yes Yes
Child’s TIN on Form 2441 Yes Yes Yes


Other Credits

  Allowed with valid SSN Allowed with valid ITIN Allowed with valid ATIN
Child Tax Credit (tax years 2018 - 2025) Yes
  • Primary - yes

  • Secondary - yes

  • Dependent - no

No
Child Tax Credit (tax years 2017 and prior) Yes Yes Yes
Lifetime Learning Credit Yes Yes Yes
American Opportunity Tax Credit Yes Yes Yes
Adoption Credit Yes Yes Yes
Credit for Other Dependents Yes Yes Yes