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21.6.3  Credits (Cont. 1)

21.6.3.4 
Credits Procedures

21.6.3.4.1 
NonRefundable Credits Procedures

21.6.3.4.1.29  (10-01-2017)
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 2017 2016 2015
      Single or Married Filing Separately $31,000 $30,750 $30,500
      Head of Household $46,500 $46,125 $45,750
      Married Filing Jointly $62,000 $61,500 $61,000
  3. When adjusting the tax 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 036 and the appropriate source code and blocking series.

  4. 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.

21.6.3.4.1.30  (10-01-2011)
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 21.7.4.4.8.3.19, Form 8881, Credit for Small Employer Pension Plan Startup Costs.

21.6.3.4.1.31  (10-01-2011)
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 21.7.4.4.8.3.18, Form 8882, Credit for Employer-Provided Childcare Facilities and Services.

21.6.3.4.1.32  (10-01-2011)
Form 8874, New Markets Credit

  1. For information concerning the New Markets Credit, see IRM 21.7.4.4.8.3.20, Form 8874, New Markets Credit.

21.6.3.4.1.33  (10-01-2017)
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 consists of:

    • Biodiesel Credit

    • Renewable Diesel Credit

    • Biodiesel Mixture Credit

    • Renewable Diesel Mixture Credit, and

    • Small Agri-Biodiesel Producer Credit

    Note:

    The biodiesel and renewable diesel credits are not available for fuel sold or used after Dec. 31, 2016.

  2. For Tax Year 2006 through 2016, the credit can be claimed as a general business credit on Form 3800, General Business Credit.

  3. When adjusting the tax 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 036 and the appropriate source code and blocking series.

  4. See Form 8864, Biodiesel and Renewable Diesel Fuels Credit, for detailed information.

21.6.3.4.1.34  (10-01-2013)
Form 8896, Low Sulfur Diesel Fuel Production Credit

  1. Form 8896, 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.

  3. When adjusting the tax 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 036 and the appropriate source code and blocking series.

  4. See Form 8896, Low Sulfur Diesel Fuel Production Credit, for detailed information.

21.6.3.4.1.35  (01-08-2016)
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. For Tax Year 2006 through 2016, the credit must be claimed as a general business credit on Form 3800, General Business Credit.

  3. When adjusting the tax 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 036 and the appropriate source code and blocking series.

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

21.6.3.4.1.36  (01-08-2016)
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 for which the credit is available for purchases through December 31, 2016, 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 21.7.4.4.8.3.27, Form 8910, Alternative Motor Vehicle Credit, for additional information.

  5. When adjusting the tax 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 036 and the appropriate source code and blocking series.

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

21.6.3.4.1.37  (01-08-2016)
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, 2017, 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 21.7.4.4.8.3.28, Form 8911, Alternative Fuel Vehicle Refueling Property Credit, for additional information.

  4. When adjusting the tax 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 036 and the appropriate source code and blocking series.

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

21.6.3.4.1.38  (10-01-2011)
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. When adjusting the tax 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 036 and the appropriate source code and blocking series.

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

21.6.3.4.1.39  (10-01-2017)
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, 2014 and before January 1, 2017.

  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 21.7.4.4.8.3.37, Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit, for additional information.

  4. When adjusting 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 036 and the appropriate source code and blocking series.

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

21.6.3.4.1.40  (10-01-2017)
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 non refundable 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 40321) and correspondence using category code ACA6 (program 40312).

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

21.6.3.4.2  (10-01-2017)
Refundable Credits

  1. Refundable credits addressed in this section are:

    • Withholding (W/H)

    • Estimated(ES) tax payments

    • Excess Social Security & 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 INOLES 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 21.6.1.6, Command Code DUPED and DDBCK, for appropriate use of CC DUPED and DDBCK for updating the Duplicate TIN database.

21.6.3.4.2.1  (10-05-2011)
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.

21.6.3.4.2.2  (06-07-2017)
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 how to claim Backup Withholding (BUWH), see IRM 21.7.2.4.10.3.2, BUWH Claims for Taxpayers Other Than Exempt Entities.

  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

    • 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, refer to IRM 21.5.4, General Math Error Procedures.

  8. 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 & 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 also reflects the credits for back-up W/H 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 21.8.1.11.14, 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.

21.6.3.4.2.2.1  (10-07-2015)
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. TC 806 to increase the posted credit, or TC 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 21.4.5.4.3, Category B Erroneous Refunds, to ensure using a TC 807 is appropriate.

    3. The appropriate source code, reason code(s), and blocking series.

21.6.3.4.2.3  (10-12-2016)
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.) and a payment posted as an ES payment, it can be refunded back to the taxpayer. In this situation 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.

21.6.3.4.2.3.1  (10-01-2011)
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.

21.6.3.4.2.3.2  (09-04-2015)
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).

21.6.3.4.2.3.3  (10-01-2012)
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.

21.6.3.4.2.3.4  (10-01-2015)
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.

21.6.3.4.2.3.5  (10-01-2007)
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.

21.6.3.4.2.4  (10-01-2017)
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
    2017 $127,200 6.2 $7,886.40
    2015 / 2016 $118,500 6.2 $7,347.00
    2014 $117,000 6.2 $7,254.00
  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 on the back of Form 1040, U.S. Individual Income Tax Return, in the payment section.

  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 FICA 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, route to a BMF campus (Cincinnati or Ogden). 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.
    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

  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.

21.6.3.4.2.5  (10-01-2015)
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.

21.6.3.4.2.6  (04-01-2016)
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 credit for an alcohol fuel mixture expired December 31, 2011. The biodiesel mixture credit, the renewable diesel mixture credit, and the alternative fuel mixture credit for all alternative fuel mixtures including those involving liquefied hydrogen expires on December 31, 2016.

  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 IRM 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.

21.6.3.4.2.6.1  (10-01-2011)
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.

21.6.3.4.2.6.2  (04-01-2016)
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.

21.6.3.4.2.7  (01-08-2016)
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 IRM 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 21.6.1.6.2, Command Code DDBCK, for a list of exceptions when CC DDBCK cannot be used.

21.6.3.4.2.7.1  (10-01-2016)
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 by 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).

21.6.3.4.2.7.1.1  (04-09-2004)
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.

21.6.3.4.2.7.1.2  (10-01-2016)
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.

21.6.3.4.2.7.2  (10-01-2002)
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).

21.6.3.4.2.7.3  (01-25-2016)
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 prior to 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 3.13.5.20, Individual Taxpayer Identification Number (ITIN) Format

    • ATIN IRM 3.13.5.22 , Adoption Taxpayer Identification Number (ATIN) Format

    • IRSN IRM 3.13.5.21, 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 21.6.3.4.2.7.15, EITC and Command Code DDBCK and IRM 21.6.1.6, 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.

21.6.3.4.2.7.4  (10-01-2016)
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 21.6.6.3.37, 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 on Form 1040, line 7, 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.

21.6.3.4.2.7.5  (10-01-2017)
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:

    • $3,450 for tax year 2017

    • $3,400 for tax year 2015 and 2016

    • $3,350 for tax year 2014

  2. Investment income includes:

    • Interest (Form 1040, U.S. Individual Income Tax Return, lines 8a and 8b).

    • Dividends (Form 1040, line 9a).

    • 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" .

21.6.3.4.2.7.6  (10-01-2017)
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:
    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


    2014

    • $46,997 ($52,427 for married filing jointly) if three or more qualifying children,

    • $43,756 ($49,186 for married filing jointly) if two qualifying children,

    • $38,511 ($43,941 for married filing jointly) if one qualifying child,

    • $14,590 ($20,020 for married filing jointly) if no qualifying child

21.6.3.4.2.7.7  (04-20-2016)
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. A CP 19 / CP 20 notice will be issued through the Examination function. Forward replies to Examination.

  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 claimed
    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 Form 1040, line 21, 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

21.6.3.4.2.7.8  (10-01-2017)
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 or eligibility criteria:

    • 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, see IRM 21.6.3.4.2.7.10, EITC Claims.

  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 Part III of Schedule 8812, Child Tax Credit, for specific instructions.

  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.

21.6.3.4.2.7.9  (10-01-2011)
EITC - Adjusting the Account

  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 21.6.1.6, Command Code DUPED and DDBCK, and IRM 21.6.3.4.2.7.15, 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.

21.6.3.4.2.7.10  (10-01-2017)
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 EIC being claimed, it does not require or allow for the removal of EIC 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

    The "TIN ASGNMT" field is all zeros
    • Allow the credit

    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 as shown below

    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.


    Input a TC 971 AC 112 on all disallowed and partially disallowed retroactive claims using CC REQ77 or the REQ77 IAT tool. Input the disallowed credit amount in the "Freeze-Release-AMT" field. If ACTC, CTC and/or AOTC are also being claimed, combine the amounts. No transaction date is needed. The TC 971 enables the Service to track these claims and report the dollars saved.

  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 21.6.1.6, Command Code DUPED and DDBCK, for appropriate use of DUPED and DDBCK and IRM 21.6.3.4.2.7.15, 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.

21.6.3.4.2.7.11  (10-01-2013)
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 21.6.1.4.6, 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.

21.6.3.4.2.7.12  (10-01-2002)
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.

21.6.3.4.2.7.13  (01-11-2017)
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 Earned Income Credit After Disallowance. TPNCs 814, 815 and 816 are used for these types of errors. See IRM 21.6.3.4.2.7.14, EITC Recertification, for procedures.

  4. See IRM 21.6.3.4.2.7.10, EITC Claims, before adjusting EITC.

21.6.3.4.2.7.13.1  (10-01-2011)
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 21.6.3.4.2.7.14, EITC 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 21.6.3.4.2.7.15, 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 .

21.6.3.4.2.7.13.2  (10-12-2006)
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). 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.

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