21.6.6 Specific Claims and Other Issues

Manual Transmittal

September 13, 2017

Purpose

(1) This transmits revised IRM 21.6.6, Individual Tax Returns, Specific Claims and Other Issues.

Material Changes

(1) Editorial changes were made throughout IRM 21.6.6. The web addresses, IRM and legal resources were checked and corrected, where necessary.

(2) IRM 21.6.6.1 added Internal Controls.

(3) IPU 16U1653 issued 11-08-2016 IRM 21.6.6.4.11 clarified normal statute of limitations procedures apply for The Mortgage Forgiveness Debt Relief Act.

(4) IPU 17U1155 issued 07-17-2017 IRM 21.6.6.4.11 clarified procedures for Form 982 claims for Mortgage Forgiveness on a principal personal residence.

(5) IPU 17U1001 issued 06-13-2017 IRM 21.6.6.4.22.1 updated procedures for updating the Entity on decedent accounts.

(6) IPU 16U1567 issued 10-21-2016 IRM 21.6.6.4.22.3 updated procedures for CP 01H or 12C decedent referrals to Entity.

(7) IPU 17U0380 issued 02-27-2017 IRM 21.6.6.4.22.3 added IRM link for the Entity Control Units Enterprise E-Fax (EEFAX) and FAX Numbers for CP 01H Notice or Letter 12C Decedent Account Responses.

(8) IPU 16U1731 issued 12-09-2016 IRM 21.6.6.4.23.1 updated the KITA team IDRS assignment number.

(9) IPU 16U1731 issued 12-09-2016 IRM 21.6.6.4.23.2 updated the KITA team IDRS assignment number.

(10) IPU 17U0418 issued 03-02-2017 IRM 21.6.6.4.23.2 removed the date December 02, 2015.

(11) IPU 16U1567 issued 10-21-2016 IRM 21.6.6.4.37 updated procedures for Difficulty of Care claims.

(12) IPU 17U1059 issued 06-26-2017 IRM 21.6.6.4.40 updated the address for Indian General Welfare Benefits Claims.

(13) IPU 17U1045 issued 06-22-2017 IRM 21.6.6.4.51 added reminder to research for open controls before processing Self-Created Goodwill Claims.

Effect on Other Documents

IRM 21.6.6, Specific Claims and Other Issues, dated September 12, 2016 (effective 10-01-2016) is superseded. This IRM also incorporates the following Interim Procedural Updates (IPU): 16U1731 (dated 12-09-2016), 16U1653 (dated 11-08-2016), 16U1567 (dated 10-21-2016), 17U0380 (dated 02-27-2017), 17U0418 (dated 03-02-2017), 17U1001 (dated 06-13-2017), 17U1045 (dated 06-22-2017), 17U1059 (dated 06-26-2017), and 17U1155 (dated 07-17-2017).

Audience

All employees performing account work.

Effective Date

(10-01-2017)

Kevin Morehead
Director, Accounts Management
Wage and Investment Division

Programs Scope and Objectives

  1. Purpose: This IRM covers information on Specific Claims filed by taxpayers based on tax law changes.

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

  3. Policy Owner: The Director of Accounts Management.

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

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

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

Background

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

Authority

  1. Refer to 1.2.21, Policy Statements for Customer Account Services Activities, for information.

  2. The IRS adopted the Taxpayer Bill of Rights in June 2014. Employees are responsible for being familiar with and acting in accord with taxpayer rights. See IRC 7803(a)(3). For additional information about the Taxpayer Bill of Rights, refer to Taxpayer Bill of Rights (TBOR).

Responsibilities

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

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

Program Controls

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

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

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

Acronyms

  1. For a comprehensive listing of any IRS acronyms, please refer to the Acronym Database.

Related Resources

  1. Refer to IRM 1.4.2.15, Related Resources, for information on related resources that impact internal controls.

Specific Claims and Other Issues Overview

  1. This section includes information on certain specific claims associated with individual tax returns. Some are valid claims and others are not allowable.

What Are Specific Claims?

  1. These claims may include any unusual or nonstandard deduction. Claims are often filed based on tax law changes or issues where no precedents have been established.

Specific Claims Procedures

  1. This section contains procedures for specific claims.

  2. Refer taxpayers to the Taxpayer Advocate Service (TAS) when the contact meets TAS criteria and you can’t resolve the taxpayer’s issue the same day. Refer to IRM 13.1.7, Taxpayer Advocate Service (TAS) Case Criteria. The definition of "same day" is within 24 hours. "Same day" cases include cases you can completely resolve in 24 hours, as well as cases in which you have taken steps within 24 hours to begin resolving the taxpayer’s issue. Do not refer these cases to TAS unless they meet TAS criteria and the taxpayer asks to be transferred to TAS. Refer to IRM 13.1.7.4, Same-Day Resolution by Operations. When you refer cases to TAS, prepare Form e-911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order), via AMS or Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order), if AMS is not available.

  3. Refer to IRM 3.11.6.3.4, Integrity and Verification Operation (IVO) Guidance for established procedures for referrals.

  4. Refer to IRM 21.5.3-7, Fraud Referral Claims for processing IMF fraudulent claims that do not have an existing treatment stream.

Group or Class-Based Reparation Claims

  1. As described in Rev. Rul. 2004-33 and Rev. Rul. 2006-20, taxpayers may make frivolous arguments, seeking reparation tax credits against the U.S. government for past injustices resulting from slavery and economic oppression, or from other historical mistreatment. They usually indicate "Black Investment Taxes" , "Reparation for African Americans" , "Reparations for Native Americans" , or a similar statement. The amount claimed per person, is often, but not always, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

  2. Taxpayers claim entitlement to a tax credit because of these hardships and try to claim the credit:

    • On an amended return

    • By the filing of a "bogus" Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains

    • On an original return, usually in the payment area

  3. DO NOT ALLOW the claim. Refer to IRM 21.5.3.4.16.7, Identifying Frivolous Returns/Correspondence and Responding to Frivolous Arguments. If the taxpayer erroneously received a refund based on this credit, they should file an amended return to correct their account. Refer to IRM 21.4.5, Erroneous Refunds, for additional instructions.

  4. If the taxpayer has questions regarding the legitimacy of the claim, advise as follows:

    1. These claims will be denied.

    2. Taxpayer must have withdrawn their claim within 30 days or a penalty will be assessed.

    3. The Service may impose the Section 6702 penalty even if only one submission making frivolous arguments is made.

    4. The IRS is aware that periodically fraudulent seminars are held providing misleading information to taxpayers.

Age Discrimination Claims

  1. Generally, for damages to be excluded from gross income under IRC Section 104(a)(2) the damages must be received on account of personal physical injuries or physical sickness. DisallowForm 1040-X, Amended U.S. Individual Income Tax Return, claiming income payments as excludable under IRC Section 104(a)(2) based on age discrimination, refer to IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures. Include in the Letter 105C the following disallowance language: "Amounts received on account of personal physical injuries or physical sickness may be excluded from gross income under IRC Section 104(a)(2). However, amounts received on account of age discrimination are not on account of physical injuries or physical sickness, and are not otherwise excluded from income."

Alimony Deductions

  1. Taxpayers who claim a deduction for alimony paid but do not provide the Taxpayer Identification Number (TIN) of the recipient are contacted during pipeline process for this information. Refer to IRM 21.5.4.4.4, Math Error Substantiated Protest Processing. Correspondence, including late replies, may be received requesting:

    • An adjustment of tax for an alimony deduction

    • Penalty abatement for failure to timely provide the TIN of the alimony recipient

  2. The following table will help you decide if the IRC Section 6723 penalty for Failure to Comply with Information Reporting Requirements may be abated.

    If taxpayer And Then
    Provides the missing information It is before the Return Due Date (RDD)
    1. Adjust the tax for the alimony deduction.

    2. Abate the penalty.

    3. Correct the Adjusted Gross Income (AGI) and Taxable Income (TXI).

    4. Use Blocking Series 05.

    Provides the TIN after the RDD Reasonable Cause is established refer to IRM 20.1, Penalty Handbook
    1. Adjust the tax and abate the penalty. (Follow the steps in 1 through 4 above).

    2. Update the Return Processable Date (RPD). Refer to IRM 20.2.4.5.1, Updating the RPD on Unprocessible Returns and IRM 2.4, IDRS Terminal Input.

    3. If applicable, include the appropriate Reason Code (RC), refer to IRM 20.1.1.3.2, Reasonable Cause.

Changes in Accounting Methods

  1. IRC Section 446(e) requires a taxpayer to receive the consent of the Commissioner before changing a method of accounting. Unless specifically authorized by the Commissioner, a taxpayer may not request, or otherwise make, a retroactive change in method of accounting, regardless of whether the change is from a permissible or an impermissible method. See generally Rev. Rul. 90-38. Taxpayers might file amended returns, based on the "Albertson's, Inc." court case, to claim:

    • Nonqualifying deferred compensation as an interest deduction

    • A change in accounting method

  2. Disallow the following:

    • Claims, amended returns, or Form 3115, Application for Change in Accounting Method, received indicating or requesting a retroactive change in accounting method (except for Form 3115 filed under provisions that specifically permit a retroactive change in accounting method such as Section 6.07 Rev. Proc. 2017-30. Follow procedures in IRM 21.7.4.4.15.1.1, Forms 3115 Filed Under Automatic Change Procedures)

    • Claims or amended returns referencing "Albertson's, Inc." or requesting a change to the "Albertson's, Inc. accounting method"

    If Then
    This is the only issue
    1. Input transaction code (TC) 290 with blocking series 98 or 99.

      Note:

      Use blocking series 99 with the TRPRT or IMFOLR/BMFOLR print attached if the original return was filed electronically.

    2. Send the appropriate Letter 105C or Letter 106C using the disallowance language in (3) below.

    Other issues are involved Follow normal adjustment procedures.
  3. The disallowance language is as follows: "Unless specifically permitted, you cannot make or request a retroactive change in accounting method. In order to change your accounting method, you must submit Form 3115, Application for Change in Accounting Method and receive consent from the Commissioner (Internal Revenue Code Section 446(e))."

Employer Provided Education Assistance (IRC Section 127)

  1. IRC Section 127 allows employers to exclude educational expenses from the employee's taxable income. The maximum annual exclusion is $5,250.

  2. The Economic Growth and Tax Reconciliation Act of 2001, permanently extended IRC Section 127. It also reinstated its applicability to graduate courses beginning after December 31, 2001.

  3. These claims are changing income from taxable to nontaxable, prior to adjusting the account refer to Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General.

  4. For additional information on educational assistance, refer to Publication 15-B, Employer’s Tax Guide to Fringe Benefits.

Exclusion for Amounts Received Under the Work Colleges Program

  1. Section 117(c)(2)(C) excludes from gross income any payments from certain work-learning-service programs that are operated by a work college as defined in section 448(e) of the Higher Education Act of 1965. This provision is effective for amounts received in tax years beginning after December 18, 2015, the date of enactment of section 301 of The Protecting Americans From Tax Hikes Act of 2015.

  2. This provision supports the educational costs for qualified students through self-help payments or credits provided under the work-learning-service program of the institution. It provides students the opportunity to contribute to their education and to the welfare of the community.

  3. These claims are changing income from taxable to nontaxable, prior to adjusting the account refer to Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General.

Claims for Relief from Joint and Several Liability

  1. For complete information concerning Form 8857, Request for Innocent Spouse Relief, refer to IRM 25.15, Relief from Joint and Several Liability.

Injured Spouse Claim and Allocations - Form 8379

  1. Refer to IRM 21.4.6, Refund Offset, and IRM 25.15.1.2.5, Injured Spouse Claims.

Police Meal Expense

  1. State trooper expenses for meals eaten while on duty are nondeductible, except for the following exceptions:

    • Taxpayer lives in a state within the jurisdiction of the U.S. Court of Appeals for the Eighth Circuit (Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota or South Dakota), and

    • Taxpayer provides proof of duty-related meal restriction requirements from his employer and

    • Taxpayer deducts no more than 50 percent of the meal expenses

  2. You may receive claims from taxpayers outside the jurisdiction of the U.S. Court of Appeals for the Eighth Circuit citing a Georgia State patrolman's article asserting that the Service had changed its position in 1993 to allow such deductions. This is not correct, disallow such claims using the language in paragraph (1) above, refer to IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures.

    If Then
    Claim does not provide evidence of the exception (as stated in (1) above).
    1. Disallow the claim.

    2. Send the Letter 105C, Claim Disallowed or Letter 106C, Claim Partially Disallowed, include (1) above as the disallowance language.

    Taxpayer resides in the states listed above but does not provide the proof required.
    1. Follow "No Consideration Procedures" , refer to IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns, for additional information.

Exclusion of Meals for Certain Employees

  1. Section 119 (b)(4) (RRA 98 Act, Section 5002), states that all employee meals provided on an employer’s business premises are excludable if more than half of the employees who receive the meals on the premises receive them for the "convenience of the employer" .

  2. For additional information, refer to Publication 15-B, Employer’s Tax Guide to Fringe Benefits.

Exclusion of Meals for Firefighters
  1. Because of the long shifts and the requirement that firefighters remain in the station unless called away on official business, generally participate in a "common meal fund" . A "common meal fund" is an arrangement within the fire station for the firefighters to contribute to the fund for the purchase of food for their meals.

  2. Where a fire department requires its firefighter employees to make payments into a common meal fund as a condition of employment, such expenses are ordinary and necessary within the meaning of Section 162(a). However, if a firefighter’s payments into a "common meal fund" are not a condition of employment, then such expenses constitute personal expenses and are not deductible pursuant to Section 262.

  3. The "common meal fund" contribution/payments must be required as a condition of employment. Firefighter's contribution into a "common meal fund" that are voluntary (not a condition of employment), the expenses constitute personal expenses and are not deductible.

  4. If the contribution to the fund is required and is a condition of employment then it is deductible as an "employee business expense" . Report on Form 2106, Employee Business Expenses, and carried over to Schedule A, Itemized Deductions, as a "miscellaneous" deduction subject to the 2 percent of the Adjusted Gross Income (AGI) exclusion. If the contributions are voluntary they are not deductible.

The Mortgage Forgiveness Debt Relief Act

  1. The Mortgage Forgiveness Debt Relief Act of 2007 Pub. L. 110-142, sect. 2 enacting IRC 108(a)(1)(E) & 108(h) generally allows a taxpayer to exclude income from the discharge of debt on the taxpayer's principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

  2. This provision applies to debts forgiven in calendar years 2007 through 2016, as extended by Protecting Americans From Tax Hikes Act of 2015. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

  3. Normally, debt that is forgiven or cancelled by a lender must be reported and included as income and is taxable, but the Mortgage Forgiveness Debt Relief Act allows taxpayers to exclude certain cancelled debt on their principal residence from their income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

  4. This provision applies only to forgiven or cancelled debt used to buy, build or substantially improve the taxpayer's principal residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the taxpayer’s main home. This is known as qualified principal residence indebtedness. Refer to Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals).

  5. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax-relief provision. If proceeds of refinanced debt are used for other purposes (for example, to pay off credit card debt), the discharge of the refinanced debt do not qualify for the exclusion.

  6. The amount of debt forgiven must be reported on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), which must be attached to the tax return. Taxpayers are instructed to mark the appropriate box under line 1 on Form 982 to indicate the type of discharge of indebtedness and enter the amount of the discharged debt excluded from gross income on line 2. Any remaining cancelled debt must be included as "Other Income" . Process the claim following normal adjustment procedures. Normal statute of limitations procedures apply, refer to IRM 25.6.1, Statute of Limitations Processes and Procedures. If Form 982 is filed separately or loose, refer to IRM 21.5.1.4.4, Processing of Loose Forms or Schedules. If Form 1040-X, Amended U.S. Individual Income Tax Return, is filed claiming forgiven or cancelled debt and the Form 982 is not attached, research CC TRDBV. If there is no indication the Form 982 was received, refer to IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing.

    Reminder:

    These claims are changing income from taxable to nontaxable, prior to adjusting the account refer to Exhibit 21.5.3-2, Examination Criteria (CAT-A) - General.

  7. There are two elections under IRC 108 as explained in the instructions for the Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (And Section 1082 Basis Adjustment)."The election to reduce the basis of depreciable property under section 108(b)(5) and the election made on line 1d of Part I regarding the discharge of qualified real property business indebtedness must be made on a timely filed return (including extensions) and can be revoked only with the consent of the IRS."

  8. There is NO election necessary to exclude indebtedness from Mortgage Forgiveness on a principal personal residence from income, therefore the 6 month rule does NOT apply to claims filed for discharge of indebtedness on a principal residence.

  9. If the original tax return was filed without making either of the elections described in (7) above and taxpayer files an amended return, it must be filed within 6 months of the due date of the original return (excluding extensions). Disallow claims filed after the due date of the original return (excluding extensions), refer to IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns. Taxpayers are instructed to write "Filed pursuant to section 301.9100-2" on the amended return.

    Reminder:

    The 6 month rule does NOT apply to claims filed for discharge of indebtedness on a principal residence.

  10. Lenders are required to send Form 1099-C, Cancellation of Debt, when they cancel any debt of $600 or more. The amount cancelled will be in box 2 of the form. When the taxpayer receives a copy of the Form 1099-C, the "Instructions for Debtor" accompanying the form instructs the taxpayer to notify the lender immediately if the amount in box 2 is incorrect.

  11. The following are some references on this topic which may be of assistance:

    • IR-2008-17, Mortgage Workouts, Now Tax-Free for Many Homeowners; Claim Relief on Newly-Revised IRS Form

    • Form 982 and Instructions, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment).

    • Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals).

Home Affordable Modification Program (HAMP) and Principal Reduction Alternative (PRA)
  1. The Home Affordable Modification Program (HAMP) and Principal Reduction Alternative (PRA), are programs to help financially struggling homeowners avoid foreclosure by modifying loans to a level that is affordable for borrowers now and sustainable over the long term. Under HAMP, a borrower may be eligible for principal reduction of the outstanding balance of a qualifying mortgage pursuant to the program’s Principal Reduction Alternative (PRA). Borrowers must contact their mortgage loan servicer to determine their eligibility. In an effort to enable more struggling homeowners to take advantage of the Making Home Affordable Program, the application deadline has been extended to December 31, 2013. Rev. Proc. 2013-16 provides guidance to mortgage loan holders, loan servicers, and borrowers.

  2. If a HAMP mortgage loan modification includes a PRA, the government makes additional incentive payments over three years to the investor. These additional incentives are called "PRA investor incentive payments" . The amount of the PRA investor incentive payments depends not only on the amount of principal reduced but also on the loan-to-value ratio and the loan’s payment history before the HAMP modification. The PRA investor incentive payments range from 18% to 63% of the principal amount reduced. This payment by the government on behalf of the homeowner is excludible from the homeowner’s income under the general welfare exclusion if the homeowner uses the property as a principal residence or the property is occupied by the homeowner's legal dependent, parent, or grandparent without rent being charged or collected. Excluding this amount from the homeowner’s gross income is consistent with the treatment of Pay-for-Performance Success Payments, which are addressed in Rev. Rul. 2009-19.

  3. The loan servicer is required to report the full amount of the discharge of debt on the Form 1099-C, Cancellation of Debt, regardless of whether some or all of the amount is excludible from income under the qualified principal residence indebtedness exclusion, the insolvency exclusion, or any other exclusion that may apply. The loan servicer must provide the Form 1099-C to the borrower.

  4. These claims are changing income from taxable to nontaxable, prior to adjusting the account refer to Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General.

Repayments of Amounts Reported on Form 1099-C, Cancellation of Debt, Erroneously Included in Income and Claim of Right - Section 1341

  1. Generally, if a debt is canceled or forgiven, other than as a gift or bequest (inheritance), the canceled amount must be included in income. Refer to Publication 17, Your Federal Income Tax, Chapter 12, and Publication 525, Taxable and Nontaxable Income. "Repayments" for details and exceptions. One exception, not outlined in Publication 17, involves the issuance of Form 1099-C, Cancellation of Debt, and a subsequent repayment of the debt by the taxpayer.

  2. The regulations under IRC Section 6050(p) generally, require that Form 1099-C be issued to a debtor if one of eight events outlined in Publication 17 and Publication 525 occurs. One of those events is: if for at least a 36 month period, no payments are made toward the debt, then the creditor must issue a Form 1099-C, solely for reporting requirements, whether or not an actual discharge of indebtedness has occurred.

  3. In some cases, the taxpayer includes the amount reported on the Form 1099-C as income on their income tax return, not understanding the fact that the creditor may still pursue collection activity.

  4. If the creditor resumes collection activity, e.g., garnishment of the taxpayer's earnings, and the debt is paid, the taxpayer may be entitled to file an amended return to exclude the income for the year it was reported. If an amended return is filed, the amount of debt discharge income should be treated as a reduction to the income reported for the year for which the Form 1099-C is received and not as a Claim of Right adjustment for the year when the debt is repaid.

  5. If, as of the time of the repayment, the year for which the cancellation of debt income is reported is closed for assessment, taxpayers may claim deductions if otherwise allowable for the tax years. A taxpayer using the cash accounting method may claim a deduction for the repayment only for the tax year in which it was made.

    If Then
    Cash accounting method is used A taxpayer may claim a deduction only for the tax year in which the repayment was made.
    Any other accounting method is used The repayment may be deducted only for the tax year in which it is a proper deduction, under the particular accounting method employed.
    Example
    : Taxpayer using the accrual method takes the deduction in the tax year in which the repayment obligation accrues.
Claim of Right- IRC Section 1341- In General
  1. If taxpayer repays money that was included in gross income in a previous tax year because at the time it appeared that the taxpayer had an unrestricted right to the income (Claim of Right, IRC Section 1341), and the repayment is deductible (for example as a business expense or a IRC Section 165 loss), then the taxpayer may (1) deduct all or part of the amount for the year in which it is repaid or (2) take a refundable credit against tax for that year. If the repayment is not deductible, then IRC Section 1341 is not available. The manner in which the deduction is taken depends upon the:

    • Type of income included in the previous year

    • Amount of repayment

    • Accounting method

Claim of Right- IRC Section 1341, Repayment of $3,000 or Less
  1. If the amount repaid was $3,000 or less, Claim of Right under IRC Section 1341 does not apply. Thus, the amount repaid is deducted in the year of repayment. The repayment is deducted, in general, on the same form or schedule on which it was previously included. If it had been included as self-employment income on Schedule C, it is deducted on Schedule C. If it had been included as capital gain on Schedule D, it is deducted on Schedule D. If it was reported as wages, taxable unemployment compensation, or other nonbusiness ordinary income, it is deducted on Schedule A, Itemized Deductions.

Claim of Right- IRC Section 1341, Repayment of More Than $3,000
  1. If the amount repaid was more than $3,000, it is either deducted (Method 1) or used to figure a credit (Method 2), whichever method results in less tax.

  2. Method 1 - Figure the tax with a deduction for the amount repaid.

  3. Method 2 - Follow these steps:

    1. Figure the tax without deducting the amount repaid.

    2. Refigure the tax for the earlier year of inclusion without including the amount repaid.

    3. Subtract the refigured tax under step (2) from the actual tax for the earlier year. The difference is the credit.

    4. Subtract the credit under step (3) from the tax under step (1).

  4. If the tax under Method 1 is less, the repayment is deducted, in general, on the same form or schedule on which it was previously included. Refer to IRM 21.6.6.4.12.2, Claim of Right- IRC Section 1341, Repayment of $3,000 or Less. If taken as an itemized deduction, use line 28 of Schedule A, Itemized Deductions.

  5. If the tax under Method 2 is less, the credit figured under that method should be entered on Form 1040, U.S. Individual Income Tax Return, line 73 with the annotation "IRC Section 1341" in the column to the right of line 73.

    Caution:

    IRC Section 1341, does not apply to deductions from bad debts, deductions from sales to customers (e.g., returns and allowances), or deductions for legal and other expenses of contesting the repayment.

Adjusting the Account
  1. Input Transaction Code (TC) 291 blocking series 05 for the lesser of the "Claim of Right" adjustment or Total Tax liability. Input credit reference number 766 to refund the remaining overpayment if the "Claim of Right" adjustment exceeds the total tax liability. Refer to IRM 21.5.3.4, General Claims Procedures.

Department of Army (DA) Form 5174–R

  1. The Department of Army or taxpayer may submit DA Form 5174-R, Refund for Prior Year Salary Overpayment. No adjustment activity is necessary.

  2. Associate the form with the return for the year of overpayment.

    If Then
    No TC 150 is posted Input a TC 930 to Push Code to file the information.
    The Push Code is returned due to no fact of filing
    1. Research for posting under another TIN.

    2. Associate with the TC 150.

    No record of another Taxpayer Identification Number (TIN)
    1. Return the DA Form 5174-R, to the taxpayer.

    2. Advise taxpayer to retain it with their tax records since IRS has no record of a return.

Savings, Retirement, or Investment Plan Distribution Claims

  1. All claims for refund of prior year income taxes paid on periodic partial distributions from employee savings, retirement, and investment plan distributions are worked using normal adjustment procedures.

  2. Taxpayer must show the aggregate amount contributed and withdrawn before the claim can be worked. Do not send to Examination as Category A.

Seller Paid Points

  1. Taxpayers may claim seller paid points when purchasing a principal residence. The deduction is claimed on Schedule A, Itemized Deductions. Points are generally reported on Form 1098, Mortgage Interest Statement, issued by the financial institution. The term "points" is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. Appraisal, inspection, title, and attorney fees are NOT deductible. Property taxes paid are NOT deductible as points even if designated as points. Refer to Publication 936, Home Mortgage Interest Deduction. See also Rev. Proc. 94-27.

  2. Points paid by the seller: The term "points" includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. The seller cannot deduct these fees as interest, but they are a selling expense that reduces the amount realized by the seller. Refer to Publication 523, Selling Your Home.

  3. These claims are a change to Income and may need to be referred to Exam for review. Refer to IRM 21.5.3, General Claims Procedures.

Spousal Letters

  1. Whenever Integrated Data Retrieval System (IDRS) Command Code (CC) LETER is input on a joint account, the system determines if the spouse is the same for the current year.

    If Then
    The spouse has changed, or the taxpayer is now filing single, unmarried head of household, or married filing separate. The system searches for a current address of the spouse listed on the joint account.
Spousal Letters Adjustment Procedures
  1. Research the spouse's address, using CC SPARQ, refer to IRM 2.3, IDRS Terminal Responses, when the response to CC LETER states "Latest Spouse address questionable" , or a system other than Integrated Data Retrieval System (IDRS) is used to generate a letter on a joint account. If the spouse requests information on more than one year, research each year to ensure the spouse is the same. Issues not involving the same spouse must be addressed in a separate letter to the taxpayer. Inform the taxpayer why they are receiving two letters. The taxpayer requesting the information may be listed as the spouse on a joint return.

  2. In some instances, it is not necessary nor is it appropriate to send a spousal letter. Use the override key or suppress the spousal letter by not entering the Master File Transaction (MFT) or year when:

    1. Replying to the taxpayer's request for a copy of the tax return, or copies of Form W-2, Wage and Tax Statement.

    2. A reply to the taxpayer does not show the tax liability, refund, or balance due on a joint account.

      Note:

      You must enter the taxpayer's full name and address if the MFT and Year are not entered.

Transportation Expense Deduction

  1. Taxpayers may file amended returns to claim a deduction for daily transportation expenses between a taxpayer's residence and a temporary work location.

    If And Then
    Basis of the claim is the Walker 101 T C 537 (1993) and/or Burleson T.C. Memo 1993-625 Tax Court decision It is the only issue
    1. Disallow the claim, refer to IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures.

    2. Send the Letter 105C or Letter 106C with a complete explanation of why the claim was disallowed, including appeal rights.

    Basis of the claim is the Walker and/or Burleson Tax Court decision Other issues are involved Follow normal adjustment procedures. If correspondence is issued, include appeal rights.
    Claim cites Rev. Rul. 90-23, Rev. Rul. 94-47, and/or Rev. Rul. 99-7 Taxpayer did not mention Walker and/or Burleson Follow procedures in IRM 21.5.3, General Claims Procedures.

Unemployment Benefits Revenue Ruling 57-383

  1. In Rev. Rul. 57-383, the Service considered the Federal Income Tax treatment of certain unemployment benefits received by union members while separated from their jobs.

  2. Rev. Rul. 57-383 provides that:

    • The amounts paid by members into the fund are not deductible

    • The amounts received as benefits under the plan are includible in the recipients gross income to the extent those benefits exceed the recipients payments made into the fund

  3. The unemployment benefits received may be offset by the amount of payments into the fund. The benefits received in excess of the payments are includible in the taxpayer's income. Section 85 of the Code also provides that gross income includes unemployment compensation.

United Mine Workers of America (UMWA) Strike Fund Benefits Claim for Refund
  1. Taxpayers must submit a Selective Strike Assessment Schedule showing the annual wages earned and payments made into the plan according to their records, based on a yearly percentage. Unions do not maintain records of members' individual contributions. A dollar figure representing the entire year's payment made to the Fund is not sufficient, correspond if the schedule is not provided.

    UMWA SELECTIVE STRIKE FUND ASSESSMENT
    SCHEDULE
    YEAR ANNUAL WEIGHTED BASE
    AVERAGE 1.59 percent
    BEGIN END RATE
    10/08/95 PRESENT 1.5 percent
  2. Verify the treatment of the strike fund benefits in prior years. Accept a taxpayer statement declaring no deduction was taken in prior years. Further research is necessary, if the taxpayer did not provide documentation or substantiation showing no prior income deduction was taken for any payments made into the selective strike fund.

    If research indicates the taxpayer Then
    Claimed the standard deduction for the year of the amended return and the prior year. Allow the claim.
    Itemized deductions for the year of the amended return or the prior year.
    1. Request the return(s) to verify no deduction was taken for the payments into the selective strike fund.

    2. Allow the claim if no deduction was taken.

    Took a deduction for the payments made into the selective strike fund in prior years. Disallow the claim to the extent the taxpayer took a deduction for the payments made into the selective strike fund. Refer to IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures.

Refunds Claimed for Premiums Paid to the UMWA Combined Benefit Fund

  1. Coal companies may file a claim for refund of premiums paid to the UMWA Combined Benefit Fund (the Combined Fund). Even though the amounts paid are premiums and were not paid to the Service, the companies are seeking a refund pursuant to the decision of the United States Court of Appeals for the Fourth Circuit in Pittston Co. v. United States, 199 F.3d 694 (4th Cir. 1999). In that decision, the Fourth Circuit held that the premiums are taxes and that it was appropriate for a coal company to bring a tax refund action to seek a refund of premiums that it contests were wrongly assessed.

  2. Check the taxpayer's address, if address did not originate in the Fourth Circuit (that is, did not originate in Maryland, North Carolina, South Carolina, Virginia, or West Virginia) research to determine if taxpayer may have moved and may be eligible. Additional research (e.g., CC IRPTR) needs to be completed prior to disallowing the claim. If the claim did not originate in the Fourth Circuit, disallow the claim, refer to IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures. Send Letter 105C, Claim Disallowed, include the following information: "We disallowed your claim for refund of premiums paid pursuant to IRC Section 9704 of the Internal Revenue Code to the United Mine Workers of America Combined Benefit Fund. The Service is not following the decision of the Fourth Circuit in Pittston Co. outside the Fourth Circuit." Route the claim to Files to be filed in the Alpha File. If case is on Correspondence Imaging System (CIS), the CIS image is the source document and it remains on CIS for further recall if needed. Since the image will remain available on CIS, Alpha File association is not necessary. For additional information pertaining to CIS refer to IRM 21.5.1.5, Correspondence Imaging System (CIS) procedures.

  3. If the claim originates in the Fourth Circuit, refer to Examination as Category A. They will contact Chief Counsel and make an initial determination of whether the claim has merit.

  4. If the claim does not have merit, they will disallow it. When the disallowed claim is returned by Examination, send Letter 105C, include the following information: "We disallowed your claim for refund of premiums paid pursuant to IRC Section 9704 of the Internal Revenue Code to the United Mine Workers of America Combined Benefit Fund. You have not alleged a ground for which a refund can be granted." Route the claim to Files to be filed in the Alpha File. If case is on Correspondence Imaging System (CIS), the CIS image is the source document and it remains on CIS for further recall if needed. Since the image will remain available on CIS, Alpha File association is not necessary. For additional information pertaining to CIS refer to IRM 21.5.1.5, Correspondence Imaging System (CIS) procedures.

  5. If the claim appears to have some merit, Examination will suspend the claim until a final determination is made. Because coordination with the Combined Fund and the Social Security Administration may be necessary, there may be some delay in making a final determination.

Veteran's Disability Compensation - Public Law 95–479, Section 301

  1. A disabled veteran is a veteran who applied for disability benefits from the Department of Veterans Affairs (VA) and their application was approved. The veterans disability compensation is a tax-free compensation paid by the Department of Veterans Affairs (VA) to veterans who have become disabled or chronically ill during their military service. This monetary benefit is based on an injury or disease incurred or aggravated during active military service. These disabilities are considered to be "service-connected" or "service related" . The veteran must have been terminated through separation or discharged from the military under conditions that were other than "dishonorable" . The disability compensation varies with the degree of the disability and the number of dependents, and is paid monthly by the VA.

  2. The VA determination process can take several months, and sometimes years. VA benefits are retroactively excluded from gross income from the date of the application for VA disability. The VA disability benefits are expressed in percentages, intended to represent the degree of impairment in the veteran's earning capacity. A veteran who receives retirement benefits and is later retroactively determined by the VA to be eligible for "service-connected" disability benefits, may exclude from their gross income the amount of their disability benefits from their military retirement pay. The effective date applies to any additional award for retroactive benefits. In general, military retirement benefits are based on length of service and included as income, whereas veterans benefits on a "service-connected" disability are excluded from income. Veterans may file claims for refund of taxes paid on the retroactive amounts of VA benefits for prior years covered by a waiver, back to the earliest year not barred by the Statute of Limitations, for additional information, refer to IRM 21.6.6.4.20.1, Extension of the Statute of Limitations to File Claims for Refunds Relating to Disability Determinations by the Department of Veterans Affairs (Section 106 of Public Law 110-245 and Section 6511(d) of the Code).

  3. To file a claim, the veteran must submit a Form 1040-X, Amended U.S. Individual Income Tax Return for each year they wish to reduce the taxable pay, and a VA Determination letter covering those years. Refer to Publication 525, Taxable and Nontaxable Income.

  4. These claims are expeditiously processed in Kansas City. ALL"veteran disability claims" are to be assigned to IDRS ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , (internal use only) with category code "XRET" . Update the case note with "veteran disability claim" .

  5. If claim references "Internal Revenue Service Section 1.122-1" or "Pursuant to 26 CFR" , refer to procedures in (15) below. If the claim references "Combat Related Special Compensation" (CRSC) or "Concurrent Receipt of Disability Pay" (CRDP), refer to procedures in (16) below.

  6. Review claims for completeness following the guidelines in IRM 21.5.3, General Claims Procedures.

    If Then
    The statute is barred.
    1. Disallow the claim.

    2. Refer to IRM 25.6.1, Statute of Limitations Processes and Procedures.

    The claim is not for a retroactive exclusion of VA benefits.
    1. Disallow the claim. Refer to IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures. Send Letter 105C, and use Reason Code (RC) 016.

    2. Refer to IRM 21.5.3, General Claims Procedures.

    Note:

    Section 6511(h), as amended effective July 22, 1998, by Section 3202 of IRS Restructuring and Reform Act of 1998, suspends the running of the statute of limitations for filing claims for refunds if a taxpayer was financially disabled; i.e., was unable to manage his or her financial affairs by reason of a medically determinable physical or mental impairment, which can be expected to result in death, or has lasted or can be expected to last for a continuous period of not less than 12 months. The statute of limitations is suspended for the period of financial disability. However, this special rule does not apply to suspend the statute of limitations when the individual's spouse or another person is authorized to act on behalf of the individual in financial matters. Rev. Proc. 99-21, 1999-1 C. B. 960, describes the information that must be furnished as proof of financial disability.

    Reminder:

    For a joint income tax return, the applicability of Section 6511(h) to each spouse must be separately determined. A taxpayer will not be treated as financially disabled if his/her spouse is authorized to act on his/her behalf.

  7. A copy of an official VA Determination letter granting the retroactive benefit, with the table showing amount withheld and effective date, must be attached to the claim. The table listed on the VA Determination letter must cover the same dates for the tax year reported on the claim. If the required documentation is not attached, return the claim as incomplete using the Letter 178C, Amended (Unnumbered) Return Incomplete for Processing and input transaction code (TC) 971 with action code (AC) 270 (use current date in Trans-DT field), refer to IRM 21.5.3, General Claims Procedures. If the claim is received within 180 days of the statute barred date, refer to IRM 21.6.6.4.20.1, Extension of the Statute of Limitations to File Claims for Refunds Relating to Disability Determinations by the Department of Veterans Affairs (Section 106 of Public Law 110-245 and Section 6511(d) of the Code) and IRM 21.5.3.4.3, Tax Decrease and Statute Consideration.

  8. To verify and calculate the correct tax reduction, the VA determination letter must have a table listing the "Amount Withheld" and either the "Payment Start Date" or the "Effective Date" . In general, the VA Determination letter will list a table containing five headings, we only use the "Amount Withheld" and the "Payment Start Date" or "Effective Date" when verifying/calculating the tax reduction.

    Note:

    You must add one month to the dates listed under the heading of "Payment Start Date" or "Effective Date" . The payment date or effective date for the military is one month after the date listed.


    Example of the table:

    Total Award Amount Amount Withheld Monthly Entitlement Amount Payment Start Date (or) Effective Date Reason For Change
    $525.00 $320.00 $205.00 December 1, 2010 Retired Pay Adjustment, Cost of Living Adjustment
    $750.00 $250.00 $500.00 December 1, 2011 Retired Pay Adjustment, Compensation Rating adjustment, Cost of Living Adjustment
    $950.00 $300.00 $650.00 June 1, 2012 Retired Pay Adjustment, Compensation Rating adjustment
    $970.00 $270.00 $700.00 December 1, 2013 Retired Pay Adjustment, Compensation Rating adjustment. Cost of Living Adjustment
  9. Below are two examples on how to verify and calculate the correct amount for the tax reduction using the example of the table listed above:

    • Form 1040-X filed for tax year 2011. The Amount Withheld for tax year 2011 is $3,840.00. To calculate and verify the amount multiply the 2011 Effective Months by the Amount Withheld, Jan. - Dec. (2011) is 12 months X $320.00 (Amount Withheld) = $3,840.00, this amount should be the amount claimed as a reduction on Line 1 Adjusted Gross Income (AGI), Column B of the 2011 Form 1040-X.

    • Form 1040-X filed for tax year 2012. The compensation was increased on June 1, 2012 therefore two calculations are needed to verify and calculate the 2012 total. The Amount Withheld for tax year 2012 is $3,300.00 ($250.00 for 6 months (Jan. - June) and $300.00 for 6 months (July- Dec.)). Multiply the 2012 Effective Months Jan. - June $250 X 6 months = $1,500.00 and July - Dec. $300.00 X 6 months = $1,800.00. Add the two totals together $1,500.00 and $1,800.00= $3,300.00, this amount should be the amount claimed as a reduction on Line 1 (AGI), Column B of the 2012 Form 1040-X.

  10. If other tax changes unrelated to the VA benefits are claimed then the amounts reported on Line 1 Adjusted Gross Income (AGI), Column B of Form 1040-X may not match the amounts shown on the VA Determination letter. Before inputting the adjustment, review the account for any previous adjustment(s). The amounts reported on the VA Determination letter MUST be math verified before adjusting the account. Refer to procedures in IRM 21.5.3.4.5, Math and Master File Verification of Claims and Amended Returns.

  11. After math verifying the VA benefits claimed amount and it is different than the VA Determination letter calculated amount, you MUST set the initial math error and send the Letter 474C, or another letter that provides the taxpayer a detailed explanation of the math error. Refer to procedures in IRM 21.5.4.4.1, Setting the Initial Math Error Action.

  12. These claims are changing income from taxable to nontaxable, prior to adjusting the account refer to Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General.

  13. All veterans who receive VA benefits receive a yearly letter titled "Summary of Benefits" , do NOT confuse this letter with the VA Determination letter. The "Summary of Benefits" letter is ONLY an informational letter for the veteran. Do NOT use the "Summary of Benefits" letter to process claims.

  14. For claims for refund based on a retroactive award of Individual Unemployability (IU) from the VA, the taxpayer must submit the following documentation to support the claim:

    • A form 1040-X for each applicable year,

    • A copy of the official VA Determination Letter awarding IU and indicating the effective date of the award, and

    • Documentation from the VA verifying or substantiating the amount of the claimed tax reduction on the Form 1040-X.

    Reminder:

    The VA Determination Letter for these claims will NOT have a table for the Amount Withheld. These claims are changing income from taxable to nontaxable, prior to adjusting the account refer to Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General.

  15. Disallow any claim citing "Internal Revenue Service Section 1.122-1" or "Pursuant to 26 CFR" , unless the VA Determination letter is included with the claim and has a table as shown above in (8). The table listed on the VA Determination letter must cover the same dates for the tax year reported on the claim. If the table does not cover the same dates for the tax year reported on the claim, disallow the claim. Refer to IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures. If the VA Determination is included and the table covers the same dates as the tax year reported on the claim verify/calculate the correct amount for the tax reduction following procedures in IRM 21.6.6.4.20 (8) and (9) above, the adjustment is not based on the taxpayer's claim for "Internal Revenue Service Section 1.122-1" or "Pursuant to 26 CFR" .

    Note:

    "Internal Revenue Service Section 1.122-1" or "Pursuant to 26 CFR" is the Family Protection Act of 1966 and is NOT applicable to VA claims.

  16. Combat Related Special Compensation (CRSC) and Concurrent Receipt of Disability Pay (CRDP) are programs managed by the Army, Navy, Air Force or Marines for retired veterans. CRSC payments are non-taxable and CRDP payments are taxable. The taxpayer could be eligible for both payments, so they must elect which payment they want since payment of both benefits is prohibited by law. The taxpayer must attach the Defense Finance and Accounting Service (DFAS) Letter and the appropriate copies of the Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRA's, Insurance Contracts, etc., to claim a refund of taxes paid on the excludable amount, before adjusting the military retirement pay from taxable to non-taxable.

  17. Effective October 2009 the Department of Veteran Affairs added three medical diagnoses that would be considered Agent Orange presumptive in Vietnam veterans (Parkinson's disease, a type of ischemic heart disease, and certain leukemias). When a military member has a disability that is combat-related (e.g., one that is Agent Orange presumptive), they may qualify for Combat Related Special Compensation (CRSC). According to Defense Finance and Accounting Services (DFAS), many Vietnam veterans have been issued retroactive CRSC awards based on the Veteran Affairs determination. Each Branch of the military will make its own determination as to whether a veteran qualifies for CRSC and will issue the veteran an award letter. The veteran will also have documentation from Veteran Affairs regarding their disability. There is a special statute of limitation applicable to these situations, refer to IRM 21.6.6.4.20.1, Extension of the Statute of Limitations to File Claims for Refunds Relating to Disability Determinations by the Department of Veterans Affairs (Section 106 of Public Law 110-245 and Section 6511(d) of the Code). The retroactive CRSC award could have the effect of reducing previously reported taxable military retirement income, creating a situation where the veteran may be eligible for a refund from prior year's tax return (or multiple year's tax returns). The veteran should include copies of their VA determination letter, CRSC award letter, prior Form 1099-R's and any correspondence received explaining the awards and adjustments. Resources are available for veteran's seeking assistance regarding how to file his/her amended returns at www.irs.gov, key words "disabled veteran" .

    If Then
    DFAS letter and the appropriate copies of the Form 1099-R, is included with claim. These claims are changing income from taxable to nontaxable, prior to adjusting the account refer to Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General.
    DFAS letter and the appropriate copies of the Form 1099-R, is not included with claim. Refer to IRM 21.5.3.4.6.3, No Consideration Procedures, and include the following in the Letter 916C "The Defense Finance and Accounting Service (DFAS) letter and the appropriate copies of the Form 1099-R, must be included with your claim."
Extension of the Statute of Limitations to File Claims for Refunds Relating to Disability Determinations by the Department of Veterans Affairs (Section 106 of Public Law 110-245 and Section 6511(d)(8) of the Code)
  1. There are special statutes of limitation for retroactive disability determinations made by the Department of Veterans Affairs (VA). In general, a taxpayer must file a claim for credit or refund within three years of the filing of the tax return or within two years of the payment of the tax, whichever expires later (if no tax return is filed, the two-year limit applies). A claim for credit or refund that is not filed within these time periods is rejected as untimely.

  2. Generally, military retirement benefits based on length of service are included in income, whereas veterans’ benefits based on a service-connected disability are excluded from income. If an individual receives includible retirement benefits and is later retroactively determined to be eligible for service-connected disability benefits, the portion of the retirement benefits attributable to the disability is retroactively excluded from income. In that case, the individual may claim a refund of the tax paid on the retroactively excluded benefits, subject to the statute of limitations on filing a refund claim.

  3. This provision extends the time period for filing claims for credits or refunds for retired military personnel who receive disability determinations from the Department of Veterans Affairs (e.g., determinations after the tax return is filed). Specifically, in the case of a determination after the date of enactment (June 17, 2008), the provision extends the period for filing such a refund claim until one year after the date of the disability determination (if later than the time periods allowed under present law). The one year extended period applies to claims for credit for refund filed after June 17, 2008, and does not apply to any tax year that began more than five years before the date of determination.

    Example:

    Taxpayer retired in 2007 and received a pension based on years of service. On 8/3/2013, they received a determination of service-connected disability retroactive to 2007 from the VA. Generally, they could claim a refund for the taxes paid on their pension for 2010, 2011 and 2012. However, under the special limitation period, they can also file a claim for 2009 as long as they file a claim by 8/3/2014. They could not file a claim for 2007 and 2008 because those tax years began more than five years before the determination by VA.

    Note:

    The provision is effective for claims for credit or refund filed after June 17, 2008. In the case of a determination which is made by the Secretary of Veterans Affairs after December 31, 2000, and before June 17, 2008, the period for filing a claim for credit or refund is extended until 1 year after the Date of Enactment June 17, 2008. The provision shall not apply with respect to any taxable year which began before January 1, 2001. Refer to IRM 25.6.1.10.2.11.1, Retroactive Law and Congressionally-Provided Wavier of the Period of Limitations for Filing Claims for Credit or Refund for procedures on how to override the Refund Statute Expiration Date (RSED).

Veteran's Disability Compensation for Veterans Separated due to Medical/Disability - Public Law 104-201, Section 653(b)
  1. Veterans who are separated from military service due to medical or disability reasons generally receive severance pay. These veterans are not military retired. Public Law 104-201, Section 653(b) provides that once the veteran receives a determination letter from the Department of Veterans Affairs (VA) awarding a retroactive disability rating, the disability severance payment received upon discharge becomes nontaxable.

  2. To claim the severance payment as nontaxable (a "St. Clair" claim, refer to St. Clair v. United States, 778 F. Supp. 894 (E.D. Virg. 1991)), the veteran must submit the VA Determination letter confirming the disability and the Defense Finance and Accounting Services (DFAS) letter or Form DD214 confirming the amount of the lump sum disability severance payment and that the taxpayer was discharged due to disability as provided under 10 U.S.C. 1203. Verify that the payment is disability severance pay and not another type of military severance payment referenced in IRM 21.6.6.4.20.3, Veterans Involuntarily Discharged- Nondisability Severance Pay. The letter the veteran receives from the VA concerning other types of military severance pay is different from the five column letter discussed in IRM 21.6.6.4.20, Veteran's Disability Compensation - Public Law 95-479, Section 301. This severance pay letter usually has two columns and the first paragraph starts with: "We made a determination on your claim for an increase in your service connected compensation received on …date."

    Caution:

    Veterans who are discharged with a nondisability severance payment could also receive a disability rating from the VA. In this case the nondisability severance payment would be taxable.


    If taxpayer fails to submit a complete "St. Clair" claim including a signed Form 1040-X, Amended U.S. Individual Income Tax Return, the VA Determination Letter confirming the disability, and the DFAS letter and/or the DD214 confirming the lump sum disability severance payment, refer to IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing or IRM 21.5.3.4.3, Tax Decrease and Statute Consideration as applicable.

  3. Normal statute of limitations applies to these claims. IRM 21.6.6.4.20.1, Extension of the Statute of Limitations to File Claims for Refunds Relating to Disability Determinations by the Department of Veterans Affairs (Section 106 of Public Law 110-245 and Section 6511(d) of the Code), is not applicable for claims when the veteran is not receiving retired military compensation.

  4. These claims are changing income from taxable to nontaxable, prior to adjusting the account refer to Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General.

Veterans Involuntarily Discharged - Nondisability Severance Pay
  1. Nondisability severance pay is fully taxable in the year the veteran received the pay. This pay is generally a lump-sum payment specifically authorized by law to certain commissioned and warrant officers who are involuntarily discharged from active duty.

Department of Veterans Affairs (VA) Compensated Work Therapy (CWT) Program - Revenue Ruling 2007- 69

  1. Payments under the Department of Veterans Affairs (VA) Compensated Work Therapy (CWT) program are no longer taxable and disabled veterans who paid tax on these benefits can claim refunds, subject to the statute of limitations, by filing an amended return using the IRS Form 1040-X, Amended U.S. Individual Income Tax Return.

Decedent Accounts

  1. Information may be received indicating a taxpayer is deceased. Verification needed prior to updating the entity includes one of the following:

    • Court certificate

    • Death certificate

    • Correspondence

    • The return indicating the tax period the taxpayer died

  2. Refer to IRM 3.11.3.10.3, Documentary Evidence, for additional information.

Updating the Entity on Decedent Accounts
  1. Update the entity ONLY for the year in which the taxpayer died.

    Note:

    If a taxpayer died before their final return was filed and the prior year was filed with "DECD" in their name line, do NOT change the entity to remove "DECD" . Example: Taxpayer died in February 2017, and the 2016 tax return was filed with "DECD" , do NOT remove "DECD" .

  2. Enter "DECD" in the name line after the:

    • Given name of deceased taxpayer on joint account

    • Surname of the taxpayer on an individual account and

    • Enter the name of the surviving spouse and/or representative on second name line

    Example:

    Married Filing Joint (MFJ) tax return (taxpayers have the same last name) filed for tax year 2015 indicating the secondary spouse is deceased (died in 2015). The entity for tax year 2015 must be updated to show as follows:
    First name line: John B and Jane DECD Doe
    Second name line: John B Doe

    Example:

    Married Filing Joint (MFJ) amended tax return filed in 2016 for tax year 2014 indicating the spouse is deceased (died in 2016).
    • The entity for tax year 2014 should not be updated because the taxpayer died in 2016. If the ENMOD NM-LINE-YR<2014 was updated during processing with an incorrect year for the deceased taxpayer correct it to the correct year the taxpayer died.
    • The entity for tax year 2016 should not be updated if the return for 2016 has not been filed for the tax period in which the taxpayer died.
    • A manual refund is required for the tax year 2014 amended return to prevent a systemic refund issued with the deceased taxpayer’s name.

    Reminder:

    For additional information on updating the deceased taxpayer(s) name, refer to IRM 3.13.5.116.9, Inputting Name Changes for Deceased Taxpayers.

  3. Update the mail file requirements (MFR) to "08" by input of a Transaction Code (TC) 540 on the tax period using Command Code (CC) REQ77 if:

    • Primary taxpayer on a joint return died during the tax period shown on the return

    • Taxpayer on an individual return died during the tax period shown on the return

    Reminder:

    DO NOT input TC 540 to update the mail file requirements if no return was filed for the tax period the taxpayer died.

  4. Beginning in 2011, Privacy, Information Protection, and Data Security (PIPDS) began locking deceased taxpayer accounts to protect this revenue. PIPDS was renamed to Privacy, Governmental Liaison, and Disclosure (PGLD). Then 2014, Identity Protection (a portion of PIPDS) transitioned to Accounts Management (AM) as Identity Protection, Strategy and Oversight (IPSO). Action Code (AC) 524 was developed for use with transaction code (TC) 971 to mark the entity modules on accounts on which identity theft is a factor and/or suspected and documented. The TC 971 and AC 524 are posted to IDRS on ENMOD. The TC 971 AC 524 indicator is applied systemically to the account and prevents a return from posting for a year subsequent to the year of death. For example: Date of death 3/15/2013, a return for TY 2013 will post but a return for 2014 will not be allowed to post. The TC 971 AC 524 prevents an original TC 150 tax return from posting. When a tax return is rejected a CP 01H, Identity Theft Lock notice is mailed to the taxpayer. The Identity Protection Specialized Unit (IPSU) toll-free number 1-800-908-4490 is on this notice. Refer to IRM 21.6.6.4.22.3, CP 01H Decedent Account Responses.

  5. Correct the address to reflect the most current information available. Correct the entity if the taxpayer is erroneously coded as deceased. If TC 540 is present, reverse with a TC 542.

    Caution:

    If the TC 540 was NAP-generated do NOT reverse, the reversal adjustment will go unpostable. To identify a NAP-generated TC 540 the DLN will be 28277-111-11111-Y.

  6. To substantiate the date of death (DOD) is incorrect, taxpayer must provide documentation. If documentation shows the taxpayer’s date of death to be wrong, input CC DM1DT to change the date of death. Refer to IRM 2.3.25, Command Codes DM1DT and DTVUE, for command code input.

    Reminder:

    When the documentation is provided allow the exemption and use Command Code (CC) DM1DT to add, change, or delete data to correct the DOD. CC DM1DT overrides an SSA DOD. After using CC DM1DT, the DOD field on CC INOLE will be replaced with the IRS DOD. To delete a DOD, update CC DM1DT to add a DOD of all zeroes (000-00-0000).

Processing Decedent Account Refunds
  1. Decedent overpayment returns filed by anyone other than the surviving spouse must be filed with Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer, or a certificate showing court appointment. No documentary evidence is required if the return is filed by the surviving spouse. If an amended return is filed, ensure that the spouse filing the amended return is the same spouse who signed the original return. Refer to IRM 3.11.3.10.3, Documentary Evidence for procedures on identifying a correctly completed Form 1310.

    Exception:

    If the overpayment is ≡ ≡ ≡ ≡ ≡ ≡ ≡ , do not request documentation.

    If the return is filed by Then
    Personal representative appointed or certified by a court. A copy of the court certificate or a Form 1310 stating a certificate was filed must be attached.
    Other than the surviving spouse or court certified personal representative. Form 1310 must be attached and lines 1 through 3 must be completed.

    Reminder:

    Do not ask the submitting party to provide the Form 1310 and the court appointment document because submission of both documents is not required.

    Note:

    If there is no frozen credit on the account, refile Form 1310 with a transaction code (TC) 290 .00 in a non-refile blocking series.

  2. When working current processing year returns update the entity module to agree with the Form 1310 information (e.g., first and second name lines, mail file requirements, etc.). If working prior year returns a manual refund is required, refer to IRM 21.4.4, Manual Refunds. Care must be taken when processing statute year claims, refer to IRM 21.4.4.3.1, Refund Statute Expiration Date and IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures.

    Note:

    During original processing, if there is no reply to correspondence, the refund is frozen by input of Computer Condition Code (CCC) "3" , a TC 570 will generate and set a -R Freeze. Refer to procedures in IRM 21.5.6.4.35.2, Resolving -R Freeze. A history item, "NRF1310" may be on the module. Take caution to secure the Form 1310 or court certificate prior to releasing a frozen refund.

  3. When a taxpayer dies certain procedures must be followed to ensure the refund is not issued to the deceased taxpayer. In order for a computer generated refund check to be systemically issued to the correct person, the account must have all of the following present:

    1. Current processing year entity reflecting first and second name lines. The second name line must be present for a computer generated refund, if not present a manual refund is required.

    2. Computer Condition Code (CCC) "L" or "W" present. A -X (Manual Refund) Freeze may also be present when a manual refund is issued (usually for expedite and/or hardship reasons) with no TC 150 posted on the account, or when a return is coded CCC "O" and the TC 150 posted without a TC 840. Refer to procedures in IRM 21.5.6.4.48, -X Freeze.

    3. All required supporting documents. If both taxpayers on a joint return (FS 2), or a solo taxpayer (FS 1, 3, 4, or 5) is deceased, Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer, or court appointment documentation must be attached to the return if the account is overpaid.

    4. Make sure the word "DECD" appears after the first name of the decedent on a joint (FS 2) account (i.e., John J DECD and Mary A Jones), or after the surname of the primary taxpayer for any other filing status (i.e., John J Jones DECD). When both taxpayers are deceased input "DECD" behind both names (i.e., John J DECD and Mary A DECD Jones). When taxpayers have different last names "DECD" is after the last names of the primary taxpayer and the secondary taxpayer (i.e., John J Jones DECD and Mary A Smith DECD). Only surviving spouses and representatives should appear on the second name line.

    5. Do NOT change the name line to replace the word "DECD" with "Estate of" under any circumstances and do NOT remove the word "DECD" from the entity.

    Reminder:

    If the refund is for a tax year other than the current processing tax year, a manual refund is required. If the refund is for the current processing year and the second name line is not present or no longer present, a manual refund is required.

  4. A manual refund is needed if an adjustment to a decedent account results in an overpayment and ANY of the conditions listed in (3) above are not met:

    1. This prevents the issuance of a refund to a deceased person.

    2. Follow manual refund procedures in IRM 21.4.4, Manual Refunds.

      Note:

      When issuing a manual refund on either Form 5792, Request for IDRS Generated Refund (IGR) or Form 3753, Manual Refund Posting Voucher, to a person or address other than what is exactly shown on Master File (CC ENMOD or INOLE), input a transaction code (TC) 971 with action code (AC) 037, and the social security number (SSN) of the person receiving the refund, unless the refund is being issued to Surviving Spouse, an Executor or court appointed Administrator of a decedent.

    3. Use hold code "4" to hold the notice if a manual refund is issued.

  5. When there is reason to believe the claimant is not entitled to the refund, or a controversy may arise concerning the proper payees, take the following actions:

    1. Send the appropriate letter requesting adequate documentation.

    2. Suspend the case for 40 days.

    3. If no reply is received, close the case using hold code 4 to create a "-K" Freeze.

    4. Notify the claimant(s) no action was taken because he or she did not respond to our letter.

      Note:

      This is a "No Consideration" issue, not a claim disallowance.

  6. Beginning in 2011, Privacy, Information Protection, and Data Security (PIPDS) began locking deceased taxpayer accounts to protect this revenue. PIPDS was renamed to Privacy, Governmental Liaison, and Disclosure (PGLD). In 2014, Identity Protection (a portion of PIPDS) transitioned to Accounts Management (AM) as Identity Protection, Strategy and Oversight (IPSO). Action Code (AC) 524 was developed for use with transaction code (TC) 971 to mark the entity modules of accounts on which identity theft is a factor and/or suspected and documented. The TC 971 and AC 524 are posted to IDRS on ENMOD. The TC 971 AC 524 indicator is applied systemically to the account and effective the subsequent year. The TC 971 AC 524 prevents an original TC 150 tax return from posting. When a tax return is rejected a CP 01H, Identity Theft Lock notice is mailed to the taxpayer. The Identity Protection Specialized Unit (IPSU) toll-free number 1-800-908-4490 is on this notice. Refer to IRM 21.6.6.4.22.3, CP 01H Decedent Account Responses.

CP 01H Notice or Letter 12C Decedent Account Responses
  1. Theft of deceased individuals’ personal information for the purposes of filing a fraudulent tax return results in a significant amount of lost tax revenue each year. Beginning in 2011, Privacy, Information Protection, and Data Security (PIPDS) began locking deceased taxpayer accounts to protect this revenue. PIPDS has since been renamed to Identity Protection, Strategy and Oversight (IPSO). Action Code (AC) 524 was developed for use with transaction code (TC) 971 to mark the entity modules of accounts on which identity theft is a factor and/or suspected and documented. The TC 971 and AC 524 are posted to IDRS on ENMOD/IMFOLE. The TC 971 AC 524 indicator is applied systemically to the account and effective the subsequent year. The TC 971 AC 524 prevents an original TC 150 tax return from posting. When a tax return is rejected a CP 01H, Identity Theft Lock notice is mailed to the taxpayer. The Identity Protection Specialized Unit (IPSU) toll-free number 1-800-908-4490 is on this notice.

    Example:

    Taxpayer’s date of death on ENMOD is 6/03/2014. Taxpayer is deceased in tax year 2014, therefore a final return would be allowed for tax year 2014. In this example, the indicator becomes effective on 1/01/2015. Any amended returns filed for tax years 2014 and prior, follow normal adjustment procedures for decedent claims and if applicable issue manual refund. If a claim is filed for tax years 2015 or subsequent, do not adjust the account. Follow the "No Consideration" procedures below.

  2. Taxpayer calls stating they received a CP 01H notice or Letter 12C:

    And Then
    Date of death is present on Command Code INOLES Instruct the taxpayer to send the required documentation outlined in the CP 01H notice or Letter 12C to the address on the notice or letter. Refer to IRM 25.23.3.3.3, Responses to Identity Theft and Data Loss Notification Letters/Notices - IDT5. Unpostable condition UPC 147 RC 4 with Special Processing Code (SPC) 9. The SPC 9 is displayed on CC TRDBV. This is an indication of a return attempting to post on a deceased taxpayer account and should be worked the same as accounts with TC 971 AC 524. Submission Processing may have issued a Letter 12C instead of the CP 01H requesting a Form 1310Statement of Person Claiming Refund Due a Deceased Taxpayer, and a copy of the death certificate. Taxpayers response should be worked the same as accounts with TC 971 AC 524.
    Date of death is NOT present on Command Code INOLES Apologize to the taxpayer and inform them we will correct their account and to resubmit their tax return. Refer to IRM 25.23.2.19.4.2, Manually Reversing TC 971 AC 524 - No Date of Death Present on Command Code INOLES.
  3. Correspondence is received pertaining to CP 01H notice or Letter 12C:

    And Then
    Taxpayer is providing the required documentation listed in IRM 25.23.3.3.3, Responses to Identity Theft and Data Loss Notification Letters/Notices.
    AND
    Date of death is present on Command Code INOLES.
    Any taxpayer written responses received due to the CP 01H or Letter 12C are routed to the Entity Control Unit (ECU) for research and/or corrections. Notate on the referral IRM 3.13.5.65, UPC 147 RC 4/CP 01H Processing/Reversals of Incorrect TC 971 AC 524. Fax the information to ECU, refer to IRM 3.13.5.3.1, Enterprise E-Fax (EEFAX) and FAX Numbers or prepare Form 4442 and forward the documents provided by the taxpayer to the ECU. To determine which ECU address to use, refer to IRM 21.3.3.3.5 Submission Processing Consolidation (Rampdown) for the campus, then refer to the Campus Mailing Addresses listed on SERP under the Who/Where tab for the ECU address. Refer to IRM 3.13.5.65, UPC 147 RC 4/CP 01H Processing/Reversals of Incorrect TC 971 AC 524.
    Taxpayer is providing the required documentation listed in IRM 25.23.3.3.3 , Responses to Identity Theft and Data Loss Notification Letters/Notices.
    AND
    Date of death is NOT present on Command Code INOLES.
    Process the claim following normal adjustment procedures. Refer to IRM 25.23.2.19.4.2, Manually Reversing TC 971 AC 524 - No Date of Death Present on Command Code INOLES.
    The taxpayer does not include the CP 01H or Letter 12C required documentation.
    AND
    Date of death is present on Command Code INOLES and the claim is for a prior tax year.
    Process the claim following normal adjustment procedures.
    The taxpayer does not include the CP 01H or Letter 12C required documentation.
    AND
    Date of death is present on Command Code INOLES and the claim is for a subsequent tax year.
    DO NOT adjust the account, refer to IRM 21.5.3.4.6.3, No Consideration Procedures and issue a 916C letter using both open paragraphs and use the language provided in paragraph (4) below.
    The taxpayer does not include the CP 01H or Letter 12C required documentation.
    AND
    Date of death is NOT present on Command Code INOLES.
    Process the claim following normal adjustment procedures. Refer to IRM 25.23.2.19.4.2, Manually Reversing TC 971 AC 524 - No Date of Death Present on Command Code INOLES
  4. Use the 916C "No Consideration" letter with open paragraphs containing the following verbiage:
    "The IRS has locked your account based on information we received from the Social Security Administration (SSA). SSA informed us that the Social Security number of the primary or secondary taxpayer on the tax return belongs to someone who was deceased prior to the tax year shown on the tax form."
    "If the SSA erroneously identified the taxpayer as deceased, contact SSA. Send the tax return with original signature(s), and a photocopy of one of the following: Passport, Driver's License, Social Security Card, or other valid U.S. Federal or State Government issued identification to the IRS location where you filed your tax return."

Federal Income Tax Forgiveness for Certain United States (U.S.) Military and Civilian Employees and Other Individuals

  1. IRC Section 692 provides for the forgiveness of certain Federal income taxes for certain U.S. military and civilian employees who are killed or die of injuries received as a result of military or terrorist action. For additional information and instructions for completing KITA/KIA returns, refer to Publication 3, Armed Forces' Tax Guide and Publication 3920, Tax Relief for Victims of Terrorist Attacks.

  2. The following subsections include procedures for processing claims/returns received under IRC Section 692.

9/11 Rescue Worker Claims filed under IRC Section 692(d)
  1. Rescue and recovery workers are eligible for Federal tax relief only to the extent their death is the result of wounds or injury sustained during the 9/11 relief effort. Claims filed from a 9/11 injury which leads to an illness (such as cancer) which then leads to death may be eligible.

  2. Disability payments received for injuries incurred as a direct result of a terrorist attack or for an illness or disease resulting from an injury incurred as a direct result of a terrorist attack can be excluded from income under IRC 104(a)(5) at the time the payments are received. Taxes erroneously paid on qualifying disability payments may be refundable separate from the tax forgiveness provided in the year of death. Refer to Publication 3920, Tax Relief for Victims of Terrorist Attacks.

  3. Claims are filed on Form 843, Claim For Refund and Request for Abatement and/or Form 1040-X, Amended U.S. Individual Income Tax Return.

  4. Taxpayer is instructed to notate at the top of the claim or in the remarks field, "Amended pursuant to IRC 104(a)(5), Pub 3920" , "9/11 Terrorist Act" , "Terrorist Attacks World Trade Center" , or "Tax Forgiveness Victims of Terrorist Act" .

  5. These claims are expeditiously processed in the Kansas City KITA team. If received at any other campus reassign the claim to the KITA team using IDRS ≡ ≡ ≡ ≡ ≡ ≡ ≡ , (internal use only) and category code "KITA" .

Killed in Terrorist Action (KITA)/Killed in Action (KIA) and Astronauts Killed in the Line of Duty
  1. IRC Section 692 provides for the forgiveness of certain Federal income taxes for certain U.S. military and civilian employees who are killed or die of injuries received as a result of military or terrorist action and Astronauts Killed in the Line of Duty.

  2. In general, for KITA/KIA claims the determination of terrorist or military action directed against the U.S. or its allies is made by the Department of Treasury in consultation with the State Department, the Department of Defense, or the Department of Justice.

  3. The Department of Defense provides a DD Form 1300, Report of Casualty, or DD Form 2064, Certificate of Death Overseas, to the decedent's administrator for military and civilian Defense Department employees so that the estate may submit it with a claim under the KITA or KIA provisions.

  4. Civilian employees of agencies other than the Department of Defense who are victims of terrorist or military actions overseas, relief under the KITA/KIA provisions is based upon certification in a letter signed by the Director General of the Foreign Service, Department of State, or the Director General's delegate. The certification must include the deceased individual's name and social security number, the date of injury, the date of death, and a statement that the individual died as a result of a terroristic or military action outside the United States.

  5. Civilian employees of agencies other than the Department of Defense who are victims of a domestic terrorist or military action, relief under the KITA/KIA provisions must be accompanied by certification that includes:

    1. A copy of the death certificate stating the nature of the injury causing death or, if the cause of death is not apparent from the death certificate, a letter from the treating physician, medical examiner, or hospital stating the cause of death, or

    2. A certification from the federal employer that includes the name and social security number of the decedent, the date of the injury, the date of death, a statement that the decedent was an employee of the United States on the date of injury and the date of death and, if the death was associated with an event that the Secretary has identified as a military action or terroristic activity in published guidance, a statement identifying the action or activity associated with the death. This certificate may be a form or a letter from the employing agency's personnel department to the decedent's representative.

  6. A copy of the death certificate is required in lieu of certification from the State Department or Department of Defense for the individuals listed below. The death certificate must cite the cause of death as the event qualifying for tax forgiveness. For example, accept a death certificate that states that the death was a result of wounds or injury incurred as a result of the 9/11 terrorist attacks or was a result of an illness or disease that arose from wounds or injury sustained during the 9/11 terrorist attacks or 9/11 relief efforts. If the cause of death is not apparent from the death certificate, accept a letter from the treating physician, medical examiner, or hospital stating the cause of death or other proof such as a certification from the World Trade Center Health Program that the victim was being treated for an illness or disease that arose from wounds or injury sustained during the 9/11 terrorist attacks or 9/11 relief efforts.

    1. Any individual who dies as a result of wounds or injury incurred due to the terrorist attacks against the United States on April 19, 1995, or September 11, 2001, or

    2. Any individual who dies as a result of illness incurred due to a terrorist attack involving anthrax occurring on or after September 11, 2001, and before January 1, 2002, unless the individual was a perpetrator of the attacks, or

    3. Any astronaut whose death occurs in the line of duty after December 31, 2002.

  7. Independent contractors working on behalf of the United States government agency are not civilian employees of the United States and are not entitled to relief under the KITA/KIA provisions.

  8. Taxpayer must be a U.S. military or civilian employee on the date of injury and on the date of death.

    Exception:

    The Victims of Terrorism Tax Relief Act of 2001 and the Military Family Tax Relief Act of 2003 amended the Internal Revenue Code to exempt certain individuals from certain income taxes, refer to Publication 3920, Tax Relief for Victims of Terrorist Attacks.

  9. Forgiveness of tax for KITA applies to the year of death and any prior tax year beginning with the last tax year ending before the year of the injury and only applies to the decedent's income.

  10. Forgiveness of tax for KIA applies when a member of the U.S. Armed Forces dies while in active service, if the death occurred in a combat zone or from wounds, disease, or other injury received while serving in a combat zone. The decedent's income tax liability is forgiven for the year the taxpayer died. The prior year(s) is also forgiven only if the taxpayer had entered into a combat zone during the prior year or earlier. The taxpayer's first entry into a combat zone determines which year(s) are considered for forgiveness. In addition to tax for the tax years described in the paragraph above, all taxes and applicable penalties and interest are forgiven on accounts remaining unpaid as of the date of death, regardless of the tax year. These taxes should be abated if assessed, and credited or refunded if collected, after the date of death. Prepaid credits such as income tax withholding are considered paid when withheld.

  11. Interest paid on the refund resulting from KITA/KIA returns/claims is taxable to the recipient.

  12. Calls may be received from survivors of victims due to the conflicts in Iraq and Afghanistan. Extra care must be taken when handling this type of call, due to the sensitivity of the issue.

  13. The literal "KITA" will appear on CC ENMOD, IMFOLE, TXMOD and SUMRY as an indicator. It does not cause a freeze or prevent the issuance of enforcement related notices. Refer all KITA/KIA account inquiries and correspondence to the Kansas City KITA team using IDRS ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , (internal use only) and category code "KITA" .

  14. For calls received from survivors, or a family member, etc. use Form e-4442 or Form 4442. Include the following information:

    • Scenario of the taxpayer's inquiry

    • Contact person's name, phone number, relationship to victim, and mailing address

    • Victim's name and SSN

    Reminder:

    Only the Kansas City KITA/KIA team designated employees should make contact with the administrator/surviving spouse. Advise the caller they will be contacted within 5 business days.

  15. If you have any questions pertaining to these claims refer to http://serp.enterprise.irs.gov/databases/who-where.dr/kita-kia-coordinators.html for the list of KITA/KIA coordinators. All tax law inquiries should be transferred to the applicable tax law transfer number listed on Servicewide Electronic Research Program (SERP) in the Telephone Transfer Guide (TTG). Starting January 2nd, 2014 refer to IRM 21.1.1.6 (5), (6), and (7), Customer Service Representative (CSR) Duties for new tax law procedures.

  16. All KITA/KIA returns, except Forms 706, "Estate Tax Returns" should be mailed or reassigned to the Kansas City KITA team. Form 706, Estate Tax Returns refer to IRM 21.7.5.5.3, Special Processing Required for KITA Forms 706.

  17. KITA claims should be scanned into CIS using IDRS ≡ ≡ ≡ ≡ ≡ ≡ , (internal use only) and category code "KITA" . If a KITA claim is erroneously assigned to anyone other than the KITA/KIA team, reassign the claim.

  18. The Kansas City KITA/KIA team is responsible for taking all necessary action on these cases. The KITA/KIA team in the Kansas City Campus receives all returns (original or amended) and all case files/inquiries from decedent's administrator/surviving spouse, the territory office, other functions within the campus, or other campuses. If returns original or amended are received at any other campus, expedite the assignment to the KITA/KIA team.

  19. Taxpayers are instructed in Publication 3, Armed Forces' Tax Guide and Publication 3920, Tax Relief for Victims of Terrorist Attacks to mail returns/claims to:
    Internal Revenue Service
    333 W. Pershing, Stop 6503, P5
    Kansas City, MO 64108

  20. If the return meets KITA/KIA criteria and was received from Error Resolution System (ERS), notify ERS suspense that you are keeping the return. The Kansas City KITA team performs the required KITA/KIA case action.

  21. Do not refer "Hostage" cases to Kansas City, if the literal "HSTG" displays on CC ENMOD, SUMRY, TXMOD or TDINQ, follow the procedures in IRM 5.19.1.4.12, Taxpayers Taken Hostage in Terrorist Action (HSTG).

  22. Organization/Function/Program (OFP) - Program 82385 must be used to report time working on "KITA" returns.

KITA/KIA Procedures for All Functions
  1. KITA/KIA processing is expedited at all times. Follow guidelines in the table below:

    Signature The rules regarding decedent returns apply.
    Income and Deductions Exclude all income and deductions of the decedent only. If a joint return is filed, an allocation is required on joint income (e.g., interest, dividends, etc.) and deductions. Payments and deductions may be allocated differently in community property states.
    Balance Due Returns Payment is usually received with the return. Normal collection procedures apply for deceased taxpayer's balance due returns received without payment.
    Transaction Codes (TC) 420 or 922 The Accounts Management (AM) KITA/KIA Coordinator or designated employee will contact the Compliance KITA/KIA Coordinator. For a list of KITA/KIA Coordinators, refer to http://serp.enterprise.irs.gov/databases/who-where.dr/kita_kia_coordinators.dr/kita_kia_coordinators.htm.
    Due Dates Normal filing dates apply for both the original and any amended returns. Decedent's administrator/surviving spouse may request an extension of time to file which is granted if normal conditions are met.

    Exception:

    For KIA - IRC Section 7508(a) may have already provided additional time to file due to the decedent's service in combat zone.

    Clearing and Deposit Follow normal procedures if a remittance return is received.
    Numbering and Batching KITA/KIA and 9/11 Rescue Worker returns are expeditiously scanned into CIS and assigned to the KITA team at the Kansas City campus.
    Interest and Penalties Refer to IRM 21.6.6.4.23.2.2.1, Interest Computation on the Minimum Benefit.

    Reminder:

    Statutory exceptions (refer to IRM 20.1, Penalty Handbook) should be applied liberally when determining if penalties are to be assessed. Before assessing penalties, contact the AM KITA/KIA Coordinator.

  2. Unpostables - The Technical Unit or designated function monitors all actions they have taken on KITA/KIA accounts and will contact Unpostables concerning the resolution of an unpostable condition. A new reason code, "2" was established for Unpostable 164. The criterion for generating is TC 150, TC 290, or TC 300 input to an account containing the KITA or Hostage indicator. The Unpostable function will contact the Kansas City Campus to have them check the Victim's list. If the taxpayer is not on the list, the Unpostable function will process the return. The Kansas City Campus will remove the KITA indicator. If the taxpayer is on the list, the return will be forwarded to the Kansas City Campus. This unpostable check will be bypassed for TC 150 with Computer Condition Code "O" .

Technical Unit or Designated Function KITA/KIA and Astronauts Killed in the Line of Duty
  1. All returns (original or amended) and all case files/inquiries are expedited to the Technical Unit or designated function. Except as specified in the following instructions, Normal Procedures must be followed.

  2. If any of the years in question have a:

    1. TC 420 - Contact the appropriate Compliance KITA/KIA Coordinator who will determine the proper case disposition in conjunction with the Area/Territory Office Examination function.

    2. TC 922 - Contact the appropriate campus Compliance KITA/KIA Coordinator who will secure the return and case file. The Underreporter case is closed to the function handling the KITA/KIA return(s).

    3. Open Control - Contact the employee and tell them to send you what they have. Consider all information when working the KITA/KIA case.

    4. -Z Freeze - Refer case to the Scheme Development Center.

  3. Examine returns for completeness. If missing items can be determined from other parts of the return or attachments, complete the missing section. "KITA/KIA" must be stamped or written across the top of the return. Returns/claims filed due to the Victims of Terrorism Tax Relief Act of 2001 should be identified as KITA anthrax, or KITA 9/11. Returns filed due to the Military Family Tax Relief Act of 2003 should be identified as KITA astronauts. Care must be taken when processing statute year claims to prevent erroneous abatements, refer to IRM 25.6.1.5, Basic Guide for Processing Cases with Statute of Limitations Issues.

  4. Check Command Code (CC) ENMOD for the literal "KITA" next to the Name Control. If not present, use CC ENMOD/ENREQ to input the indicator "1" in the KITA field of CC INCHG. Use "No source document" (NSD). Enter "KITA" or "KIA" and the event in the remarks. This action will generate a TC 016 on ENMOD. To turn off the setting input indicator "9" .

  5. Verify the dependent TINs. If invalid and unable to find a valid TIN, contact the claimant.

  6. All contact with the administrator/surviving spouse is made through the appropriate KITA/KIA Coordinator or designated employee. Record all activities on document history sheets. The documentation must include the date and action. Both tax years must be kept in the same file. If only one return is received, such as the 2010 original return, call or write the victim's family and/or representative to remind them of the forgiveness available on the other tax years. Do not delay the processing of the return you received.

  7. A certification from the Department of Defense, the Department of State, or a death certificate must accompany all returns and claims for refund. Returns filed for victims due to the Victims of Terrorism Tax Relief Act of 2001 and due to the Military Family Tax Relief Act of 2003 are verified against a listing maintained by the Kansas City KITA Project Office. If the taxpayer's name is not on the list you must request a certified copy of the death certificate prior to issuing a refund. Kansas City will indicate the need to secure a certified death certificate on cases sent to your office.

  8. In KIA cases, the date of entry into a combat zone is needed to process the return/claim. This date may be found on CC IMFOLE, or noted on the claim/return.

  9. Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer must accompany all returns and claims for refund. Refer to IRM 3.11.3.10.3, Documentary Evidence for procedures on identifying a correctly completed Form 1310.

    Note:

    A Form 1310 is not required if the surviving spouse is filing an original or amended joint return with the decedent, or the administrator is filing an original Form 1040, U.S. Individual Income Tax Return, Form 1040A, U.S. Individual Income Tax Return, Form 1040EZ, Income Tax Return for Single and Joint Filers With No Dependents, or Form 1040NR, U.S. Nonresident Alien Income Tax Return, for the decedent and a court certificate showing their appointment is attached to the return.

  10. Contact must be made, when possible, by telephone. If unable to reach the administrator/surviving spouse after two calls, request the information in a letter. Before disclosing any tax information, you must be sure you are speaking with the taxpayer or authorized representative, refer to IRM 21.1.3.2.3, Required Taxpayer Authentication. Before leaving a message on a taxpayer's answering machine, refer to IRM 11.3.2.7.1, Leaving Information on Answering Machines/Voice Mail.

  11. In all cases, ask the administrator/surviving spouse to provide the information in 30 days. Inform them that without the supporting information we will not be able to issue a refund. Also, we may have to increase the tax they owe or reduce the refund.

  12. If no reply is received within 45 days, call or send a follow-up letter. Tell the administrator/surviving spouse to provide the information in 10 days, then wait 15 days for a reply.

  13. If no reply is received after the second contact, call or send another follow-up letter. Wait an additional 15 days for a reply.

  14. If no reply to the third request, follow normal "No Consideration" procedures in IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns.

  15. For joint returns, if the missing/incomplete information is the allocation of income/deductions, process as a normal joint return. Verify the tax is correct for filing status 2 and edit if necessary. Apply the ≡ ≡ "tax tolerance" only if it benefits the taxpayer.

    Note:

    Do not edit the Return Processing Date (RPD) when any of the above applies.

  16. Edit a CCC "U" on all"no reply" returns in addition to the other actions specified in the Correspondence Action Chart, except when any of the following apply:

    • The only correspondence item was for withholding support

    • The correspondence was not required

    • All correspondence conditions were not included when the first correspondence was sent

  17. For late "no reply" returns, honor the original received date.

  18. Send the administrator/surviving spouse a letter informing them to file Form 1040-X, Amended U.S. Individual Income Tax Return, with the required information. Remember, if a manual refund is not issued (no "O" code), the original return will unpost. Call the Kansas City KITA Office at ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ (internal use only), and let them know the return will unpost. When the Unpostable Function calls the KITA office they will be told to post the return. Make sure all of your actions are clearly documented on the history sheet you attach to the return. The return will post when input the second time.

  19. The CCC "O" may also be present if a taxpayer is issued a manual refund before the return posts.

  20. The following applies to ALL KITA/KIA original returns:

    1. Edit (in red) the return, beginning with the total tax line. Apply the ≡ ≡ ≡ ≡ tax tolerance only if it benefits the taxpayer. Edit, if applicable, all items following the tax including the minimum payment/credit amount and the "refund" amount, or the "amount owed." Enter Computer Condition Code (CCC) "Y" . Code the entity portion and address. Enter the appropriate CCC (F, W, L, etc.). Refer to (23) below if a joint return.

    2. Prepare a manual refund, if applicable: enter CCC "O" on the return. Follow normal procedures including research for outstanding balances. Attach a copy of the manual refund form to the return. Refer to IRM 21.6.6.4.23.2.2.1, Interest Computation on the Minimum Benefit.

      Note:

      If outstanding balances, send the appropriate offset letter prior to satisfying the debts.

      Exception:

      Contact the Kansas City KITA Office at ≡ ≡ ≡ ≡ ≡ ≡ (internal use only), if any of the following conditions are present:
      • Non-filer/SFR (Substitute for Return) for two years or more
      • Underreporter with balance due for two years or more
      • Examination assessment over $2,000 (per tax year) with a balance due

    3. Notate the following in the lower left hand corner of page 1 of the Form 1040/1040A/1040EZ:
      • KITA or KIA
      • Employee name
      • Employee telephone number

    4. Hand carry the return to Batching with Form 3210. If an error code generates during processing, the ERS Function will suspend the document and contact the employee. All math errors must be resolved prior to the processing of the return. Contact the victim's family and/or representative if necessary.

    5. Contact the victim's family and/or representative, via telephone or letter, regarding the adjustment actions taken on KITA amended or original tax return. Provide the tax forgiveness amounts, the refund amount, the anticipated date the refund should be received, interest amount allowed with the refund, and the IRS employee name, identification number, telephone number, and address to contact if there are any questions.

    6. Monitor for posting and to confirm the refund, if any, is issued.

    7. Destroy copies of returns used for monitoring purposes and all duplicate information.

    8. File all other documentation, including the history sheets, by inputting a TC 290 .00 on the latest KITA/KIA year filed. In remarks put: "KITA" or "KIA" documentation.

  21. The following applies to ALL KITA/KIA amended returns:

    1. Math verify for completeness.

    2. Adjust the tax and apply the ≡ ≡ tax tolerance only if it benefits the taxpayer. Use Reason Code 99, Source Code 1, hold code 4, if the adjustment results in an overpayment, and use the appropriate blocking series. Enter "KITA" or "KIA" and the event in the remarks. DO NOT ADJUST THE INCOME. Leave the control base open and monitor until all actions have posted.

      Note:

      Adjustments made to an electronically filed return account must use blocking series 05 (do not use blocking series 18).

    3. Prepare a manual refund if applicable. Refer to IRM 21.6.6.4.23.2.2.1, Interest Computation on the Minimum Benefit.

    4. All claim disallowances must be reviewed by the KITA Project coordinator.

  22. If the return/claim is filed due to the Victims of Terrorism Tax Relief Act of 2001 or the Military Family Tax Relief Act of 2003, the following applies:

    1. Refer to Publication 3920, Tax Relief for Victims of Terrorist Attacks, for taxes not eligible for forgiveness.

    2. Tax on income the decedent would have received if the decedent had not died; such as paycheck, dividends, etc., is forgiven.

    3. Death benefits paid by the employer, if they are paid as a result of the decedent being a victim of the terrorist attack, are excluded. If these death benefits would have been received for any cause of death, then normal rules apply.

    4. A minimum tax relief benefit of $10,000 is provided to victims of April 19, 1995, September 11, 2001, Anthrax, and any astronaut whose death occurs in the line of duty after December 31, 2002. This minimum applies to the original and amended Form 1040, and Form 1041 returns. Publication 3920, Tax Relief for Victims of Terrorist Attacks, suggests to the taxpayer to file the amended and original returns together. To determine if the individual has been given the minimum relief, consider the total tax forgiven. Penalties and interest previously paid on tax liability forgiven by the Act are not included in the computation of the minimum relief. Also included is the tax forgiven on the Form 1040 (a worksheet is included in Publication 3920). If necessary, check IDRS for adjustments to the years involved. If unable to determine if all returns are filed, contact the administrator/surviving spouse. Refer to IRM 21.6.6.4.23.2.2 (6) above for correspondence procedures. Question whether a Form 1040 or other returns will be filed. Tell the administrator/surviving spouse to send the returns to you. If you receive a return that has not come through the Kansas City KITA Office, call ≡ ≡ ≡ ≡ ≡ ≡ ≡ (internal use only), so the information can be added to the national database. Refer to IRM 21.7.4.4.1, Form 1041, U.S. Income Tax Return for Estates and Trust, for additional information on Form 1041. Per normal procedures, if the taxpayer has questions you are unable to answer, write them up and refer to your work leader or manager. Apologize to the taxpayer for not being able to answer the inquiry immediately. Inform them they will receive a response as soon as possible but no later than 3 business days.

      Note:

      Do not delay refunds waiting to receive additional returns. If the return (amended or original) you have is processable, complete the case processing expeditiously. If additional return(s) are received, the account must be adjusted accordingly.

    5. If the minimum amount has not been forgiven, the taxpayer can claim a payment/credit up to $10,000 on the "Other Payments" line of the last taxable year. The taxpayer has been instructed to write "Section 692(d)(2)" . Normal statute procedures apply, claim for refund must be filed within 3 years from the time the previously filed income tax return or 2 years from the time the tax was paid, whichever is later. Refer to IRM 21.6.6.4.23.2.2.1, Interest Computation on the Minimum Benefit.

    6. If a Form 1040-X, Amended U.S. Individual Income Tax Return, is filed to claim the relief, the amount can be entered on Line 15, with the same write-in, to allow the credit input TC 290.00 if no other adjustment is required. Use the credit reference number 766 to allow the credit or credit reference number 767 (with a minus sign) to decrease a previously posted credit. Use reason code (RC) 99, source code (SC) 1, the appropriate hold code, and blocking series.

  23. Joint returns - Only the decedent's part of the joint income tax liability is eligible for the refund or tax forgiveness. Refer to the worksheet in Publication 3920, Tax Relief for Victims of Terrorist Attacks. To determine the part attributable to the decedent, the person filing the claim must complete the following steps:

    1. Figure the income tax for which the decedent would have been liable as if a separate return had been filed.

    2. Figure the income tax for which the spouse would have been liable as if a separate return had been filed.

    3. Multiply the joint tax liability by a fraction. The top number of the fraction is the amount in a) above. The bottom number of the fraction is the total of a) and b). The result is the decedent's tax liability that is eligible for the refund or tax forgiveness. Apply the ≡ ≡ ≡ tax tolerance only if it benefits the taxpayer.

  24. If the decedent's administrator/surviving spouse is unable to complete the process in (23) above, they should attach a statement of all income and deductions indicating which belongs to each spouse. You must then make the proper division.

  25. If the member of the Armed Forces was domiciled in a community property state and the spouse reported half the military pay on a separate return, the spouse can get a refund of taxes paid on his or her share of the pay for the years involved. The forgiveness of unpaid tax on the military pay would also apply to the half owed by the spouse for the years involved.

  26. Kansas City will prepare a weekly report.

Interest Computation on the Minimum Benefit
  1. Following is information on the date from which interest should be computed on the $10,000 minimum benefit (make-up payment) and any actual payments a victim made with respect to tax that the Act now forgives.

  2. Normal rules apply unless otherwise specified. The "make-up" payment is considered paid on the date of enactment of the Act, January 23, 2002. Following normal rules regarding the accrual of interest, the interest may or may not be computed on that payment from that date.

  3. Interest will not begin to accrue prior to the filing of a return with respect to a victim who had a filing obligation prior to the enactment of the Act. Victims who did not have a filing requirement, (for example, children who had not earned sufficient income to have a filing requirement) will be paid interest on the "make-up" payment from January 23, 2002, even if a return claiming the $10,000 minimum relief is not filed until a later date, so long as the return or claim for refund is timely under IRC Section 6511.
    Examples:

    • A first responder who died in 2014 from a cancer covered under the World Trade Center Health Program had an income tax liability of $17,500 for 2011, $18,025 for 2012 and $7,000 for 2013. He filed his tax returns on time each year and paid all of his tax when due. The total, $42,525, is eligible for tax forgiveness. However, the $17,500 refund for 2011 must be requested by April 15, 2015.

    • A child wounded in the September 11 attacks dies in 2012 as a result of those wounds and never had any income tax liability. She/he qualifies for the minimum relief of $10,000. The $10,000 is treated as a tax payment for 2012 and will be refunded if tax forgiveness is requested by April 15, 2016.

Tax Equity and Fiscal Responsibility Act (TEFRA) Partnerships Related Claims

  1. These amended returns are related to Tax Equity and Fiscal Responsibility Act (TEFRA) partnership adjustments which result in refunds. The partners’ statutes for the flow through adjustments may be held open at the partnership level. The Letter 3906, Letter 4505-A, or Letter 4505-E provides the date by which the partner may file an amended return to determine whether the claim was filed timely. Do NOT automatically reject any amended return filed with a Letter 3906, Letter 4505-A or Letter 4505-E. The letter MUST be attached to the return and will provide the date by which the amended return must be filed. The amended returns should have "Letter 4505-A/AAR" or "Letter 4505-E" written in the top center margin of the first page of the return. The partners may be filing amended returns with amended Schedules K-1. The Letters 4505-A and E instruct the partners to write Letter "4505-A/AAR" or "Letter 4505-E" in the top center margin of the form. The tax year of the adjustment to the TEFRA partnership return is for that year ONLY but does cover any potential carryback or carryover years. The partners/taxpayers have until the same date to file those carryback/carryover claims, therefore they must be postmarked on or before the date provided in the Letter 3906, Letter 4505-A, or Letter 4505-E.

  2. The statute at the partnership level protects the ASED and related RSED for all the underlying partners until the date provided in the Letter 3906, Letter 4505-A, or Letter 4505-E. The ASED and RSED of the partners will likely appear to be expired but is extended under IRC 6229(b)(1). The partners/taxpayers have until the same date to file those carryback/carryover claims, therefore they MUST be postmarked on or before the date provided in the Letter 3906, Letter 4505-A, or Letter 4505-E.

    Example:

    Jill Maple files a Form 1040-X as a partner (directly or indirectly) in TEFRA Partnership ABC and received amended Schedule K-1 for tax year 2010. The amended Schedule K-1 reflects a credit or loss. The Form 1040-X amended return for Jill will have Letter "4505-A/AAR" or "Letter 4505-E" written on the top of the return and a copy of the letter attached. Jill’s amended return will also reflect only the adjustment reflected on the Schedule K-1. Only the ABC Partnership related adjustments have an open statute.

    Example:

    Form 1040-X Carryback claim. Same facts as above, except the credit or loss creates a net operation loss (NOL) that Jill must carryback to the 2007 tax year and carryforward as appropriate. Jill files an amended return for the tax year 2007 and writes Letter "4505-A/AAR" or "Letter 4505-E" on the top of the return and a copy of the letter is attached. Only the ABC Partnership related adjustments being carried back have an open statute.

  3. Similar scenarios may exist with BMF amended returns. Both taxable BMF entity as well as pass-through entity claims may be filed. Pass through entity claims will be filed with amended Schedules K-1 to report the effect of the partnership adjustments to their investors.

  4. If the only issue on the amended return is the TEFRA partnership related loss, the claim should NOT be referred to CAT-A for review.

    Reminder:

    When inputting the adjustment on a statute case, in order to prevent a –D freeze from generating, an override "S" MUST be entered on the Command Code ADJ54 screen, and the RSED date posted on TXMODA MUST be entered on the RFSCDT field, do NOT use the claim received date.

Virgin Islands Form 1040 and 1040A

  1. Refer claims received from taxpayers residing in the Virgin Islands to the Austin Campus for processing.

Electronic Filing System (e-file)

  1. Refer to IRM 21.7.4.4.4.15, Modernized e-file Program (MeF) for Corporate and Exempt Organization Returns, for information on electronically filed Form 1120, U.S. Corporation Income Tax Return, Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations, Form 1120S, U.S. Income Tax Return for an S Corporation, and Form 990, Return of Organization Exempt From Income Tax. Utilize Command Code (CC) TRDBV, or CC RTVUE, or CC BRTVU, if TRDBV is unavailable, to verify return information in lieu of requesting an Electronic Filing (ELF) return (hard copy print). Only obtain a hard copy of the ELF return if it must be reprocessed or reinput.

  2. For tax years prior to 1998, use CC ESTAB or CC ELFRQ.

  3. For tax year 1998 and subsequent, use CC TRPRT to request graphic prints. The TRPRT graphic will be available nationwide regardless of where the return was filed. The TRPRT print is not considered the original return. The print will be labeled "TRPRT PRINT DO NOT PROCESS" . Refer to IRM 21.5.2.4.23.1, Reprocessing Electronic Returns. However, when the return must be reprocessed, the TRPRT print will be used. Refer to IRM 21.2.2.4.4.6, TRDB CC TRPRT (Tax Return Print) Input, for additional information on TRDBV and TRPRT.

    Note:

    When reprocessing an E-file return, you must check the TRPRT print for the Personal Identification Number (PIN). If there is no PIN on the TRPRT print, you must request Form 8453, U.S. Individual Income Tax Transmittal for an IRS e-file Return, refer to (4) below, and attach a copy of the Form 8453 to the TRPRT print.

  4. Do not use blocking series 18 for e-filed returns. Use the applicable blocking series for the type of return/situation you are adjusting. Refer to Returns Processing Adjustment Blocking Series in Document 6209, Section 4.14, Adjustment Blocking Series, for a listing of adjustment blocking series.

    Note:

    Refer to IRM 21.5.4.4, Math Error Procedures Processing and IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns.

  5. Request Form 8453,U.S. Individual Income Tax Transmittal for an IRS e-file Return, if needed. When using CC ESTAB, enter the applicable MFT and "8453" for the form. If 8453 is not input for the form, the request will be systemically rejected. When using CC ELFRQ, use action "2" .

    Note:

    For tax year 2003 and subsequent, the DLN of the Form 8453, can be obtained through Command Code (CC) R8453. Input R8453, space and the taxpayer's social security number. For tax years prior to 2003, use the DLN of the original return.

  6. DO NOT attach information (e.g., loose forms, schedules, and correspondence) to an ELF return. To identify an ELF DLN refer to Document 6209, Section 4.3, Campus and File Location Codes. Use the following procedures:

    1. File the information using TC 290 with the applicable blocking series for the type of return/situation you are adjusting using the non-refile DLN.

    2. DO NOT use an "attachment" or "association form" .

      Note:

      These procedures are not needed for documents scanned into Correspondence Imaging System (CIS). CIS serves as the retention area for these documents.

  7. Electronic Filing Unit (EFU) may forward Form 3465, Adjustment Request, to the Adjustments/Correspondence Branch with a problem annotated. Take normal adjustment action.

Form 5330 - Return of Excise Taxes Related to Employee Benefit Plans

  1. Take the following action if the taxpayer submits a payment for excise tax and attaches a Form 5330, Return of Excise Taxes Related to Employee Benefit Plans (Voucher Update Document):

    1. Detach and photocopy the Form 5330. Attach Form 1725, Routing Slip, to the photocopy of Form 5330 and route to Ogden, UT 84201–0027, M/S 6552 Attn.: Employee Plan (EP) Accounts Unit (this is the EP unit in Ogden responsible for all "Post Processing" EP work).

    2. Write "Photocopy Only - Do Not Process" across the front of the form.

    3. Route the original Form 5330 to Receipt and Control for processing to the Business Master File (BMF). Receipt and Control has instructions to transship the Form 5330 to Ogden for processing.

    4. Process adjustment per Form 1040, U.S. Individual Income Tax Return, or Form 1040-X, Amended U.S. Individual Income Tax Return, if necessary, using the Source Code (SC) 1, Reason Code (RC) 099, and appropriate blocking series.

    5. Use a hold code to prevent release of the excise tax payment.

    6. Annotate the Form 1725 that the original Form 5330 was sent to Ogden for processing and that the credit is posted on the IMF.

    7. Advise the EP function of the credit on Individual Master File (IMF) available for transfer to BMF MFT 76.

Form 8697- Interest Computation Under the Look-Back Method for Completed Long-Term Contracts

  1. Form 8697 is filed by an individual, corporation, estate, or trust. These claims are worked in Non-Masterfile (NMF) either Philadelphia (IMF) or Cincinnati (BMF) depending on the type of claim filed (IMF or BMF). If received at any other campus, ensure the case is notated as a Form 8697 claim and forward to the applicable NMF (either IMF or BMF) campus. If the claim is scanned into CIS re-control BMF claims to 0241326771. Once received in NMF in Philadelphia (IMF) or Cincinnati (BMF), employees will follow procedures in IRM 21.7.12.5.7, Form 8697, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts.

Interest Computation Under the Look-Back Method for Property Depreciated Under the Income Forecast Method, Form 8866
  1. Form 8866, Interest Computation Under the Look-Back Method for Property Depreciated Under the Income Forecast Method, is used to figure the interest due or to be refunded under the look-back method of IRC Section 167(g)(2) for property placed in service after September 13, 1995, that is depreciated under the income forecast method as described in IRC Section 167(g).

    Exception:

    The look-back method does not apply for any property with a cost basis of $100,000 or less.

  2. Form 8866 is almost identical to Part I, Regular Method, of Form 8697, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts. As with Form 8697, taxpayers are instructed to file Form 8866 with the appropriate income tax return if additional interest is owed and to file separately if due a refund.

  3. These claims are to be worked in Non-Masterfile (NMF) either in Philadelphia (IMF) or Cincinnati (BMF) depending on the type of claim filed (IMF or BMF). If received at any other campus, ensure the case is notated as a Form 8866 claim and forward to the applicable NMF (either IMF or BMF) campus. If the claim is scanned into CIS re-control BMF claims to 0241326771. Once received in NMF in Philadelphia (IMF) or Cincinnati (BMF), employees will follow procedures in IRM 21.7.12.5.8, Form 8866, Interest Computation Under the Look-Back Method for Property Depreciated Under the Income Forecast Method.

Public Safety Officers Killed in the Line of Duty

  1. If all of the following conditions are satisfied, IRC Section 101(h) generally excludes from income amounts paid:

    • After December 31, 1996, with respect to an officer killed after December 31, 1996

    • After December 31, 2001 with respect to an officer killed on or before December 31, 1996

    • As a survivor annuity

    • On account of the death of a public safety officer, in the line of duty,

    • To the extent that the annuity is attributable to the officer's service as a law enforcement officer

  2. The survivor annuity must be provided under a governmental plan to the surviving spouse (or former spouse) of the public safety officer or to a child of the officer. Public safety officers include law enforcement officers, firefighters, rescue squads, ambulance crews, and certain Federal Emergency Management Agency (FEMA) employees and employees of agencies providing disaster-related assistance to FEMA. The provision does not apply to the death of a public safety officer if it is determined by the appropriate supervising authority that:

    1. The death was caused by the intentional misconduct of the officer or by the officer's intention to bring about the death,

    2. The officer was voluntarily intoxicated at the time of death,

    3. The officer was performing his or her duties in a grossly negligent manner at the time of death, or

    4. The actions of the individual to whom payment is made were a substantial contributing factor to the death of the officer.

  3. These procedures also include The Don't Tax Our Fallen Public Safety Heroes Act, Pub. L. No. 114-14 which added IRC § 104(a)(6) to exclude benefits paid to survivors under § 1201 of the Omnibus Crime Control and Safe Streets Act of '68, or amounts paid under any state program, effective as of May 22, 2015 per S. REP. 114-26, S. Rep. No. 26, 114TH Cong., 2ND Sess.

  4. If an amended return claims this exclusion, the filer must provide a copy of the death certificate and a letter from the employing agency to substantiate the claim. Follow normal claims processing procedures.

Insurance Premiums for Retired Public Safety Officers (PSO)

  1. An eligible retired public safety officer (i.e.: law enforcement officer, firefighter, chaplain or member of a rescue squad or ambulance crew) can elect to exclude from income a maximum of $3,000 received from an eligible governmental retirement plan that was used to pay the premiums for accident, health or long-term care insurance. To be eligible for this exclusion, the individual must be separated from service, by reason of disability or attainment of normal retirement age, from the governmental employer that is the sponsor of that governmental retirement plan. An individual who separated from service prior to normal retirement age is not eligible for this exclusion unless the separation from service was by reason of disability. Q&A 20 of Notice 2007-7 contains this rule (and the point about retiring pre-normal retirement age).

  2. An eligible retirement plan is a government plan that is:

    • A qualified trust

    • A Section 403(a) plan

    • A Section 403(b) annuity, or

    • A Section 457(b) plan

  3. Allow the claim if the taxpayer is excluding from income $3,000 or less and indicates "PSO" next to line 16b, Form 1040 or line 12b, Form 1040A or is retired on a disability and is reporting the disability pension on line 7 of Form 1040 or Form 1040A.

    Note:

    If it can be determined that the taxpayer is a retired public safety officer who has taken the exclusion, but the literal "PSO" is missing, allow the exclusion up to the maximum of $3,000.

    Reminder:

    While the dollar thresholds in the Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General tables refer to the amount of the tax decrease or credit increase, the $3,000 criteria used in this section for PSO exclusions relates to a change of income and not tax.

  4. Disallow any claim in excess of the $3,000 income exclusion, refer to IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures. Include in the Letter 105C the following disallowance language: "Under Section 402(l)(2) the exclusion of distributions from governmental plans for health and long term care insurance to a retired Public Safety Officer (PSO) is limited to the lesser of the amount paid for qualified health insurance or $3,000 per year."

  5. Amounts used to pay qualified insurance premiums that are excluded from gross income under Section 402(l) are not taken into account in determining the itemized deduction for medical care expenses under Section 213.

Exclusion of Income by Junior Reserve Officers Training Corps (JROTC) Instructors

  1. Taxpayers, retired from the military service, are citing IRC Section 134 of the Internal Revenue Code, claiming their compensation as JROTC instructors is tax exempt. A JROTC instructor's salary is fully includable in gross income as compensation for services under IRC Section 61(a)(1).

  2. Disallow the claim, refer to IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures. Send the Letter 105C. Include the following information: "We disallowed your claim to exclude compensation received as a JROTC instructor from your income. The amount you received as a JROTC instructor for teaching is characterized as salary, rather than as an allowance. IRC Section 134 does not apply because the salary at issue does not meet the statutory definition of a qualified military benefit. Rev. Rul. 71-307 concluded that the compensation received by JROTC instructors is fully includable in gross income."

Tax Treatment of Compensation for Exonerated Prisoners

  1. Compensatory damages for physical injuries and physical sickness (including damages received for economic losses stemming from the physical injury or physical sickness) that an individual receives from a state for wrongful conviction and incarceration are excluded from gross income under Section 104(a)(2). The compensatory damages that the individual receives are excluded from gross income whether the individual receives the compensation in a lump sum, periodic payments, or a factoring transaction. Section 139F excludes any civil damages, restitution, or other monetary award relating to wrongful incarceration of an individual for taxable years beginning on or after December 18, 2015 (date of enactment of sec. 304 of the 2015 Path Act). Under this special provision, if a wrongfully incarcerated individual would have an overpayment for a period before the date of enactment, the individual must file a claim for credit or refund by December 17, 2016. Since December 17, 2016, is a Saturday, a wrongfully incarcerated individual’s claim will be considered filed timely when filed by Monday December 19, 2016.

  2. Claims are generally filed on Form 1040-X, Amended U.S. Individual Income Tax Return. The claim must include two different types of documentation. The first type of documentation must establish that the award was previously reported in income, when it was reported, and in what amount. Examples of such documentation include copies of federal income tax returns, Form 1099-MISC, Miscellaneous Income, and any other retained records relating to the reported income. This can be verified by researching the account. The second type of documentation must establish that the award was made on account of the wrongful incarceration. Examples of such documentation include copies of federal or state court orders awarding the compensation, signed settlement agreements accepting the amount of the award, and letters by governmental agencies or private payment sources that may have accompanied the payment of the award that include an explanation of the reason for the payment.

  3. These claims are expeditiously processed in Kansas City. ALL exonerated prisoner claims are to be assigned to IDRS ≡ ≡ ≡ ≡ ≡ ≡ , (internal use only) with category code "XRET" . Update the case note with "exonerated prisoner claim" .

  4. Only "exonerated prisoner" claims are centralized in Kansas City, do NOT refer "prisoner" or "incarcerated" claims to Kansas City, refer to IRM 3.11.6.3.19, Prisoner Returns.

  5. Kansas City will forward claims that meet Examination CAT-A criteria when the amount of the claim exceeds the criteria amount as outlined in Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General.

    Reminder:

    To prevent a -D freeze from generating when adjusting a statute barred claim filed between December 18, 2015 and December 19, 2016, an override "S" MUST be entered on the Command Code ADJ54 screen, and the RSED date posted on TXMODA MUST be entered on the RFSCDT field, do NOT use the claim received date.

  6. Kansas City will maintain a report for claims received/processed.

  7. For additional information, refer to the IRS.gov for news release IR 2016 - 88 IRS Provides Guidelines on How to Claim New Wrongful-Incarceration Exclusion; Use Special Address for All Back-Year Refund Claims; Dec. 19 Deadline for Older Claims and Wrongful Incarceration FAQs.

Meal Expense Deduction

  1. A deduction for meal expenses may be available for meals (other than amounts which are lavish and extravagant under the circumstances) consumed while traveling away from home in pursuit of a trade or business. Away from home according to IRC Section 162(a)(2) means traveling away from home in the pursuit of a trade or business that requires the taxpayer to remain away from home overnight at the time of the expense. Away from home overnight means far enough to require sleep or rest. A deduction for a meal expense also may be available in other limited circumstances, such as an entertainment expense.

  2. Generally, IRC Section 274(n) subjects business-related meal and entertainment expenses to a 50 percent deduction limit. A higher percentage may be deducted if meals are consumed while a taxpayer is traveling away from home and is required to remain away from home overnight during, or incident to, any period of service subject to the Department of Transportation's (DOT) hours of service limits. The deductible percentage for tax year 2008 and subsequent years is 80 percent.

    Note:

    Refer to Publication 17, Your Federal Income Tax Return, for complete information and requirements on meal expense deduction and for individuals subject to DOT's "Other Income" and "hours of service" limits. Refer to Publication 463, Travel, Entertainment, Gift and Car Expenses, for more information on when meal expense deductions are allowed, and for more information on this and other exceptions to the 50 percent deduction limit.

  3. Review claim for completeness. If all requirements are met, input the necessary adjustment. If all requirements are not met, refer to IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures for claim disallowance. If unable to determine that all requirements are met, refer to IRM 21.5.3.4.7.2.1, Examination Technical Assistance Request.

Lottery Winnings

  1. Many lottery winners receive their lottery prizes in yearly installments over a 20 to 26 year period. The winners are sometimes allowed to sell their rights to the future payments, to third parties in exchange for a lump sum payment. These lump sum payments can range from several thousand to several million dollars.

  2. The lump sum payments should be reported as "Other Income" on Form 1040, U.S. Individual Income Tax Return. Taxpayers are filing amended returns to change the income to capital gains. This allows them to benefit from the preferential capital gains tax rates versus the ordinary income tax rates. Disallow the claim, refer to IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures. Include in the letter 105C the following disallowance language: "Proceeds from the sale of rights to receive lottery winnings are ordinary income and may not be treated as a capital gain."

Form 8873 Extraterritorial Income Exclusion

  1. Form 8873, Extraterritorial Income Exclusion, is used to calculate the amount attributable to foreign trading gross receipts that a taxpayer may exclude from gross income for the tax year. The exclusion applies to both corporate and noncorporate taxpayers and is applicable to certain qualifying transactions entered into after September 30, 2000. The Form 8873, should be attached to an income tax return.

  2. Refer to Form 8873, and its Instructions for more details on qualifying foreign trading gross receipts and other information. The form and instructions are available at www.irs.gov.

Capital Construction Fund (CCF)

  1. The Capital Construction Fund (CCF) was created under a Merchant Marine Act to assist fisherman to acquire fishing vessels or improve a current vessel. The CCF program allows taxpayers to defer taxable income by making contributions to a National Marine Fisheries Service (NMFS) approved depository and eventually use the accumulated funds for purchasing or improving fishing vessels. Refer to Treas. Reg. Section 3.1.

  2. Before a taxpayer can open a CCF account, they must enter into an agreement with the Secretary of Commerce through the NMFS. The taxpayer can request an application kit or get additional information from NMFS at the following address:
    NOAA/NMFS, Financial Services Division, F/MB5
    Capital Construction Fund Program
    1315 East-West Highway
    Silver Spring, MD 20910-3282

  3. CCF Eligibility Requirements:

    • Must be a U.S. citizen (individually), a corporation (the president and majority of the board must also be U.S. citizens), or a partnership 75 percent owned by U.S. citizens

    • Must own or lease a vessel

    • The vessel must be built in the U.S.

    • The vessel must operate in the U.S. fisheries or in U.S. foreign trade, non-contiguous domestic trade (for example, Alaska to Seattle), or the Great Lakes

  4. For additional information refer to Publication 595, Capital Construction Fund for Commercial Fishermen

  5. To take the deduction, taxpayers are instructed to subtract the CCF deposit from the amount that would normally be entered on Line 43 of Form 1040, U.S. Individual Income Tax Return. The taxpayer should also write "CCF" and the total amount of these deposits next to Line 43. The CCF deposits should not be deducted on Form 1040, Schedule C, Profit or Loss from Business (Sole Proprietorship), or Form 1040, Schedule C-EZ, Profit or Loss from Business. These claims may also be filed on Form 1040-X, Amended U.S. Individual Income Tax Return. These claims are changing income from taxable to nontaxable, prior to adjusting the account refer to Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General.

Qualified Medicaid Waiver Payments/Difficulty of Care Payments

  1. On January 3, 2014, the IRS issued Notice 2014–7 addressing the income tax treatment of certain payments to an individual care provider under a state Home and Community-Based Services Waiver (Medicaid waiver) program. The notice provides that the IRS will treat "qualified Medicaid waiver payments" as difficulty of care payments excludable from gross income under Section 131 of the Code. This treatment applies whether the care provider is related or unrelated to the eligible individual. Taxpayer is NOT required to submit a Form W-2C, Corrected Wage and Tax Statement, or a corrected Form 1099-MISC, Miscellaneous Income.

  2. Taxpayer may file a Form 1040X, Amended U.S. Individual Income Tax Return, if they received payments described in the Notice 2014-7 in an earlier tax year. Normal statute of limitations procedures apply, refer to IRM 25.6.1, Statute of Limitations Processes and Procedures. Taxpayer can generally file a claim for refund within three years from the date the return was filed or two years from the date the tax was paid, whichever is later. In Part III of Form 1040X, taxpayer should explain that the payments are excludable under Notice 2014-7. Excluding payments described in the notice in an earlier tax year may affect deductions or credits that the taxpayer claimed for the earlier tax year, as well as other tax items for the earlier year. To help expedite the processing of the amended return, taxpayer should include the following to substantiate their claim:

    • the full name of the individual receiving care (and the care recipient’s social security number or other taxpayer identifying number, if available);

    • copies of documents from third parties to show that the taxpayer and the individual receiving care resided in the same home in the year to which the claim relates (such as a driver’s license or other government-issued document, social agency document, bank statement, medical bill, or utility bill); and

    • evidence that the individual is receiving care under a state Medicaid waiver program

    Reminder:

    Form 843, Claim for Refund and Request for Abatement received for excess social security, route to a BMF campus for processing.

  3. Accounts Management (AM) and Submission Processing (SP) should process these amended returns following normal adjustment procedures. Refer to IRM 21.6.3, Credits and for CAT-A criteria for Difficulty of Care Qualified Medicaid Waiver Payments (DOC) refer to Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General.

  4. For additional information, refer to the irs.gov website: Certain Medicaid Waiver Payments May Be Excludable From Income.

Economic Growth and Tax Relief Reconciliation Act of 2001 (Pub. L. No. 107-16), Section 803 — Victims of the Nazi Regime

  1. Section 803 of the Economic Growth and Tax Relief Reconciliation Act of 2001 provides that there will be no federal income tax on excludable restitution payments received by eligible individuals (or their heirs or estates) who were victims of the Nazi regime. Eligible individuals are persons who were persecuted on the basis of race, religion, physical or mental disability, or sexual orientation by Nazi Germany, any other Axis regime, or any other Nazi-controlled or Nazi-allied country. Excludible restitution payments (or distributions) include those payments made payable to an individual (or the individual’s heirs or estate) which is payable by reason of the individual’s status as an eligible individual, and which constitutes the direct or indirect return of, or compensation or reparation for, assets stolen or hidden from, or otherwise lost, to the individual before, during, or immediately after World War II by reason of the individual’s status as an eligible individual. Any proceeds of insurance under policies issued by European insurance companies immediately before or during World War II also qualify for exclusion. Finally, interest payable on the payments described in the previous two sentences qualify for exclusion.

  2. Such restitution payments will not be included in gross income and will not be taken into account for purposes of applying any code section that takes into account excludable income in computing adjusted gross income, including IRC Section 86 (relating to the taxation of social security benefits). The basis of any property received is its fair market value at time of receipt. Section 803 of the Economic Growth and Tax Relief Reconciliation Act of 2011 applies to payments or property received after December 31, 1999. Any interest earned by escrow accounts or settlement funds established pursuant to the settlement of the action entitled "In re: Holocaust Victim Assets Litigation," funds to benefit eligible individuals or their heirs estates created by the International Commission on Holocaust Insurance Claims, or similar funds subject to the administration of U.S. courts to benefit eligible individuals is not taxable. Review claim for completeness. If all requirements are met, input the necessary adjustment. If all requirements are not met, refer to IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures for claim disallowance. If unable to determine that all requirements are met, refer to IRM 21.5.3.4.7.2.1, Examination Technical Assistance Request.

Maritime Claims

  1. Maritime personnel are filing claims for the following:

    • Expenses associated with traveling to and from union halls to seek employment (job search)

    • Refund claims based on deducting meals and incidental expenses (M&IE) at the per diem rate

  2. Refer claims for expenses associated with traveling to and from union halls, to Examination as CAT-A criteria if the amount of the claim exceeds the criteria amount as outlined in Exhibit 21.5.3-2, Examination Criteria (CAT-A) - General.

  3. Refer claims for deductions of meals and incidental expenses while temporarily traveling away from home to Examination as CAT-A criteria if the amount of the claim exceeds the criteria amount as outlined in Exhibit 21.5.3-2, Examination Criteria (CAT-A) - General.

    Exception:

    If claim does not have a breakdown of the days, localities, and rates, refer to IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns, for additional information. Send the Letter 916C to include the following information: First open paragraph -"Claims for deductions of incidental expenses at a daily (per diem) rate where meals and lodging are furnished by the employer must identify the number of days, the locality in which the expenses were incurred, and the applicable rate for incidental expenses only for that locality, as provided for in the Federal Travel Regulations." Second open paragraph -"Establishment of the time, place and business purpose requirement may be met with a copy of the ships schedule. Per Rev. Proc. 2011-47, rules are given to permit a per diem rate to substantiate the amount of expenses paid or incurred while traveling away from home."

Exclusion of Indian General Welfare Benefits

  1. Indian general welfare benefits are excluded from gross income per provisions of the Tribal General Welfare Exclusion Act of 2014 (Section 139E). Notice 2015-34 clarifies that §139E does not make the general welfare exclusion for certain benefits addressed in Rev. Proc. 2014-35 inapplicable.

  2. Related IMF claims may be received on Form 843, Claim for Refund and Request for Abatement, or Form 1040-X, Amended U.S. Individual Income Tax Return. These claims can be identified by the presence of one or more of the following key words in the explanation section of the claim or written across the top margin of the form:

    • Tribal General Welfare Exclusion Act of 2014

    • H.R. 3043

    • Notice 2012-75

    • Rev. Proc. 2014-35

    • General Welfare

    • Notice 2015-34

    • Section 139E

  3. Do NOT process these claims. Route all claims to:
    Internal Revenue Service
    M/S 7700 Attn: GECS
    1973 N. Rulon White Blvd.
    Ogden, Utah 84404

Federal Insurance Compensation Act (FICA) and Railroad Retirement Tax Act (RRTA) Claims Citing CSX

  1. Taxpayer claiming a refund of FICA or RRTA tax citing CSX Corporation v. United States or Quality Stores Inc. v. United States, refer to IRM 21.7.2.5.16, Claims Related to CSX Corp. and/or Quality Stores, Inc. Litigation.

Federal Insurance Compensation Act (FICA) Claims from Medical Residents

  1. Taxpayer is claiming a refund of FICA tax due to Medical Resident Status. These claims are to be worked in a BMF campus, route to either Ogden or Cincinnati. If received at any other campus, ensure the case is notated as a FICA claim from medical residents and forward to a BMF campus. If the case is on CIS use the re-route capability. Once received in either Ogden or Cincinnati they will follow procedures in IRM 21.7.2.5.10.2, Employee Claims (Medical/Dental Residents).

Federal Insurance Compensation Act (FICA) Claims from Major League Baseball Players

  1. Taxpayer is claiming a refund of FICA tax as a Major League Baseball Player. These claims are to be worked in a BMF campus, route to either Ogden or Cincinnati. If received at any other campus, ensure the case is notated as a FICA claim from major league baseball player and forward to a BMF campus. If the case is on CIS use the re-route capability. Once received in either Ogden or Cincinnati they will follow procedures in IRM 21.7.2.5.18, Refund Claims/Major League Baseball.

IRC Section 3121(v) - Federal Insurance Compensation Act (FICA) Claims from Airline Employees and Retirees

  1. Current or retired airline employees whose nonqualified deferred pension benefit plans were terminated during the airlines' bankruptcy proceedings are filing claims for refund. These claims are to be worked in a BMF campus. Reroute to either Ogden or Cincinnati. If received at any other campus, ensure the case is notated as a FICA claim from airline employee or retiree and forward to a BMF campus. If the case is on CIS use the re-route capability. Once received in either Ogden or Cincinnati they will follow procedures in IRM 21.7.2.5.13.2, IRC Section 3121(v) - FICA Claims from Airline Employees and Retirees.

Indian Fishing Claims filed for Refund of Federal Insurance Compensation Act (FICA) Taxes

  1. Taxpayer is filing an Indian fishing claim for refund of FICA taxes which may or may not cite IRC Section 7873. These claims are to be processed in the Ogden campus. Only refer FICA claims. If the claim is for exempt income taxes do NOT refer to Ogden, these claims should be processed in IMF following CAT-A procedures in Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General. If received at any other campus, ensure the case is a FICA claim, notated as a fishing claim and forward expeditiously to the Ogden Service Center, if the case is on CIS use the re-route capability. Once received in Ogden they will follow procedures in IRM 21.7.2.4.6.4.2, Excess FICA Tax Withheld – Employee Claims for Refund.

Federal Insurance Compensation Act (FICA) Claims from Automotive Industry Employees

  1. Former and/or current employees of the automotive industry who were offered buyouts are filing claims for refund. These buyouts were correctly treated as wages subject to FICA/Medicare Withholding. These claims are to be worked in a BMF campus either Ogden or Cincinnati. If received at any other campus, ensure the case is notated as a FICA claim from automotive industry employee and forward to a BMF campus, if the case is on CIS use the re-route capability. Once received in either Ogden or Cincinnati they will follow procedures in IRM 21.7.2.5.17, FICA/Medicare Claims from Automotive Industry Employees.

Section 218 Federal Insurance Compensation Act (FICA) Taxes for State and Local Government Employees

  1. When taxpayer is claiming a refund of FICA tax as a state or local government employee, route these claims to a BMF campus either Ogden or Cincinnati. If received at any other campus, ensure the case is notated as a Section 218 FICA claim for state and government employee and forward to a BMF campus, if the case is on CIS use the re-route capability. Once received in either Ogden or Cincinnati they will follow procedures in IRM 21.7.2.5.15, State and Local Government FICA Under Section 218.

Case/Transcript for U.S. Departing Alien Income Tax Return Form 1040-C

  1. Some aliens must obtain a Certificate of Compliance (also known as an exit or sailing permit) before permanently departing the U.S. or any U.S. Possession. This is obtained by filing Form 2063, U.S. Departing Alien Income Tax Statement or Form 1040-C, U.S. Departing Alien Income Tax Return. A Certificate of Compliance is made when the Director or delegate signs the certificate; refer to IRM 25.6.1.6.7, Case/Transcript for U.S. Departing Alien Income Tax Return (Form 1040-C).

Abusive Tax Avoidance Transactions (ATAT)

  1. Abusive Tax Avoidance Transactions (ATAT) - Individuals are filing claims and attaching Form 8594, Asset Acquisition Statement Under Section 1060, for the purpose of re-characterizing termination payments from insurance companies as capital gains, even though the payments should be reported as ordinary income.

  2. Baker v. Commissioner, 338 F.3d 789 (7th Cir 2003), has already addressed this issue ("Goodwill cannot be transferred apart from the business with which it is connected." ). The promoter is aware that the IRS was affirmed; however, he continues to erroneously advise his clients, who are typically retired or terminated insurance agents, that their termination payments should be treated as capital gain instead of ordinary income. Termination payments, to which the agent is issued a 1099, are payments that an insurance agent receives for a pre-determined number of years after he stops selling policies for the insurer. This period can vary, but is typically from 3 to 5 years. Individuals are filing claims in order to reclassify their termination payments as capital gain, to obtain refunds for taxes paid in previous years.

  3. Any claims submitted meeting the issue as described should be disallowed, refer to IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures. Send a disallowance Letter 105C including the following information "The termination payments from insurance companies are considered ordinary income, and cannot be treated as capital gains."

IRC Section 165 - Theft Loss Conversions

  1. Taxpayers are filing claims for "theft losses deductions" due to corporate misconduct and Ponzi schemes.

  2. Claims are generally filed on Form 1040-X, Amended U.S. Individual Income Tax Return, and include comments indicating "theft loss deduction under IRC Section 165" , "Rev. Proc. 2009-20" , or "investment theft loss." The claims may include an opinion letter explaining the theft loss and why it qualifies under IRC Section 165(c)(2) or Revenue Procedure 2009-20.

  3. The theft loss is reported on page 2, Part B of Form 4684, Casualties and Thefts, and flows to the "Other Miscellaneous Deductions" section of Schedule A, Itemized Deductions. The taxpayer may indicate on the miscellaneous deduction line:

    • Form 4684, Casualties and Thefts, income producing property

    • IRC Section 165

    • Investment theft loss

    • Revenue Procedure 2009-20 as modified by Rev. Proc. 2011-58 (addressing the safe harbor of Rev. Proc. 2009-20 where the lead person involved in a fraudulent scheme has died as discussed below.)

    • Revenue Procedure 2009-20 Appendix A

    • Rev. Rul. 2009-9

  4. The following subsections provide instructions for processing the different types of IRC Section 165 theft loss conversions.

Claims Due to Corporate Misconduct
  1. Notice 2004-27 advised taxpayers that the IRS will disallow theft losses claimed with respect to decreases in the market value of stock purchased on the open market, even if the loss in value of the stock may be attributable to illegal misconduct of the officers or directors of the corporation that issued the stock.

  2. The claims will indicate a "theft loss deduction" or "IRC Section 165 loss deduction" shown on Schedule A, Itemized Deductions, but will not mention a specific Ponzi scheme.

    Note:

    Rev. Rul. 2009-9, which describes the tax treatment of losses from Ponzi schemes, and Rev. Proc. 2009-20 as modified by Rev. Proc. 2011-58, which describes the optional "safe harbor" for those losses, do not apply to losses resulting from stock purchased on the open market. Refer to IRM 21.6.6.4.50.2, Claims due to Ponzi Schemes, do not apply to losses resulting from stock purchased on the open market.

  3. Taxpayers also may attempt to claim theft losses from stock purchased on the open market that result in net operating loss claims (RINTs and TENTs). Coordinate the processing of the net operating loss claim(s) with the amended return claiming the loss. Whenever possible, one employee should be assigned the amended return and the carryback claim(s). The net operating loss claim should be disallowed in conjunction with the amended return.

  4. These claims should be disallowed with appeal rights. The disallowance language is as follows:

    "To qualify for a theft loss, you must verify 1) you had a direct relationship with the "defrauder" or an associate who acted as broker or agent of the "defrauder" , 2) the loss you claim resulted from a taking of property that is illegal under the law of the state where it occurred, 3) the "defrauder" had a specific intent to deprive you of your money or property and 4) all claims for recovery have been closed and completed (for example through litigation, settlement or abandonment)."

    "Additionally, you must verify 5) when it is reasonably certain whether recovery on all reimbursement claims will be received and 6) the amount of the loss is the actual amount of money stolen. There is no evidence that you meet these qualifications; therefore, the deduction has been disallowed. Please be advised that there is no theft loss allowed with respect to decreases in the market value of stock purchased on the open market, even if the loss in value of the stock may be attributable to illegal misconduct of the officers or directors of the corporation that issued the stock."

  5. Refer to IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures, for additional information on disallowance procedures.

Claims Due to Ponzi Schemes
  1. Generally, IRC 165(a) allows a deduction for losses sustained during the taxable year and not compensated by insurance or otherwise. For individuals, IRC Section 165(c)(2) allows a deduction for losses incurred in a transaction entered into for profit. Refer to Rev. Rul. 2009-9. A taxpayer claiming a theft loss must prove that the loss resulted from a taking of property that was illegal under the law of the jurisdiction in which it occurred and was done with criminal intent.
    Under IRC 165(e), a theft loss is sustained in the taxable year the taxpayer discovers the loss. The regulations explain that a theft loss is not sustained if, in the year of discovery, there exists a claim for reimbursement with respect to which there is a reasonable prospect of recovery. Refer to Treasury Regulations Section 1.165-1(d), and 1.165-8(a)(2). No portion of the loss with respect to which reimbursement may be received is sustained until the taxable year in which it can be ascertained with reasonable certainty whether or not such reimbursement will be received. Thus, if there is a claim for reimbursement, the taxpayer must wait until it is reasonably certain whether recovery on that claim will be received (for example, if the bankruptcy proceeding closes or the taxpayer abandons the claim).

    Note:

    These claims may also create a net operating loss, which generally can be carried back to the 3 preceding years. However, for the 2008 and 2009 tax years, the taxpayer may elect a 3, 4, or 5 year carryback period for the applicable 2008 and 2009 net operating losses. For additional information on net operating loss claims, refer to IRM 21.5.9, Carrybacks. Refer to IRM 21.5.9.5.14.6 and subsequent sections, American Recovery and Reinvestment Act of 2009 – Net Operating Losses, to determine if Rev. Proc. 2009-19, modified and superseded by Rev. Proc. 2009-26, or Rev. Proc. 2009-52 apply for extended carryback period.

    Note:

    If a theft loss occurred in another entity, such as an IRA or qualified retirement plan, the theft loss is from that IRA or plan, rather than the individual IRA owner or plan participant.

  2. Amount of the loss: Rev. Rul. 2009-9 provides guidance on determining the amount of the theft loss and has no effective date. Overall, the amount of a theft loss resulting from a fraudulent investment arrangement is generally the initial amount invested in the arrangement, plus any additional investments, less amounts withdrawn, if any, reduced by reimbursements or other recoveries and reduced by claims as to which there is a reasonable prospect of recovery. If an amount was reported to the investor as income in years prior to the discovery of the theft, the investor included the amount in gross income, and the investor reinvested the amount in the arrangement, this amount increases the deductible theft loss.

  3. Safe Harbor Revenue Procedure: Rev. Proc. 2009-20, 2009-14 I.R.B. 749, provides an optional safe harbor under which qualified investors that experienced losses from a specified fraudulent arrangement may treat a qualified loss as a theft loss deduction. The safe harbor requires that taxpayers treat the entire loss as a theft loss deduction (i.e., the taxpayer cannot amend prior returns to eliminate phantom income) and deduct the loss in the year a criminal charge is filed against the lead figure. The amount of the deduction is as follows: multiply the qualified investment by either 95 percent (if the qualified investor is not pursuing any potential third-party recovery) or 75 percent (for a qualified investor that is pursuing or intends to pursue potential third-party recovery); and subtract the sum of any actual recovery and any potential insurance/Securities Investor Protection Corporation (SIPC) recovery.
    Only a qualified investor may use the safe harbor procedures of Rev. Proc. 2009-20. A qualified investor is a United States person (as defined in IRC Section 7701(a)(30) that:

    1. generally qualifies to deduct theft losses under § 165 and § 1.165-8;

    2. did not have actual knowledge of the fraudulent nature of the investment arrangement prior to it becoming known to the general public;

    3. with respect to which the specified fraudulent arrangement is not a tax shelter, as defined in § 6662 (d) (2) (C) (ii); and

    4. transferred cash or property to a specified fraudulent arrangement.


    A qualified investor does not include a person that invested solely in a fund or other entity (separate from the investor for federal income tax purposes) that invested in the specified fraudulent arrangement.
    A qualified investor that is a pass-through entity (such as a partnership or LLC) may flow through proportionate shares of the theft loss to its investors.
    A specified fraudulent arrangement is an arrangement in which a party (the lead figure) receives cash or property from investors; purports (appears) to earn income for the investors; reports income amounts to the investors that are partially or wholly fictitious; makes payments, if any, of purported income or principal to some investors from amounts that other investors invested in the fraudulent arrangement; and appropriates some or all of the investors’ cash or property.
    The Rev. Proc. 2009-20 applies to discovery years beginning after the taxable year ending on December 31, 2007.
    Rev. Proc. 2009-20 allows a deduction in the year in which the requirements of a qualified loss are satisfied. The requirements of a qualified loss are:

    • The lead figure (or one of the lead figures, if more than one) was charged by indictment or information (not withdrawn or dismissed) under state or federal law with the commission of fraud, embezzlement or a similar crime that, if proven, would meet the definition of theft for purposes of Section 165 of the Internal Revenue Code and Section 1.165-8 (d) of the Income Tax Regulations, under the law of the jurisdiction in which the theft occurred; or

    • The lead figure was the subject of a state or federal criminal complaint (not withdrawn or dismissed) alleging the commission of a crime described in section 4.02 (1) of Rev. Proc. 2009-20, and either the complaint alleged an admission by the lead figure, or the execution of an affidavit by that person admitting the crime; or a receiver or trustee was appointed with respect to the arrangement or assets of the arrangement were frozen.


    Rev. Proc. 2011-58 also added a third category of qualified loss for situations where the lead figure died before criminal charges are brought. The modification requires that a lead figure or associated entity is the subject of a civil complaint or similar documents filed by a government entity that allege substantially all the elements of a specified fraudulent arrangement. In addition, Rev. Proc. 2011-58 clarifies the terms "indictment" , "information" , and "criminal complaint" used to define qualified loss in Rev. Proc. 2009-20.
    The ruling and procedures are available on http://www.irs.gov/.

    Note:

    Rev. Rul. 2009-9 and the optional "safe harbor" described in the Rev. Proc. 2009-20 do not apply to losses that result from a decrease in the market value of stock purchased on the open market, even if the decrease in value of the stock is attributable to corporate misconduct on the part of an officer or employee of the corporation. Procedures for processing claims for a theft loss resulting from a decrease in the market value of stock due to corporate misconduct are described in IRM 21.6.6.4.50.1, Claims due to Corporate Misconduct.

  4. Procedure to claim a theft loss deduction without using the safe harbor: For Ponzi scheme theft loss deduction claims under the general rules of IRC Section 165 and Rev. Rul. 2009-9, the taxpayer must file Schedule A, Itemized Deductions, along with the Form 4684, Casualties and Thefts. The claims may reference "investment theft loss deduction" or "IRC 165 loss deduction" on Schedule A, or a specific Ponzi scheme. Additionally, some claims are filed based on an original or amended Schedule K-1 from a Ponzi theft loss incurred by partnership or trust, refer to IRM 21.6.6.4.50.3, Schedule K-1 and claims due to Ponzi Schemes.

    Note:

    A taxpayer may file amended returns to eliminate income amounts that were reported as income from the scheme (so called "phantom income" ). The taxpayer must prove that the amounts sought to be excluded in fact were not income that was actually or constructively received by the taxpayer. Input a transaction code (TC) 971 with action code (AC) 651 to identify a Ponzi scheme and forward the claim as CAT-A as outlined in Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General.

    Note:

    Prior to forwarding CAT-A, review tax year 2008 and subsequent years for indication of a previous "safe harbor" election. If the "safe harbor" election has previously been made with respect to the same Ponzi scheme, disallow the taxpayer’s claim. Inform the taxpayer the claim cannot be allowed since the "safe harbor" method was previously utilized as outlined in Rev. Proc 2009-20.

    Note:

    An investment theft loss is not subject to the $100 and 10% of AGI limitations applicable to casualty and theft losses of personal-use property under IRC Section 165(h).

  5. If the taxpayer claims a Ponzi loss utilizing the "safe harbor" method ensure the claim is complete and valid.
    Claims based on a Schedule K-1 may reference the Ponzi scheme in the remarks, but may also have no identifying characteristic to identify the claim as a Ponzi loss; refer to IRM 21.6.6.4.50.3, Schedule K-1 and claims due to Ponzi Schemes.

  6. Procedure to claim a theft loss deduction using the safe harbor: In addition to the requirements for all investment theft loss claims, a complete claim for the "safe harbor" method must include:

    1. Form 4684, Casualties and Thefts with "Revenue Procedure 2009-20" marked at the top of the form, and the amount from the Rev. Proc. 2009-20 Appendix A, Line 10 "deductible theft loss" entered on the Form 4684 Part I, Section B.

    2. Appendix A, Statement by Taxpayer Using the Procedures in Rev. Proc. 2009-20 to Determine a Theft Loss Deduction Related to a Fraudulent Investment Arrangement, must be completed and signed.

      Exception:

      Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20 for tax years 2013 - present. You do not need to complete Appendix A.


    If any of these elements is missing, reject the claim as outlined in IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing.

    If the "safe harbor" claim is complete, process as indicated below:

    1. Input a transaction code (TC) 971 with action code (AC) 651.

    2. Ensure the claim is filed on a tax year ending after 12/31/2007 - disallow any "safe harbor" claim on tax year 200712 and earlier as outlined in IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures.

    3. Verify that no other adjustments related to Ponzi losses have been allowed on any years – if prior adjustments are identified, forward to Examination as CAT-A.

    4. Verify that no other claims for Ponzi losses are currently in the system – if any are located, consolidate the cases to ensure consistent processing.

    5. Forward the claim to Examination as CAT-A criteria if the amount of the claim exceeds the criteria amount as outlined in Exhibit 21.5.3-2, Examination Criteria (CAT-A) - General.

Schedule K-1 and claims due to Ponzi Schemes
  1. As mentioned in IRM 21.6.6.4.50.2, Claims Due to Ponzi Schemes, a taxpayer may have a loss from a flow-through entity that invested with a Ponzi scheme. The loss is taken at the entity level and passed-through to the individual investors. When the taxpayer files a claim due to an amended Schedule K-1 and information with the claim indicates the Schedule K-1 is due to a Ponzi loss, the loss is allowable on the taxpayer’s claim. Any audit related to the Ponzi loss will be conducted on the applicable Partnership, S Corporation or Trust return. Process the claim as follows:

    1. Research IDRS under the Employer Identification Number (EIN) listed on the Schedule K-1 for indication of an amended return for the Partnership, S Corporation or Trust (i.e., TC 976).

      Note:

      EIN's filed for a Trust return can be located on MFT 05, S Corporation on MFT 02 and Partnership returns will be located on MFT 06.

    2. If no TC 976 is located on the EIN, reject the claim as outlined in IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing. Inform the taxpayer that we have no record of an amended return filed for the Partnership, S Corporation, or Trust.

    3. If a TC 976 is located, allow the taxpayer’s claim, input a transaction code (TC) 971 with action code (AC) 651 to identify a Ponzi scheme. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡

    Note:

    If the claim is due to an original Schedule K-1 or there is no indication of a Ponzi loss, process as a normal Schedule K-1 adjustment.

Self-Created Goodwill Claims

  1. Self-Created Goodwill claims prepared by, letter from or business envelope from: ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ MUST be referred to CAT-A regardless of the tax decrease claim amount. Do NOT refer tax increases to CAT-A, process the claim following normal adjustment procedures.

  2. Do not refer to CAT-A self-created Goodwill claims that contain the following, these claims must be disallowed:

    • Wording such as "Intangible Asset Deduction" , "Goodwill" or "Amortization" on the Schedule C and/or Schedule E (K-1) or notated anywhere on the claim or

    • Letter attached to the claim with reference "Internal Revenue Code Section 197 or 167" , "Income Tax Regulation 1.167" , or "Self-Created Goodwill" .

    Include in the Letter 105C the following disallowance language:
    "Self-created intangibles are not considered amortizable intangibles. No depreciation deduction is allowable with respect to goodwill. In general, the basis of property shall be the cost of such property. You have no cost basis in your self-created intangible. Accordingly, self-created goodwill is not an amortizable or depreciable asset."

  3. Several taxpayers filed "Self-Created Goodwill" claims in error and are filing Form 1040-X, Amended U.S. Individual Income Tax Return to correct their account(s). These taxpayers received a letter with guidance on how to file the amended return(s). Taxpayers are instructed to write "Remove Goodwill" across the top of the claim or in the remarks section and attach a copy of the letter. Process these claims following normal adjustment procedures.

    Reminder:

    Research for ANY open controls, refer to procedures in IRM 21.5.2.3, Adjustment Guidelines - Research.

Amended Return Filed Under Notice 2015-73 and Notice 2015-74

  1. The transactions described in Notice 2015-73, Listing Notice -Basket Option Contracts, and Notice 2015-74, Transaction of Interest - Basket Contracts, are "listed transactions" for purposes of IRC §§ 6111 and 6112, and Treas. Reg. § 1.6011-4(b)(2). All Form 1040-X, Amended U.S. Individual Income Tax Return, filed claiming the benefits described in these notices must comply with the notice requirements to have properly disclosed such transactions. The taxpayer must write "FILED UNDER NOTICE 2015-73" or "FILED UNDER NOTICE 2015-74" at the top of the amended return. All amended tax returns notated in this manner will be reviewed by the Large Business and International (LB&I) Office of Tax Shelter Analysis (OTSA). Refer to procedures in IRM 21.7.9.3.2, Amended Return Filed Under Notice 2015-73 and Notice 2015-74.