21.7.4 Income Taxes/Information Returns

Manual Transmittal

August 22, 2017

Purpose

(1) This transmits revised IRM 21.7.4 Business Tax Returns and Non-Master File Accounts, Income Taxes/Information Returns.

Material Changes

(1) This IRM was revised to reflect the following changes:

IRM section ... Description ...
IRM 21.7.4 - 10-01-2017 Editorial changes have been made throughout this IRM. Also, updated the dates in examples and corrected the link to the instructions for various forms throughout the IRM.
IRM 21.7.4.1 - 10-01-2017 Program Scope - Added Internal Controls information as outlined in The Heightened Awareness, Sensitivity, and Understanding of Internal Controls Memo dated September 14, 2016. In addition, changed the title of the subsection from Income Taxes/Information Returns Overview - Program Scope and Objectives.
IRM 21.7.4.1.1 - 10-01-2017 Background - Added Internal Controls information as outlined in The Heightened Awareness, Sensitivity, and Understanding of Internal Controls Memo dated September 14, 2016.
IRM 21.7.4.1.2 - 10-01-2017 Authority - Added Internal Controls information as outlined in The Heightened Awareness, Sensitivity, and Understanding of Internal Controls Memo dated September 14, 2016.
IRM 21.7.4.1.3 - 10-01-2017 Responsibilities - Added Internal Controls information as outlined in The Heightened Awareness, Sensitivity, and Understanding of Internal Controls Memo dated September 14, 2016.
IRM 21.7.4.1.4 - 10-01-2017 Program Management and Review - Added Internal Controls information as outlined in The Heightened Awareness, Sensitivity, and Understanding of Internal Controls Memo dated September 14, 2016.
IRM 21.7.4.1.5 - 10-01-2017 Program Control - Added Internal Controls information as outlined in The Heightened Awareness, Sensitivity, and Understanding of Internal Controls Memo dated September 14, 2016.
IRM 21.7.4.1.6 - 10-01-2017 Terms, Definitions/Acronyms - Added Internal Controls information as outlined in The Heightened Awareness, Sensitivity, and Understanding of Internal Controls Memo dated September 14, 2016.
IRM 21.7.4.1.7 - 10-01-2017 Related Resources - Added Internal Controls information as outlined in The Heightened Awareness, Sensitivity, and Understanding of Internal Controls Memo dated September 14, 2016.
IRM 21.7.4.2 - 10-01-2017 Moved the information and title of the subsection from IRM 21.7.4.1.1, Taxpayer Advocate Service (TAS), to renumbered IRM 21.7.4.2.
IRM 21.7.4.3 - 10-01-2017 Moved the information from IRM 21.7.4.2 to renumbered IRM 21.7.4.3 and changed the title of the subsection to; BMF IncomeTaxes/Information Returns Covered in This IRM Section and Related Research Material.
IRM 21.7.4.3.5(1) - IPU 17U0247 issued 02-07-2017 ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
IRM 21.7.4.3.6(4) & (5) - IPU 17U0400 issued 03-01-2017 Deleted that a five month extension period would be granted to Form 1120 taxpayers with a tax year ending December 31st and added that per Chief Counsel a six month extension will be granted.
IRM 21.7.4.4.1.1.1(2) - IPU 16U1586 issued 10-25-2016 Added the dollar threshold for filing a bankruptcy estate for tax year 2016.
IRM 21.7.4.4.1.1.3(3)(a) - 10-01-2017 Clarified that Federal Income Taxes Withheld can be claimed by a grantor trust.
IRM 21.7.4.4.1.1.5(1) - IPU 17U0769 issued 04-28-2017 Added that Section 101 of the American Taxpayer Relief Act of 2012, P.L. 112-240 made the provision permanent.
IRM 21.7.4.4.1.7(2) - IPU 17U0716 issued 04-20-2017 Added the 2017 Tax Rate Schedule for Form 1041.
IRM 21.7.4.4.1.7.4(1) - IPU 17U0716 issued 04-20-2017 Added the exemption amount and the phaseout threshold amount for Form 1041 for tax year 2017.
IRM 21.7.4.4.1.9(3) - IPU 16U1586 issued 10-25-2016 Added that testing of Form 1041 in the Acceptance Assurance Test System (ATS) for TY 2016 becomes available beginning November 7, 2016.
IRM 21.7.4.4.1.10(4) - IPU 16U1727 issued 12-07-2016 Removed paragraph (4) – The Taxable Amended Return Program has been discontinued.
IRM 21.7.4.4.1.10(2)&(3) - IPU 16U1586 issued 10-25-2016 Updated the Form 1041 Cat-A criteria.
IRM 21.7.4.4.1.11.1(3) - IPU 16U1586 issued 10-25-2016 Added the dollar threshold for wages domestic service employees earn in 2016 that are subject to social security or Medicare taxes.
IRM 21.7.4.4.1.11.1(3) - IPU 17U0716 issued 04-20-2017 Added the dollar threshold of $2,000 for wages domestic service employees earn in 2017 that are subject to social security or Medicare taxes.
IRM 21.7.4.4.1.12(3) - IPU 17U0769 Issued 04-28-2017 Corrected the link to IRM 21.7.4.4.1.12.2(1).
IRM 21.7.4.4.1.12(4) Note - 10-01-2017 Added a note that Federal Income Taxes Withheld can be claimed by a grantor trust.
IRM 21.7.4.4.1.18 - IPU 16U1654 issued 11-08-2016 Added new subsection titled: ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
IRM 21.7.4.4.1.18(7) & (9) - IPU 17U1089 issued 07-03-2017 Corrected the link to 25.23.11.7.3, BMF Returns Selected for RICS Reviews.
IRM 21.7.4.4.1.18(6) thru (9) - IPU 17U0281 issued 02/10/2017 Added information regarding Computer Condition Code E, BMF Returns Selected for RICS Review.
IRM 21.7.4.4.2.3.1.2 - IPU 16U1586 issued 10-25-2016 Added new subsection: Form 1065 for Tax Period 201512 - Return Received Date Problem.
IRM 21.7.4.4.2.7(6) & (7) - IPU 17U0716 issued 04-20-2017 Reformatted the information in the table and added that the Failure to File Penalty for Partnerships is increased to $200 per partner per month for tax periods beginning after December 31, 2016.
IRM 21.7.4.4.2.7(6) - IPU 17U0769 issued 04-28-2017 Re-inserted the old penalty table and clarified that the penalty increases to $200 for tax periods beginning after December 31, 2016.
IRM 21.7.4.4.2.7(6) & (8) - IPU 17U0890 issued 05-22-2017 Chief Counsel has determined that the Failure to File Penalty for partnerships increases to $200 for tax return due after December 31, 2017.
IRM 21.7.4.4.2.7(8) - IPU 17U0857 issued 05-17-2017 Clarified that the Failure to File Penalty for partnerships increases to $200 per month, per partner, with tax returns due after December 31, 2016.
IRM 21.7.4.4.2.7(6) & (8) - IPU 17U0890 issued 05-22-2017 Clarified that the Failure to File Penalty for partnerships increases to $200 per month, per partner, with tax returns due after December 31, 2017.
IRM 21.7.4.4.2.7.1 - IPU 17U0769 issued 04-28-2017 Added new subsection titled: Form 1065 Failure To File Penalty and CP 575 Notice.
IRM 21.7.4.4.2.8(6) - IPU 16U1586 issued 10-25-2016 Updated that testing of Form 1065/Form 1065B in the Acceptance Assurance Test System (ATS) for TY 2016 becomes available beginning November 7, 2016.
IRM 21.7.4.4.2.8(7) - IPU 17U0400 issued 03-01-2017 Updated the tax years that MeF would accept Form 1065 original and amended returns.
IRM 21.7.4.4.2.8.1.1(4) - IPU 17U0281 issued 02/10/2017 Updated the employee number to re-assign cases involving large partnership penalty for failing to file electronically.
IRM 21.7.4.4.2.8.1.1(4) - IPU 17U0769 issued 04-28-2017 Updated the employee number to 0430423701 for re-assigning cases involving large partnership penalty for failing to file electronically.
IRM 21.7.4.4.2.8.1.1(4) - IPU 17U1089 issued 07-03-2017 Updated the employee number to 0430446257 for re-assigning cases involving large partnership penalty for failing to file electronically.
IRM 21.7.4.4.2.9(6) - IPU 17U0716 issued 04-20-2017 Updated Cat-A criteria for Form 1065.
IRM 21.7.4.4.3.4(1) - IPU 17U0400 issued 03-01-2017 Updated the employee number to 0437405253 for assigning Foreclosure Property Extension Requests from a Real Estate Mortgage Investment Conduit (REMIC, Form 1066).
IRM 21.7.4.4.4(2) - IPU 16U1727 issued 12-07-2016 Removed paragraph (2) – The Taxable Amended Return Program has been discontinued.
IRM 21.7.4.4.4.2.1(3) - IPU 17U0400 issued 03-01-2017 Deleted that a five month extension period would be granted to Form 1120 taxpayers with a tax year ending December 31st and added that per Chief Counsel a six month extension will be granted.
IRM 21.7.4.4.4.2.1.1(5)Note - IPU 17U0281 issued 02/10/2017 Added a note (and a link) that subsection 3.14.2.11 was removed from SERP and to see the 01/01/2017 revision on the Electronic Publishing Website.
IRM 21.7.4.4.4.2.1.2 - IPU 17U0857 issued 05-17-2017 Added new subsection titled: Correcting the Form 1120 Return Due Date.
IRM 21.7.4.4.4.5(3) - 10-01-2017 Removed information that if the tax year ended on December 31st the length of the extension is five months. Per Chief Counsel those taxpayers will receive a six month extension.
IRM 21.7.4.4.4.5.1 - 10-01-2017 Added new subsection titled: Form 1120 Short Period Final Returns with Tax Period Beginning After December 31, 2015 Filing Extension Requests.
IRM 21.7.4.4.4.7.1.2(7) - IPU 16U1586 issued 10-25-2016 Added that employees may use the Accounts Management Services (AMS) worksheet or the Instructions for Schedule O.
IRM 21.7.4.4.4.7.3(4) - IPU 16U1654 issued 11-08-2016 Added employee number 0440269570 to refer Correspondence Image System (CIS) case for cases that are worked in the Ogden campus.
IRM 21.7.4.4.4.11.2(8) - IPU 17U0247 issued 02-07-2017 Corrected the paragraph number to (7) that is referenced in paragraph (8), regarding referring cases to BMF Entity if certain time frames are not met.
IRM 21.7.4.4.4.11.2(8) - IPU 17U1089 issued 07-03-2017 Clarified the time frames for routing to Entity.
IRM 21.7.4.4.4.11.2(8) - IPU 16U1586 issued 10-25-2016 Updated the fax number to 855-214-7520 to send Form 2553 to the Entity Unit in Ogden.
IRM 21.7.4.4.4.11.2.7 - IPU 17U0857 issued 05-17-2017 Added a link to new subsection on correcting the Form 1120 return due date.
IRM 21.7.4.4.4.11.2.8(6), (8) & (11) - IPU 17U0716 issued 04-20-2017 Reformatted the information in the table and added that the Failure to File Penalty for S Corporations is increased to $200 per shareholder per month for tax periods beginning after December 31, 2016.
IRM 21.7.4.4.4.11.2.8(6) - IPU 17U0769 issued 04-28-2017 Re-inserted the old penalty table.
IRM 21.7.4.4.4.11.2.8(9) - IPU 17U0857 issued 05-17-2017 Clarified that the Failure to File Penalty for S corporations is increased to $200 per month, per shareholder, with tax returns due after December 31, 2016.
IRM 21.7.4.4.4.11.2.8(6) & (9) - IPU 17U0890 issued 05-22-2017 Chief Counsel has determined that the Failure to File Penalty for S corporations increases to $200 for tax return due after December 31, 2017.
IRM 21.7.4.4.4.11.12(5) - IPU 17U0400 issued 03-01-2017 Updated the employee number to 0437405253 for assigning Foreclosure Property Extension Requests from a Real Estate Investment Trust (Form 1120-REIT).
IRM 21.7.4.4.4.11.14.2 - IPU 17U0810 issued Updated the subsection on credit elect and Form 1120X.
IRM 21.7.4.4.4.13.2(2) - IPU 17U1089 issued 07-03-2017 Clarified that the cse should be routed to Exam as CATA with suspense reason HQ Reserved 5.
IRM 21.7.4.4.4.15(9) - IPU 16U1586 issued 10-25-2016 Updated that testing of Form 1120 in the Acceptance Assurance Test System (ATS) for TY 2016 becomes available beginning November 7, 2016.
IPU 21.7.4.4.4.18 - IPU 16U1727 issued 12-07-2016 Added new subsection titled: ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
IRM 21.7.4.4.4.18 - 10-01-2017 Changed the title of the subsection to: Forms 1120 and Forms 1120S - Review Required.
IRM 21.7.4.4.4.18(6) Thru (9) - IPU 17U0281 issued 02/10/2017 Added information regarding Computer Condition Code E, BMF Returns Selected for RICS Review.
IRM 21.7.4.4.4.18 - IPU 17U1089 issued 07-03-2017 Corrected the link to 25.23.11.7.3 for routing cases to RICs.
IRM 21.7.4.4.4.19 - IPU 17U1089 issued 07-03-2017 Added new subsection titled Form 966 - Corporate Dissolution or Liquidation.
IRM 21.7.4.4.5 - IPU 17U0810 issued 05/05/2017 Updated the subsection on credit elects on corporate income tax returns.
IRM 21.7.4.4.8.1.1(2) - IPU 17U0769 issued 04-28-2017 Updated the priority of credits on Form 3800, General Business Credit.
IRM 21.7.4.4.8.3.1.4 - 10-01-2017 Removed information and added to see the October 1, 2016 revision of IRM 21.7.4 for more information when working a case involving the Qualifying Therapeutic Discovery Project.
IRM 21.7.4.4.8.3.2.5 - 10-01-2017 Removed information and added to see the October 1, 2016 and prior revisions of this IRM for information on the Work Opportunity Credit - Incentives to Hire Unemployed Veterans and Disconnected Youth.
IRM 21.7.4.4.8.3.4(6) - 10-01-2017 Added a link to see IRM 21.7.2.5.28, Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities, for additional information.
IRM 21.7.4.4.8.3.4(14) - IPU 17U0400 issued 03-01-2017 Updated the employee number to 0433090377 for routing amended returns claiming the Form 6765 research credit filed under Notice 2008-39.
IRM 21.7.4.4.8.3.4(14) - IPU 17U1089 issued 07-03-2017 Updated the employee number to 0433007362 for routing amended returns claiming the Form 6765 research credit filed under Notice 2008-39 and clarified which cases to send Cat-A.
IRM 21.7.4.4.8.3.6(3) - IPU 16U1654 issued 11-08-2016 Updated the information on Form 8830, Enhanced Oil Recovery.
IRM 21.7.4.4.8.3.6(3) - IPU 17U0769 issued 04-28-2017 Added that per Rev. Proc 2016-44 there would be no inflation adjustment factor or phase-out amount for the enhanced oil recovery credit for taxable years beginning in calendar year 2016 and that the credit will apply in 2017.
IRM 21.7.4.4.8.3.15 - 10-01-2017 Removed information and added to see the October 1, 2016 revision of IRM 21.7.4 for more information when working a case involving the Welfare-to-Work Credit.
IRM 21.7.4.4.8.3.18(4) - IPU 17U0769 issued 04-28-2017 Added that Section 101 of the American Taxpayer Relief Act of 2012, P.L. 112-240 made the provision permanent.
IRM 21.7.4.4.8.3.24(6) - IPU 17U0769 issued 04-28-2017 Add the average tax-financing cost per case for 2016 and 2017 for the distilled spirits credit.
IRM 21.7.4.4.8.3.26 - 10-01-2017 Removed information and added to see the October 1, 2016 and prior revisions of this IRM for information on the Qualified Plug-In Electric and Electric Vehicle Credit.
IRM 21.7.4.4.8.3.35 - 10-01-2017 Removed information and added to see the October 1, 2016 revision of IRM 21.7.4 for more information when working a case involving the Energy Efficient Appliance Credit.
IRM 21.7.4.4.8.3.36(13) - IPU 16U1586 issued 10-25-2016 Added a link Notice 2016-53. Also, added the inflation adjustment factor, updated the credit under section 45Q(a)(1), and updated the credit under section 45Q(a)(2) for Form 8933, Carbon Dioxide Sequestration Credit.
IRM 21.7.4.4.8.3.39 - 10-01-2017 Removed information involving the Black Liquor Credit Claims.
IRM 21.7.4.4.8.3.40(7) - IPU 17U0769 issued 04-28-2017 Updated the average wage amount for claiming the credit for small employer health insurance premiums and the phase-out wage amount.
IRM 21.7.4.4.8.3.40(13) - IPU 16U1586 issued 10-25-2016 Added that it is okay for the SHOP checkbox to be checked no if the taxpayer is filing for a partnership, S corporation, cooperative, estate, trust, or tax-exempt eligible small employer that received the credit from another entity.
IRM 21.7.4.4.9.3.3(1) - IPU 16U1586 issued 10-25-2016 Corrected the cycle to 201640 for the change to the sequestration rate of 6.9%.
IRM 21.7.4.4.9.3.3(1) - 10-01-2017 Added that the sequestration rate for FY 2018 is 6.6 percent.
IRM 21.7.4.4.9.3.5 Corrected that an amended return should be sequestered at the current sequestration rate and not at the rate that the original return was sequestered at.
IRM 21.7.4.4.10(4), (7) & (8) - IPU 17U0716 issued 04-20-2017 Changed the title to Federal Income Tax Withheld (FITW)/Backup Withholding (BUWH) on Income Tax Returns. Also, added that beginning January 2017, Form 1120 series returns claiming FITW/BUWH posting in cycle 201703 and subsequent will post as a TC 766 with Credit Reference Number 399.
IRM 21.7.4.4.10(7) - IPU 17U0857 issued 05-17-2017 Clarified that FITW/BUWH with CRN 399 is valid for tax period 201601 and subsequent posting in cycle 201703 and subsequent.
IRM 21.7.4.4.15 through IRM 21.7.4.4.15.1.4 Updated the Form 3115 instructions.

Effect on Other Documents

IRM 21.7.4 Income Taxes/Information Returns dated August 22, 2016, effective October 1, 2016 is superseded. This IRM incorporates IPU 16U1586 issued 10-25-2016, IPU 16U1654 issued 11-08-2016, IPU 16U1727 issued 12-07-2016, IPU 17U0247 issued 02/07/2017, IPU 17U0281 issued 02-10-2017, IPU 17U0400 issued 03-01-2017, IPU 17U0716 issued 04-20-2017, IPU 17U0769 issued 04-28-2017, IPU 17U0810 issued 05-05-2017, IPU 17U0857 issued 05-17-2017, IPU 17U0890 issued 05-22-2017 and IPU 17U1089 issued 07-03-2017.

Audience

This IRM is intended for Customer Account Service issues involving Business Master File (BMF) Income Tax Returns and Information Returns.

Effective Date

(10-01-2017)

Kevin M. Morehead
Director, Accounts Management
Wage and Investment Division

Income Taxes/Information Returns Overview - Program Scope and Objectives

  1. This IRM section contains information and adjustment procedures for resolving Business Master File (BMF) income tax accounts.

  2. Purpose: This IRM provides general information concerning business income tax returns, and provides procedures for working telephone inquiries and correspondence relating to BMF income tax adjustments.

  3. Audience: The primary audience for the information in this IRM is BMF Customer Service Representatives and Tax Examiners in Accounts Management who answer telephone inquiries and/or work taxpayer correspondence.

  4. Policy Owner: The Director, Accounts Management; Wage and Investment Division.

  5. Program Owner: Wage and Investments, Customer Accounts Services, Accounts Management, Process and Program Management, BMF & Specialty, Business Adjustments.

  6. Primary Stakeholders: Taxpayers, Wage and Investment (W&I), Small Business Self Employed (SBSE), Large Business and International (LB&I).

  7. Program Goals: The objectives for the program is to provide taxpayer with timely and accurate responses to their inquiries. Program goals for this type of work are included in the Accounts Management Program letter as well as IRM 1.14.16, Resource Guide for Managers - Accounts Management Guide for Managers.

Background

  1. Accounts Management Headquarters is responsible for issuing guidance to employees who assist taxpayers in resolving account issues, work amended returns, issue installment agreements and penalty abatement requests among many other duties. These procedures include instructing employees on the action that must be input into the Internal Data Retrieval System (IDRS).

  2. IRM 21.7.4 provides the current up to date instructions for Accounts Management employees working business accounts accurately, and for issuing Internal Revenue Manual Procedural Updates (IPU) when there are changes in current legislation and when new legislation is enacted impacting this work.

Authority

  1. The authorities for this IRM include:

    • The Internal Revenue Code (IRC) is the authority for the procedures in this Internal Revenue Manual. The IRC has been amended by Congress. Revenue procedures, acts, rules and regulations interpret the IRC. The Internal Revenue Code sections provide the IRS with the authority to allow certain credits, such as IRC 168(k)(4), Election to Accelerate the Alternative Minimum Tax and Research Credit in Lieu of Bonus Depreciation.

    • Treasury regulations (26 C.F.R.) commonly referred to as Federal Tax Regulations pick up where the Internal Revenue Code leaves off by providing the official interpretation of the IRC by the U.S. Department of the Treasury.

    • In addition to participating in the promulgation of Treasury (Tax) Regulations, the IRS publishes a regular series of other forms of official tax guidance, including revenue rulings, revenue procedures, notices, and announcements. See Understanding IRS Guidance - A Brief Primer for more information about official IRS guidance versus non-precedential rulings or advice. The authoritative instrument for the distribution of all forms of official IRS tax guidance is the Internal Revenue Bulletin (IRB), a weekly collection of these and other items of general interest to the tax professional community.

    • Revenue Procedures that direct taxpayers on the proper procedures to perform certain acts such as Rev. Proc. 2015-13, 2015-5 I.R.B. 419, that allows taxpayers to request a change in Accounting Methods.

    • Congressional Acts, i.e., Section 2006(a)(1) of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (the Act), P. L. 114-41, which changed the due date for filing Form 1065, U.S. Return of Partnership Income and Form 1120, U.S. Corporation Income Tax Return.

    • Policy Statement P-21-3 (formerly P-6-12) which outlines the requirements for a quality response issued by the Service. A quality response is accurate, timely and addresses all of the taxpayers issues.

    • IRS Administrative Waivers that allows the Service to deviate from a procedure, i.e., ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. IRM 1.2.21, Policy Statements for Customer Account Services Activities, contains the Policy Statements which relate to Customer Account Services activities. They are as follows:

    • Policy Statement 21-1 (Formerly P-6-1) - Service commitment to Taxpayer Service Program

    • Policy Statement 21-2 (Formerly P-6-10) - The public impact of clarity, consistency, and impartiality in dealing with tax problems must be given high priority

    • Policy Statement 21-3 (Formerly P-6-12) - Timeliness and Quality of Taxpayer Correspondence

    • Policy Statement 21-4 (Formerly P-6-13) - One-stop service defined

    • Policy Statement 21-5 (Formerly P-6-40) - Assistance furnished to taxpayers in the correction of accounts

Responsibilities

  1. IRM 1.1.13.9.4, Accounts Management, provides various guidance for Accounts Management employees including the following:

    • Data Management and Reports

    • Planning and Analysis

    • Joint Operations Center Representative

    • Process and Program Management (BMF)

    • Project Management Office and Support

    • Electronic Services and Programs

    • Policies, Procedures and Guidance

    • Chief Accessibility Coordinator

    • Field Directors, Accounts Management

  2. IRM 21.1.1 , Accounts Management and Compliance Services Overview, provides guidance to employees assigned to the Accounts Management organization.

Program Management and Review

  1. IRM 1.4.16, Accounts Management Guide for Managers, provides guidance for program management and review of programs assigned to Accounts Management.

Program Controls

  1. 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. The Embedded Quality Review Program is the system used by Accounts Management for reviewing employees quality. The Quality Review process provides a method to monitor, measure, and improve the quality of work. Quality Review data is used to provide quality statistics for the Service’s Business Results portion of the Balanced Measures, and/or to identify trends, problem areas, training needs, and opportunities for improvement.

  2. Centralized Quality Review System (CQRS) is operated by the Joint Operations Center (JOC) to provide independent quality review services for a number of product lines.

  3. Local reviews are performed to focus attention on areas that require improvement. The local quality reviews are performed by staffs reporting to the Quality Assurance Manager, CPAS Manager, and/or other units that have quality assurance duties. Local quality reviews are also used for employee development and on-the-job instruction. The Accounts Management function may also request that local quality reviews be performed on processes that are not subject to the national quality review. Managerial reviews, which are prepared on EQRS, measure employee performance.

  4. Quality Review data is used by management to provide a basis for measuring and improving program effectiveness by identifying:

    • Defect(s) resulting from site or systemic action(s) or inaction(s),

    • Driver(s) of customer accuracy,

    • Reason(s) for defect occurrence,

    • Defect trends,

    • Recommendation(s) for corrective action, and

    • Training needs.

Terms/Definitions/Acronyms

  1. The ReferenceNet Legal and Tax Research Service page provides an Acronym Database to research acronyms found within this IRM

Related Resources

  1. Below are additional websites, job aids, or electronic tools that are needed to assist in completing the work in Accounts Management:

    • The Correspondence Image System (CIS) for case inventory.

    • The Employee User Portal (EUP) to view corporate, estates and trusts, partnerships, and individual electronic tax returns filed via MeF.

    • IRM 21.2.2-2, Accounts Management Mandated IAT Tools. These IAT tools simplify taxpayer account processing by assisting the user with IDRS research and input.

    • Servicewide Electronic Research Program (SERP) to view SERP Alerts, IPUs, Correspondex Letters and IRM Supplements among others.

    • The Electronic Publishing Website to research forms, instructions and publication, other Internal Revenue Manuals, revenue procedures and IRS announcements.

Taxpayer Advocate Service (TAS)

  1. Per the Taxpayer Bill of Rights, taxpayers have the right to expect a fair and just tax system which provides taxpayers with the opportunity to have their facts and circumstances considered when it might affect their underlying liabilities, ability to pay, or ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service (TAS) if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through normal channels. See IRM 13.1.1.1.1, Taxpayer Bill of Rights (TBOR), IRM 13.1.1.1.2, Taxpayer Bill of Rights 2 (TBOR 2), and Pub 1, Your Rights as a Taxpayer, for more information.

  2. Refer taxpayers to TAS when the contact meets TAS criteria (see IRM 13.1.7, Taxpayer Advocate Service (TAS) Case Criteria), or when Form 911, Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order), is attached and steps cannot be taken to resolve the taxpayer's issue the same day. "Same day" includes cases that can be completely resolved in 24 hours, as well as cases where steps can be taken within 24 hours to begin resolving the issue. (See also IRM 13.1.7.4, Same Day Resolution by Operations.) When making a TAS referral, use Form 911, and forward to TAS in accordance with your local procedures.

BMF IncomeTaxes/Information Returns Covered in This IRM Section and Related Research Material

  1. The forms covered in this section are:

    • Form 1041, U.S. Income Tax Return for Estates and Trusts

    • Form 1065, U.S. Return of Partnership Income

    • Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return

    • Form 1120 series, U.S. Corporation Income Tax Return

    • Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns

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

    • Form 8716, Election to Have a Tax Year Other Than a Required Tax Year

    • Form 8752, Required Payment or Refund Under Section 7519

    • BMF Schedule H (Form 1040), Household Employment Taxes

  2. Besides the information in this section, the specific form and corresponding instructions for that form such as; the Instructions for Form 1041, are good sources for additional information.

  3. For Form 1041, Form 1065, Form 1066, and Form 1120 series returns, the publications listed below can be used by taxpayers or Service employees to obtain additional information.

    • Publication 535,Business Expenses

    • Publication 538,Accounting Periods and Methods

    • Publication 544,Sales and Other Dispositions of Assets

    • Publication 550,Investment Income and Expenses

    • Publication 583,Starting a Business and Keeping Records

    • Publication 908,Bankruptcy Tax Guide

    • Publication 925,Passive Activity and At-Risk Rules

    • Publication 1066-C, A Virtual Small Business Tax Workshop DVD

  4. Small business or self-employed individual who needs answers to tax questions, educational materials or tools to help them run their business, should check out the IRS Small Business and Self-Employed Tax Center @ irs.gov. This one-stop shop offers extensive resources and online tools to help small businesses and self-employed persons by providing resources such as:

    • Small business forms and publications

    • Online applications for an Employer Identification Number

    • Employment tax information – federal income tax, Social Security and Medicare taxes, Federal Unemployment Tax Act (FUTA) and self-employment tax

    • Tax-related news that could affect your business

    • Small business educational events

    • IRS videos for small businesses

    • A-Z Index for Business, a fast way to find information

Additional Form 1041 Research Material

  1. Besides the publications listed in IRM 21.7.4.3(2), Income/Information Returns Research, the publications below can be sources for additional information for Form 1041 filers. Also see IRM 21.7.4.4.1.9, Electronic Filing of Form 1041 Returns, for publications relating to the electronic filing of Form 1041.

    • Publication 559, Survivors, Executors, and Administrators

    • Publication 926, Household Employer's Tax Guide, for Form 1041 domestic (household) employers who must file Schedule H.

  2. There are various methods to obtain IRS Publications:

    • Access the IRS Internet Web site @ www.irs.gov

    • Call the Forms & Publication toll-free line at 1-800-829-3676 (7am-7pm local time, Mon-Fri)

    • Write to IRS at the following address:
      Ogden Submission Processing Campus
      Stop 6052
      1160 West 1200 South
      Ogden, UT 84201

Additional Form 1065 Research Material

  1. Besides the publications listed in IRM 21.7.4.3(2), Income/Information Returns Research, the publications below can be sources for additional information for Form 1065 filers:

    • Publication 515Withholding of Tax on Nonresident Aliens and Foreign Entities

    • Publication 541, Partnerships

    • Publication 4163, Modernized e-file (MeF) Information for Authorized IRS e-file Providers for Business Returns -

    • Publication 4164, Modernized e-file (MeF) Guide for Software Developers and Transmitters

  2. The publications listed above can be obtained on the IRS Internet Web site @ www.irs.gov or by calling the Forms & Publication toll-free line at 1-800-829-3676 (7am-7pm local time, Mon-Fri).

Additional Form 1066 Research Material

  1. Besides the publications listed in IRM 21.7.4.3(2), Income/Information Returns Research, the publications below can be sources for additional information for Form 1066 filers.

    • Pub 550, Investment Income and Expenses (Including Capital Gains and Losses), contains information on Mutual Fund Distribution.

    • Publication 938, Real Estate Mortgage Investment Conduits Reporting Information (And Other Collateralized Debt Obligations (CDOs)). (This publication contains directories relating to real estate mortgage investment conduits (REMICs) and collateralized debt obligations (CDOs). The directory for each calendar quarter is based on information submitted to the IRS during that quarter and is only available on the Internet.)

Additional Form 1120 Series Research Material

  1. Besides the publications listed in IRM 21.7.4.3(2), Income/Information Returns Research, Publication 542, Corporations, can be used as an additional source of information for Form 1120 filers.

  2. Also, see the instructions for each specific type of Form 1120 series return for additional information.

Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns - Tax Years Beginning Before January 1, 2016

  1. Form 7004 is used to request an automatic extension of time to file certain business income tax, information, and other returns. The extension will be granted if the taxpayer completes Form 7004 properly, makes a proper estimate of the tax (if applicable), files the form by the due date of the return to which the Form 7004 applies, and pays any tax that is due. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. Form 7004 does not extend the time for payment of tax. Therefore, to avoid interest charges and a late payment penalty, payment of any balance due on line 8 of Form 7004 is required by the due date of the return for which the extension is filed.

  3. For tax years 2008 and prior, taxpayers could receive an automatic 6 month extension of time to file most BMF business returns by filing Form 7004. For Forms 1065, Forms 1041, and Forms 8804 that are due to be filed after December 31, 2008, to reduce the burden on recipients of Schedules K-1, the extension of time to file partnership returns (Form 1065 and Form 8804), and estate and trust returns (Form 1041) was shortened from six months to five months. However, bankruptcy estates have still been eligible to receive a six-month extension for Form 1041.

  4. See the tables below for tax years beginning before January 1, 2016 for the forms that qualify for an automatic five month or six month extension of time to file.

    Form 7004, Automatic Five Month Extension
    Extension is For Form MFT Form Code Extension is for Form MFT Form Code
    1065 06 09 1041 (Estate other than a bankruptcy estate) 05 04
    8804 08 31 1041 (Trust) 05 05
    Form 7004, Automatic Six Month Extension
    Extension is For Form MFT Form Code Extension is For Form MFT Form Code
    706-GS(D) 78 01 1120-ND (IRC 4951 Taxes) 02 20
    706-GS(T) 77 02 1120-PC 02 21
    1041 (Bankruptcy Estate Only) 05 03 1120-POL 02 22
    1041-N 05 06 1120-REIT 02 23
    1041-QFT 05 07 1120-RIC 02 24
    1042 12 08 1120S 02 25
    1065-B 06 10 1120-SF 02 26
    1066 07 11 3520-A 42 27
    1120 02 12 8612 89 NMF 28
    1120-C 02 34 8613 14 NMF 29
    1120-F 02 15 8725 27 NMF 30
    1120-FSC 02 16 8831 89 NMF 32
    1120-H 02 17 8876 27 NMF 33
    1120-L 02 18 8924 08 35
    1120-ND 02 19 8928 89 NMF 36

    Note:

    Effective 6/24/2011 under REG-115457-08, TD 9581, the automatic filing extension period for bankruptcy estates (Form 1041) of individuals filing bankruptcy petitions under chapter 7 or 11 of the Bankruptcy Code will be six months.

  5. Form 7004 can be filed on paper or can generally be filed electronically (see paragraph (3) directly above for those forms for which Form 7004 is valid). See the Instructions for Form 7004 for the forms that cannot be filed electronically and for general information. Also, visit the IRS Web site @ www.irs.gov, and click on the Filing tab and click on the Tax Pros and Partners link for more information on filing Form 7004 electronically.

  6. Form 7004 is processed to BMF as Transaction Code (TC) 620 with Document Code 04. Form 7004 received without remittance, posts as $.00. In addition, when the TC 620 posts to the account, Integrated Data Retrieval System (IDRS) generates TC 460 on the module and reflects the extended due date.

  7. Computer Condition Code (CCC) "L" indicates a rejected or denied extension of time to file.

  8. See IRM 3.11.212, Application for Extension of Time To File Tax Returns, for additional information. Also, follow the procedures in IRM 20.1.2.1.3, Extensions of Time to File and Pay, when the taxpayer requests penalty abatement and claims they filed a timely extension.

  9. Universal Location Code (ULC 98) must be entered to allow a date more than 6 months in the future. See IRM 20.1.2.1.3.3, Taxpayers Abroad, for more information.

Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns - Tax Years Beginning After December 31, 2015

  1. Section 2006(a) of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P. L. 114-41, (the Act) changed the due date for filing the tax return of a partnership, and thus the date by which a partnership must file a corresponding Form 7004 has also changed. Additionally, section 2006(b) of the Act allowed for a six month extension of time to file Form 1065. The provisions are effective for tax years beginning after December 31, 2015:

    • The due date for a partnership to file its income tax return, and therefore, the date by which a partnership may request an automatic extension for filing Form 1065 or Form 8804 using Form 7004 is now the 15th day of the third month following the close of the partnership’s tax year.

    • The duration of the automatic extension of time to file Form 1065 has increased to six months.

  2. Section 2006(b) of the Act increased the duration of the automatic extension of time to file Form 1041 for a trust to 5½ months.

  3. Section 2006(a) of the Act changed the due date for filing most C corporation returns, and thus the date by which a C corporation may request an automatic extension using Form 7004 for the Form 1120 Series (except Form 1120-C filers that do not meet the requirements of section 6072(d) and Form 1120-IC-DISC filers), has changed.

    Note:

    Form 1120S is not considered a “C” corporation and therefore the due date has not changed. Also, see IRM 21.7.4.4.4.11.15 for information on the return due date for Form 1120-C filers.

  4. In addition, section 2006(c) of the Act changed the duration of the automatic extension of time to file most C corporation returns. The provisions are effective for tax years beginning after December 31, 2015.

    • The due date of a C corporation’s return, and therefore, the date by which a C corporation (except if filing Form 1120-C, Form 1120-IC-DISC, and Form 1120S) may request an automatic extension of time to file its return using Form 7004 is the 15th day of the fourth month following the close of the C corporation’s tax year. The income tax return of a C corporation that ends its tax year on June 30 remains due on or before the 15th day of the third month following the close of the fiscal year for tax years beginning after December 31, 2015 and before January 1, 2026.

    • If a C corporation files its return for a fiscal year or a short period return that ends on June 30 and ends before January 1, 2026, the duration of the automatic extension is seven months. For taxable years that end on December 31 and begin before January 1, 2026, the automatic extension of time to file is five months. However, Chief Counsel has determined that these calendar year Form 1120 filers will be granted a six month extension period. Master file programming was corrected in cycle seven to allow a six month extension. Therefore, BMF extensions posting cycle seven and subsequent are accurate. Information Technology (IT) will correct the return due dates and the extended due dates for extensions processed before cycle seven. These accounts will have a TC 971 with Action Code 399 posting in Cycle 201709.

    Note:

    See the various subsections in this IRM for more information concerning the forms impacted by this legislation. Notice Review developed procedures to handle extension requests received in 2016.

  5. See the tables below and the information in the paragraphs above for tax years beginning after December 31, 2015 and before January 1, 2026, for the forms that are eligible for an automatic 5 ½ month extension and for an automatic 6 month extension:

    Form 7004, Automatic Five and a Half Month Extension
    Extension is For Form MFT Form Code
    1041 (except bankruptcy estates) 05 05
    Form 7004, Automatic Six Month Extension (Except 1120 series with tax years ending June 30)
    Extension is For Form MFT Form Code Extension is for Form MFT Form Code
    706-GS(D) 78 01 1120-ND (IRC 4951 Taxes) 02 20
    706-GS(T) 77 02 1120-PC 02 21
    1041 (Bankruptcy Estate Only) 05 03 1120-POL 02 22
    1041-N 05 06 1120-REIT 02 23
    1041-QFT 05 07 1120-RIC 02 24
    1042 12 08 1120S 02 25
    1065 06 09 1120-SF 02 26
    1065-B 06 10 3520-A 42 27
    1066 07 11 8612 89 NMF 28
    1120 02 12 8613 14 NMF 29
    1120-C (All Form 1120-C filers) 02 34 8725 27 NMF 30
    1120-F 02 15 8804 08 31
    1120-FSC 02 16 8831 89 NMF 32
    1120-H 02 17 8876 27 NMF 33
    1120-L 02 18 8924 08 35
    1120-ND 02 19 8928 89 NMF 36
  6. See the table below and the information in paragraph (4) above for tax years beginning after December 31, 2015, and before January 1, 2026, and that have a June 30 ending, for the forms that are eligible for an automatic 7 month extension.

    Form 7004, Automatic Seven Month Extension (Tax year ending June 30)
    Extension is For Form MFT Form Code Extension is for Form MFT Form Code
    1120 02 12 1120-ND 02 19
    1120-C (Non section 6072(d) filers) 02 34 1120-ND (IRC 4951 Taxes) 02 20
    1120-F 02 15 1120-PC 02 21
    1120-FSC 02 16 1120-REIT 02 23
    1120-H 02 17 1120-RIC 02 24
    1120-L 02 18 1120-SF 02 26
  7. The IRS no longer sends notifications that the taxpayer’s extension has been approved. IRS will only notify the taxpayer if the taxpayer’s request for an extension is disallowed. Computer Condition Code (CCC) "L" indicates a rejected or denied extension of time to file. Per IRM 3.11.212.1.19, Notification to Taxpayer, when the extension request is denied, Code and Edit must initiate correspondence to inform the taxpayer that the extension was denied. There is no automatic notice generated to the taxpayer.

  8. Form 7004 can be filed on paper or can generally be filed electronically (see paragraph (5) directly above for those forms for which Form 7004 is valid). For details, see the Instructions for Form 7004 for the forms that cannot be filed electronically and for general information. . Also, visit the IRS Web site @ www.irs.gov, and click on the Filing tab then click on the Tax Pros and Partners link for more information on filing Form 7004 electronically.

  9. Form 7004 is processed to BMF as Transaction Code (TC) 620 with Document Code 04. Form 7004 received without remittance, posts as $.00. In addition, when the TC 620 posts to the account, Integrated Data Retrieval System (IDRS) generates TC 460 on the module and reflects the extended due date.

  10. See IRM 3.11.212, Application for Extension of Time To File Tax Returns, for additional information. Also, follow the procedures in IRM 20.1.2.1.3, Extensions of Time to File and Pay, when the taxpayer requests penalty abatement and claims they filed a timely extension.

  11. Universal Location Code (ULC 98) must be entered to allow a date more than 6 months in the future. See IRM 20.1.2.1.3.3, Taxpayers Abroad, for more information.

Income and Information Returns Procedures

  1. Use the following information and procedures for the designated forms.

Form 1041, U.S. Income Tax Return for Estates and Trusts

  1. Form 1041 is filed to report the income of an estate or trust as reported by a fiduciary. The Master File Tax (MFT) code is 05 and the tax class is "2." It covers a calendar or fiscal year not exceeding 12 months. The return is due on or before the 15 day of the fourth month following the close of the taxable year. Every Form 1041 is edited with a Fiduciary Code and may have a Trust Code. However, amended returns are not transcribed. See IRM 3.11.14.12.3, Fiduciary and Trust Code Editing, for more information on fiduciary and trust codes. Also, see IRM Exhibit 3.11.14-15 , Due Date Chart, for Form 1041 due dates.

Filing Requirements, Form 1041
  1. The fiduciaries for certain domestic decedent and bankruptcy estates and certain domestic trusts are required to file Form 1041.

Domestic Decedent and Bankruptcy Estates
  1. A domestic decedent’s estate is a taxable entity separate from the decedent and comes into being with the death of the individual. It exists until the final distribution of its assets to the heirs and other beneficiaries. The income earned by the assets during this period must be reported by the estate under the conditions described in Publication 559, Survivors, Executors, and Administrators. The personal representative of a domestic decedent’s estate which meets either of the criteria below, must file Form 1041:

    • Gross income of $600 or more for the taxable year.

    • Any beneficiary who is a non-resident alien.

  2. A bankruptcy estate is a separate and distinct taxable entity from the debtor, if the debtor is an individual in a Chapter 7 or Chapter 11. For more information, refer to Publication 908, Bankruptcy Tax Guide. If the bankruptcy estate is a separate taxable entity, the bankruptcy trustee or debtor-in-possession must file Form 1041 if the estate has:

    For tax years beginning in Gross income of
    2012 $9,750
    2013 $10,000
    2014 $10,150
    2015 $10,300
    2016 $10,350
  3. Effective 6/24/2011 under REG-115457-08, TD 9581, the automatic filing extension period for bankruptcy estates of individuals filing bankruptcy petitions under Chapter 7 or Chapter 11 of the Bankruptcy Code will be 6 months.

Domestic Trusts
  1. A trust is an arrangement in which one party (the trustee) takes title to property for the benefit of another party or parties (beneficiaries). Trustees manage and control the property, but are under a duty to administer the trust according to the trust agreement or local law for the benefit of the beneficiaries.

  2. A trust may be created during an individual's life (inter vivos), or at the time of their death under a will (testamentary).

  3. Domestic trusts which meet any of the criteria below must file Form 1041:

    • Any taxable income for the taxable year.

    • Gross income of $600 or more, regardless of the amount of taxable income.

    • Any beneficiary who is a non-resident alien.

Types of Trusts
  1. A simple trust is created by a written document. This type of trust requires all income to be distributed currently, has no authority to make charitable contributions and (during the taxable year in question) does not distribute any amount allocated to the corpus of the trust.

  2. A complex trust is created by a written document. It is for the taxable year and does not qualify as a simple trust. It may or may not distribute current income, principal, or make charitable contributions depending upon its terms.

  3. A grantor trust can be set up by a person, an organization, or, in certain cases, created by a will. The grantor retains sufficient control over the assets of the trust. The income from the trust is taxable to the grantor or other person treated as the owner of the trust. The income, deductions, and credits (including Federal Income Taxes Withheld) are not reported on the Form 1041. They are shown on a separate statement which is attached to the 1041. Grantor trusts have many unique characteristics. Among them:

    1. Grantor trusts ordinarily file Form 1099, reporting all items of income paid by the trust and identifying the grantor or other payee. Treas. Reg. section 1.671-4(b), details methods by which the trustee may notify the grantor or other persons treated as the owner of the trust of all items of income, deductions, and credit for the taxable year. The trustee of certain grantor trusts may elect an alternative reporting method under Regulation 1.671-4. Generally, these trusts report by issuing a Form 1099 reporting the trust income and showing the grantor or other person treated as owner of the trust as payee.

    2. A trust may be a partial grantor trust if the power which would make the trust a grantor trust only applies to a portion of the trust assets. The grantor trust portion must report under the general grantor trust rules, and the non-grantor trust portion should report as a simple or complex trust depending on its provisions.

  4. A pooled income fund is a split interest trust that is established by a public charity. The donor or other beneficiary retains a life income interest and the charity receives the remaining interest. It is not exempt from tax under IRC 501(a). A Form 5227, Split Interest Trust Information Return, must also be filed by the fiduciary in addition to Form 1041.

  5. A Qualified Revocable Trust is any trust (or part of a trust) that, on the day the decedent died, was treated as owned by the decedent under IRC 676. The grantor of the trust pays taxes on the trust on their Form 1040 return. The trustee files Form 1041 for "informational purposes" only. The trustees of each qualified revocable trust and the executor of the related estate (if one exists), use Form 8855, Election to Treat a Qualified Revocable Trust as Part of an Estate, to make a IRC 645 election. This election allows a qualified revocable trust to be treated and taxed (for income tax purposes) as part of its related estate (Form 706) during the election period and cannot be revoked once the election is made. See the General Instructions for Form 8855 for more information.

  6. Qualified Funeral Trust - See IRM 21.7.4.4.1.1.4.

  7. Alaskan Settlement Trust - See IRM 21.7.4.4.1.1.5.

  8. Electing Small Business Trusts (ESBTs) are treated as two separate trusts for purposes of determining income tax. The portion of an ESBT that consists of stock in one or more S corporations (the S portion) is treated as one trust. The portion that consists of all other assets in the trust is treated as a separate trust. The grantor or another person may be treated as the owner of all, or a portion of either or both trusts, in which case the grantor portion would be subject under subpart E (grantor portion).

  9. Qualified Disability Trust - See IRM 21.7.4.4.1.1.6.

  10. See IRM 3.11.14.1.3, Definitions, for more general definitions relating to trusts and estates.

Form 1041-QFT, U.S. Income Tax Return for Qualified Funeral Trusts
  1. The Taxpayer Relief Act of 1997 (TRRA) resulted in the establishment of Form 1041-QFT, U.S. Income Tax Return for Qualified Funeral Trusts. These trusts are created by a contract with a trade or business providing funeral or burial services.

  2. The sole purpose of the trust is to hold, invest, and reinvest funds in the trust and to use those funds to make payments for funeral or burial services for the beneficiaries of the trust. No exemptions are allowed.

  3. The trustee of a trust that has elected to be taxed as a qualified funeral trust (QFT) files Form 1041-QFT to report the income, deductions, gains, losses, and tax liability of the QFT. The trustee can use the form to report information for a single QFT or for multiple QFTs having the same trustee. Returns reporting multiple trusts are known as composite returns.

  4. Prior to August 28, 2008, each individual trust reported on Form 1041-QFT was limited in the amount that the beneficiaries could contribute for their funeral expenses. If a QFT has multiple beneficiaries, the contribution limit applies separately to each beneficiary. The contribution limit is determined by the year the purchaser entered into the contract for funeral or burial goods and services and does not change over the life of the trust. The threshold for aggregate contributions (for each individual trust) was adjusted each year based on cost of living adjustments. However, the Hubbard Act of 2008, P.L. 110-317, repealed the dollar limitation contribution for tax year 2009 and subsequent. See the General Instructions for Form 1041-QFT for TY 2008 and prior years for the specific dollar limitations.

  5. A trustee may file a single, composite Form 1041-QFT for some or all QFTs of which he or she is the trustee, including QFTs that had a short tax year. The trustee must attach a statement to a composite Form 1041-QFT that includes the following information for each QFT (or separate interest treated as a separate QFT). See the General Instruction for Form 1041-QFT for more specific information on the requirements below:

    • The name of the owner or the beneficiary,

    • The type and gross amount of each type of income earned by the QFT for the tax year,

    • The type and amount of each deduction and credit allocable to the QFT,

    • The tax and payments made for each QFT, and

    • The termination date for each QFT that was terminated during the year.

  6. Domestic Forms 1041-QFT are processed at the Cincinnati Submission Processing Campus and all International Forms 1041-QFT are processed at the Ogden Submission Processing Campus. The MFT is 05, Document Code 39, and the Filing Requirement Code (FRC) is 9.

  7. Form 1041-QFT Estimated Tax (ES) payments are determined individually for each trust reported on a composite (more than one trust involved) Form 1041-QFT. The ES payments are not based on the total taxable income for all trusts reported on the form. Therefore, some taxpayers may be assessed incorrect ES penalties since the computer bases the computation on the total taxable income. If a phone call or correspondence is received from a taxpayer stating an incorrect ES penalty was assessed:

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

    2. If the taxpayer states they are liable for a penalty, but not for the amount assessed, reduce the penalty to the amount calculated by the taxpayer if they provide the calculation on paper. Do not reduce the penalty if the taxpayer does not provide the calculation.

    3. If the calculation in (b) directly above is not provided, ask the taxpayer to fax/mail it to you.

    4. Upon receipt, verify the computation and adjust the penalty to the taxpayer's figures.

    5. Use reason code 045 in the fourth position and apologize to the taxpayer by phone or via Letter 544C.

  8. When an amended Form 1041-QFT is received, adjust the account per the guidance in IRM 21.7.4.4.1.10, Form 1041 Claims and Requests for Adjustments. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

Form 1041-N, U.S. Income Tax Return for Alaska Native Settlement Trusts
  1. Section 671 of the Economic Growth and Tax Relief Reconciliation Act of 2001, P.L. 107-16, resulted in the creation of Form 1041-N and IRC 646. The provision is effective for tax years ending after June 7, 2001 and tax years beginning on or before December 31, 2010. Section 101(a)(1) of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, extended the provision for two additional years, and is effective for tax years beginning on or before December 31, 2012. Section 101 of the American Taxpayer Relief Act of 2012, P.L. 112-240, made the provision permanent.

  2. The provision allows Alaska Native Settlement Trusts (currently numbering approximately 20) to elect special tax treatment for the trust and its beneficiaries. The trust pays the income tax, therefore, distributions of income are generally tax-exempt for the beneficiaries. In certain cases, trust distributions are treated as taxable dividends for the sponsoring Native Corporation. See the table below for the tax rates on ordinary income and capital gains. These trusts are not subject to alternative minimum tax (AMT). It is believed all these trusts are calendar year filers.

    Tax year Ordinary income Capital gains
    2008 - 2017 10 percent 0 percent
  3. All Forms 1041-N are processed at the Ogden Submission Processing Campus. The volume is minimal. Forms 1041-N are processed as a Form 1041-QFT (Document Code "39," MFT "05," Tax Class "2" ). The only unique identifying field that differentiates the two returns is audit code "8" on the 1041-N account.

  4. See the Instructions for Form 1041N, for more information.

Qualified Disability Trust
  1. A Qualified Disability Trust is any trust:

    • Described in 42 U.S.C. 1396p(c)(2)(B)(iv) and established solely for the benefit of an individual under 65 years of age who is disabled, and

    • All of the beneficiaries of which are determined by the Commissioner of Social Security, to have been disabled for some part of the tax year within the meaning of 42 U.S.C. 1382(c)(a)(3).

  2. The Victims of Terrorism Tax Relief Act of 2001, provides that certain disability trusts may claim a personal exemption in an amount that is based upon the personal exemption provided for individuals under IRC 151(d), rather than the $100 or $300 personal exemption provided under current law.

  3. See IRM 21.7.4.4.1.7.4, Form 1041 Exemptions, for the exemption amount and phaseout thresholds for Qualified Disability Trusts.

Schedules Associated with Form 1041
  1. The schedules listed below are associated with Form 1041.

    • Schedule A - Charitable Deductions

    • Schedule B - Income Distribution Deduction

    • Schedule D - Capital Gains and Losses (This schedule must be attached if the alternative tax computation is used.)

    • Schedule G - Tax Computation

    • Schedule H, Form 1040 - Household Employment Taxes (1995 and subsequent)

    • Schedule I - Alternative Minimum Tax.

    • Schedule J - Accumulation Distribution for a Complex Trust

    • Schedule K-1 - Beneficiary’s Share of Income, Deductions, Credits, etc. (Trusts and estates are required to file Schedules K-1 for each beneficiary named on Form 1041.)

General Definitions
  1. The following list contains and defines common terms used with Form 1041 (See IRM 3.11.14.1.3, Definitions, for more definitions.)

    • Administrator - The person in charge of administering an estate who has been named by the courts when there is no will, or if no executor was named in the will, or if the named executor cannot or will not serve.

    • Beneficiary - A person designated as the recipient of funds or other property under a trust or an estate.

    • Conservatory - An arrangement to hold property, usually for an incompetent person, which may or may not be a trust for federal purposes.

    • Estate - A legal entity created as a result of a person's death. The estate consists of the real and/or personal property of the deceased person.

    • Fiduciary - Trustee of a trust or executor, executrix, administrator, administratrix, personal representative, or person in possession of property of a decedent's estate.

    • Guardianship/Custodianship - An arrangement to hold property for a minor, which may or may not be a trust for federal purposes.

    • Maker/grantor/etc - The person/organization which originated the trust or which has control over the trust.

    • Trust - A legal entity created under state law and taxed under federal law. The trust can be created to do one act or a series of acts.

Entity Perfection of Form 1041
  1. A single individual or group may set up several trusts. These trusts may have almost identical names or structures.

    Example:

    John Smith Trust #1 and John Smith Trust #2 are separate trusts.

  2. Mix-ups between these entities frequently occur since a single individual or firm usually administers both trusts. To resolve these cases:

    1. Determine the correct entities from information available.

    2. If the correct entity cannot be determined, forward a photocopy of the front page (entity portion) including available research, and a photocopy of any other document in the case file that may help determine the correct entity, to Entity Control.

    3. Maintain an open control base until the case is returned and proper adjustment is completed.

Permissible Tax Years, Form 1041
  1. Most trusts are required to file a calendar year return.

  2. The only Form 1041 filers permitted to retain or adopt a fiscal year are:

    • Decedent’s estates

    • Bankruptcy estates

    • Charitable trusts under IRC 4947(a)(1)

    • Trusts under IRC 501(a)

    • Trusts treated as wholly owned by a grantor under rules of IRC 671 - 679 (which use the tax year of their owner)

  3. To change the accounting period of an estate, a Form 1128, Application to Adopt, Change or Retain a Tax Year, must be filed and approved.

  4. The bankruptcy estate of an individual in a Chapter 7 or Chapter 11 case may change its accounting period one time without approval.

Extensions to File, Form 1041
  1. Form 7004 is used to request an automatic extension of time to file certain business income tax, information, and other returns. An extension of time to file Form 1041 will be granted if the taxpayer completes Form 7004 properly, makes a proper estimate of the tax (if applicable), files the form by the due date of the return to which the Form 7004 applies, and pays any tax that is due.

  2. Generally, Form 7004 must be filed on or before the due date of the Form 1041. Form 7004 does not extend the time for payment of tax. Therefore, to avoid interest charges and a late payment penalty, payment of any balance due on line 8 of Form 7004 is required by the due date of the return for which the extension is filed.

  3. For tax year 2008 and prior, taxpayers could obtain an automatic 6 month extension of time to file for most BMF business returns by filing Form 7004. However, beginning January 1, 2009, to reduce the burden on recipients of Schedules K-1, the extension of time to file certain trusts and estate returns was shortened from six months to five months and is effective for tax tears beginning on or before December 31, 2015. Beneficiaries who depend on information in these returns to prepare their own returns should apply for the appropriate extension of time to file their individual income tax returns (Form 1040).

  4. Section 2006(b)(2) of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P, L. 114-41, increased the duration of the automatic extension of time to file Form 1041 for a trust to 5 ½ months and is effective for tax years beginning after December 31, 2015. This period ends on September 30th for calendar year taxpayers. Therefore, for trusts and estates (other than bankruptcy estates) filing Form 1041 that requested a valid extension on or before April 15, the return will be due on or before September 30th.

  5. If the due date of a Form 1041 series return falls on a Saturday, Sunday, or legal holiday, the Form 1041 filer can file on the next day that is not a Saturday, Sunday, or legal holiday. See IRM 20.1.2.1.1, When Timely Mailing Equals Timely Filing or Paying (Received Date vs. Filing/Payment Date).

  6. See IRM 21.7.4.3.5, Form 7004, Revised December 2008 Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns, Tax Periods Beginning on or Before December 31, 2015 and IRM 21.7.4.3.6, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns, Tax Periods Beginning After December 31, 2015, for more general information.

Tax Computation, Form 1041
  1. The method of calculating the liability using Form 1041 varies depending on the type of taxpayer involved.

  2. Decedent’s estates and trusts compute their income tax liability using the rates in the table below. The taxpayer enters the computed tax liability on line 1a of Schedule G. Follow the Schedule G submitted by the taxpayer as there can be other credits or taxes applicable. The total from line 7, Schedule G is the amount entered on the "Total tax" line (line 23 for 2013) on Form 1041.

    2017 Tax Rate Schedule
    If the taxable income on Page 1, Line 22 is over: But not over: The tax is: Of the amount over:
    $0 $2,550 15 percent $0
    $2,550 $ 6,000 $ 382.50 + 25 percent $ 2,550
    $6,000 $ 9,150 $1,245 + 28 percent $ 6,000
    $9,150 $12,500 $2,127 + 33 percent $ 9,150
    $12,500 ------- $3,232.50 + 39.6 percent $12,500
    TAX RATE SCHEDULES
    2016 Tax Rate Schedule
    If the taxable income on Page 1, Line 22 is over: But not over: The tax is: Of the amount over:
    $0 $2,550 15 percent $0
    $ 2,550 $ 5,950 $382.50 + 25 percent $ 2,550
    $ 5,950 $ 9,050 $1,232.50 + 28 percent $ 5,950
    $ 9,050 $12,400 $2,100.50 + 33 percent $9,050
    $12,400 ------- $3,206 + 39.6 percent $12,400
    2015 Tax Rate Schedule
    If the taxable income on Page 1, Line 22 is over: But not over: The tax is: Of the amount over:
    $0 $2,500 15 percent $0
    $ 2,500 $ 5,900 $375 + 25 percent $ 2,500
    $ 5,900 $ 9,050 $1,225 + 28 percent $ 5,900
    $ 9,050 $12,300 $2,107 + 33 percent $ 9,050
    $12,300 ------- $3,179.50 + 39.6 percent $12,300
    2014 Tax Rate Schedule
    If the taxable income on Page 1, Line 22 is over: But not over: The tax is: Of the amount over:
    $0 $2,500 15 percent $0
    $2,500 $ 5,800 $ 375 + 25 percent $ 2,500
    $5,800 $ 8,900 $1,200 + 28 percent $ 5,800
    $8,900 $12,150 $2,068.00 + 33 percent $ 8,900
    $12,150 ------- $ 3,140.50 + 39.6 percent $12,150
    2013 Tax Rate Schedule
    If the taxable income on Page 1, Line 22 is over: But not over: The tax is: Of the amount over:
    $0 $2,450 15 percent $0
    $ 2,450 $ 5,700 $367.50 + 25 percent $ 2,450
    $ 5,700 $ 8,750 $1,180 + 28 percent $ 5,700
    $ 8,750 $11,950 $2,034 + 33 percent $ 8,750
    $11,950 ------- $3,090 + 39.6 percent $11,950
    2012 Tax Rate Schedule
    If the taxable income on Page 1, Line 22 is over: But not over: The tax is: Of the amount over:
    $0 $2,400 15 percent $0
    $2,400 $5,600 $360 + 25 percent $2,400
    $5,600 $8,500 $1,160 + 28 percent $5,600
    $8,500 $11,650 $1,972 + 33 percent $8,500
    $11,650 ............ $3,011.50 + 35 percent $11,650
  3. If the decedent’s estate or trust used Schedule D and the alternative tax computation, follow the computation using the appropriate form line-by-line instructions.

  4. If the bankruptcy estate must file a return, the trustee (or debtor-in-possession) completes the identification area at the top of the Form 1041 and lines 22 - 29 and signs and dates it. The trustee uses the Form 1041 as a transmittal for Form 1040, U.S. Individual Income Tax Return.

    1. The trustee completes Form 1040 and figures the tax using the tax rate schedule for a married person filing separately.

    2. In the top margin of Form 1040, the trustee writes "Attachment to Form 1041. DO NOT DETACH."

    3. The trustee attaches Form 1040 to Form 1041.

    4. The bankruptcy estate computes its liability in the same manner as an individual, claims the same exemption as an individual, and, if it does not itemize, uses the same standard deduction as an individual.

Form 8960, Net Investment Income Tax - Individuals, Estates, and Trusts
  1. Section 1402(a)(1), of the Health Care and Education Reconciliation Act of 2010, P.L. 111–152, added a Net Investment Income Tax (NIIT) under section 1411 of the Internal Revenue Code for tax years beginning on or after January 1, 2013 and subsequent. The NIIT applies at a rate of 3.8 percent to certain Net Investment Income (NII) of individuals, estates and trusts. Although section 1411 falls within Chapter 2A of the Code, entitled "Unearned Income Medicare Contribution," the tax is not a payroll tax. Generally, the NIIT cannot be offset by most tax credits (such as foreign tax credit or general business credit).

  2. The 3.8 percent net investment income tax is generally levied on non-business income from interest, dividends, certain non-qualified annuities, royalties, rents, and capital gains.

  3. Information concerning individual taxpayers and the NIIT can be found in IRM 21.6.4.4.20, Net Investment Income Tax.

  4. In the case of an estate or trust, section 1411(a)(2) imposes a tax (in addition to any other tax imposed by subtitle A) for each taxable year equal to 3.8 percent of the lesser of the taxpayer’s:

    1. Undistributed NII for such taxable year, or

    2. excess (if any) of-(i) the adjusted gross income (as defined in Code section 67(e)) for such taxable year, over (ii) the dollar amount at which the highest tax bracket in Code section 1(e) begins for such taxable year.

  5. The tax does not apply to the following estate and trusts listed below:

    • Trusts that are exempt from income taxes imposed by Subtitle A of the Internal Revenue Code (e.g., charitable trusts and qualified retirement plan trusts exempt from tax under IRC 501, and Charitable Remainder Trusts exempt from tax under IRC 664 (however, the annuity or unitrust distributions from such a trust to persons subject to tax under IRC 1411 are subject to special rules(). ).

    • A trust in which all of the unexpired interests are devoted to one or more of the purposes described in IRC 170(c)(2)(B).

    • Trusts that are classified as “grantor trusts” under IRC 671 through IRC 679.

    • Trusts that are not classified as “trusts” for federal income tax purposes (e.g., Real Estate Investment Trusts and Common Trust Funds).

    • Alaskan Native Settlement Trusts (Form 1041-N) or Perpetual Care (Cemetery) Trusts.

    • A trust or decedent’s estate in which all of the unexpired interests in which are devoted to one or more of the purposes described in IRC 170(c)(2)(B).

    • Foreign estates or foreign trusts (but the U.S. beneficiaries may be subject to the tax on the NII distributed by these entities)

  6. The 3.8 percent net investment income tax is reported on Form 8960, Net Investment Income Tax – Individuals, Estates and Trusts. Form 8960 will be attached to either Form 1041 or Form 1041-QFT. For Form 1041, the NIIT will be included in the amount on line 23, and for Form 1041-QFT, the NIIT will be included in the amount on line 17.

  7. For Form 8960 the amount of income which is subject to the NIIT is captured on line 20 and the NIIT is captured on line 21.

  8. Beginning in January 2014 Net Investment Income will be transcribed and post to command codes TXMOD and BMFOLR under the field "NI Income" and the Net Investment Income Tax will post as "NI Income Tax." To adjust an account, input:

    • Item Reference Number 861 to update the Net Investment Income

    • Item Reference Number 862 to update the Net Investment Income Tax

    • TC 29X to decrease/increase the tax

  9. More information can be found on irs.gov under Net Investment Income Taxes, frequently asked questions .

Short Period Returns, Form 1041
  1. Trusts and estates are required to file a short period return under any of the conditions below:

    1. It is a final return.

    2. It is an initial estate return (except fiscal year ending on date of death).

    3. It is an initial trust with year ended "12" .

    4. It changes its accounting period.

Annualized Tax, Form 1041
  1. To annualize tax and exemptions on short period returns, use the instructions in Publication 538, Accounting Periods and Methods.

  2. Do not annualize tax on short period initial or final returns.

  3. See the second chart in Exhibit 20.1.3-1, Installment Due Dates for Individuals, Estates and Trusts Subject to IRC 6654, for the due date of estimated tax payments on short period returns.

Form 1041 Exemptions
  1. Allowable exemptions are:

    • $600 for a decedent estate.

    • $300 for a trust, which under its instrument, is required to distribute all of its income for the taxable year (This deduction is allowed regardless of whether the trust is simple or complex).

    • $100 for a trust which is not required to distribute all of its income for the taxable year (Generally, complex trusts are entitled to this exemption).

    • Same exemption as an individual under IRC 151 for a bankruptcy estate.

      Note:

      Grantor trusts are not entitled to an exemption, except for a partial grantor trust, which is entitled to the appropriate exemption for its non-grantor trust portion.

    • A Qualified Disability Trust (as defined in IRM 21.7.4.4.1.1.6) is entitled to the same personal exemption amount as an unmarried individual and is effective for tax years ending after September 10, 2001. A Qualified Disability Trust is also subject to the same phaseout as the personal exemption if the trust's modified Adjusted Gross Income exceeds certain limits. Taxpayers must complete the Exemption Worksheet for Qualified Disability Trusts to figure the amount of the trust's exemption when their modified AGI exceeds the limits shown in the chart below.

      Tax Year Exemption Amount Phaseout Threshold
      2012 $3,800 Eliminated in 2012
      2013 $3,900 $250,000
      2014 $3,950 $254,200
      2015 $4,000 $258,200
      2016 $4,050 $259,400
      2017 $4,050 $261,500

      Note:

      This provision does not apply to any portion of a disability trust that is treated as a grantor trust.

  2. Exemptions are allowed on final returns.

Allowable Credits (Form 1041)
  1. Certain non-refundable and refundable credits are allowed on Form 1041.

  2. The following subsections address the processing of these credits

Non-Refundable Credits (Form 1041)
  1. The General Business Credits reported on Form 3800 are treated as used on a first-in, first-out basis by offsetting the earliest-earned credits first. Therefore, the order in which the credits are used in any tax year is;

    1. Carryforwards to that year, the earliest ones first, as of the close of the tax year in which the credit is used:

    2. The general business credit earned in that year, and

    3. The carryback to that year.

  2. See IRM 21.7.4.4.8, Non-refundable Credits, Income Tax Returns, for more information on non-refundable credits and IRM 21.7.4.4.8.1.1, Priority of Credits, for the components of the general business credits reported on Form 3800 and the order in which they are used.

Refundable Credits (Form 1041)
  1. The allowable refundable credits are:

    • Credit for Federal Tax Paid on Fuels - Form 4136

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

    • All prepayment credits

  2. See IRM 21.7.4.4.9, Refundable Credits, Income Tax Returns, for more information on refundable credits.

Estimated Tax Payments (Form 1041)
  1. Per IRC 6654(I), new and existing trusts and estates must make quarterly estimated tax payments in the same manner as individuals, except an estate and certain grantor trusts are exempt from making such payments during their first two taxable years.

  2. Generally, the estate or trust must make an estimated payment if it expects to owe at least $1,000 in tax during the taxable year.

  3. There are exceptions for some entities from making estimated tax payments:

    • An estate of a domestic decedent or a domestic trust that had no tax liability for the full 12 month tax year.

    • A decedent's estate for any tax year ending before the date that is two years after the decedent's death.

    • A trust that was treated as owned by the decedent if the trust will receive the residue of the decedent's estate under the will (or if no will is admitted to probate, the trust primarily responsible for paying debts, taxes, and expenses of administration) for any tax year ending before the date that is two years after the decedent's death.

  4. See the Disaster Assistance Information, on SERP regarding the postponement of certain estimated tax payments due to various disasters and prior revisions of this IRM for more information on these postponements.

  5. The due dates for estimated tax payments for calendar year filers are:

    • April 15

    • June 15

    • September 15

    • January 15 (of the following year)

  6. Charitable trusts (Form 1041 with Fiduciary Code 9) and private foundations are subject to corporate estimated tax provisions under IRC 6655.

  7. Form 1041-ES, Estimated Income Tax for Estates and Trusts, payment vouchers should be mailed along with quarterly estimated payments to:
    Internal Revenue Service
    P.O. Box 804526
    Cincinnati, OH 45280-4526

Short Taxable Years (Form 1041)
  1. For a short taxable year in which a trust or estate subject to IRC 6654 terminates, installments of estimated tax must be paid for any installment due before the last day of the short taxable year. A final installment must be paid by the 15th day of the first month following the month in which the short taxable year ends.

  2. Per Notice 87-32, when a trust or estate makes payments with respect to a short taxable year, the percent of the required annual payment which must be paid at each installment varies depending on the number of required installments. See IRM Exhibit 20.1.3-1, Installment Due Dates for Individuals, Estates and Trusts Subject to IRC 6654, to determine the payment dates and the applicable percentage for short period returns.

  3. Schedule H, Household Employment Taxes, is subject to estimated tax payments.

Electronic Payment Options for e-file Users; Payment by Electronic Funds Withdrawal (Direct Debit) and Payment by Credit or Debit Card (Pay by Phone or Internet)
  1. Form 1041 and Form 1065 filers may pay their taxes via electronic funds withdrawal (Direct Debit), or by phone or internet using a credit or debit card. Payments can be made using an American Express Card, Discover Card, MasterCard or VISA Card. The IRS does not determine which credit cards the service providers accept.

  2. Taxpayers have the option to either use an IRS e-pay service provider or an integrated IRS e-file and e-pay service provider. The service providers offer these options to taxpayers who file on paper or electronically. The payment options are available 24 hours a day, 7 days a week. The service providers charge convenience fees for the services. See IRM 21.2.1.48, Electronic Payment Options for Individuals and e-file Users, for specific information on the Electronic Funds Withdrawal option, and for Credit or Debit Card Payments (Pay by Phone or Internet), for more specific information.

Form 1041-V, Payment Voucher
  1. Form 1041 filers have Form 1041-V, Payment Voucher, to remit payment. Form 1041-V allows the IRS to process payments more accurately and efficiently. Taxpayers are strongly encouraged to use Form 1041-V, however, there is no penalty if it is not used.

Electronic Filing of Form 1041 Returns
  1. Effective January 31, 2014, the Internal Revenue Service began to accept and process Tax Year 2013, Form 1041, U.S. Income Tax Return for Estates and Trust, tax returns electronically through the MeF platform. Beginning January 2016 the IRS accepts Form 1041 e-file returns for tax year 2015. MeF will accept the current year and two prior tax years. Tax years before the two prior years cannot be filed through MeF. When an electronically transmitted business return is rejected there is a 10-day Transmission Perfection Period to perfect that return for electronic re-transmission. The perfection period will be 10 calendar days for any business return that is rejected.

    Note:

    For re-transmitted rejected returns, if the last day to file falls on a Saturday, Sunday or holiday, this will be the due date of the return and not the next business day.

  2. IRS e-file providers and applicants are required to submit their IRS e-file applications online. Providers and applicants must register for e-services in order to submit or update an e-file provider application online and pass a suitability test. This applies to Electronic Returns Originators (ERO), Transmitters, Software Developers and Intermediate Service Providers. Business and individuals can apply to the program on-line on the IRS Web site @ www.irs.gov/efile. Type in "e-services" as the IRS Keyword and press enter. Taxpayers will be prompted to:

    • Enter the required information

    • Create a username, password, PIN, and provide an answer to a reminder question for their username

    • Return to e-services to confirm their registration within 28 days of their registration submission

    • Submit a fingerprint card or evidence of professional status for each application

    Note:

    Taxpayers who previously registered for e-services and have forgotten their password and need to reset it, should visit Registration Services @ www.irs.gov. Taxpayers may call the e-help desk toll-free at 1-866-255-0654 for assistance.

  3. In order to file Form 1041 electronically each software developer, transmitter, and large taxpayer wanting to participate in the MeF program MUST successfully pass the Assurance Testing System (ATS). The assurance testing system is a process that tests the tax preparation software and/or the electronic transmissions to ensure the partcipant’s software and/or the electronic transmissions have the correct file specifications to file returns electronically. Participants are required to develop and submit their own test scenarios. Testing for Form 1041 for TY 2017 is available in ATS beginning November 7, 2017. See Pub 5078, Modernized e-file (MeF) Test Package, and IRM 3.42.4.12, Receiving and Controlling e-file and MeF Test Transmissions, for more information on the testing process.

  4. MeF allows for Year Round Filing – Returns filed through MeF can be submitted year round. For more information about the MeF system status and possible delays, refer to the Modernized e-file (MeF) status page.

  5. Questions or problems related to the following issues should be directed to the e-help desk at 1-866-255-0654. For Processing Year 2016, questions regarding MeF system problems, new transmitter development problems and new development of forms related to the MeF programs may be sent to the MeF mailbox at mefmailbox@irs.gov:

    • IRS e-file application

    • ATS or communication testing

    • Transmission issues

    • Rejects

    • Status of processing

    • Strong authentication for A2A

    • Technical questions on schemas or business rules

  6. Filers may also write to the IRS at the following address:
    Ogden Submission Processing Center
    Mail Stop 6052
    1160 West 1200 South
    Ogden, UT 84201

  7. The following publications are designed to provide the general requirements and procedures for Form 1041 e-file Program, U.S. Income Tax Return for Estates and Trusts:

    • Pub 3112, IRS e-File Application and Participation

    • Pub 4163, Modernized e-File (MeF) Information for Authorized e-File Providers for Business Returns, Tax Returns Processed in 2017

    • Pub 4164, Modernized e-File (MeF) Guide for Software Developers and Transmitters

    • Pub 5078, Modernized e-File (MeF) Test Package, Business Submissions, Assurance Testing System (ATS)

  8. Taxpayers must supply their name control when filing electronically. See IRM 21.7.13.5.6, EIN Assignment: Estate, for information on the name control assigned to estates and IRM 21.7.13.5.8, EIN Assignment: Trust, for information on the name control assigned to trusts. Also, see Document 7071-A, BMF Name Control Job Aid, for additional information.

  9. Electronic returns are distinguishable by a unique Document Locator Number (DLN) and the words "Electronic Return - Do Not Process" at the bottom of the return.

  10. The file location code/tax class/document code for returns that were previously processed in Philadelphia are:

    • 52/2/36 - Form 1041

    • 98/2/36 - Form 1041 (Foreign Address)

    • 66/2/36 - Form 1041 (PR)

  11. The file location code/tax class/ document code for returns processed in Ogden are:

    • 88/2/36 Ogden Submission Processing Center (MeF System)

    • 93/2/36 Ogden Submission Processing Center (Legacy System)

    • 92/2/36 Ogden Overflow Number

    Note:

    See IRM 3.42.4.8.2.1, Researching e-file BMF Identification Codes, for more information on these codes.

  12. The IRS has determined that the Multiple Tax Return Listing process used to sign electronically filed Form 1041, U.S. Income Tax Return for Estates and Trusts, must be modified. Beginning January 1, 2014, the IRS e-file Signature Authorization document, Form 8879-F, can only be associated with a single 1041 return.

  13. Beginning TY 2014, taxpayers who filed their original Form 1041 electronically via MeF may file a TY 2014 amended return through MeF. Other taxpayers must complete an amended return on paper and file it at the campus where they would normally file a paper return.

  14. Use Corporate File On-Line (CFOL) command codes (CC) to research the account. Request the original return only when absolutely necessary. If it is necessary to secure the signature, use CC ESTAB and notate "Provide Form 8453" in the remarks section.

    • Command Code TRPRT can be used. See IRM 21.2.2.4.4.6, TRDB CC TRPRT (Tax Return Print) Input, for information on CC TRPRT.

  15. Section 17 of the Worker, Homeownership, and Business Assistance Act of 2009, P.L. 111-92, amends IRC 6011(e), effective for returns filed after December 31, 2010, by adding at the end new paragraph (3): "SPECIAL RULE FOR TAX RETURN PREPARERS." In general, under new paragraph (3)(A), the Secretary shall require that any individual income tax return (includes estates and trusts) prepared by a tax return preparer be filed on magnetic media (electronically) if; such return is filed by such tax return preparer, and such tax return preparer is a specified tax return preparer for the calendar year during which such return is filed.

    • For purpose of IRC 6011(e)(3), the term specified tax return preparer means, with respect to any calendar year, any tax return preparer unless such preparer reasonably expects to file 10 or fewer individual income tax returns during such calendar year IRC 6011(e)(3)(B).

    • For purposes of IRC 6011(e)(3), the term individual income tax return means any return of the tax imposed by subtitle A of the Code on individuals, estates, or trusts, IRC 6011(e)(3)(C).

Form 1041 Claims and Requests for Adjustments
  1. Various Form 1041 adjustment requests are processed by Accounts Management. All prior adjustments to the account must be considered before making the requested adjustment.

  2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ (See IRM Exhibit 21.5.3-2.)

  3. Form 1041 claims and/or amended returns involving Ponzi Scheme issues (including language discussing removal of phantom or fraudulent income), may be Examination criteria. Route to Examination as CAT-A ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ See Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General, for more Cat-A information.

  4. Action required on tax adjustments:

    1. Input TC 290/291 for the appropriate amount using blocking series 00 with the original return and 17 without the original return.

    2. Input Item Reference Number (IRN) 886 for the appropriate amount if taxable income is also being adjusted. See IRM 21.7.4.4.4.12, Adjusting Tax and Item Reference Number (IRN) 886, for more information on IRN 886.

  5. Action required on credit adjustments:

    1. Input TC 290 $.00 using blocking series 00 with the original return and 17 without the original return.

    2. Input the appropriate Credit Reference Number (CRN) for the amount of the credit adjustment.

  6. The Form 1041 CRNs are:

    • Credit for federal tax paid on fuel (Form 4136). See IRM 21.7.4.4.9.1, Form 4136 Credit for Federal Tax Paid on Fuel, for more information.

    • Substantiated payment credits - CRN 766 increases the credit; CRN 767 decreases the credit.

    • Fuel From a Nonconventional Source Credit - CRN 883.

    • Credit for Alcohol Used as Fuel (Form 6478) - CRN 884.

    • Withholding tax - CRN 806 increases the credit; CRN 807 decreases the credit.

    • Net Investment Income Taxes - See IRM 21.7.4.4.1.7.1, Form 8960, Net Investment Income Taxes - Individuals, Estates, and Trusts, for more information.

Social Security Domestic Employment Reform Act and BMF Schedules H
  1. As a result of the Social Security Domestic Employment Reform Act (SSDERA), taxpayers must file Schedule H (Form 1040), Household Employment Taxes. to report household wages and employment taxes paid to domestic household workers such as a gardener, nanny, cook or butler.

  2. SSDERA mandates Schedule H to be filed on a calendar year basis. Therefore, FY filers must attach a Schedule H for a calendar year.

    Example:

    John Smith Trust has a FY of 06. When the trust filed Form 1041 for the period ending 201606, Schedule H should cover the period January 1, 2015 - December 31, 2015. For 201706, the Schedule H should contain information covering the period January 1, 2016 - December 31, 2016.

  3. Individuals that hire a domestic employee (as defined in Pub 926), such as a gardener or a nanny must file Schedule H. See IRM 21.6.4.4.8, Schedule H, Household Employment Taxes, for more information on individuals reporting employment taxes.

  4. The information contained in the following subsections of this section pertain to Schedules H processed on MFT 05. Besides trusts (a trust can be a domestic employer) with domestic employees, certain tax-exempt entities not required to file income tax returns may have domestic employees. These groups can file loose Schedules H rather than filing an income tax return and attaching Schedule H or including these domestic employees on their Form 941. Processing information can be found later in IRM 21.7.4.4.1.11.2.1, Loose Schedule H (BMF).

    Example:

    A tax-exempt group home which hires domestic employees to clean the group home (where the employer is the group home and not an individual resident of the home) can file a loose Schedule H.

    Example:

    A church (tax-exempt) which pays a housekeeper to clean the minister's home can file a loose Schedule H.

  5. For information on related subjects, see the subsections indicated below:

    1. For information on filing requirements and procedures for other entities such as partnerships, corporations, and state and local government health and welfare agencies, see IRM 21.7.2.4.11.1, Forms Used in Reporting Employment Taxes for Household Employees.

    2. For information on individuals with domestic employees, see IRM 21.6.4.4.8, Schedule H, Household Employment Taxes.

    3. For information on Federal Unemployment Tax Act (FUTA) taxes reported on the incorrect form or multiple forms, see IRM 21.7.3.4.14, Schedule H FUTA Erroneously Reported.

    4. For information when both Form 940 and Form 941 have been filed erroneously (instead of Schedule H), see IRM 21.6.4.4.8.12, BMF Form 941, Employer's Quarterly Federal Tax Return, Filed Instead of IMF Schedule H, Household Employment Taxes.

  6. It is strongly recommended that only a small group of employees work cases involving BMF Schedules H.

Provisions of SSDERA, General Information
  1. SSDERA mandates the collection of domestic service employment taxes be coordinated with the collection of income taxes. However, they are still considered employment taxes.

  2. Domestic employees under the age of 18 are excluded from coverage if domestic service is not the principal occupation of the employee, see IRC 3121(b)(21).

    1. Student is considered an occupation.

    2. This provision is effective regardless of the amount of wages paid to the employee under 18.

  3. Wages less than the applicable dollar threshold are not subject to social security or Medicare taxes. This threshold may be updated yearly. See the chart below for the applicable thresholds.

    Year Wages Paid Threshold Tax Period(s)
    2012 - 2013 $1,800 201212 - 201411
    2014 - 2015 $1,900 201412 - 201611
    2016 - 2017 $2,000 201612 - 201811
  4. Taxpayers are subject to FUTA tax if they paid total cash wages of $1,000 or more to household employees in any calendar quarter in TY 2013 or TY 2014. The first $7,000 of cash wages paid to each household employee is "FUTA wages."

  5. The law contains no provision for employees in (2) or (3) above to opt to make payments in order to obtain social security or medicare coverage.

  6. Trusts must make estimated tax payments if either of the situations below apply:

    1. It will have federal income tax withheld from any income.

    2. It would be required to make estimated tax payments (to avoid a penalty) even if it did not include household employment taxes when figuring its estimated tax.

SSDERA interest-free Provisions
  1. Employers who discover (ascertain) they have reported and paid less FICA tax or income tax withholding tax (FITW) than was due on an original Form 1041 tax return, may qualify for an interest-free tax adjustment under IRC 6205 and Regulation 26 CFR 31.6205-1 provisions. Schedule H adjustments carry the same interest-free provisions as employment tax returns. The provisions are detailed in IRM 21.7.2.4.6.2 , Interest Free Adjustments (Employment Tax Returns).

  2. To qualify for an interest-free tax adjustment, the employer must file the appropriate forms reporting the correction by the due date of the tax return for the tax period in which the error was ascertained. A Form 1041 taxpayer has until the due date of the Form 1041 to which the Schedule H relates, to file an amended return.

    Example:

    If the taxpayer’s fiscal year month (FYM) is 12, and the error is found and reported on October 13th, the ascertained date is April 15 of the following year. Therefore, the last day to file an adjusted return is April 15. If the taxpayer’s FYM is 04, and the error is found and reported on October 13th, the ascertained date is August 15 of the following year. Therefore, the last day to file an adjusted return carrying this date is August 15.

  3. Employment tax regulations effective January 1, 2009, require payment of employment tax increases (including Schedule H) for income tax withheld, and social security and Medicare taxes to be made on or before the date the amended return/Schedule H is filed. (FUTA taxes are not affected.)

  4. As with Form 940 unemployment tax, the FUTA portion (Part II) of Schedule H does not carry an interest-free provision. As a result, when adjusting Schedule H taxes, it is sometimes necessary to use both TC 298 (for interest-free income tax and FICA adjustments, Part I, Schedule H) and TC 290 (FUTA portion, Part II, Schedule H).

  5. If the return is filed timely and payment is made in the time subscribed; when inputting a TC 298, the interest computation date is the IRS received date of the corrected return ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ See IRM 21.7.2.4.6.2, Interest Free Adjustments (Employment Tax Returns), for more information.

BMF Schedules H Processing
  1. All BMF Schedules H are processed on MFT 05 as an attachment to Form 1041. All transactions codes (TCs) and reference codes applicable to Form 940 (MFT 10) are valid on MFT 05, except for TC 186. In addition, IRNs which are valid on Form 94X can be used on Schedule H adjustments. However, see paragraph (2) below. Use these transaction codes and reference codes when adjusting Schedules H on MFT 05.

    Note:

    See the October 1, 2007 and prior editions of this IRM for information on BMF Schedule H processed prior to 1998.

  2. Do Not use TC 766 when adjusting Advanced Earned Income Tax Credit (AEITC) on Schedule H. This would cause confusion with the 766 applicable to substantiated payment credits on Form 1041. When adjusting AEITC, simply include the increase/decrease as part of the TC 29X. No reference code is needed.

  3. On August 10, 2010, Public Law 111-226, Education Jobs and Medicaid Assistance Act of 2010, was enacted. Section 219 of the Act repealed the AEITC for tax years beginning after December 31, 2010. Therefore, AEITC is not valid for tax periods ending after 201111.

  4. Section 9015, Additional Hospital Insurance Tax On High-Income Taxpayers, of the Patient Protection and Affordable Care Act, added section 3101(b)(2) and section 3102(f) to the Internal Revenue Code. Section 3101(b)(2) increases the employee portion of Medicare (Hospital Insurance) tax for tax years beginning after December 31, 2012, by an additional .09 percent of wages, as defined in section 3121(a). The additional medicare tax is not imposed until wages exceed the statutory threshold amounts below:

    • $250,000 for a married couple filing a joint return,

    • $125,000 for married couples filing separate returns, and

    • $200,000 for single individuals.

    Note:

    The threshold amounts are not indexed for inflation.

  5. The Patient Protection and Affordable Care Act also increased the Medicare tax on self-employment income for any tax year beginning after December 31, 2012, by an additional 0.9 percent of self employment income which is in excess of certain threshold amounts listed above. See various subsections of IRM 21.7.2 , Employment and Railroad Tax Returns, for additional information

  6. When inputting an adjustment, the reference codes used do not have to equal the amount of the TC 29X. This check was not put in place because regular Form 1041 tax may also need to be adjusted. In this instance, it is not possible to match the reference code amounts to the TC 29X.

    Note:

    This does not eliminate the procedures to input the appropriate reference codes with the Schedule H portion of the adjustment.

Loose Schedules H (BMF)
  1. Receipt and Control (R&C) may receive loose Schedules H with "trust" or "estate" in the name line, or from taxpayers not required to file an income tax return (for example, group homes). R&C:

    1. Posts any payment to MFT 05

    2. Forwards the loose Schedule H to Code and Edit (C&E) for preparation of a dummy Form 1041

  2. Follow the same procedures for making adjustments to BMF Schedule H returns in IRM 21.7.4.4.1.11.2.3, below.

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

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

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

Adjustments (Amended Returns, TRNS 193s, etc.) Involving Form 1041 With Schedule H
  1. The procedures for adjusting Schedules H depend on several factors, such as:

    1. Whether the adjustment is an increase or decrease.

    2. The period on which the previous assessment was input.

    3. The MFT(s) on which the previous assessment was input.

  2. Use procedures in IRM 21.7.4.4.1.11.2.4 through IRM 21.7.4.4.1.11.2.12 below to make the adjustments involving Form 1041 with Schedule H.

  3. When a state receives a loan (advance) from the Federal Unemployment Account in order to pay unemployment benefits, and fails to repay the loan on time, the credit allowable against the tax is reduced. These states are referred to credit reduction states. Employers that pay their state unemployment tax timely and in full receive a 5.4 percent credit against their Federal tax. However, the credit is reduced when a state has taken loans from the federal government to meet its state unemployment benefits liabilities and has not repaid these loans within the allowable time frame.

  4. The U.S. Department of Labor declares which states are credit reduction states. See IRM 21.7.3.4.10, Credit Reduction States, for more information on credit reduction states and for a listing of the states that have been declared credit reduction states.

  5. Do not make adjustments to BMF Schedule H accounts due to telephone calls from taxpayers, other than abating duplicate assessments. If the taxpayer reported the incorrect amount of tax, advise them to file an amended return. However, if the taxpayer reported employment taxes on Form 94X and/or FUTA tax on Form 940, and reported the same amounts on Form 1041, remove the tax from the incorrect form (Form 940 and/or Form 94X) and ensure payment is on the correct account. Delete the Form 94X and/or Form 940 filing requirements if necessary.

Net Decrease, Original Assessment on MFT 05
  1. When the adjustment is a net decrease and the original assessment of the Schedule H amount was made on MFT 05, normal adjustment procedures can be used. The adjustment is made on MFT 05.

  2. Action required:

    1. Input TC 291 using appropriate reference codes.

    2. If taxpayer is also adjusting "normal" Form 1041 liability, input TC 291 for the net amount with blocking series 00 with the original return, or blocking series 17 without the original return.

Net Decrease, Schedule H Only Adjusted, Original Assessment on MFT 10
  1. On the MFT 10 module(s):

    1. Input TC 291 in blocking series 40 with the appropriate reference codes.

    2. Use ADD24/ADC24 to transfer the credit created to MFT 05, using TC 570 on the credit side.

  2. On the MFT 05 module input TC 290 $.00 with a posting delay code (PDC) of 1 and blocking series 00 or 17.

Net Decrease, Both Form 1041 and Schedule H Require Decreases, Original Assessment on MFT 10
  1. On the MFT 10 module(s):

    1. Input TC 291 in blocking series 40 with the appropriate reference codes.

    2. Use ADD24/ADC 24 to transfer the credit created to MFT 05, using TC 570 on the credit side.

  2. On the MFT 05 module:

    1. Input TC 291 for the Form 1041 portion only with blocking series 00 or 17.

    2. Use HC 3 and posting delay code of 1.

Net Decrease, Schedule H Is Increase, Form 1041 Portion Is Decrease, Original Assessment on MFT 10
  1. On the MFT 10 module(s), no adjustment is necessary.

  2. On the MFT 05 module:

    1. Input TC 291 for the net adjustment amount with blocking series 00 or 17.

    2. Use the appropriate reference codes for the Schedule H amount and the Form 1041 portion.

Net Decrease, Schedule H Is Decrease, Form 1041 Portion Is Increase, Original Assessment on MFT 10
  1. On the MFT 10 module(s):

    1. Input TC 291 in blocking series 40 with the appropriate reference codes.

    2. Use ADD24/ADC24 to transfer the credit created to MFT 05, using TC 570 on the credit side.

  2. On the MFT 05 module:

    1. Input TC 290 for the Form 1041 portion only with blocking series 00 or 17.

Net Increase, Original Assessment on MFT 05
  1. When the adjustment is a net increase and the original assessment of the Schedule H amount was made on MFT 05, normal adjustment procedures can be used. The adjustment is made on MFT 05.

  2. Action required:

    1. Input TC 290/298 for the amount of the increase using the table and examples below (The table assumes there is a valid ascertained date) with blocking series 00 or 17.

    2. Use the appropriate reference codes for both the Form 1041 portion and the Schedule H portion.

    If Then
    The net of the FUTA portion (Part II) of Schedule H and the Form 1041 portion is zero or an increase Input TC 298 for the total net adjustment of the entire Schedule H and Form 1041. See Example 1.
    The net of Part II, Schedule H and the Form 1041 portion is an increase greater than the decrease on Part I, Schedule H Input TC 290 for the total net adjustment of the entire Schedule H and Form 1041. See Example 2.
    The net of Part II, Schedule H and the Form 1041 portion is an increase and Part I, Schedule H is also an increase 1. Input TC 290 for the net of Part II, Schedule H and the Form 1041 portion.
    2. Input TC 298 for the Part I, Schedule H portion. See Example 3.
    Examples
    Example 1 Form 1041 portion
    Schedule H, Part II
    Schedule H, Part I
    Total
    $100 decrease
    60 increase
    50 increase
    10 increase — Input TC 298 for $10.
    Example 2 Form 1041 portion
    Schedule H, Part II
    Schedule H, Part I
    Total
    $150 increase
    50 decrease
    70 decrease
    30 increase — Input TC 290 for $30.
    Example 3 Form 1041 portion
    Schedule H, Part II
    Schedule H, Part I
    Total
    $100 increase
    40 decrease
    30 increase
    90 increase — Input TC 290 for $60.
    Input TC 298 for $30.
Net Increase, Both Form 1041 Portion and Schedule H Portion Are Increases
  1. If both the Form 1041 and Schedule H reflect an increase, the adjustment can be input on MFT 05, regardless of which MFT(s) the tax was originally assessed on.

  2. On the MFT 05 module:

    1. Input TC 290 for the Schedule H, Part II and Form 1041 portion with blocking series 00 or 17.

    2. Input TC 298 for the Schedule H, Part I portion if the taxpayer meets the ascertained date requirements with blocking series 00 or 17.

Net Increase, Original Assessment on MFT 10 Is Decrease, Form 1041 Portion Is Increase
  1. On the MFT 10 module(s):

    1. Input TC 291 in blocking series 40 with the appropriate reference codes.

    2. Use ADD24/ADC24 to transfer the credit created to MFT 05, using TC 570 on the credit side.

  2. On the MFT 05 module:

    1. Input TC 290 for the amount of the entire net increase (including the decrease(s) on MFT(s) 04 and 10) with blocking series 00 or 17.

    2. Use HC 3 and posting delay code of 1.

Net Increase Original Assessment on MFT 10 Is Increase, Form 1041 Portion Is Decrease
  1. In this scenario, there is no need to adjust the MFT 10 modules.

  2. On the MFT 05 module:

    1. Input TC 29X with all appropriate reference codes with blocking series 00 or 17.

    2. Use the table below. It assumes there is a valid ascertained date.

    If Then
    The Schedule H, Part I increase is equal to or greater than the entire net increase Input TC 298.
    The Schedule H, Part I increase is less than the entire net increase 1. Input TC 298 for the Schedule H, Part I amount.
    2. Input TC 290 for the remaining amount of the increase. See the Example below.
    Example: Form 1041 portion
    Schedule H, Part II
    Schedule H, Part I
    Total
    $175 decrease
    200 increase
    50 increase
    75 increase — Input TC 298 for $50.
    Input TC 290 for $25.
Form 1041-T, Allocation of Estimated Tax Payments to Beneficiaries
  1. Form 1041-T is used by a trust that has made a Section 643(g) election to allocate the estimated tax payments made on Form 1041, among the beneficiaries. Form 1041-T is also used by a decedent’s estate in the case of a tax year it reasonably expects to be the estate’s final tax year. IRC section 643(g)(3).

  2. The beneficiary who is allocated a payment is treated as receiving a distribution on the last day of the taxable year of the estate or trust: and the distribution may carry out Distribution Net Income (DNI) from the trust or estate per IRC section 663(b). If a beneficiary and the estate or trust has different tax years, the DNI from a fiscal year or a short year ending with or within the beneficiary’s tax year is included in income for that tax year. Treas. Reg. section 1.662(c)–1. The beneficiary is deemed to make a payment of estimated tax on January 15 following the last day of the taxable year.

  3. Form 1041-T is a stand-alone form (although it may be filed with a Form 1041 that is filed by the due date for the Form 1041-T (see due date below). For working a Form 1041-T when the Form 1041 posted or when it’s not posted, see IRM 21.7.4.4.1.12.2(1) below.

  4. There are no provisions of law for transferring the credit for Federal Income Tax Withheld (FITW) on a Form 1041 Trusts and Estates account to an individual taxpayer's (beneficiaries) Form 1040 account. Section 643(g) allows the allocation of estimated tax payments on Form 1041-T and IRC 643(d) allows for the allocation of back-up withholding but not for transferring FITW. See the Instructions for Form 1041 line 24e and IRM 21.6.3.4.2.2 , Withholding (W/H) Tax Credit, for more information.

    Note:

    The owner of a grantor trust treats the income, deductions, credits (including Federal Income Tax Withheld) etc., as belonging directly to the grantor and are reported on the individuals personal income tax withheld. This also applies to any portion of a trust that is treated as a grantor trust.

  5. Correspondex Letter 2305C, Estimated Tax Credits to Beneficiary - Form 1041-T was revised to respond to inquiries received on Form 1041-T. However, you may use another "C" letter if it is more appropriate.

Form 1041-T Filing Dates
  1. Form 1041-T must be filed on or before the 65th day after the close of the tax year. For a calendar year trust or estate, that date is March 6, or March 5 if it is a leap year. However, if the due date falls on a Saturday or Sunday, or is a legal holiday, then the due date is the next business day. For calendar year 2015, the due date is March 7, 2016 because March 6, 2016 falls on a Sunday. For calendar year 2016, the due date is March 6, 2017. For calendar year 2017, the due date is March 6, 2018.

  2. If the return is the final return of an estate or trust, the election should be filed by the 65th day after the close of the trust’s or estate’s tax year. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

Transferring Credits/Payments (Form 1041-T)
  1. Since the estimated tax payments are claimed as ES credits by the beneficiaries (BMF and IMF), the credits must be transferred on an expedited basis. The Form 1041-T may be filed without the Form 1041 and so a TC 150 does not have to be posted before transferring these credits. In addition, a TC 150 does not need to be posted to the beneficiaries account before transferring to the individuals IMF account. Once the election is made and the credits transferred to the beneficiaries, it cannot be revoked. Treas. Reg. section 301.9100–8(a)(4)(i).

  2. Form 1041-T is considered correspondence and must meet "Policy Statement P-21-3" (Action 61) time frames.

  3. Follow the instructions below when making credit transfers. Use CFOL command codes to research the accounts of all the beneficiaries listed on Form 1041-T. Use CC INOLE with definer "T" or "S" and determine if the beneficiary is the primary taxpayer.

    • Credit should only be transferred to the primary taxpayers SSN.

    • Credit should be transferred to the income tax return for individuals and businesses.

    • If an account is not present on master-file, input TC 000 to establish the account. See IRM 3.13.5.113, Establishing a New Account (TC 000), for guidance on establishing an account.

  4. Verify the total amount of estimated taxes shown as being allocated to the beneficiaries on lines 1 and 4 (these two amounts must be equal) on Form 1041-T, is posted to the Form 1041 account. If the amount is not posted, research IDRS for any missing payments. If unable to locate, adjust the allocation for each beneficiary by the percentage shown on Form 1041–T.

  5. When additional information is needed to complete the credit transfers, make two attempts by phone to obtain the needed information.

  6. Advise the trust or estate of any action taken which changes the information originally submitted.

  7. Trusts that file a calendar year return and a Form 1041-T are handled in the following manner. Input CC ADD/ADC24 (when transferring between Master file (e.g., BMF and IMF) or when transferring with a TC 820) to transfer the estimated tax payments for the calendar year (including any credit elect applied from the tax prior year and) with the last installment of estimated tax being due on January 15 of the following year. For example, a trust filing a Form 1041-T for the tax period 201612 and allocating to individual taxpayers:

    • Transfer the credits that are received by January 15 using the January 15 date of the year following the tax period ending date of the trust (including TC 716 credit elects) by debiting the MFT 05/201612 account with a TC 820 for the amount being transfer to an individual beneficiaries’ account with a date of 01/15/2017.

    • Credit each individual beneficiaries’ MFT 30/201612 account with a TC 700 for the amount being transferred and a date of 01/15/2017 and a designated payment code of "00" on the credit side of the credit transfer

    • Insert a "1" in the Bypass Indicator Field on the credit side to bypass the unpostable check or input TC 570 as appropriate.

    • Transfer ES payments posted after 01/15/2017 using the payment date with TC 820 and TC 660.

    • Input TC 672 to reverse payments posted with a TC 670.

    • Send the appropriate closing letter to the trust of the credits transferred.

  8. Trusts are required to file on a calendar basis except for trusts exempt under IRC 501(a) or trusts described in IRC 4947. See IRC section 644 for more information. If a trust files a short period final return, allocate the estimated tax payments made on Form 1041 among the beneficiaries as if the taxpayer filed a full 12 month Form 1041 return. For example, a trust filing a Form 1041-T for the tax period 201608: In this case the payments and any credit elect will likely be on the 05/201612 module. Input CC ADD/ADC24 when transferring between Master files (e.g., BMF and IMF or when transferring with a TC 820):

    • Transfer the credits that are received by January 15 using the January 15 date of the year following the tax period ending date of the trust (including TC 716 credit elects) by debiting the MFT 05/201612 account with a TC 820 for the amount being transfer to an individual beneficiaries’ account with a date of 01/15/2017.

    • Credit each individual beneficiaries’ MFT 30/201612 account with a TC 700 for the amount being transferred and the same 01/15/2017 date.

    • Send the appropriate closing letter to the trust of the credits transferred.

  9. An estate may file on a fiscal year basis. No matter what month the estate’s final tax year ends in, the payments must be credited to the beneficiary account using January 15 of the year following the end of that tax year. Therefore, any estate with a tax period ending in 2016 (201601 - 201612) would be credited to the MFT 30/201612 account with a 01/15/2017 date. See the examples in the following 2 paragraphs.

  10. Example A. An estate with a tax year ending on January 31, 2016 files a Form 1041-T on April 7, 2016. Transfer the estimated tax credits to an individual beneficiary’s Form 1040 for 201612 effective January 15, 2016 which is the January 15th following the January 31 year end. Note that for the fiscal year estate, the ES payments are due on the 15th day of May, 2015, July 15, 2015 & October 15, 2015 and February 15, 2016. See IRC section 6654(k)(1). Input CC ADD/ADC24 and :

    • Transfer the credits through the 4th installment by debiting the MFT 05/201601 account with TC 820 for the amount being transfer to an individual beneficiaries’ accounts with a 01/15/2017 date

    • Credit each individual beneficiaries’ MFT 30/201612 account with TC 700 for the amount being transferred using the same 01/15/2017 date.

    • Input an override indicator of “2” on both sides of the credit transfer.

    • Send the appropriate closing letter to the trust of the credits transferred.

  11. Example B. An estate with a tax year ending on October 31, 2016, files Form 1041-T on January 5, 2017. For an estate with a fiscal year ending in October, the ES payments are due on the 15th day of February 2016, April 15, 2016, July 15, 2016, and November 15, 2016. Input CC ADD/ADC24 and:

    • Transfer the credits through the 4th installment by debiting the MFT 05/201610 account with TC 820 for the amount being transfer to an individual beneficiaries’ account with a 01/15/2017 date.

    • Credit each individual beneficiaries’ MFT 30/201612 account with TC 700 for the amount being transferred using the same 01/15/2017 date.

    • Input a designated payment code of "00" on the credit side of the credit transfer.

    • Input an override indicator of “2” on both sides of the credit transfer.

    • Send the appropriate closing letter to the trust of the credits transferred.

  12. If the return is received late ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • Suspend the case and send Letter 2305C explaining the reason for the rejection and request information for the disposition of the credit on the trust’s account.

    • The overpayment is applied to the trust or estate’s account and may be refunded or applied as a credit elect to the trust’s account for the next year.

    • If no reply is received, refund the money and send L2305C.

    • To refund the credit and release the -P freeze, input an ADD24 credit transfer with a TC 820 debit and TC 700 credit to the same tax period using the due date of the return. This releases the freeze and allows the credit to refund.

  13. If you are working a Form 1041-T scanned into CIS, the CIS image is the source document and it remains on CIS for further recall if needed. If the TC 150 has posted to Master file, the CIS case will be part of the electronic file.

  14. If TC 150 has not posted to Master file and you are working a paper Form 1041-T case (non-CIS), input TC 930 to have Form 1041-T attached to Form 1041 after action has been completed.

CP 208 Notice, Potential Credit Transfer Action Form 1041
  1. When Form 1041 posts with credit shown on the election line and the credit has not been transferred, a -P freeze generates. The freeze is released when the module balance becomes zero or debit status.

  2. If the freeze is not released within 6 cycles after the return has posted, a CP 208 Notice, Potential Credit Transfer Action Form 1041 generates.

  3. Action required:

    If Then
    Form 1041-T is located (filed on or before the 65th day after the close of the taxable year) Follow procedures in IRM 21.7.4.4.1.12.2 .
    Credit cannot be transferred due to Form 1041-T not being timely filed ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ 1. Correspond with or phone the trustee to explain the credit balance and why the credit cannot be applied to the beneficiaries accounts.
    2. Request information for disposition of the credit.
    3. Suspend the case for 40 days awaiting the taxpayer’s response.
    4. Upon receipt of the taxpayer’s response, take the necessary action to resolve the -P freeze. Follow the procedures in IRM 21.7.4.4.1.12.2(12).
Balance Due Notices on IMF Accounts
  1. In situations where Form 1041-T is not processed because of late filing, the beneficiary may receive a balance due notice from the IMF account.

  2. The Accounts Management employees (IMF and BMF) may need to coordinate resolution of the case when there is an indication the credits were to come from the trust’s account. Action required:

    1. Determine the status of Form 1041-T by researching the trust’s account. (Form 1040, Schedule E, can provide the trust’s Employer Identification Number (EIN).

    2. If Form 1041-T is located and credit can be transferred, follow procedures in IRM 21.7.4.4.1.12.2.

    3. If there is no record of Form 1041-T being filed, or if Form 1041-T was filed and later rejected, send a letter to the beneficiary explaining the balance due is correct and the trust should be contacted to resolve the balance due on the IMF account.

Victims of Terrorism Tax Relief Act of 2001 - Tax Forgiveness
  1. The Victims of Terrorism Tax Relief Act of 2001 (the Act) was enacted on January 23, 2002. The Act amends IRC 692, by adding IRC 692(d) which provides that the IRS will forgive the federal income tax liability of those killed in the following attacks for certain tax years:

    • The April 19, 1995, attack on the Alfred P. Murrah Federal Building (Oklahoma City attack).

    • The September 11, 2001, attacks on the World Trade Center, the Pentagon, and United Airlines Flight 93 in Somerset County, Pennsylvania (September 11, attacks).

    • Terrorist attacks involving anthrax occurring after September 10, 2001, and before January 1, 2002, (anthrax attacks).

    • The Military Family Tax Relief Act of 2003, amended IRC 692(d) to include families of astronauts whose death occurs in the line of duty after December 31, 2002. This includes the Space Shuttle Columbia heroes.

  2. IRC 692(d) also allows that the minimum amount of relief for victims of the specified attacks is $10,000. The $10,000 minimum forgiveness applies to the original or amended Form 1040, U. S. Individual Income Tax Return, and Form 1041, U. S. Income Tax Return for Estates and Trusts. See the October 1, 2002, through October 1, 2007, revisions of this IRM for more information on the Victims of Terrorism Tax Relief Act of 2001 - Tax Forgiveness.

Pooled Income Trusts (GNMA)
  1. Government National Mortgage Association (GNMA) Trusts are each assigned a pool number which becomes the name of the trust with the first four digits of the pool number being the name control on the account. The fiduciary name is the owner of the GNMA. When an EIN is assigned to a GNMA pool number, it must remain with the pool number even when purchased by another fiduciary. ENMOD shows the pool number assigned to the GNMA at the beginning of the first name line. Therefore, when a GNMA account is sold, the EIN and pool number remain the same and only the fiduciary name changes.

  2. GNMA Pool Returns are Non-Taxable Grantor Trust returns which should contain no taxable income.

  3. When a GNMA trust is sold and bought during the year, each fiduciary files a short period return, which results in a Duplicate Filing Condition (DUPF). Determine which fiduciary is selling and which one is purchasing to perfect the fiduciaries name and address on ENMOD to the purchasing fiduciary.

  4. It is not necessary to process the short period return to the current period. Adjust the account accordingly. The seller should show in box F and G; the pool number, that it is a final return, and the date of sale. The buyer should show in box F and G; the pool number, that it is an initial return, and the date of purchase. If you cannot determine which fiduciary is selling and which one is buying from the available information, attempt to contact the taxpayer. If unable to secure the information, DO NOT change the care of/sort name line and the address currently on ENMOD.

  5. If you receive a DUPF in which the pool number does not match the EIN:

    • Search CC NAMEE for the correct EIN.

    • If unable to secure the correct EIN, contact the Fiduciary for the correct number.

    • If unable to obtain the correct EIN from the Fiduciary, send to Entity to assign a new number.

    • Wait for the new EIN to post. Reprocess the return to the new EIN after the new number posts.

    • Entity will send a notice to the taxpayer with the new EIN information.

    • See IRM 21.7.9, Duplicate Filing Conditions, for more information on processing DUPFs.

Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, Received in Conjunction with Form 1041
  1. If an estate or trust is the recipient of a portion of an early distribution, or if the trust or estate fails to receive at least the minimum required distribution (excess accumulations) from their Individual Retirement Arrangement (IRA), they may be required to file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax Favored Accounts. Estates and trusts who would not otherwise be required to file Form 1041, may file Form 5329 by itself.

  2. If the trust or estate fails to receive at least the minimum required distribution, a 50 percent excise tax (penalty) is assessed on the excess accumulations. Part IX, Additional Tax on Excess Accumulation in Qualified Retirement Plans (Including IRAs), is completed when the taxpayer did not receive the minimum required distribution from their qualified retirement plan. The amount posts to Master file as part of the TC 150.

  3. If you receive a loose Form 5329 from a trust or estate reporting an addition to tax, and if:

    • A TC 150 is not on the module, prepare a "dummy" Form 1041 for processing. Complete the entity section and write-in the amount of the addition to tax, on page 2, Schedule G, line 7. Write "Form 5329" to the left of the entry. Carry this amount from line 7 to line 23, total tax, on page 1 of Form 1041.

    • A TC 150 is on the module and the TC 150 amount is different than that reported on Form 5329, assess the additional tax with a TC 290 for the amount shown on Form 5329, allow CP 210/CP 220 to generate to the taxpayer.

    • A TC 150 is on the module and the amount reported on Form 5329 is the same amount as the TC 150, and is a Correspondence Image System (CIS) case, input 290 $.00 and leave history item, "F5329N/C." If not a CIS case, associate the form with the TC 150 following local procedures.

  4. The excise tax in Part IX can be waived if the taxpayer establishes that the excess accumulation was due to a reasonable error and that steps were taken or are being taken to correct the situation. If you receive a request for abatement on an account with TC 150 and you determine that the 50 percent excise tax (penalty) should be abated, abate with TC 291 and allow CP 210/220 Notice to generate to taxpayer.

  5. If you receive a loose Form 5329 with no TC 150 and a request for abatement of the 50 percent tax in Part IX, you must prepare a dummy return as directed in paragraph (2) above. If you determine that the 50 percent tax should be abated, enter $.00 on page 2, Schedule G, line 7. Write "Form 5329" to the left of the entry. Carry this amount from line 7 to line 23, total tax, on page 1 of Form 1041. Send the taxpayer Letter 1803C, IRA/Keogh Inquiry, and advise them that we have waived the 50 percent additional tax.

  6. If you receive a loose Form 5329 with a TC 150 on the account and a request for abatement of the 50 percent tax in Part IX, and you determine that the 50 percent tax should not be assessed, close with a TC 290 for $.00 and send the taxpayer Letter 1803C, IRA/Keogh Inquiry, and advise them that we have waived the 50 percent additional tax. If you decide to assess the additional tax, input with a TC 290 for the amount shown on Form 5329, and allow CP 210/220 to generate to the taxpayer.

  7. Only the additional tax reported in Part IX on Excess Accumulations can be waived. If a taxpayer requests abatement of the 6 percent, 10 percent or 15 percent addition to tax in Parts I through Parts VIII, check the Instructions for Form 5329 for exceptions to when the additional tax does not apply. If no exception applies, send Letter 916C, Claim Incomplete for Processing; No Consideration, and advise the taxpayer that there are no provisions to waive the additional tax.

USDA Discrimination Settlement Payments
  1. The United States Department of Agriculture (USDA) paid cash settlements and granted loan cancellations to various groups of farmers pursuant to settlements approved throughout the years. The settlements resulted from discrimination suits brought against the USDA by the farmers.

  2. Taxpayers may use terms other than "USDA" when communicating about these claims. Some of the other terms frequently used are:

    • Pigford

    • Pigford II

    • Black farmers Lawsuit/Settlement Cases

    • Keepseagle/Native Americans

    • Hispanic and Women Farmers and Ranchers

  3. The settlement amounts fell into three categories:

    • $50,000 cash payment

    • Forgiveness of the principal and interest on certain debts (amounts varied by claimant)

    • A payment toward tax equal to 25% of the total of the $50,000 payment and the forgiveness of the debt principal (but not the interest).

  4. Most taxpayers received these payments over a period of two years, the cash payment and the debt forgiveness occurred in one year, and the tax payment was remitted to IRS in the following year. The cash payment and the tax payment (the 25% amount) are taxable income. The forgiveness of debt is generally taxable income, but may be excludable under certain circumstances. The payment of tax (25% payment):

    • Must be claimed as an estimated tax payment for the tax year the settlement/debt forgiveness was received.

    • Is made directly to IRS by the USDA on behalf of the taxpayer and since the taxpayers did not make this payment, they may forget to claim the credit on their return.

    • Is identified by the unique Document Locator Number (DLN) of 52217 or 43217 (013/014) 9XX.

    • Will show a J – Freeze on the module if the farmer does not claim the estimated tax payment. See IRM 21.5.6.4.19, J- Freeze.

    • Must be reported as taxable income for the year the payment was applied to the taxpayer's account.

  5. Keepseagle and Pigford II settlements and Hispanic and Women Farmers and Ranchers settlements are divided into two categories:

    • Track A - claimants received an award of up to $50,000 plus an additional 25% in federal income tax withholding (for a total of up to $62,500).

    • Track B - claimants received up to $250,000 with no income tax withheld.

    • Track A and Track B - claimants may have also received debt forgiveness.

    • Both Track A and Track B claimants were issued a Form 1099-MISC, Miscellaneous Income, along with an instructional notice prepared by a third party (not the IRS) advising the farmer how to correctly report the settlement.

    • Farmers who had debt forgiveness received a Form 1099–C, Cancellation of Debt.

  6. If the recipient of this settlement is deceased, the executor of the estate must file a Form 1041. The recipient will receive a Form 1099 filed under the EIN of a trust or estate, or filed under the decedent’s SSN.

  7. If the estate or trust received a Form 1099 showing federal income tax withheld, it will check the box and include the amount withheld on income retained by the estate or trust in the total for line 24e.

  8. Route U.S. Discrimination cases involving Form 1041 taxpayers or deceased taxpayers to the Kansas City campus. Complete Form 4442, Inquiry Referral, and fax to Kansas City AM, P&A, Teresa Olsen, at 816-499-7801. Include a day and evening phone number for the taxpayer. See IRM 21.6.4.4.9.3, U.S. Discrimination Settlement Payments, for more information.

Wrongful Incarceration Exclusion
  1. Under Section 139F a wrongfully incarcerated individual excludes from gross income any civil damages, restitution, or other monetary award (including compensatory or statutory damages and restitution imposed in a criminal matter) relating to his or her incarceration for the covered offense for which he or she was convicted. A covered offense is any criminal offense under federal or state law, including any criminal offense arising from the same course of conduct as that criminal offense. This exclusion applies whether or not the wrongfully incarcerated individual suffered a personal physical injury or physical sickness.

  2. A wrongfully convicted individual is an individual who was convicted of a covered offense, served part or all of a sentence of imprisonment relating to the covered offense and meets any one of the following requirements:

    • The individual was pardoned, granted clemency, or granted amnesty for that covered offense because the individual was innocent of that covered offense; or

    • The judgment of conviction for the individual for that covered offense was reversed or vacated and the indictment, information, or other accusatory instrument for that covered offense was dismissed; or

    • The judgment of conviction for the individual for that covered offense was reversed or vacated and the individual was found not guilty at a new trial after the judgment of conviction for that covered offense was reversed or vacated.

  3. Section 139F applies to taxable years beginning before, on, or after section 139F was enacted into law. A wrongfully incarcerated individual who included an award in income may file a claim for refund the later of the following:

    • Within 3 years from the date the individual filed the income tax return that previously reported the award or

    • 2 years from the date the individual paid the tax on the award.

  4. The fiduciary of an estate, such as an executor or administrator, may claim a refund on behalf of a decedent who included in income in a prior tax year an award qualifying for the Wrongful Incarceration Exclusion. If the estate received a posthumous award and included it in income for a prior tax year on Form 1041, the fiduciary must file an amended Form 1041 for the estate to exclude the award from income and a claim a refund. See Pub 559, Survivors, Executors, and Administrators, for more information.

  5. These claims are expeditiously processed in Kansas City. ALL exonerated prisoner claims are to be assigned to IDRS 0931627391 with category code XRET. Update the case note with exonerated prisoner claim. See IRM 21.6.6.3.32, Tax Treatment of Compensation for Exonerated Prisoners, for more information.

  6. If an award does not qualify for the exclusion from income under Section 139F and 21.7.4.1.1.17(1), it may qualify for exclusion from income under Section 104(a)(2). The exclusion from income under Section 104(a)(2) applies to compensatory damages for personal physical injuries or physical sickness (including damages for economic losses flowing from the personal physical injuries or physical sickness) that an individual receives from a state for wrongful incarceration or conviction. These compensatory damages are excluded from income whether they are received in a lump sum, periodic payments, or a factoring transaction.

Form 1041 - ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
  1. Forms 1041 that meet certain criteria ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ A systemic TC 570 is placed on the tax module to set the –R freeze to hold any refund until the module can be reviewed.

  2. These accounts can be identified by a TC 570 with all fives in the blocking series and serial number of the Document Locator Number (DLN), i.e., XXXXX-XXX-55555-X.

  3. If an inquiry is received from a Form 1041 filer inquiring about the expected refund, research the account for a TC 570 posted to the account as described in the paragraph above.

  4. If the tax module contains a TC 570 with all five’s, prepare a Form 4442 and notate "unreversed TC 570" , and leave a history item on IDRS of "TC570ALL5S" and "ROUTETOFRP" , and route to:
    Internal Revenue Service
    Attn: FRP M/S 4450
    1973 N. Rulon White Blvd.
    Ogden, UT 84404

  5. Advise the taxpayer that their inquiry is being forwarded to another department for resolution and apologize for the delay in resolving the issue.

  6. Effective January 1, 2017, Computer Condition Code "E" (CCC) may be edited on Form 1041, Form 1041-N, and/or Form 1041-QFT, (any year) if it is determined that the return is a potential identity theft filing. See IRM 3.11.14.7.3, CCC E - Potential ID Theft Filing, for additional information.

  7. If a tax examiner in Submission Processing (SP) Code and Edit (C&E) finds a case with attachments or correspondence indicating the taxpayer is a victim of ID Theft, the case is referral to one of the SP BMF ID Theft liaisons. If the SP BMF Theft Liaison says the return is ID Theft, the tax examiner will edit CCC "E" . See IRM 25.23.11.7.3, BMF Returns Selected for RICS Review, for additional information.

  8. When CCC "E" is edited on a return a TC 971 AC 711 will post to IDRS Master file. This TC 971 code will cause the return to post as a TC 973 instead of a TC 150. In addition, a 5263C letter is sent to the taxpayer requesting them to validate the filing of the return.

  9. If the taxpayer contacts the Service by telephone and the criteria above is meet, follow the guidance in IRM 25.23.11.7.3. If correspondence is received responding to the 5263C letter, route to:
    RICS Unit, OSC
    Mail Stop 9002
    Ogden, UT 84401

  10. For more information on potential BMF identify theft, see IRM 25.23.11, Business Master File (BMF) Identity Theft Procedures for Accounts Management.

Form 1065, U.S. Return of Partnership Income

  1. A partnership is a relationship between two or more persons who join to carry on a trade or business. The term partnership includes a limited partnership, syndicate, group, pool, joint venture, or other unincorporated organization, through or by which any business, financial operation, or venture is carried on that is not a corporation, trust, estate, or sole proprietorship. (See Publication 541, Partnerships, for additional information.)

    1. Each partner contributes money, property, labor, and/or skill and all expect to share in the profits and losses of the business.

    2. The partnership must file a Form 1065 to report its taxable income or loss.

    3. Each partner's distributive share of the income or loss must be reported on the partner’s individual income tax return.

    4. Each partner must make estimated tax payments if necessary.

  2. Every partnership that engages in a trade or business, or has gross income, must file an information return on Form 1065 showing its income, deductions and other required information. A partnership is not considered to engage in a trade or business, and is not required to file a Form 1065, for any tax year in which it neither receives income nor pays or incurs any expenditures treated as deductions or credits for federal income tax purposes. See IRM 21.7.4.4.2.8.1 for information on partnerships with more than 100 partners.

  3. See IRM 21.7.4.4.2.3, Form 1065 Return Due Dates - Tax Periods Beginning on or Before December 31, 2015, and IRM 21.7.4.4.2.3.1, Form 1065 Return Due Dates Tax Periods Beginning After December 31, 2015, for information on the return due date for Form 1065 returns. In addition, see IRM Exhibit 3.11.15-3, Due date Chart, for Form 1065 due dates.

  4. Form 1065 isn't considered to be a return unless it is signed by a general partner or LLC member manager. When a return is made for a partnership by a receiver, trustee, or assignee, the fiduciary must sign the return, instead of the general partner or LLC member manager. See "Who Must Sign " in the Instructions for Form 1065 when the partnership is in bankruptcy and the return is made by a receiver or trustee.

  5. The MFT is 06 and the tax class is 3. Use blocking series 00 when making adjustments when the original return is secured and blocking series 17 without the original return.

  6. The name control of a partnership is the first four letters of the legal name of the partnership. See IRM 21.7.13.5.3.6, CC ESIGN Input: Partnerships, and Document 7071-A, BMF Name Control Job Aid, for more information on name control.

  7. An unincorporated business jointly owned by a married couple is generally classified as a partnership for Federal tax purposes. For tax years beginning after December 31, 2006, the Small Business and Work Opportunity Tax Act of 2007 (Public Law 110-28) provides that a "qualified joint venture" , whose only members are a husband and a wife filing a joint return, can elect not to be treated as a partnership for Federal tax purposes. In addition, per the Instructions for Form 1065, If the taxpayer and their spouse materially participate as the only members of a jointly owned and operated business, and they file a joint return for the tax year, they can make an election to be treated as a qualified joint venture instead of a partnership.

  8. A qualified joint venture is a joint venture that conducts a trade or business where:

    • The only members of the joint venture are a husband and wife who file a joint return.

    • Both spouses materially participate in the trade or business.

    • Both spouses elect not to be treated as a partnership. A qualified joint venture, for purposes of this provision, includes only businesses that are owned and operated by spouses as co-owners, and not in the name of a state law entity (including a general or limited partnership or limited liability company). The spouses must share the items of income, gain, loss, deduction, and credit in accordance with each spouse's interest in the business.

  9. Beginning with 200712, these taxpayers make the election on a jointly filed Form 1040 by dividing all items of income, gain, loss, deduction, and credit between them in accordance with each spouse’s respective interest in the joint venture. For more information, see the Election for Husband and Wife Unincorporated Businesses information on the IRS website.

Form 1065-B, U.S. Return of Income for Electing Large Partnerships
  1. The Taxpayer Relief Act (TPRA) of 1997 provides that certain partnerships can elect large partnership status (100 or more partners in the preceding tax year) by filing Form 1065-B, U.S. Return of Income for Electing Large Partnerships, instead of Form 1065.

  2. One of the benefits is being able to file "simplified Schedules K-1."

  3. Complete programming, including assessment of tax liability on original processing, became available in 2002. If a tax adjustment is required:

    1. Input TC 290 or 291 to adjust to correct amount.

    2. It is not necessary to input with a credit reference number.

      Exception:

      TCs 766/767 are the only other valid transaction codes. The credit reference number, which posts on the transcript as TC 766 or 767 identifies the type of credit, e.g. fuel tax credit.

    3. Credit transfers can be made if necessary. However, credit elect is not available on these forms.

  4. These returns are processed in Ogden. Beginning in 2007, foreign partnerships returns are also processed in Ogden.

  5. The Filing Requirement Code is (FRC) 2 and Doc Code 68.

  6. Form 1065-B filers were not required to file their return electronically for taxable years beginning before January 1, 2002.

  7. Once the partnership elects large partnership status by filing the 1065-B, the partnership and all its partners are bound by the election. The election applies to the tax year for which it was made and all later years, and cannot be revoked without IRS consent. (However, a partnership may cease to be treated as an electing large partnership for a tax year in which the number of partners is reduced below 100.) IRS consent is obtained through a Private Letter Ruling. (A user fee is required to obtain a letter ruling. See Rev. Proc. 2017-1, 2017-1 I.R.B. 1, or its successor.) Requests for letter rulings must be sent to the following address:

    Sent via US Postal Service Sent via Private Delivery Service (e.g., UPS, FEDEX, etc.)

    Internal Revenue Service
    Attn.: CC:PA:LPD:DRU
    P.O. Box 7604
    Ben Franklin Station
    Washington, D.C. 20044

    Internal Revenue Service
    Attn.: CC:PA:LPD:DRU, Room 5336
    1111 Constitution Avenue N.W.
    Washington, D.C. 20224
Publicly Traded Partnerships
  1. The TPRA of 1997 provides for electing 1987 (year is correct) partnerships to continue exception from treatment of publicly traded partnerships as corporations. A tax of 3.5 percent of such partnership’s gross income receipts, is imposed for the taxable year from the active conduct of trades and businesses of the partnership. Therefore, the TC 150 may be for a significant amount.

  2. The election had to be made in early 1998. If a partnership makes the election and later revokes it, the election cannot be reinstated in the future.

  3. There are less than 10 electing partnerships in the country. These partnerships file returns in Ogden Submission Processing Center (OSPC).

  4. The doc code for these returns is 67.

  5. Programming is available to assess tax on original input in 2002. If adjustments are required, follow same procedures as for Form 1065-B. Credit transfers can be made if necessary. However, credit elect is not available on these forms.

Form 1065 Return Due Date - Tax Periods Beginning Before January 1, 2016
  1. Partnerships are generally required to have one of the following tax years:

    • The tax year of the majority of their partners (usually December 31).

    • If there is no majority tax year, then the tax year common to all of the partnership's principal partners (partners with an interest of 5% or more in the partnership profits or capital).

    • If there is neither a majority tax year nor a tax year common to all principal partners, then the tax year that results in the least aggregate deferral of income.

    Note:

    In determining the tax year of a partnership under the bullets above, the tax years of certain tax-exempt and foreign partners are disregarded. See Regulations section 1.706-1(b) for more details.

  2. An exception to the rule is made when a partnership either:

    • Establishes a business purpose for having a different tax year (identified by TC 054 on ENMOD).

    • Elects under section 444 to have a tax year other than a required tax year by filing Form 8716, Election to Have a Tax Year Other Than a Required Tax Year (identified by TC 055 on ENMOD).

  3. For a partnership to have this election in effect, it must make the payments required by section 7519 and file Form 8752, Required Payment or Refund Under Section 7519. See IRM 21.7.4.4.7, Required Payment or Refund Under Section 7519 , for more information (identified by TC 055 on TXMOD).

  4. For taxable years beginning before January 1, 2016, Form 1065, U.S. Return of Partnership Income, is due on or before the 15th day of the fourth month following the close of the tax year as shown on the top of the return.Therefore, for taxable years beginning before January 1, 2016, calendar year Form 1065 partnership returns are due on or before April 15th. See paragraph (7) below for more information.

  5. In addition, for taxable years beginning on or before December 31, 2015, the partnership could request an automatic 5 month extension of time to file on Form 7004. For example, Form 7004 for the calendar year returns are due on or before April 15th, and if the extension is timely filed, the return is due on or before September 15th. See paragraph (7) below for more information.

  6. For partnerships that keep their records and books of accounts outside the United States and Puerto Rico, an extension of time to file and pay is granted to the 15th day of the 6th month following the close of the tax year. See the 2015 Instructions for Form 1065 for more specific information.

  7. If the due date of a Form 1065 series return falls on a Saturday, Sunday, or legal holiday, the partnership can file on the next day that is not a Saturday, Sunday, or legal holiday. The Emancipation Day holiday in the District of Columbia will be celebrated on Monday, April 17, 2017.

Form 1065 Return Due Dates - Tax Periods Beginning After December 31, 2015
  1. Partnerships are generally required to conform their tax years to the tax years of the majority of their partners unless an exception to the rule is made or they make an IRC section 444 election. Therefore, most partnerships file Form 1065 on a calendar basis. See paragraphs (1) and (2), in IRM 21.7.4.4.2.1, for more information on the required year of a partnership.

  2. Section 2006(a)(1) of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (the Act), P. L. 114-41, changed the income tax return due date for partnerships and is effective for taxable years beginning after December 31, 2015. The federal income tax returns of partnerships under section 6031 made on the basis of the calendar year shall be filed on or before the 15th day of March following the close of the calendar year, and such returns made on the basis of a fiscal year shall be filed on or before the 15th day of the third month following the close of the fiscal year. Therefore, TY 201612 calendar year Form 1065 partnership returns are due March 15, 2017. More information will be issued as it becomes available.

  3. Because section 2006(a) of the Act changed the income tax return due date for partnerships, the due date for filing Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns, has changed as well. Section 2006 also changed the duration of the extension of time to file that is available for Form 1065. See IRM 21.7.4.4.2.5, Extension of Time to File Form 1065, for more information.

  4. Due to the late date that the legislation was passed, IDRS programming cannot be completed until January 2017. Therefore, interim guidance is being developed to handle short period returns that began after December 31, 2015 and before January 1, 2017. More information will be issued as it becomes available.

  5. If the due date of a Form 1065 return falls on a Saturday, Sunday, or legal holiday, the partnership can file on the next day that is not a Saturday, Sunday, or legal holiday. The Emancipation Day holiday in the District of Columbia will be celebrated on Friday, April 15, 2016.

Form 1065 Short Period Final Returns with Tax Period Beginning After December 31, 2015
  1. The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P.L. 114-41, changed the due date for filing Form 1065 partnership returns and is effective for taxable years beginning after December 31, 2015. See IRM 21.7.4.4.2.3.1, Form 1065 Partnership Return Due Dates – Tax Years Beginning after December 31, 2015, for more information.

  2. The return due date for Form 1065 partnership returns with a taxable year beginning after December 31, 2015 has changed from the 15th day of the fourth month (April 15th for calendar year filers) to the 15th day of the third month (March 15th for calendar year filers) following the close of the tax year. Work requests to update Form 1065 due date programming for Form 1065 are scheduled to be implemented in July 2016.

  3. Form 1065 partnerships filing short period or short period technical terminations under IRC 708(b)(1)(B) (see IRM 21.7.4.4.2.9), or final returns with tax years beginning after December 31, 2015, may not be processed correctly during 2016. Short period partnership returns will be assigned computer condition code (CCC) “Y.” Partnership returns that are marked final will be coded with CCC “F.” Partnership returns coded CCC Y or F will be manually reviewed to ensure that they are processed correctly.

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

    Note:

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

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

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

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

Form 1065 for Tax Period 201512 – Return Received Date Problem
  1. A problem has been identified with the processing of some Form 1065, U.S. Return of Partnership Income Tax Returns, which resulted in late return received dates being recorded for some timely filed partnership returns. Returns postmarked April 18, 2016 may not have been processed correctly and may have been assessed a TC 166 Failure to File Penalty (FTF).

  2. The 2015 calendar year (201512) Form 1065 was due to be filed on April 15, 2016. However, Friday, April 15, 2016 was a legal holiday in the District of Columbia (Emancipation Day) and April 16, 2016 was a Saturday and April17, 2016 was Sunday. IRC 7503 provides that the filing (the postmark date) on April 18, 2016 shall be considered timely if April 15, 2016 is a Saturday, Sunday, or legal holiday in the United States or District of Columbia, and April 18, 2016 is the next day that isn’t a Saturday, Sunday, or legal holiday in the United States or District of Columbia.

  3. If an inquiry is received from a taxpayer or their representative stating that the 201512 Form 1065 tax return ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ accept the taxpayer’s statement and abate any late filing penalty assessed by inputting Penalty Reason Code 045 and Hold Code 0. This will result in a CP 210 Notice being issued when the FTF penalty is abated.

  4. If a partnership return for tax period 201512 ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , and the taxpayer states that the return was mailed on or before 4/18/2016, then request the return from files to review the postmark date. If the postmark is on or before 4/18/2016, but privately metered (not US Post Office or designated private delivery service), and:

    • If the return was received within 14 days following the postmark date; abate the penalty with penalty reason code 045.

    • If the return was received more than 14 days following the postmark date, inform the taxpayer that the postmark date cannot be accepted as proof of timely mailing because the return was not delivered within the normal delivery period following the postmark date.

    • If the postmark is on or before 4/18/2016, AND it is a US Post Office post mark or designated private delivery service receipt, then abate the penalty with reason code 045 regardless of return received date.

    • If the postmark is after 4/18/2016, do not abate the penalty. Explain that the return was filed late because it was mailed after the return due date.

Schedules K and K-1 (Form 1065)
  1. Schedule K (Form 1065, page 3) contains the total amount distributed for each applicable item. Schedules K-1 contain the partner’s share of the total distribution. Schedules K-1 must be attached to Form 1065.

  2. If loose Schedules K-1 are received, determine if they were sent due to possible assertion of a missing information penalty. See IRM 20.1.2.3.3, Penalty Relief, and IRM 21.7.4.4.2.7. Follow the table directly below.

    If Then
    A Missing Information Penalty (TC 246 or TC 240 with no reference number) was assessed Adjust the penalty per IRM 20.1.2.3.3, Penalty Relief.
    No penalty was assessed Associate the Schedule(s) K-1 with the return using Form 9856, Form 10023, or any other locally approved form/procedure. Input a TC 290 for $.00 if the document you are associating with is an electronic return. See IRM 21.5.1.4.4, Processing of Loose Forms or Schedules, for CIS images. Do not use blocking series 18 whenever inputting TC 290 $.00 to associate a loose form or schedule with the TC 150.
    TC 150 is not posted Input TC 930 to have document returned to you when the return posts to assure a Missing Information Penalty was not assessed in error. See IRM 21.5.1.5.7, CIS Push Codes, if this is a CIS case.
Extensions of Time to File Form 1065
  1. Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information and Other Returns, is used to request an automatic extension of time to file certain business income tax, information, and other returns. An extension of time to file Form 1065 will be granted if the taxpayer completes Form 7004 properly and files the form by the due date of the Form 1065 to which it applies.

  2. For tax year 2008 and prior, Form 7004 granted an automatic 6 month extension period for most BMF business returns. However, beginning January 1, 2009, to reduce the burden on recipients of Schedules K-1, the extension of time to file partnership returns was shortened from six months to five months. Partners who depend on information in these returns to prepare their own returns should apply for the appropriate extension of time to file their individual income tax returns (Form 1040).

  3. Section 2006(a) of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P. L. 114-41, changed the due date for filing the tax return of a partnership, and thus the date by which a partnership must file Form 7004 for partnership returns have changed. Additionally, section 2006(b) allowed for a six month extension of time to file Form 1065. The provisions are effective for tax years beginning after December 31, 2015:

    • The due date of a partnership return, by which Form 7004 shall be filed, for a partnership return shall be the 15th day of the third month following the close of the partnership’s tax year.

    • The duration of the automatic extension of time to file Form 1065 has increased to six months.

  4. Due to the late date that the legislation was passed, interim guidance was developed to handle extension requests received in 2016. See IRM 21.7.4.4.2.5.1, for more information.

  5. See IRM 21.7.4.3.5, Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns, Tax Periods Beginning on or Before December 31, 2015, and IRM 21.7.4.3.6, Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns, Tax Periods Beginning After December 31, 2015, for more general information.

Form 1065 Short Period Final Returns with Tax Period Beginning After December 31, 2015, Filing Extension Requests
  1. The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P.L. 114-41, changed the due date for filing Form 1065 partnership returns and is effective for taxable years beginning after December 31, 2015. See IRM 21.7.4.4.2.3.1, Form 1065 Partnership Return Due Dates – Tax Years Beginning after December 31, 2015, for more information.

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

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

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

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

Taxpayers Abroad
  1. Partnerships are entitled to an automatic 2 - 3 month extension to file and pay under certain conditions outlined in IRM 20.1.2.1.3.3, Taxpayers Abroad. When a partnership return is identified during processing as qualifying for the extension, Code & Edit will enter Computer Condition Code (CCC) "R" on the return if the return was filed by the extended return due date, and it will also enter CCC "D" on the return if the tax shown on the return was paid by the extended return due date.

  2. CCC "R" is not entered on returns that were filed after the extended return due date, nor is CCC "D" entered on returns where the tax shown on the return was not paid by the extended return due date. This presents a problem since BMF does not recognize the automatic extension without manual intervention.

  3. A partnership may respond to a penalty notice by indicating that it qualifies for the extension under 26 CFR 1.6081-5. Before taking any action verify that it does qualify (see IRM 20.1.2.1.3.3, Taxpayers Abroad). If the partnership qualifies, input TC 460 to allow an extension to the 15th day of the sixth month following the end of the tax period. This will cause the Failure to File penalty to recompute.

  4. Since there is no way to input an extension of time to pay, the Failure to Pay penalty for paying late will have to be manually adjusted if the Form 1065 reported tax and the partnership did not paid the tax by the return due date.

    • If the automatic extension is a three month extension, multiply the unpaid tax on the original return due date by 1.5% (0.015).

    • If the automatic extension is a two month extension, multiply the unpaid tax on the original return due date by 1.0% (0.010).

  5. Input TC 271 for the computed amount as a negative number. Use reason code 062 (so as not to restrict the FTP penalty) and penalty reason code 030. Use hold code 0 to allow an adjustment notice to be issued.

Publication 541, Partnerships
  1. Publication 541, Partnerships, can be used to determine the various forms and schedules required to be filed with Form 1065.

Partnership Penalties
  1. Partnerships may be assessed a penalty under IRC 6698(a)(1) for failure to timely file a return, including extensions (TC 160/TC 166) or a failure to provide information penalty (TC 240/246) under IRC 6698(a)(2), when Form 1065 is lacking the required information such as Schedules K-1 or a balance sheet. See IRM 20.1.2.3, Failure to File Partnership Return - IRC 6698, for more information. However, if the taxpayer supplies the information in a specified time period or states that they are not required to file the form for which the penalty was charged, they may qualify for penalty abatement. See IRM 20.1.2.3.3, Penalty Relief, for more information. See IRM 3.12.15.3.35, Field 01MSC, Missing Schedule Code, for additional information on missing schedule codes:

    Missing Schedule Code Code Number
    Schedules K-1 33
    Schedule L (Balance Sheet) 34
    Schedules K-1 and Schedule L 36
    Schedule K 45
    Schedule K and Schedules K-1 46
    Schedule K and Schedule L 47
    Schedule K, Schedules K-1 and Schedule L 49
  2. The penalty is computed by multiplying the rate by the number of months or portions of a month late by the number of persons who were partners in the partnership for that year.

  3. Small partnerships, i.e., a partnership that has 10 or fewer partners, may qualify for a statutory exception. See IRM 20.1.2.3.3.1, Revenue Procedure 84-35, for details. Also, see IRM 20.1.1.3, Criteria for Relief from Penalties, for more information on penalty relief, including reasonable cause.

  4. For information on penalties involving the requirement for large partnerships to file electronically, see IRM 21.7.4.4.2.8.1.1.

  5. Section 8, Modification of Penalty for Failure to File Partnership Returns; Limitation on Disclosure, of the Mortgage Forgiveness Debt Relief Act of 2007, P.L. 110-142, increased the failure to file penalty and failure to file a complete return penalty on Form 1065 Partnership returns from $50 a month per partner to $85 per month per partner. The provision also increased the time period for calculating the penalty from five months to 12 months. The changes are effective for returns that are due on or after January 15, 2008 and before January 1, 2009. See the 10/01/2015 and prior revision of this IRM for the penalty rate for tax periods 200808 and prior.

  6. Section 16 of the Worker, Homeownership, and Business Assistance Act of 2009, P.L. 111-92, increases the penalty rate to $195 per partner per month for returns with a tax year beginning after December 31, 2009. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Follow the chart below:

    For tax periods ending and the penalty amount assessed per partner per month is for a maximum of
    200809 through 200912 and the tax year began before 12/31/2008 $89 12 Months
    200809 through 200912 and the tax year began in 2008 $90 12 Months
    200809 through 200912 and the tax year began after 12/31/2008 $89 12 Months
    201001 and subsequent and the tax year began before 01/01/2010 $89 12 months
    201001 through 201709t and the tax year began after 12/31/2009 $195 12 Months
    201710 and subsequent and the tax return is due after December 31, 2017 $200 12 Months
  7. Section 208(d), Division B, Title II, of the Tax Increase Prevention Act of 2014, P.L. 113-295, amended the Internal Revenue Code to require an annual inflation adjustment to the penalty under IRC 6698. The inflation adjustments are made in $5 increments and required for returns due in calendar years after 2014. For returns due in 2015 through 2017, the penalty remained at $195 per partner per month delinquent

  8. Per Chief Counsel, the Failure to File Penalty increases to $200 per partner, per month, for a maximum of 12 months, for tax returns due after December 31, 2017.
    Example 1 - A fiscal year return that begins November 1, 2016 and ends October 31, 2017 is due January 15, 2018. Because the return is due in 2018, the penalty increases to $200 per partner, per month, for a maximum of 12 months.
    Example 2 - A fiscal year return that begins October 1, 2016 and ends September 30, 2017 is due December 15, 2017. Because the return is due in 2017, the penalty remains at $195 per partner, per month, for a maximum of 12 months.

Form 1065 Failure to File Penalty and CP 575 Notice
  1. Taxpayers receive a CP 575 Notice when they apply and are granted an Employer Identification Number. Taxpayers with Form 1065 filing requirements receive a CP 575B Notice or a CP 575D Notice which instructs them of the return due date (RDD) for that form. New partnerships who failed to file on time may request penalty abatement while stating that they filed late because of an incorrect return due date on the CP 575B/D. The Surface and Transportation and Veterans Health Care Choice Improvement Act of 2015 changed the RDD for partnerships and is effective for tax years beginning after December 31, 2015. Per the Act, the RDD for partnerships changed from the 15th day of the fourth month to the 15th day of the third month. However, CP 575B/D notices that were printed before programming was updated (July 2016) to print the new due date would have stated that the return was due by the 15th day of the fourth month when in fact the RDD changed to the 15th day of the third month.

  2. If you receive contact from a taxpayer stating that they received a CP 575B or CP 575D Notice with the incorrect information, request a copy of the notice from the taxpayer. If the taxpayer can send/fax us a copy of the notice, abate the FTF penalty with PRC 044 for written advice, and if they can’t produce a copy, then abate the FTF penalty with PRC 018 for first time abatement. Apologize for the inconvenience.

    Note:

    A CP 575B/D for a tax period beginning before 1/1/2016 cannot be taken into consideration. The Form 1065 instructions for 2015 returns clearly stated that the return due date would change to the 15th day of the 3rd month for tax periods beginning after 12/31/2015.

Modernized e-file (MeF) - Electronic Filing of Partnership Returns
  1. All calendar year Form 1065 filers with 100 partners or less can file on paper or can voluntarily file their returns electronically. Certain partnerships with more than 100 partners must file electronically. See IRM 21.7.4.4.2.8.1 for information on partnerships with more than 100 partners.

  2. Partnerships can file Form 1065, Form 1065-B and Form 7004 via the Modernized e-file (MeF) system. The returns are processed at the Ogden Submission Processing Center (OSPC). For additional information, see IRM 3.42.4.2.1.3, Form 1065 and Form 1065-B MeF Programs. For information involving waivers to the requirement for large partnerships to file their returns electronically, see IRM 21.7.4.4.2.8.1.1(3) and IRM 21.7.4.4.2.8.1.2.

  3. Publication 4163, Modernized e-file (MeF) Information for Authorized IRS e-file Providers for Business Returns - Tax Returns Processed in 2017, is designed to provide Authorized IRS e-file Providers and Large Taxpayers specific requirements and procedures for electronic filing through the Modernized e-file System.

  4. IRS e-file providers and applicants are required to submit their IRS e-file applications online. Providers and applicants must register for e-services in order to submit or update an e-file provider application online and pass a suitability test. This applies to Electronic Returns Originators (ERO), Transmitters, Software Developers and Intermediate Service Providers. Business and individuals can apply to the program on-line on the IRS Web site @ www.irs.gov/efile. Type in e-services as the IRS Keyword and press go. Additionally, a fingerprint card or evidence of professional status must be submitted for each application. Taxpayers may call the e-help desk toll-free at 1-866-255-0654 for assistance. See IRM 3.42.7.1.1, Hours of Operation.

  5. Participating transmitters and software developers MUST successfully pass the Acceptance Assurance Testing System (ATS) In order to file Form 1065 electronically. Only those entities developing software or transmitting returns directly to the IRS go through the testing process. The ATS process tests hypothetical scenarios to ensure the participants computer program has the correct file specifications to file returns electronically, that required fields will post to Master file correctly and that providers understand the mechanics of IRS e-file. Communication testing is a requirement for reporting Agents and Transmitters.

  6. See Publication 3112, IRS e-file Application and Participation, Publication 5078, Modernized e-file Test Package, Business Submissions, Assurance Testing System (ATS), and Rev. Proc 2007-40 for more information on the testing process. Taxpayers may also call the e-help desk toll-free at 1-866-255-0654. Testing for Form 1065/Form 1065B for TY 2017 is available in ATS beginning November 7, 2017.

  7. Beginning January 2018, the MeF system accepts TY 2015, TY 2016 and TY 2017 partnership returns. MeF also accepts amended returns for TY 2015, TY 2016 and TY 2017 if the original return was filed via MeF. See IRM 21.7.9.4.1.2.2, MeF Filed Amended Returns, for more information. Taxpayers must complete an amended return on paper if they filed their original return on paper.

  8. Electronically filed partnership returns are processed in Ogden. The tax class is 2. The file location code (FLC) for e-filed returns is either 93, 92, or 88. Forms 1065 (except publicly traded partnerships) use doc code 65 if processed prior to 2007, and doc code 69 if processed in 2007 and subsequent. Publicly traded partnerships use doc code 67, and electing large partnerships (Form 1065-B) use doc code 68. (See IRM 3.42.4.8.2.1, Researching e-file BMF Identification Codes, for more information.)

    Form Filing Location Codes Tax Class Document Code
    1065 88/93
    (Overflow 92)
    2 69
    1065-B 68
  9. For TY 2017, see Publication 4163, Modernized e-file (MeF) Information for Authorized IRS e-file Providers for Business Returns - Tax Returns Processed in 2017, for a complete listing of the forms and schedules that are/are not accepted electronically. If a form cannot be filed electronically with the partnership return, it can be attached as a PDF document.

  10. All returns filed through the MeF system must be signed. If the return does not have a valid signature, the e-help Desk unit requests a signature. The MeF system requires taxpayers and Providers to use one of the two signature options:

    1. The Practitioner PIN (Personal Identification Number) method.

    2. The scanned Form 8453 method.

  11. The Practitioner PIN (Personal Identification Number) method (Form 8879) can only be used if the taxpayer uses an ERO. A paper copy of the signed Form 8879 is retained by the ERO and provided to the partnership, but should not be mailed to the IRS. Form 8879-PE is for Form 1065 and Form 8879-B is for Form 1065-B.

  12. With the scanned Form 8453 method, Form 8453-PE, U.S. Partnership Declaration and Signature for Electronic Filing, or Form 8453-B, U.S. Electing Large Partnership Declaration for an IRS e-file Return, are scanned and submitted with the e-filed return as a Portable Document Format (PDF) file. Form 8453-PE also should not be mailed to the IRS.

  13. Use CFOL command codes to research the account. Request the original return only when absolutely necessary. Returns filed through the MeF system are stored immediately after the returns are processed on the Modernized Tax Return Database (MTRDB). The Employee User Portal (EUP) allows access to these returns through the Return Request and Display (RRD) subsystem. For more information on how to gain access to EUP, see IRM 3.42.4.8.2.1, Employee User Portal.

  14. DO NOT attach information (e.g., loose forms, schedules, and correspondence) to an electronically filed return. To identify an electronic DLN, see Document 6209, Section 4, Document Locator Number, Part 3 Campus and Filing Location Codes, or IRM 3.42.4.4.2.1, Researching e-file BMF Identification Codes. Use the following procedures: File the information using TC 290 $.00 with the applicable blocking series for the type of return/situation you are adjusting using the non-refile DLN. 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.

Partnerships with More Than 100 Partners
  1. The TPRA of 1997 authorized the issuance of regulations mandating the filing of partnership returns with more than 100 partners (large partnerships) on magnetic media. The regulations also provide that the Commissioner may mandate one form of magnetic media on which the returns must be filed. As a result, the Commissioner determined these returns must be filed electronically. Final regulations were published in Internal Revenue Bulletin 1999-48 and are effective for tax years ending on or after December 31, 2000.

  2. Large partnerships filing Common Trust Fund returns are excluded from the mandate to file electronically. If a taxpayer contacts the e-help Desk (see IRM 3.42.7.1.1, Hours of Operation) and states that they are a common trust fund partnership with over 100 partners, grant an automatic waiver from the requirement to e-file. See IRM 21.7.4.4.2.8.1.2, for more information on waivers.

Large Partnership Penalty for Failing to File Electronically
  1. Regulations under IRC 6011(e) provide for a penalty to be assessed if large partnerships fail to file their return electronically for tax years ending December 31, 2000 and subsequent. See IRM 20.1.2.4, Failure to File Partnership Return Using Electronic Media, for additional information.

    • Taxpayers may request a waiver from the requirement to file electronically if the taxpayer can establish hardship. See IRM 21.7.4.4.2.8.1.2, Waiver Requests by Large Partnerships Required to File Electronically, and Treas. Reg. 301.6011-3 for more information .

  2. The penalty rate has changed over the years. The penalty is:

    • For returns due on or before December 31, 2010 the penalty is $50 per partner over 100. For example, if a partnership has 120 partners and does not file electronically, a penalty of $1,000 ($50 X $20) is assessed. It is assessed as TC 246 with reference number 688.

    • For returns due on or after January 1, 2011, the penalty was increased to $100 per partner over 100. Therefore, in the above example, the penalty would be $2,000 ($100 X $20).

    • Per section 208(f), Division B, Title II, of the Tax Increase Prevention Act of 2014, P.L. 113-295, amends the Internal Revenue Code to require an annual inflation adjustment to the penalty amount for failure to file partnership return using electronic media and is effective for returns due after 12/31/2014.

    • Per section 806, of the Trade Preferences Extension Act of 2015, P.L. 114-27, the penalty is increased to $250 per partner over 100 with a maximum penalty of $3,000,000 for returns required to be filed after December 31, 2015.

    • Adjusted for inflation, the $250 amount is inflation adjusted to $260 per partner with a maximum penalty of $3,178,500 for returns due in 2017 (see Rev. Proc. 2016-11).

    • Adjusted for inflation, the penalty remains at $260 per partner, but the maximum penalty is increased to $3,218,500 for returns due in 2018 (see Rev. Proc. 2016-55).

  3. For partnerships with average gross receipts of less than $5,000,000 for the most recent three taxable years, the maximum penalty is:

    • $1,000,000 for returns due in 2016

    • $1,059,500 for returns due in 2017

    • $1,072,500 for returns due in 2018

  4. If, after the penalty is assessed, a taxpayer believes they can establish that the partnership qualified for a waiver of the e-file requirement, they must write to Accounts Management at the Ogden campus at the address in paragraph (4) directly below. Penalty abatement requests CANNOT be worked by phone or correspondence at other sites. Exception: If the module contains an un-reversed TC 971 AC 320 (penalty assessed in error), abate the penalty using PRN 688, with the penalty as a negative amount, using PRC 045.

  5. Erroneous penalty assessments may be abated in any functional area whenever they are identified. If a taxpayer calls or corresponds regarding where to file the request, instruct him to file the request at the address below. If an abatement request is received at another site and it is a CIS case, reassign to 0430446257. Forward all others to OAMC:
    Internal Revenue Service
    1973 N. Rulon White Blvd.
    Mail Stop 6552
    Ogden, UT 84404

  6. Taxpayers should not file returns on paper and wait for a penalty to be assessed before requesting abatement. They should request a waiver (if they meet the criteria) as detailed in IRM 21.7.4.4.2.8.1.2. Requests for abatement of FTF Electronically Penalty only, and/or inquiries requesting both FTF Penalty and FTF Electronically Penalty abatement are worked in Ogden's Accounts Management campus. Requests for FTF Penalty abatement only, are worked in Accounts Management Cincinnati and Ogden.

  7. Taxpayers must establish reasonable cause due to hardship based on economic reasons or reasons out of their control such as equipment breakdown, destruction of magnetic media filing equipment, etc. If reasonable cause due to hardship is established, a TC 241 is generated when a TC 290 $.00 with Reference Number 688 with a minus sign is input on IDRS.

  8. If hardship is established:

    1. Input TC 290 $.00 in blocking series 17 with Reference Number 688 with a minus sign.

    2. Use RC 062 in the first position and the appropriate RC in the fourth position, usually RC 022.

    3. Inform the partnership (by letter) the request for penalty abatement has been accepted. Also, inform the partnership the request is allowed for this tax period only, and if they believe they meet the hardship criteria in future years, they must request a waiver each year. Also, inform them they must attempt to meet the electronic filing requirement in future years. The fact that their reason was accepted this year, does not necessarily mean it will be accepted in future years.

  9. If hardship is not established:

    1. Input TC 290 $.00 in blocking series 98.

    2. Input RC 062 in the first position.

    3. Do not input Reference Number 688.

    4. Send Letter 854C,Penalty Waiver or Abatement Disallowed/ Appeals Procedure Explained.

  10. If a taxpayer's request for penalty abatement is denied (unlike waiver requests), the taxpayer has the option to follow normal penalty appeals procedures.

  11. If a request for penalty abatement is received when the partnership files a paper Form 1065, Code and Edit faxes a copy to OSPC at 877-477-0575. These requests must be worked by OSPC within three working days of receipt. OSPC follows the instructions below.

    If Then
    The partnership establishes hardship 1. Input TC 971 Action Code 320.
    2. Follow the procedures in IRM 21.7.4.4.2.8.1.1(6), Step 3 of the first Then box which reads "Inform the partnership (by letter) the request ...."
    The partnership does not establish hardship 1. Input TC 971 Action Code 321.
    2. Send Letter 854C, Penalty Waiver or Abatement Disallowed/ Appeals Procedure Explained....
  12. If a large partnership files a Form 1065 electronically, but it is systemically rejected and the partnership files the return on paper, the partnership should attach a copy of the rejection notification to the paper Form 1065. If the postmark is within 10 days of notification from the Service that the electronic return was rejected, Code and Edit enters Computer Condition Code (CCC) "R" to suppress the FTF penalty. (See IRM 3.11.15.15, Computer Condition Codes, for additional information on Code and Edit's usage of CCCs.) They also fax a copy of page 1, Form 1065 and a copy of the ELF rejection notification (indicating "rejection notification from ELF" ) to OSPC at 877-477-0575. OSPC must:

    1. Work these cases within three working days of receipt.

    2. Input TC 971 Action Code 320.

  13. If a large partnership is erroneously assessed a penalty for failure to file electronically (TC 246 with Reference Number 688) due to Service error, the penalty must be abated. Examples of this include but are not limited to, returns where the number of partners was transcribed incorrectly (partnership has less than 100 partners but the number transcribed was more than 100) or the penalty was assessed for a tax period prior to period ending December 31, 2000. OSPC must:

    1. Input TC 290 $.00 in blocking series 17 with Reference Number 688 (for the amount of the penalty you are abating) with a minus sign.

    2. Use PRC 045 in the fourth position.

    3. Inform the partnership by letter that the penalty has been abated. An apology for the erroneous assessment must be included.

  14. See IRM 20.1.2.4.1, Penalty Relief, for more information on the criteria for abating the penalty for failure to file a partnership return on electronic media due to reasonable cause.

Waiver Requests by Large Partnerships Required to File Electronically
  1. Regulations provide for waiver of the requirement to file electronically if the taxpayer can establish hardship. A major factor in the decision is whether the taxpayer will incur undue economic hardship. See Treas. Reg. 301.6011-3(b).

  2. Per Announcement 2002-3, requests must be in writing with the notation on the envelope and at the top of the actual request Form 1065 e-file Waiver Request - IRC section 6011(e)(2). The Tax Matters Partner, as defined in IRC 6231(a)(7), must sign the request and include a statement; "Under penalties of perjury, I declare that the information contained in this waiver request is true, correct, and complete to the best of my knowledge and belief." It must contain a detailed explanation as to why the partnership is unable to file electronically, including:

    1. What steps they took to comply.

    2. Why the steps were unsuccessful.

    3. The hardship that would result, including any incremental costs to the partnership of complying with the electronic filing requirements. Incremental costs are those costs that are above and beyond the costs to file on paper. The incremental costs must be supported by a detailed computation. The detailed computation must include a schedule detailing the cost to file on paper and the costs to file electronically.

    4. An explanation of the steps they will take to comply next year.

  3. In addition to a detailed explanation, the waiver request must also contain:

    • Name of partnership.

    • EIN of partnership.

    • Mailing address of partnership.

    • Tax year for which waiver is being requested.

  4. Taxpayers should see Announcement 2002-3 which was issued to provide information on the waiver request procedures. It can be found on page 305 of Internal Revenue Bulletin 2002-2. Also, see IRM 3.42.4.16.4, , MeF Penalties and Waiver Information, for the matrix that is followed to determine when to approve or deny a waiver request for the Form 1065 and Form 1065-B MeF returns.

  5. All waiver requests must be filed with OSPC at the address below. Waiver requests cannot be attached to extensions of time to file requests (Form 7004) or to the partnership's paper tax return. Requests from the partnership's tax advisor/preparer must be accompanied by a valid power of attorney if one is not already on file. Waiver requests must be filed with OSPC during one of the following periods.

    • For returns due April 15, 2017 (Form 7004 not filed): January 15, 2017 - March 1, 2017.

    • For returns due September 15, 2017 (Form 7004 filed): January 15, 2017- August 15, 2017.

      Sent via United States Postal Service Sent via Private Delivery Service (e.g., UPS, FedEx, etc.)

      Internal Revenue Service
      Ogden Submission Processing Center
      e-file Team, Mail Stop 1057
      Attn.: Form 1065 e-file Waiver Request
      Ogden, UT 84201

      Internal Revenue Service
      1973 Rulon White Blvd.
      e-file Team, Mail Stop 1056
      Attn.: Form 1065 e-file Waiver Request
      Ogden, UT 84404
  6. A waiver can only be requested for a specific tax period. Acceptance of the waiver does not waive the requirement for future tax periods. (See IRM 21.7.4.4.2.8.1.1(3).) Partnerships should receive written notice of the determination of their request within 30 days from the date the request was received. Unlike penalty abatement requests, denial of waiver requests cannot be appealed.

  7. After considering a waiver request, a TC 971 Action Code 320 is input, if the request is accepted. This prevents the assessment of the penalty for failure to file electronically. If a request is denied, a TC 971 Action Code 321 is input. (If both TC 971 Action Code 320 and 321 appear on the module, the latest TC 971 Action Code 320/321 takes precedence.) Letter 4118C, Request for a Waiver From Filing Partnership Return Electronically, informing the taxpayer of the decision, must be sent.

Small Partnership Penalty Abatement
  1. IRC 6031(a), requires a partnership to file a federal tax return (Form 1065). IRC 6698 imposes a penalty against a partnership that fails to file a timely tax return or a complete tax return as required by IRC 6031(a). Rev. Proc. 84-35, provides for a procedural exception to the penalty for small partnerships.

  2. Revenue Procedure 84-35 allows for the reasonable cause abatement of the penalty for filing a late or incomplete return for certain "Small Partnerships." See IRM 20.1.2.3.3.1, Revenue Procedure 84-35, for the definition of a small partnership as defined by Revenue Procedure 84-35, and for the criteria that must be met for an abatement.

Known e-file Issues and Solutions - Form 1065
  1. Periodically, problems arise that prevent taxpayers from being able to file electronically through the Modernized e-file (MeF) System. When this occurs, Electronic Tax Administration (ETA), Large Business and International (LB&I), or Submission Processing will issue a workaround to taxpayers by posting information on the IRS Web site. Go to www.irs.gov, click on e-file and look for the header, Corporations. Click on the link and then click on the link to e-file for Large Business and International (LB&I).

  2. Under the Table of Contents are links to the Known e-file Issues and Solutions web-pages. Currently, there are links to TY 2013, TY 2014, and TY 2015. When taxpayers contact the e-help unit with processing problems, taxpayers are directed to this site. In addition, Accounts Management will issue SERP Alerts or IPUs if the situation warrants. For example, an Alert was issued due to a problem with name control mismatches on Form 1065 and Form 1120 accounts.

  3. If you receive a call from a taxpayer stating that they are having problems e-filing, research the web-page. If you are unable to find any information, refer the caller to the e-help desk unit, toll-free at 1-866-255-0654. See IRM 3.42.7.1.1, Hours of Operation.

Duplicate Filing Conditions on Form 1065 and Form 1065X, Amended Return or Administrative Adjustment Request (AAR)
  1. A duplicate filing condition occurs when more than one return posts to an account which already contains a return (TC 150). A TRNS 193 is generated and the returns are secured and routed to Accounts Management for processing. If the second return is not clearly marked that it is an amended/corrected/superseding return or if the amended return box on line G is not checked, ensure that the return is in fact an amended return and does not belong on a different EIN or tax period. If the duplicate/amended return was not received with the TRNS 193, follow the instructions in IRM 21.7.9.4.1.2, TRNS 193 Received Without Duplicate Return, to secure the return.

  2. Beginning January 1, 2012, Form 1065X, Amended Return or Administrative Adjustment Request (AAR), is available for both Form 1065 and Form 1066 filers to amend their federal tax return. Form 1065X is available for use this year by partnerships and REMICs that file paper returns. Taxpayers may use new Form 1065X to amend prior years where the statute is open.

  3. Form 1065X will not be available in the e-file system for at least a year and possibly much longer. Partnerships that are required to file electronically will use the old Form 1065 in the electronic filing system, mark the amended box, and attach an electronic Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR).

  4. The Tax Equity & Fiscal Responsibility Act of 1982 (TEFRA) allows for the filing of an Administrative Adjustment Request (AAR) by a flow-through entity (partnership or LLC). Form 8082, Notice of Inconsistent Treatment or Amended Return (Administrative Adjustment Request (AAR)), was designed to alert IRS to this condition.

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

  6. Since Form 8082 is not consistently being attached as required, the amended/corrected/superseding Form 1065 returns that meet any of the criteria below must be routed to Examination as CAT-A criteria:

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

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

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

  7. Partnerships and electing large partnerships that file amended returns on new Form 1065X, must be routed to Exam as CAT-A criteria if either of the following conditions below are met:

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

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

  8. Action required on the amended/corrected/superseding returns that meets the criteria in paragraph (6) or paragraph (7) directly above:

    1. Retain an open control in background (B) status on all cases referred to Examination and update the activity code to "CAT-A." If CIS case, the case remains in "A" status and the activity code systemically updates to "TOCATA." See IRM 21.5.3.4.7, Processing Claims and Amended Returns With Examination Involvement, for more information.

    2. If the case is selected, close your base using Activity Code "AAREXAM" , and input TC 971 action code 013 to indicate that the amended return was forwarded to Examination Branch.

    3. Recharge the amended and original return (if received with TRNS 193) to Examination, unless the document is a CIS return.

    4. Exam is responsible for forwarding the returns to Files if not needed for their case.

    5. Do not release the -A freeze, Examination releases the freeze.

  9. Form 1065 claims and/or amended returns involving Ponzi Scheme issues (including language discussing removal of phantom or fraudulent income), may be Examination criteria. Route to Examination as CAT-A ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ See IRM Exhibit 21.5.3-2, Examination Criteria (CAT-A) - General, for more information.

  10. See IRM 21.7.9.4.1.6, Duplicate Filing Conditions Involving Returns Prepared Under IRC Section 6020(b), when the TC 150 is a 6020(b) and the TC 976 is the taxpayers original return or when the TC 150 is the taxpayers return and the TC 976 is the 6020(b).

Items to Compare on TRNS 193s (Form 1065)
  1. Compare the items listed below on each return to determine if the TC 976 return is a true duplicate, amended, supplemental, or belongs to another tax period or entity.

    • TIN

    • Tax period

    • Names and number of partners

    • Income and deduction figures

    • Balance sheet

    • Schedules K-1

    • Signature and signature dates

  2. If the amended return was not received with the TRNS 193, "perform a special search." In addition, attempt to contact the taxpayer by telephone for a copy of the return. Wait for a response from the special search. If unable to secure a copy from the taxpayer and if the special search does not provide the return, send Letter 418C to the taxpayer to request a copy (Command code BRTVU cannot be used to compare returns since returns that are "G" coded are not transcribed). Suspend for 40 days and if no reply, close with a TC 290 for $.00.

  3. Action required:

    If Then
    TC 976 return is a true duplicate, amended, or supplemental 1. Input TC 290 $.00 blocking series 00 (with original) or 17 (without original).
    2. Adjust penalties as appropriate. See IRM 20.1.1, Introduction and Penalty Relief.
    Partners’ names are the same, but the percentage of ownership on Schedules K-1 has changed by 50 percent or more It is no longer necessary to route the case to Entity for determination if another partnership exists.
    TC 976 return belongs on another TIN or tax period 1. Input TC 290 $.00 using blocking series 00 or 17.
    2. Correct the information on the TC 976 return.
    3. Prepare, attach, and route Form 13596, Reprocessing Returns, for reprocessing to the correct tax period or TIN. See IRM 21.7.9.4.1.1, TRNS 193s Involving Reprocessing Returns, for more information.
    4. Input TC 971 as appropriate, per instructions in IRM 21.5.1, General Adjustments. (Do not reprocess a TC 976 return to an account which contains a TC 150. Input a TC 290 $.00 to the account and attach the TC 976 return to the adjustment document.)
    One of the returns is a 6020(b) and the taxpayer filed an original return 1. Check the received date on the taxpayer’s return. (If prior to the 6020(b) return, the FTF penalty may need to be adjusted. See IRM 20.1.2.2.10, Substitute for Return - IRC 6651(g), for more information.
    2. Verify the taxpayer’s return is complete and the number of partners involved. (If the information differs, penalties may need to be adjusted.)
    3. Input TC 290 $.00 in blocking series 00 or 17 and adjust penalties as appropriate.
Duplicate Filing Conditions - Technical Terminations Under IRC 708(b)(1)(B)
  1. Prior to 1997, IRC 708(b)(1)(B) stated that a partnership was considered terminated if within a 12 month period, there was a sale or exchange of 50 percent or more of the total interest in partnership capital and profits.

  2. Special rule for Section 708(b)(1)(B) terminations. Treasury Decision T.D. 8717, effective May 9, 1997, provided that a partnership that is terminated under IRC 708(b)(1)(B) shall retain the EIN of the terminated partnership. The Instructions for Form 1065 also advises taxpayers, "Do not request a new EIN for a partnership that terminated because of a sale or exchange of at least 50 percent of the total interest in partnership capital and profit."

  3. The tax return for a partnership that terminates under IRC 708(b)(1))(B) is due on the 15th day of the fourth month following the month that a partnership terminates. For example, the due date for Form 1065 of a partnership that terminates under section 708(b )(1)(B) on August 8, 2015, is December 15, 2015. If a new partnership continues in operation with the same EIN, then two short year returns would need to be filed for the year. One return for the period ending August 8th, and one return for the period beginning August 9th. The return for the first short period (201508) would be due December 15, 2015, while the return for the second short period (201512) would be due on the normal return due date of April 15, 2016. The return due date for Form 1065 changed with tax years beginning after December 31, 2015.

  4. If multiple returns are filed under the same EIN citing IRC 708(b)(1)(B) or the technical termination box is checked on the Form 1065 tax return (on 2009 and subsequent revisions), and one of the returns is a short period return, reprocess the short period return to the proper tax period and release the -A freeze. When reprocessing a short period return that was filed late, research CC BMFOLT to determine if the taxpayer qualifies for First-Time Abatement (FTA). If the taxpayer does qualify for FTA, edit computer condition code (CCC) “R” to suppress the FTF penalty. If the taxpayer does not qualify for FTA, do not edit CCC “R” and allow the penalty to be systemically assessed.

Multiple Filed Form 1065
  1. Banks acting as managers for underwriting syndicates to issue bonds, are permitted to use the same EIN when filing partnership returns on behalf of each syndicate.

  2. TRNS 193s are suppressed on these cases. The first return posts as a TC 150 and subsequent returns as TC 976s. A "Consolidated Transcript" is generated when overflow conditions are reached. Action required:

    1. Input TC 290 $.00 to have the transcript of the TC 976 posting and the original return re-filed under the adjustment DLN.

    2. Use blocking series 00 (with original) or 17 (without original).

CP 282 Notice, Notification of Possible Additional Partnership Filing Requirements (Withholding Tax on Foreign Partners)
  1. A CP 282 Notice, is issued to Form 1065/Form 1065-B filers who marked the "YES" checkbox next to question 16, Foreign Partners, on Schedule B, Form 1065, or next to question four on Schedule B, Form 1065-B. This indicates that the partnership had foreign partners (for purposes of IRC 1446) during the tax year. Responses are received and worked in both the Cincinnati and Ogden campuses.

  2. Generally, when a foreign person engages in a trade or business in the United States, all income arising from the activities of that trade or business, is considered to be Effectively Connected Income (ECI). It is the partnership's (CPA, attorney, accountant) responsibility to determine if the partnership has ECI allocable to a foreign partner. Taxpayers can research various articles on ECI @ www.irs.gov/.

  3. The partnership may have to report to the IRS under IRC 1446, on gross income allocable to foreign partners (without regards to distributions) if the partnership had gross income effectively connected with the conduct of a trade or business within the United States that is allocable to a foreign partner. In addition, they must pay a withholding tax on the taxable income effectively connected with the conduct of a trade or business within the United States that is allocable to a foreign partner, and file Form 8804, Annual Return for Partnership Withholding Tax, Form 8805, Foreign Partner’s Information Statement of section 1446 Withholding Tax, and Form 8813, Partnership Withholding Tax Payment Voucher.

  4. For information on reporting and paying the Section 1446 withholding tax as well as the general reporting obligations, see Form 8804 and the Instructions for Form 8804, Annual Return For Partnership Withholding Tax, Form 8805, Foreign Partner’s Information Statement of Section 1446 Withholding Tax, and Form 8813, Partnership Withholding Tax Payment Voucher. Also, see IRM 21.8.2.16.1, CP 282 - Form 1065.

  5. Special rules apply to publicly traded partnerships. Unlike all other partnerships which withhold in the year the effectively connected taxable income is allocated to a foreign partner, publicly traded partnerships withhold in the year there is a distribution to a foreign partner. Also, instead of filing Form 8804, Form 8805, or Form 8813, publicly traded partnerships must file Form 1042 and Form 1042-S.

  6. If the taxpayer contacts IRS and states:

    IF AND THEN
    Not liable Taxpayer incorrectly checked the yes box or if an input error was made by IRS
    • Acknowledge receipt of the issue.

    • Apologize, if our error.

    • Advise TP you will notate their file. Use TP correspondence or if telephone inquiry, prepare Form 4442/Form 4442 DI/AMS, as source document and in the remarks field, state TP not liable.

    • Associate the above document to Files by inputting TC 290 $.00 in blocking series 17 or follow local procedures.

    Liable Needs forms
    • Send necessary forms to TP or give toll-free forms number.

    • Instruct TP to file at
      OIRSC
      Ogden, UT, 84201

    Liable Original return(s) attached
    • Route to Ogden

    • If payment is received with Form 8804, transfer to Ogden on Form 2158 for processing to ANMF system.

    Liable TP states that they have already filed and sends clearly marked copy of return(s)
    • Destroy as classified waste, respond only if TP asks question.

    Note:

    If the taxpayer states that they had no taxable income, it is not a valid response. Advise the taxpayer that they either marked the checkbox next to question 16, Foreign Partners, on Schedule B, Form 1065, or next to question four on Schedule B, Form 1065-B, indicating that the partnership had foreign partners (for purposes of IRC 1446). Ask the taxpayer if this was correct and are they liable or not liable, follow the chart above based on their response.

Form 1065 Filed under Rev. Proc. 2003-84
  1. Rev. Proc. 2003-84, 2003-48 I.R.B. 1159, allows certain partnerships that invest in tax-exempt obligations to make an election that enables the partners to take into account monthly inclusions required under IRC 702 and IRC 707(c) of the IRC and provides rules for partnership income tax reporting. Thus, a partnership that has a monthly closing election in effect for the entire taxable year and meets the other requirements in section 8 of this revenue procedure, is not required to file a Form 1065 or issue Schedules K-1 (Form 1065).

  2. An eligible partnership makes a monthly closing election by providing in the entity’s governing documents that the partnership is making a monthly closing election that is effective as provided under section 5.02 of this revenue procedure and all partners consent to the election.

  3. The monthly closing election is effective on the latter of:

    1. The start-up date of the partnership (as defined by section 4.05(1) of this revenue procedure), or

    2. The first day of the month in which the provisions described in section 5.01 of this revenue procedure is first included in the entities governing documents.

  4. A partnership must file an abbreviated return (considered abbreviated because only certain information is required to be completed on the form) for the first taxable year during which the monthly closing election was in effect. The abbreviated return must be filed by the date the partnership’s income tax return would ordinarily be due and must be signed by a person with the authority to sign the partnership’s Form 1065 return. The words "Filed in Accordance with Rev. Proc. 2003-84" must be typed or written across the top of the form.

  5. See Rev. Proc. 2003-84 for the specific information that must be supplied on the abbreviated return.

  6. Action required: If a taxpayer states they previously filed a Form 1065 under Rev. Proc. 2003-84, check the filing requirements. If filing requirements are still active, delete them by inputting TC 591 closing code 025 via command code FRM49. If a taxpayer is penalized for failing to file Form 1065 for a tax period AFTER they have filed the required abbreviated return, abate the penalty using penalty reason code 045, Service Error. Either contact the taxpayer by phone or send Letter 3012C, Partnership Return Filing Requirements: Form 1065, advising the taxpayer that, based on the information provided they are not required to file future partnership returns. Apologize for any inconvenience.

Schedule M-3 (Form 1065), Net Income (Loss) Reconciliation for Certain Partnerships
  1. Beginning with tax year 2006 returns, any entity that files Form 1065 or Form 1065-B, must complete and file Schedule M-3 in lieu of Schedule M-1, Reconciliation of Income (Loss) per Books With Income (Loss) per Return, if any of the following applies (See the Instructions for Form 1065 for more information):

    1. The amount of total assets at the end of the tax year reported on Form 1065, Schedule L, line 14, column (d), is equal to $10 million or more.

    2. The amount of adjusted assets for the year is equal to $10 million or more.

    3. The amount of total receipts (as defined on page 21 of the 2016 Instructions for Form 1065, Schedule B, question 6), for the taxable year is equal to $35 million.

    4. An entity that is a reportable entity partner with respect to the partnership owns or is deemed to own, directly or indirectly, an interest of 50 percent or more in the partnership's capital, profit, or loss, on any day during the tax year of the partnership.

Payment by Credit or Debit Card (Pay by Phone or Internet)
  1. Form 1041 and Form 1065 filers may pay their taxes by phone or internet using a credit or debit card. Payments can be made using an American Express Card, Discover Card, MasterCard, or VISA Card. The IRS does not determine which credit cards the service providers accept.

  2. Taxpayers have the option to either use an IRS e-pay service provider or an integrated IRS e-file and e-pay service provider. The service providers offer these options to taxpayers who file on paper or electronically. The payment options are available 24 hours a day, 7 days a week. The service providers charge convenience fees for the services. See IRM 21.2.1.48.4, Credit or Debit Card Payments (Pay by Phone or Internet), for more specific information.

  3. Also see IRM 21.2.1.48, Electronic Payment Options for Individuals and Business e-file Users, for other payment options.

Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return

  1. Form 1066 is used to report income, deductions, gains and losses from the operation of a REMIC. In addition, the form is used to report and pay the taxes on net income from prohibited transactions, foreclosure property, and contributions after the start-up day.

  2. Form 1066 is filed at the Ogden Submission Processing Center (including International forms). The MFT is 07, Tax Class 3, and Document Code 60.

Form 1066 Due Dates, Payments, and Extensions to File
  1. Form 1066 is a calendar year return. For taxable years beginning before January 1, 2016, the federal income tax return of a REMIC is due on or before the 15th day of the fourth month following the close of the taxable year as shown on the top of the return. If the REMIC ceases to exist before the end of the calendar year, a short period return is due on the 15th day of the fourth month following the date the entity ceased to exist.

  2. Section 2006(a)(1) of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (the Act), P. L. 114-41, changed the income tax return due date for REMIC’s and is effective for taxable years beginning after December 31, 2015. The federal income tax returns of REMIC’s under section 6031 made on the basis of the calendar year shall be filed on or before the 15th day of March following the close of the calendar year, and such returns made on the basis of a fiscal year shall be filed on or before the 15th day of the third month following the close of the fiscal year. Therefore, TY 201612 calendar year Form 1066 REMIC returns are due March 15, 2017.

  3. A REMIC must pay the tax in full by the due date of the return. No estimated tax payments are required. REMICs must use electronic funds transfer to make all federal tax deposits (such as deposits of employment tax, excise tax, and income tax). Generally, electronic fund transfers are made using the Electronic Federal Tax Payment System (EFTPS).

  4. When tax is reported on a late filed Form 1066, the return may be subject to the Failure to Pay Penalty under IRC 6651(a)(1), and the Failure to File Penalty under IRC 6651(a)(2). If no tax is reported on the return, the REMIC is subject to the Failure to File penalty under IRC 6698. See IRM 20.1.2.3.3.4, REMIC Special Considerations, for information on working penalty abatement requests.

  5. Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information and Other Returns, is used to request an automatic extension of time to file certain business income tax, information, and other returns. An extension of time to file Form 1066 will be granted if the taxpayer completes Form 7004 properly and files the form by the due date of the Form 1066 to which it applies.

  6. For tax year 2008 and prior, Form 7004 granted an automatic 6 month extension period for most BMF business returns. However, beginning January 1, 2009, to reduce the burden on recipients of Schedules K-1, the extension of time to file REMIC returns was shortened from six months to five months.

  7. Section 2006(a) of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P. L. 114-41, changed the due date for filing the tax return of a REMIC, and thus the date by which a REMIC must file Form 7004 has changed. Additionally, section 2006(b) changed the duration of the extension of time to file Form 1066. The provisions are effective for tax years beginning after December 31, 2015:

    • The due date of a REMIC return, by which Form 7004 shall be filed, for a REMIC return shall be the 15th day of the third month following the close of the REMIC’s tax year.

    • The duration of the automatic extension of time to file Form 1066 has increased to six months.

  8. See IRM 21.7.4.3.5, Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns, Tax Periods Beginning on or Before December 31, 2015, and IRM 21.7.4.3.6, Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns, Tax Periods Beginning After December 31, 2015, for more general information.

  9. Due to the late date that the legislation was passed, IDRS programming cannot be completed until January 2017. Therefore, interim guidance is being developed to handle extension requests received in 2016. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

Amended Form 1066 and Form 1065X, Amended Return or Administrative Adjustment Request (AAR)
  1. Form 1066 can be amended. They are "G" coded and routed to Ogden Accounts Management. Beginning January 1, 2012, new Form 1065X, Amended Return or Administrative Adjustment Request (AAR), is available for both Form 1066 and Form 1065 filers to amend their federal tax return. Form 1065X is available for use by REMICs that file paper returns. The 1065X will not be available in the e-file system for at least a year and possibly much longer. Taxpayers may use Form 1065X to amend prior year Form 1066 returns where the statute is open.

  2. Route all amended returns and correspondence by a real estate mortgage investment conduit (REMIC, Form 1066) to Ogden Accounts Management Campus, Mail Stop 6276. If the amended return or correspondence involves "foreclosure property," see IRM 21.7.4.4.3.4. Foreclosure Property Extension Requests.

  3. Action required:

    • Use blocking series 15 when adjusting

    • Amended Form 1066 are not Cat-A criteria

Schedule Q (Form 1066), Quarterly Notice to Residual Interest Holder of REMIC Taxable Income or Net Loss Allocation
  1. A copy of Schedule Q is sent to each residual interest holder by the last day of the month following the end of the calendar quarter. Schedule Q notifies the taxpayer of their share of the REMIC's quarterly taxable income (or net loss), the excess inclusion with respect to their interest, and their share of the REMIC's IRC 212 expenses for the quarter.

  2. The original Schedules Q (Copy A) for all quarters are attached and filed with Form 1066.

Foreclosure Property Extension Requests
  1. Route all amended returns and correspondence by a real estate mortgage investment conduit (REMIC, Form 1066) to Ogden Accounts Management Campus, Mail Stop 6276. Also, route all requests for extension of "foreclosure property" grace period pursuant to IRC 856(e) to Ogden Accounts Management, Mail Stop 6276. If CIS case re-control to 0437405253.

  2. If the correspondence includes a Form 2848, Power of Attorney and Declaration of Representative, or Form 8821, Tax Information Authorization, the form must be signed by the taxpayer (Typically by the trustee of the account.). ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. An extension request is timely if it is filed more than 60 days before the grace period would expire.

    • The grace period expires as of the close of the third table year following the taxable year in which the REMIC acquired the foreclosure property (the second taxable year for qualified health care properties).

    • Accordingly, if the grace period would expire on December 31 of a particular year, the extension request must be dated and filed by October 31 of that year to be timely. See IRM 3.11.212.1.8, Determination of Timely Filing – General Instructions, for more information.

  4. If the request is timely filed, Ogden Accounts Management will send the taxpayer a Letter 96C , Acknowledgment Letter for General Use/Inquiry. In addition, Ogden will input a CIS history statement that an extension request was received and that a Letter 96C was issued. Capture the screen of the 96C letter for a record of the paragraphs used.

  5. In the 96C letter, use the open paragraphs and the enclosure option to address extension requests. Input the two open paragraphs per the first two of the following bullets and follow the instructions in the third bullet:

    • If your extension request for foreclosure property described in IRC 856(e) or IRC 860G(a)(8) is timely filed (i.e., more than 60 days before the grace period expires), then the grace period shall be automatically extended: (1) in the case of qualified health care property, for 4 years less the term of any prior grace period extension, and (2) in other cases, for three years.

    • However, if your extension request is timely filed and the Service subsequently reviews your request and determines that it shall not be granted, then the automatic extension of the grace period set out in the preceding paragraph shall end after the 30th day after you are notified by certified mail that the request was not granted. (See Treas. Reg. Section 1.856-6(g)(5).)

    • Attach a copy of the extension request that contains the taxpayers name, their EIN, date of request, and property description (the address) of each property that the taxpayer is requesting a foreclosure extension for.

  6. If the request is not timely filed, Ogden Accounts Management will send the taxpayer a Letter 3064C, IDRS Special Letter. In addition, Ogden will input a CIS history statement that an extension request was received and that a 3064C letter was issued. Capture the screen of the Letter 3064C, for a record of the paragraphs used.

  7. In the Letter 3064C, use the open paragraphs and the enclosure option to address extension requests. Input the two open paragraphs per the first two of the following bullets and follow the instructions in the third bullet

    • An extension request for foreclosure property described in IRC 856(e) or IRC 860G(a)(8) must be filed more than 60 days before the grace period would otherwise expire. Your request is untimely, since it was filed after this deadline. The property is also ineligible for the automatic extension provided for a timely filed request. See Treas. Reg. Sections 1.856-6(g) (3), (5).

    • While your extension request was untimely filed, you may make a separate request for the Service to treat it as timely filed, pursuant to Treas. Reg. Section 1.856-6(g) (6), by establishing that (1) there was reasonable cause for failure to file the extension request within the prescribed time and (2) you filed the separate request within a reasonable time under the circumstances.

    • Attach a copy of the extension request that contains the taxpayer’s name, its EIN, date of request, and property description (the address) of each property that the taxpayer is requesting a foreclosure extension for.

  8. If a subsequent inquiry is received "AFTER" a Letter 96C or Letter 3064C has been sent (check ENMOD), advise the taxpayer that they may call the non toll-free numbers below if they have any questions and may speak to one of the:
    Senior Program Specialists (Technical Tax Analysts)
    Internal Revenue Service
    LB&I, Financial Services
    @ 212-298-2171 and/or 212-298-2250
    Between 8:00 AM and 4:30 PM (EST)

Form 1120 Series Returns, Corporation Income Tax

  1. Form 1120 series returns are used to report income, gains, losses, deductions, and credits of U.S. corporations. Corporations must file an income tax return regardless of the amount of their income.

  2. For federal income tax purposes, the term "corporation" includes associations, joint stock companies, and partnerships which operate as corporations. Form 1120 must be signed by an officer of the corporation.

  3. The MFT is 02 and the tax class is 3. Document codes and filing requirement codes can be found in Document 6209. Use blocking series 00 when making adjustments when the original return is secured and blocking series 15 without the original return.

  4. Form 1120, Form 1120-F, and Form 1120S can be filed electronically along with various forms and schedules. See IRM 21.7.4.4.4.15, Modernized e-file Program (MeF) for Corporate and Exempt Organization Returns, for more information.

Types of Form 1120
  1. There are several types of Form 1120 which can be filed by a corporation depending on its business. Listed below are the types in the sequence they appear in this section:

    • Form 1120, U.S. Corporation Income Tax Return

    • Form 1120-A, U.S. Corporation Short-Form Income Tax Return (Obsolete for tax years beginning after December 31, 2006)

    • Form 1120S, U.S. Income Tax Return for an S Corporation

    • Form 1120-H, U.S. Income Tax Return for Homeowners Associations

    • Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations

    • Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return

    • Form 1120-L, U.S. Life Insurance Company Income Tax Return

    • Form 1120-IC-DISC, Interest Charge Domestic International Sales Corporation Return (processed as NMF)

    • Form 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons

    • Form 1120-F, U.S. Income Tax Return of a Foreign Corporation

    • Form 1120-FSC, U.S. Income Tax Return for Foreign Sales Corporation

    • Form 1120-SF, U.S. Income Tax Return for Settlement Funds

    • Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts

    • Form 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies

    • Form 1120X, Amended U.S. Corporation Income Tax Return

    • Form 1120-C, Income Tax Return for Cooperative Association

Form 1120 Series Due Dates - Tax Years Beginning Before January 1, 2016
  1. A newly organized corporation, except a Subchapter S or personal service corporation, can elect any accounting period (Fiscal Year Month (FYM)). An S corporation generally must file on the calendar year unless it meets certain criteria as outlined in the Instructions for Form 1120S or makes a section 444 election (See IRM 21.7.4.4.7, Form 8752, Required Payment or Refund Under Section 7519, for information on the tax year of section 444 filers).

  2. For taxable years beginning before January 1, 2016, most Form 1120 corporation returns (except Form 1120-C filers who meet the requirements of section 6072(d) and Form 1120-IC-DISC) are due on or before the 15th day of the third month after the end of the tax year. A corporation filing a short period return must file by the 15th day of the 3rd month following the end of the short tax year. A dissolving corporation is required to file a final return for the short period that begins on the first day of its normal accounting period and ends on the date of dissolution. The return is due on or before the 15th day of the 3rd month following the close of the short tax year.

  3. In addition, for taxable years beginning before January 1, 2016, the corporation could request an automatic 6 month extension of time to file on Form 7004. For example, Form 1120 returns for tax year 201512 are due on or before March 15, 2016 and if an extension of time to file is requested timely the return is due on or before September 15, 2016.

  4. If the due date of a Form 1120 series return falls on a Saturday, Sunday, or legal holiday, the corporation can file on the next day that is not a Saturday, Sunday, or legal holiday. See IRM Exhibit 3.11.16-2, Due Date Chart, for Form 1120 series due dates.

Form 1120 Corporate Series Return Due Dates – Tax Years Beginning after December 31, 2015
  1. Section 2006(a)(1) of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P. L. 114-41, changed the return due date for C corporations and is effective for taxable years beginning after December 31, 2015. The federal income tax return for the Form 1120 family of returns (except Form 1120-C, Form 1120S and Form 1120-IC-DISC) is due on or before the 15th day of the fourth month following the close of the C corporation’s tax year, with one exception as follows:

    • The income tax return of a C corporation that ends its tax year on June 30 remains due on or before the 15th day of the third month following the close of the fiscal year for tax years beginning after December 31, 2015 and before January 1, 2026.

  2. See IRM Exhibit 3.11.16-2, Due Date Chart, for Form 1120 series due dates.

  3. Section 2006(c) of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P. L. 114-41, also changed the duration of the extension of time to file income tax returns for most C corporations. For taxable years that end on December 31 and begin before January 1, 2026, the statutory automatic extension of time to file is five months. However, Chief Counsel has determined that these calendar year Form 1120 filers will be granted a six month extension period. If the corporation files for a fiscal year that ends on June 30 and ends before January 1, 2026, the duration of the automatic extension is seven months.

  4. It is possible to receive short period final returns for periods that began after December 31, 2015 and ended prior to January 1, 2017. Due to the late date that the legislation was passed, IDRS programming was not completed until January 2017. Therefore, interim guidance was developed to handle Form 1120 returns received in 2016. See IRM 21.7.4.4.4.2.1.1, for more information.

  5. The return due date for Form 1120S has not changed. Form 1120S is due on or before the 15th day of the third month after the end of the tax year. For calendar year filers, Form 1120S is due on or before the 15th day of March.

  6. The return due date for Form 1120-C remains the same for taxpayers who meet the requirements of section 6072(d), and the return due date for Form 1120-IC-DISC also remains the same (See IRM 21.7.4.4.4.11.7, Form 1120-IC-DISC, Interest Charge Domestic International Sales Corporation Return and IRM 21.7.4.4.4.11.15, Form 1120-C, U.S. Income Tax Return for Cooperative Associations, for more information on the due date of each return).

  7. If the due date of a Form 1120 series return falls on a Saturday, Sunday, or legal holiday, the corporation can file on the next day that is not a Saturday, Sunday, or legal holiday.

Form 1120 Short Period Final Returns with Tax Period Beginning After December 31, 2015
  1. The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P.L. 114-41, changed the due date for filing certain Form 1120 corporate returns for taxable years beginning after December 31, 2015. See IRM 21.7.4.4.4.2.1, Form 1120 Corporate Series Return Due Dates – Tax Years Beginning after December 31, 2015, for more information.

  2. For taxable years beginning after December 31, 2015, the return due date for the Form 1120 family of returns (except Form 1120-C, Form 1120S, and Form 1120-IC-DISC) changed from the 15th day of the third month (March 15th for calendar year filers) to the 15th day of the fourth month (April 15th for calendar year filers) following the close of the tax year with one exception:

    • The income tax return of a C corporation that ends its tax year on June 30 remains due on or before the 15th day of the third month following the close of the fiscal year for tax years beginning after December 31, 2015 and before January 1, 2026.

  3. Work requests to update programming was not implemented until January, 2017. Therefore, IRS computer systems did not consider returns with the new due date that were processed before 2017 late by one month, and incorrect penalties and interest would have been assessed if the IRS did not take action to prevent the assessment.

  4. C corporations filing short period final returns with tax years beginning after December 31, 2015, that were previously due by the 15th day of the third month are now due by the 15th day of the fourth month, except for those C corporations with a taxable year ending on June 30 and beginning prior to January 1, 2026. These short period returns may not have been processed correctly during 2016. Corporate returns that are marked final and are assigned computer condition code (CCC) “F” and/or short period returns that are assigned CCC “Y” that end on or before November 30, 2016, and were charged penalties and interest, will have the notice fall out to Notice Review (NR) to determine if it is correct or needs adjusting.

  5. IRM 3.14.2.11, 1120 Workaround – Short Period Return with Tax Period Beginning Date of 201601 and Subsequent (Processing Year 2016 Only), was updated to include guidance for Submission Processing for a workaround in Notice Review (NR) who will review affected notices via NRPS selection criteria and will abate or recalculate penalties and/or interest when necessary on corporate returns.

    Note:

    IRM subsection 3.14.2.11 has been removed from the IRM located on SERP. If you need to view subsection 3.14.2.11, see the 01/01/2017 revision on the Electronic Publishing Website.

  6. If the tax period beginning date is after December 31, 2015, and the ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

      Note:

      If the tax period ends on June 30, 2016, then the penalty is correct and no action is necessary.

  7. If the tax period beginning date is after December 31, 2015, and the ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

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

  8. If an inquiry is received from a taxpayer stating that they believe the return was not late, determine whether it meets the criteria in paragraph (7) above. Follow the procedures in the paragraph if the criteria is met. Input penalty reason code 043 when adjusting. Also, input hold code 0 and allow the adjustment notice to generate.

Correcting the Form 1120 Return Due Date
  1. For taxable years beginning before January 1, 2016, most Form 1120 series corporation returns (except Form 1120-C filers who meet the requirements of section 6072(d) and Form 1120-IC-DISC) are due on or before the 15th day of the third month after the end of the tax year. A corporation filing a short period return must file by the 15th day of the 3rd month following the end of the short tax year. A dissolving corporation is required to file a final return for the short period that begins on the first day of its normal accounting period and ends on the date of dissolution. The return is due on or before the 15th day of the 3rd month following the close of the short tax year.

  2. For taxable years beginning after December 31, 2015, the Return Due Date (RDD) for the Form 1120 family of returns (except Form 1120-C, Form 1120S, and Form 1120-IC-DISC) has changed from the 15th day of the third month (March 15th for calendar year filers) to the 15th day of the fourth month (April 15th for calendar year filers) following the close of the tax year with one exception:

    • The income tax return of a C corporation that ends its tax year on June 30th remains due on or before the 15th day of the third month following the close of the fiscal year for tax years beginning after December 31, 2015 and before January 1, 2026.

    Note:

    If the parent corporation of a newly acquired corporation elects to file a consolidated return, the newly acquired corporation must file a return for the short period that ends on the date of the acquisition. The due date for that short period return is the earlier of the normal return due date for the acquired corporation if it had not filed a short period return, or the due date of the parent corporation’s return without regard to extensions. Because the computer cannot know the correct return due date for this type of short period return, the due date shown on IDRS will likely be incorrect.

  3. If while working a Form 1120 case, it is determined that IDRS has the incorrect RDD, it can be updated and the computer will systemically adjust the penalty(s) and/or interest (if charged) to the correct amount. The return due date field can be found on TXMOD and on page 1 of Command Code (CC) BMFOLT. The field represents the RDD without regards to any extensions that may have been granted.

  4. For modules without a TC 766, the process is very simple: the only action needed is to use CC REQ77 /CC FRM77 to input TC 971 with Action Code (AC) 358. Enter the correct return due date as the transaction date of the TC 971.

  5. Follow the instructions below for modules with an unreversed TC 766. Use Hold Code (HC 4) when reversing the transactions below.

  6. If the TC 766 does not contain a Credit Reference Number (CRN), review the return on CC TRDBV and on CC BMFOLA and :

    1. Determine whether the credit was from Form 4136, Credit for Federal Taxes Paid on Fuel. If CRN(s) are found, reverse the TC 766 and input the appropriate CRN for a negative amount. This will generate TC 767 with CRN 450 and will not unpost.

    2. Determine if the credit was from other than Form 4136. If so, reverse the TC 766 with TC 767 for negative amount. For example, the Form 2439, Credit for Tax Paid on Undistributed Capital Gains of RICs or REITs does not have a CRN.

      Note:

      CC BMFOLA may also reflect CRN 450 with an amount. The amount of CRN 450 will be the sum of the other CRN(s) amounts listed under CC BMFOLA. Input the individual CRNs that make up the sum of the CRN 450.

  7. If the TC 766 contains a CRN 450 with:

    1. The same DLN as the return, review the return (Form 4136 on CC TRDBV) to identify the credit reference number(s) and amount(s) that made up the CRN 450. Input the applicable CRN(s) and amount(s) as negative amounts to reverse the TC 766 with CRN 450. For example: CRN 359 for 10 percent Gasohol and CRN 369 for Aviation Fuel.

    2. Doc code 54 or doc code 47, review CC BMFOLA to identify the CRN(s) and amount(s) that made up the CRN 450 amount. Input the applicable CRN(s) and amount(s) as negative amounts to reverse the TC 766 with CRN 450. For example: CRN 360 for Non-taxable Use of Undyed Diesel Fuel and CRN 362 for Gasoline.

  8. If the TC 766 contains a CRN other than 450, input that CRN with a negative amount to reverse the TC 766. For example: CRN 793, Form 8827, Credit For Prior Year Minimum Tax – Corporations.

  9. After the reversal transactions have been input for all posted TC 766 transactions in the module, use CC REQ77 / FRM77 to input TC 971 with AC 358. Enter the correct return due date as the transaction date of the TC 971. Input Posting Delay Code (PDC) 1 to ensure that all of the TC 767 transactions have posted before TC 971 attempts to post. If there are any remaining unreversed TC 767 transactions in the module, the TC 971 will go unpostable with UPC 354 Reason Code 9.

  10. After the TC 971 AC 358 has been input. Re-input all of the TC 766 transactions that were reversed using the same CRN as that with which they were reversed. (If it TC 766 was reversed with no CRN, re-input without a CRN.) Input PDC 2 with the adjustment and with HC 3.

  11. See IRM 21.7.4.4.5, Estimated tax Overpayment, Credit Elect - General, if a credit elect is involved.

Personal Service Corporations
  1. A personal service corporation, as defined in Temporary Regulations Section 1.441-3T(b)(1), must use the calendar year, unless it meets one of the criteria below:

    1. The corporation can establish to the satisfaction of the Commissioner that there is a substantial business purpose for having a different tax year. (TC 054 identifies approved business purpose.)

    2. The corporation elects under Section 444 to have a tax year other than their required tax year. (These corporations must file Form 8716, Election to Have a Tax Year Other Than a Required Tax Year. An approved election can be identified by TC 055.)

  2. A corporation is a qualified personal service corporation as defined in Temporary Regulations Section 1.448-1T (and, thus, generally permitted to use the cash method of accounting) if it meets both of the tests below:

    1. Substantially all of the corporation’s activities involve the performance of services in the fields of accounting, actuarial science, architecture, consulting, engineering, health, law or performing arts, and

    2. At least 95 percent of the corporation's stock, by value, is owned directly or indirectly by; employees performing the services, retired employees who had performed the services listed above, any estate of the employee or retiree described above, or

    3. Any person who acquired the stock of the corporation as a result of the death of an employee (but only for the 2-year period beginning on the date of the employee or retiree's death). (See IRC 448(d)(2)(B).)

  3. A qualified personal service corporation is taxed at a flat rate of 35 percent on taxable income.

CP 224 Notice, Notice of Potential Qualification as a Personal Service Corporation
  1. CP 224 Notice, Notice of Potential Qualification as a Personal Service Corporation, is issued to businesses who, based on the business activity described on the Form 1120 they filed, may qualify as a personal service corporation. The notice is an informational notice to alert them to a potential issue that may affect their tax return. It further states that a corporation is a qualified personal service corporation if it meets both of the tests described in IRM 21.7.4.4.4.3(2) a) and b) above.

  2. Taxpayers are instructed to consider the information in the notice and review their income tax return. If they had a practitioner or other third-party prepare their return, they may want to contact them for assistance. The notice also states that no further action is necessary if their return is correct as filed, or to File Form 1120X, Amended U.S. Corporation Income Tax Return, if necessary.

Consolidated Returns
  1. An affiliated group of corporations can elect to file a consolidated income tax return.

  2. The consolidated return must be filed on the basis of the common parent’s corporate annual accounting period.

  3. The consolidated return must include all the income of the parent corporation plus the income of each subsidiary for the portion of such taxable year during which it was a member of the group.

  4. Form 851, Affiliations Schedule, is filed to identify the common parent corporation and each member of the affiliated group, and for making the determination that each subsidiary corporation qualifies as a member of the affiliated group. See the General Instructions for Form 851, for the requirements that must be met to qualify as an affiliated group. An affiliated group is one or more chains of includible corporations connected through stock ownership with a common parent corporation. See IRC 1504(a) and (b) for more information. Form 851 is filed with the consolidated tax return for the group. See IRM 21.3.3.5.2, Loose Forms/Schedules, for procedures for working loose Form 851.

  5. Income not included in the consolidated return by a corporation, because it was not in the group for its complete taxable year, must be reported on a separate return. See the table below.

    If Then
    The group has filed a consolidated return by the due date for filing of a subsidiary’s separate return (including extensions of time) The separate return must be filed no later than the due date of such consolidated return (including extensions of time). See the Example below this table.
    The group has not filed a consolidated return by the due date for filing of a subsidiary’s separate return (including extensions of time) Such subsidiary must file a separate return no later than the due date of such subsidiary return (including extensions of time). See Reg 1.1502-76(c).

    Example:

    The scenario below describes the situation when a group has filed a consolidated return by the due date for filing of a subsidiary’s separate return (including extensions of time).

    1. Corporation A has a FY 03.

    2. Corporation Z has a FY 12.

    3. Corporation Z acquires all of the stock for Corporation A at the close of September 30, 2016.

    4. Corporation Z files a consolidated return for the group for calendar year 2016 on April 15, 2017.

    5. Since Corporation Z filed a consolidated return by the due date for Corporation A (July 15, 2017), the return of Corporation A for the short taxable year beginning April 1, 2016 and ending September 30, 2016 must be filed no later than April 15, 2017 (the due date for Corporation Z’s return).

    6. No penalty or interest would be due for the period January 15, 2017 (normal due date for a return with period ending September 30, 2016) through April 15, 2017.

    Note:

    Code & Edit has procedures for identifying and coding this type of return. However, sometimes these returns are not coded properly, especially if e-filed. In order to correct the account, a manual adjustment to interest and/or penalties may need to be done.

Extensions to File Form 1120 Series Returns
  1. Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns, is used to request an automatic extension of time to file certain business income tax, information, and other returns. An extension of time to file Form 1120 will be granted if the taxpayer completes Form 7004 properly, makes a proper estimate of the tax (if applicable), files the form by the due date of the return to which the Form 7004 applies, and pays any tax that is due.

  2. Generally, Form 7004 must be filed on or before the due date of the Form 1120. Form 7004 does not extend the time for payment of tax. Therefore, to avoid interest charges and a late payment penalty, payment of any balance due on line 8 of Form 7004 is required by the due date of the return for which the request for extension is filed.

  3. For tax years beginning before January 1, 2016, a taxpayer could obtain a six month extension period for most Form 1120 series returns by filing Form 7004. Section 2006(c) of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P. L. 114-41, changed the due date for filing the tax return of most C corporations, and thus the date by which a C corporation must file Form 7004 for the Form 1120 family of corporate returns (except Form 1120-C , Form 1120S, and Form 1120-IC-DISC) has changed. Section 2006(c) changed the duration of the automatic extension of time to file. The provisions are effective for tax years beginning after December 31, 2015:

    • The due date of a C corporation’s return (except Form 1120-C, Form 1120S and Form 1120-IC-DISC), by which Form 7004 shall be filed, shall be the 15th day of the fourth month following the close of the C corporation’s tax year, with one exception. The income tax return of a C corporation that ends its tax year on June 30 remains due on or before the 15th day of the third month following the close of the fiscal year for tax years beginning before January 1, 2026.

    • For tax years that end on June 30 and begin before January 1, 2026, the duration of the automatic extension is seven months.

    • For all other tax years beginning after December 31, 2015, the duration of the automatic extension is six months.

    Note:

    The return due dates for Form 1120-C filers who meet the requirements of section 6072(d) and Form 1120-IC-DISC filers have not changed. Form 1120S is a return of an S corporation. Therefore, there is no change to the extension process for filers of these returns.

  4. Due to the late date that the legislation was passed, IDRS programming was not completed until January 2017. Therefore, interim guidance was developed to handle extension request received in 2016.

  5. Timely filed calendar year Form 7004 are no longer date stamped and the envelope is no longer retained. However, the first document within a block of these forms will contain a received date. If the form is delinquent but the postmark on the envelope is timely, Code and Edit circles the received date. Consider timely any calendar year (200312 and subsequent) Form 7004 that are not date stamped. Follow IRM 20.1.2.1.3, Extension of Time to File and Pay, for penalty abatement procedures.

  6. The taxpayer indicates on line 3, Form 7004, the tentative amount of tax for the taxable year. The amount is identified by TC 620 and is for reference purposes only.

  7. Even though a corporation has an extension of time to file, a failure to pay penalty may be assessed if the amount paid on or before the unextended due date of the return, is not at least 90 percent of the tax shown on line 31, Form 1120. See IRM 20.1.2.1.3, Extension of Time to File and Pay, for more information.

  8. The filing of Form 7004 does not affect the amount of interest assessed. Interest is generally assessed on any unpaid liability from the original due date of the return until the balance is paid in full.

  9. When correspondence is received requesting an explanation of the interest and/or penalties:

    1. Phone or send Letter 219C, Corporate Penalty and Interest Explained (Form 7004).

    2. If the taxpayer states Form 7004 was timely filed, research to locate the form. Follow IRM 20.1.2.1.3, Extension of Time to File and Pay, for penalty abatement procedures.

    3. If Form 7004 posted to an incorrect period or TIN, make any necessary credit transfers and re-input Form 7004 using REQ77 to input TC460/462.

  10. See IRM 21.7.4.3.5, Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns, for additional information.

Form 1120 Short Period Final Returns with Tax Period Beginning After December 31, 2015 Filing Extension Requests
  1. The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P.L. 114-41, changed the due date for filing certain Form 1120 corporate returns for taxable years beginning after December 31, 2015. See IRM 21.7.4.4.4.2.1, Form 1120 Corporate Series Return Due Dates – Tax Years Beginning after December 31, 2015, for more information.

  2. For short tax periods beginning after December 31, 2015, the federal income tax return for the Form 1120 family of returns (except Form 1120-C, Form 1120S and Form 1120-IC-DISC) and therefore, the date by which a C corporation may request an automatic extension of time to file the return using Form 7004, is the 15th day of the fourth month following the close of the corporation’s tax year with one exception as follows:

    • The income tax return of a C corporation that ends its tax year on June 30 remains due on or before the 15th day of the third month following the close of the fiscal year for tax years beginning after December 31, 2015 and before January 1, 2026.

  3. The duration of the extension of time to file is based on the month that the C corporation’s tax year ends. For tax years beginning after December 31, 2015, and before January 1, 2026, see paragraph 3 in IRM 21.7.4.4.4.5 for the duration of the automatic extension period.

  4. If it is determined that the Form 7004 is for a tax period beginning after December 31, 2015, and the C corporation return is other than Form 1120-C, Form 1120S or Form 1120-IC-DISC, and the extension of time to file is filed:

    • By the 15th day of the fourth month , a six-month extension will be granted. October 15th for a calendar year filer.

    • After the 15th day of the fourth month the extension request will be denied.

  5. If an inquiry is received for a tax period beginning after 12/31/2015 stating that the taxpayer filed an extension request for a C corporation for the Form 1120 family of returns (other than Form 1120-C or Form 1120-IC-DISC or for tax years ending on June 30) by the 15th day of the fourth month. If research:

    • Verifies the claim, input TC 460 and allow an extension of the duration indicated in paragraph (3) above, calculated from the due date of the Form 1120.

    • Indicates that the request for extension was filed after the 15th day of the fourth month, advise the taxpayer that the request for extension was filed late and do not abate the penalty.

      Note:

      When necessary, the tax period begin date can be determined by looking at the tax period end date of the previous tax period if a return was previously filed for that period. If the tax period began before 1/1/2016, then the extension is late if it was filed after the 15th day of the 3rd month following the close of the tax period.

Taxpayers Abroad
  1. Corporations are entitled to an automatic 2 - 3 month extension to file and pay under certain conditions outlined in IRM 20.1.2.1.3.3, Taxpayers Abroad. When a corporate return is identified during processing as qualifying for the extension, Code & Edit will enter Computer Condition Code (CCC) "R" on the return if the return was filed by the extended return due date, and it will also enter CCC "D" on the return if the tax shown on the return was paid by the extended return due date.

  2. CCC "R" is not entered on returns that were filed after the extended return due date, nor is CCC "D" entered on returns where the tax shown on the return was not paid by the extended return due date. This presents a problem since BMF does not recognize the automatic extension without manual intervention.

  3. A corporation may respond to a penalty notice indicating that it qualifies for the extension under 26 CFR 1.6081-5. Before taking any action verify that it does qualify (see IRM 20.1.2.1.3.3). If the corporation qualifies, input TC 460 to allow an extension to the 15th day of the sixth month following the end of the tax period. This will cause the Failure to File penalty to recompute.

  4. Since there is no way to input an extension of time to pay, the Failure to Pay penalty for paying late will have to be manually adjusted if the Form 1120 reported tax and the corporation did not paid the tax by the original return due date.

    • If the automatic extension is a three month extension, multiply the unpaid tax on the original return due date by 1.5% (0.015).

    • If the automatic extension is a two month extension, multiply the unpaid tax on the original return due date by 1.0% (0.010).

  5. Input TC 271 for the computed amount as a negative number. Use reason code 062 (so as not to restrict the FTP penalty) and penalty reason code 030. Use hold code 0 to allow an adjustment notice to be issued.

Change in Accounting Period (Corporations)
  1. Under certain conditions, corporations (other than Subchapter S or personal service corporations and as defined in Revenue Procedure 2006-45) may obtain automatic approval to adopt, change, or retain its annual accounting period under IRC 442 of the Internal Revenue Code. See Rev. Proc. 2006-45, 2006-45 I.R.B. 851, In addition, see Rev. Proc. 2007-64, 2007-42 I.R.B. 818, which modifies a scope provision and one of the terms and conditions under with IRS grants approval under Rev. Proc. 2006-45. If a taxpayer does not qualify to make the change under the automatic procedures of Rev. Proc. 2006-45, the taxpayer must make the change under Rev. Proc. 2002-39. 2002-22 I.R.B. 1046.

  2. Under Revenue Procedure 2002-39, a taxpayer must file its Form 1128, Application to Adopt, Change, or retain a Tax Year, no later than the due date (not including extensions) of the federal income tax return. The due date for filing C corporation returns has been changed from March 15 to April 15 for calendar year taxpayers and from the 15th day of the third month following the close of the taxable year to the 15th day of the fourth month following the close of the taxable year for fiscal year taxpayers. This change applies for taxable years beginning after December 31, 2015, except for a corporation with a year ending on June 30, in which case the new rule applies for tax years beginning after December 31, 2025.

  3. Entities other than corporations may also obtain automatic approval to adopt, change, or retain its annual accounting period under IRC 442 of the Internal Revenue Code. See Rev. Proc. 2006-46, 2006-45 I.R.B. 859.

  4. See Publication 538, Accounting Periods and Methods, for more information on accounting periods and the Instruction to Form 1128.

  5. A change in accounting period can be identified by TC 053 or 054 on cc ENMOD.

Taxpayer Requests Ruling on Accounting Period
  1. IRS charges a user fee when the taxpayer requests a ruling from the National Office on an accounting period.

  2. If the taxpayer does not qualify for the automatic approval provisions, they are instructed to file Form 1128, Application to Adopt, Change, or Retain a Tax Year, with the Commissioner of IRS in Washington D.C.

  3. In the event the taxpayer sends Form 1128 to a campus with the payment:

    1. Receipt and Control returns the payment to the taxpayer with a Letter 2340C , , Accounting Period User Fee (F1128, F2553) Received, letter of explanation.

    2. Form 1128 is sent to Entity annotated "UFR" (User Fee Returned).

    3. If the taxpayer’s check also included a tax payment, the full amount is applied to his account and the taxpayer notified via Letter 2340C, Accounting Period User Fee (F1128, F2553) Received.

  4. Any correspondence received from the taxpayer requesting a refund of the user fees is sent to CAS:AM on Form 3465. Action required:

    1. If unable to locate the payment, contact the taxpayer via phone or correspondence.

    2. Once the payment is located, issue a manual refund for the portion of the payment applicable to the user fee.

  5. If correspondence is received from the taxpayer as a result of Form 1128 being denied because it was filed late and the taxpayer requests relief under Section 301.9100, quotes Rev. Proc. 79-63 or Rev. Proc. 92-85, or otherwise requests an extension be granted:

    1. Forward the request to Associate Chief Counsel (Procedures and Administration):

      Sent via US Postal Service Sent via Private Delivery Service (e.g., UPS, FedEx, etc.)

      Internal Revenue Service
      Attn.: CC:PA:LPD:DRU, Room 5336
      P.O. Box 7604
      Ben Franklin Station
      Washington, D.C. 20044

      Internal Revenue Service
      Attn.: CC:PA:LPD:DRU, Room 5336
      1111 Constitution Avenue N.W.
      Washington, D.C. 20224
    2. Advise the taxpayer of the referral via Letter 86C, Referring Taxpayer Inquiry/Forms to Another Office.

    Note:

    Such requests are considered requests for letter rulings under Rev. Proc. 2013-1, 2013-1 I.R.B. 1 (or successor) and must be considered in the National Office. The taxpayer is charged a user fee for these types of requests. The amount of the user fee is listed in Appendix A of Rev. Proc. 2013-1, (and on any succeeding revenue procedure).

Tax Computation (Corporations)
  1. Form 1120 filers compute tax on Schedule J using the Instructions for Form 1120. Most corporations figure their tax by using the tax rate schedule below. These rates are effective for tax periods beginning January 1,1993 and subsequent. Be sure to follow the Schedule J submitted by the taxpayer, as there can be other credits or taxes applicable. The total tax on Schedule J is entered on the "Total tax" line on Form 1120.

    If taxable
    income is over
    But not over Tax is Of the
    amount over
    $0 $50,000 15 percent $0
    50,000 75,000 $7,500 + 25 percent 50,000
    75,000 100,000 13,750 + 34 percent 75,000
    100,000 335,000 22,250 + 39 percent 100,000
    335,000 10,000,000 113,900 + 34 percent 335,000
    10,000,000 15,000,000 3,400,000 + 35 percent 10,000,000
    15,000,000 18,333,333 5,150,000 + 38 percent 15,000,000
    18,333,333 ---------- 35 percent 0
  2. For computing tax on short period returns (annualizing tax), see Publication 538, Accounting Periods and Methods. Do not annualize tax on short period initial or final returns.

Exceptions to the Standard Tax Rate (Corporations)
  1. Exceptions apply to the use of the standard tax rates for qualified personal service corporations and members of a controlled group.

  2. The corporation should check the appropriate box and complete the lines on Schedule J if the exceptions apply.

Qualified Personal Service Corporations
  1. A qualified personal service corporation (as defined in IRC 448(d)(2)) is taxed at a flat rate of 35 percent (for taxable years beginning on or after January 1, 1993) on taxable income. See IRM 21.7.4.4.4.3, Personal Service Corporations, for more information on personal service corporations.

Members of a Controlled Group
  1. Members of a controlled group must check the box on line 1 of Schedule J and attach schedule O, Consent Plan and Apportionment Schedule for a Controlled Group, to report the apportionment of taxable income, income tax, and certain benefits between the members of a controlled group.

  2. Schedule O is also used to indicate that all members of the control group:

    • Are not adopting an apportionment plan

    • Are adopting an apportionment plan

    • Already have an apportionment plan

    • Are amending a previously adopted apportionment plan

    • Are terminating the existing apportionment plan

    Note:

    The taxpayer should indicate which of the conditions listed above apply.

  3. Members of a controlled group are entitled to one of each of the taxable income bracket amounts on Part II, Taxable Income Apportionment, of the Schedule O in the order listed below:

    1. $50,000

    2. $25,000

    3. $9,925,000

  4. When a controlled group adopts or later amends an apportionment plan each member must attach to its tax return a copy of its consent plan. The copy (or attached statement) must show the part of the amount in each taxable income bracket apportioned to that member. See Regulations 1.1561-3(b) for additional requirements.

  5. T.D. 9476 contains final regulations that provide guidance to taxpayers for determining which corporations are included in a controlled group of corporations.

  6. Members of a controlled group are treated as one corporation for purposes of figuring the applicability of the additional five percent and three percent tax which must be paid by corporations with taxable income in excess of $100,000 and $15,000,000, respectively. If the additional tax applies:

    1. Each member of the controlled group pays that tax based on the part of the amount used in each taxable income bracket to reduce that member’s tax.

    2. Each member of the group must enter its share of the additional tax in Part III, Income Tax Apportionment on column (f) and (g) and attach to its tax return, a schedule showing the taxable income of the entire group and how the corporation figured its share of the additional tax.

  7. Below is the tax computation worksheet for members of a controlled group. The Accounts Management Services (AMS) worksheet or the instructions for the Schedule O may also be utilized for the tax computation for controlled group members. In addition, use the information from IDRS and not from the taxpayers copy of the Schedule O and Schedule J. That is, back into the new numbers by taking figures from the original return, plus or minus the changes from the amended return.

    Worksheet for Members of a Controlled Group
    (keep for your records)
    Note: Each member of a controlled group (except a qualified personal service corporation) must compute the tax using the worksheet below.
    1. Enter taxable income (line 30, page 1, Form 1120) 1. ________
    2. Enter line 1 or the corporation’s share of the $50,000 taxable income bracket, whichever is less in Part II, Column C 2. ________
    3. Subtract line 2 from line 1 3. ________
    4. Enter line 3 or the corporation’s share of the $25,000 taxable income bracket, whichever is less in Part II, Column D 4 .________
    5. Subtract line 4 from line 3 5. ________
    6. Enter line 5 or the corporation’s share of the $9,925,000 whichever is less in Part II, Column E 6. ________
    7. Subtract line 6 from line 5 7. ________
    8. Multiply line 2 by 15 percent 8. ________
    9. Multiply line 4 by 25 percent 9. ________
    10. Multiply line 6 by 34 percent 10. ________
    11. Multiply line 7 by 35 percent 11. ________
    12. If the taxable income of the controlled group exceeds $100,000, enter this member’s share of the smaller of 5 percent of the taxable income in excess of $100,000 or $11,750 in Part III, Column F 12. ________
    13. If the taxable income of the controlled group exceeds $15,000,000 enter this member’s share of the smaller of 3 percent of the taxable income in excess of $15,000,000, or $100,000 in Part III, Column G 13.________
    14. Add lines 8 through 13. Enter here and on line 2, Schedule J, Form 1120 14. ________
    Members of controlled groups should attach a statement to their tax return (or amended return), showing their tax computation.
Form 4626, Alternative Minimum Tax (Corporations)
  1. The Alternative Minimum Tax (AMT) helps ensure all corporations with economic income pay some amount of tax despite their allowable use of exclusions, deductions, and credits.

  2. The alternative minimum tax provides a formula for tax computation which, in effect, ignores certain preferential tax treatments allowed under law. By eliminating these preferential deductions and credits, a tax liability is created for a corporation which would otherwise pay less tax or no tax.

  3. Alternative minimum tax is computed on Form 4626, Alternative Minimum Tax - Corporations. A corporation may have alternative minimum tax if either of the following apply:

    • The corporation is not a "small corporation" exempt from the AMT (as explained in (4) below).

    • The corporation's taxable income or (loss) before the net operating loss (NOL) deduction plus its adjustments and tax preference items totals more than $40,000, or if smaller, its allowable exemption amount (as computed on Form 4626).

  4. The TPRA of 1997 provided an exemption from alternative minimum tax for small corporations (as defined in IRC 55(e)) applicable to tax years beginning after December 31, 1997. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . Generally, a corporation qualifies as a small corporation exempt from alternative minimum tax for its tax year beginning in 2012 if that year is the corporation's first year in existence (regardless of its gross receipts for the year) or,both of the following apply:

    • It was treated as a small corporation exempt from the alternative minimum tax for all prior tax years beginning after 1997, and

    • Its average annual gross receipts for the 3-year tax period (or portion thereof during which the corporation was in existence) ending before its tax year beginning in 2012 did not exceed $7.5 million. ($5 million if the corporation had only one prior tax year.)

      Note:

      Taxpayers can refer to Temporary Regulations 1.448-1(f)(2)(iv) to determine gross receipts. See Instructions for Form 4626, for more information on figuring gross receipts.

CP 130 Notice, Potential Exemption from AMT
  1. CP 130 Notice, Potential Exemption from AMT, generates when taxpayer completes Form 4626, Alternative Minimum Tax-Corporation, and it appears that they are not liable for the tax.

  2. The Taxpayer Relief Act of 1997 provided an exemption from AMT for certain small corporations. See IRM 21.7.4.4.4.7.2(4) for criteria.

  3. Taxpayers are instructed to check their records to see if they meet the requirements to be deemed a small corporation, and therefore, exempt from AMT. For aggregation rules and other special rules that may apply in figuring gross receipts, see IRC 448(c)(2) and (3). Taxpayer should also check prior years to determine if they were truly liable.

  4. If it is determined (by taxpayer) that they are exempt from the AMT, they should prepare a Form 1120X to delete the AMT reported on their original return. The Form 1120X should be marked "AMT - EXEMPT" at the top of the form and mailed to the campus where the original Form 1120 was filed (Cincinnati or Ogden). See the Instructions for Form 1120, for the address for the taxpayer to send to the Cincinnati or Ogden campus. Reassign Correspondence Image System (CIS) cases with the original return filed in Ogden, to employee number 0440269570.

Schedules, Form 1120 Series
  1. Form 1120 consists of many schedules which must be completed by the taxpayer. They are all part of the 1120 tax package and are self-explanatory. The taxpayer is also required to submit various forms to substantiate credits or tax items applicable to the return. The schedules and forms are listed below:

    • Schedule A, Cost of Goods Sold

    • Schedule C, Dividends and Special Deductions

    • Schedule D, Capital Gains and Losses

    • Schedule E, Compensation of Officers

    • Schedule H, Section 280H Limitations for a Personal Service Corporation (PSC)

    • Schedule J, Tax Computation

    • Schedule K, Other Information

    • Schedule K-1, Shareholder’s Share of Income, Credits, Deductions, etc. (Form 1120S)

    • Schedule L, Balance Sheets per Books

    • Schedule M-1 and M-2, pertain to Schedule L

    • Schedule M-3, Net Income (Loss) Reconciliation for Corporations with Total Assets of $10 Million or More

    • Schedule N, Foreign Operations of U.S. Corporations

    • Schedule PH, Computation of U.S. Personal Holding Company (PHC) Tax (Every PHC must attach this schedule to its income tax return.)

    • Schedule O, Consent Plan and Apportionment Schedule for a Controlled Group

    • Schedule UTP, Uncertain Tax Positions

Credits, Form 1120 Series Returns
  1. Credits can be claimed by submitting the required forms for substantiation. See IRM 21.7.4.4.8, Non-refundable Credits, Income Tax Returns, and IRM 21.7.4.4.9, Refundable Credits, Income Tax Returns, for more information on non–refundable and refundable credits.

Investment Credit, General Business Credit — Missing or Incomplete Schedules
  1. When the original Form 1120 is processed, it is analyzed for the appropriate schedules to support the tax credits claimed. When a form is missing or incomplete:

    1. A letter is issued to the taxpayer requesting the information needed.

    2. If the appropriate forms are received within the suspense period, the credit is allowed.

  2. Late replies are received in CAS:AM if the requested forms were not received timely and, therefore, disallowed. Action required:

    1. Review the forms and/or information received from the taxpayer and verify the credits claimed.

    2. If you do not have a copy of the return, use CC BRTVU. (Do not request the original return unless absolutely necessary.)

    If And Then
    Credit forms/schedules are correct
    1. Input TC 291 to decrease the tax for the amount of credit.
    2. Adjust penalties (see IRM 20.1.2.1.5, Manual Penalty Adjustments) and interest (see IRM 20.2.5.6, Restricted Interest) if restricted.
    3. Notify the taxpayer of the action taken.
    Credit forms/schedules are correct The credit has been previously allowed Attach the information to the TC 150 return.
Investment Credit Erroneously Computed or Claimed
  1. Sometimes a taxpayer receives and returns an erroneous refund which was generated due to either:

    1. The taxpayer recomputed investment credit from the prior year and included the credit amount in the remittance submitted with the return.

    2. The taxpayer claimed unused investment credit carryover, however, the return was filed and no tax due. The refund was generated because the unused investment credit was reported on the incorrect credit line.

  2. Action required:

    1. Determine where the error occurred. (Use CFOL. Do not request the original return unless absolutely necessary.)

    2. Review the account for the returned refund check (TC 841) and monitor until the TC 841 posts.

    3. Input TC 290 for the amount of the tax increase.

Payment of Tax (Corporations)
  1. Beginning after December 31, 2010, authorized depositories will no longer accept Form 8109 and Form 8109-B, Federal Tax Deposit Coupon, to deposit corporate taxes. Most taxpayers will be required to electronically deposit all income, employment, excise, and corporate depository taxes using the Electronic Funds Transfer (EFT). See IRM 21.7.1.4.8.1, Electronic Federal Tax Payment System, for information on EFTPS.

  2. Some taxpayers may be able to remit payment for their employment or excise taxes with their tax return. See IRM 20.1.4.6, De Minimis Exception to Deposit Requirements, for employment taxes and IRM 20.1.4.10.5, De Minimis Exception to Deposit Requirements Form 720, for more information. Corporate taxpayers can also remit payment when filing Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. Foreign corporate taxpayers without a U.S. office can also remit through electronic funds transfer such as EFTPS.

  3. See IRM 21.7.11.4.8, CP 234 - Processing Potential ES Penalty Notices, regarding the postponement of certain corporate ES payments due to disasters or terrorist attacks. Also see the IRS Disaster Assistance Program website for the postponement due to disasters.

Estimated Tax Payments - Due Dates
  1. A corporation's estimated tax payments for a full 12 month period are due on the 15 day of the 4 month, 6 month, 9 month and the 12th month ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . For a calendar year filer, this is the 15th day of April, June, September and December. The payment due dates for periods less than 12 months, are determined by the number of months in the short period. For more information, see IRM Exhibit 20.1.3-2, Installment Due Dates and Percentages of Estimated Taxes for Short Period Returns.

  2. Section 2006(a)(1) of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P. L. 114-41, changed the return due date for most C corporations and is effective for taxable years beginning after December 31, 2015. The federal income tax return for the Form 1120 family of returns (except Form 1120-C, Form 1120S, Form 1120-IC-DISC, is due on or before the 15th day of the fourth month following the close of the corporation’s tax year, with one exception as follows: The income tax return of a C corporation that ends its tax year on June 30 remains due on or before the 15th day of the third month following the close of the fiscal year for tax years beginning after December 31, 2015 and before January 1, 2026.

  3. A corporation which does not pay estimated tax when due may be charged an estimated tax penalty. See IRM 20.1.3, Estimated Tax Penalties, for more information.

  4. A corporation can file Form 8842, Election To Use Different Annualization Periods for Corporate Estimated Tax (now centralized in Cincinnati), to elect different annualization periods for estimated tax. Upon receipt of Form 8842, Code & Edit inputs a TC 971 with Action Code 047 and routes the form to Files to be filed in the Alpha File.

  5. Per Chief Counsel, the IRS will not transfer or re-designate an estimated tax payment or a portion of an estimated tax payment that has been applied to a taxpayer’s account to satisfy a different liability of the taxpayer if the payment was applied according to the taxpayer's instructions. For example, taxpayer requests that we transfer an estimated tax payment from their Form 1120 account to their Form 941 account because the taxpayer believes they will have no tax liability when the Form 1120 is filed. The IRS will not transfer these payments. However, if the taxpayer designated an estimated tax payment to the incorrect form or tax period, or if the IRS applies a payment contrary to a taxpayer's instructions, the IRS will, upon request by the taxpayer, transfer the payment to the intended account.

  6. A corporation that believes it will have overpaid its estimated tax for the tax year may apply for a quick refund on Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax, before the 16 day of the 3rd month after the end of the tax year at issue, but before it files its income tax return, if the overpayment is at least 10 percent of the expected tax liability and at least $500. A corporation should not file Form 4466 before the end of its tax year. Form 4466 is worked in Accounting. See IRM 3.17.79.3.12, Form 4466, Corporation Application for a Quick Refund of Overpayment of Estimated Tax, for more information on the processing of Form 4466.

Large Corporate Underpayments
  1. A 2 percent increased rate of interest may be imposed on large corporate underpayments (see IRM 20.2.5.8, Large Corporate Underpayments). A large corporate underpayment is defined as any underpayment of tax by a "C" corporation for any taxable period after January, 1991, if the amount of the underpayment exceeds $100,000 and is not paid within 30 days of the earliest: 30-day letter, 90-day letter, or a notice and demand (bill). For purposes of determining if the additional 2 percent interest applies for periods after December 31,1997, any letter or notice is disregarded if the following is $100,000 or less, not taking into consideration interest, penalties, or additions to tax:

    1. The amount of deficiency; or

    2. The proposed deficiency; or

    3. The assessment; or

    4. The proposed assessment

  2. A "C" corporation indicator is set in the entity section of corporations defined as "C" corporations.

  3. See IRM 20.2.5.8(1), Large Corporation Underpayment (LCU) for information on determining the 2 percent start (trigger date) and computing interest. "C" Corporation includes corporate income, employment and excise tax returns.

  4. Computations of interest on large corporate underpayments must be performed by a restricted interest specialist, because the system cannot always determine the start date. The 30-day or 90-day letter date should be annotated on Form 3198 or appropriate closing document and in the file when the tax is over $100,000.

Other Form 1120 Series Returns
  1. There are various types of Form 1120 series returns which are filed dependent upon the type of corporation involved.

Form 1120-A, U.S. Corporation Short-Form Income Tax Return
  1. Effective for tax years beginning after December 31, 2006, Form 1120-A is obsolete and can no longer be filed. Beginning in tax year 2007, all domestic corporations, unless required to file a special return, must file Form 1120, U.S. Corporation Income Tax Return. Form 1120-A had the same due dates and statute of limitations as Form 1120. Previously, Form 1120-A could be filed by certain corporations.

Form 1120S, U.S. Income Tax Return for an S Corporation
  1. A domestic corporation can elect under IRC 1362(b)(1) to be taxed under provisions of Subchapter S of the IRC by filing Form 2553, Election by a Small Business Corporation. See the Instructions for Form 2553 for more information on filing Form 2553. An approved election can be identified by TC 090 on CC ENMOD. The filing requirement code (FRC) is 02 (1120-02) and the document code is 16.

  2. Generally, an S corporation must file Form 1120S by the 15th day of the third month after the end of its tax year. For calendar year corporations, the tax year Form 1120S is due on or before March 15th following the end of the tax year. A corporation that has dissolved must generally file by the 15th day of the third month after the date it dissolved. If the due date falls on a Saturday, Sunday, or legal holiday, the corporation can file on the next day that is not a Saturday, Sunday, or legal holiday. See IRM Exhibit 3.11.217-1, Due Date Chart, for Form 1120S due dates.

  3. These corporations elect not to be subject to income taxes. If a corporation qualifies, its income is generally taxed to the shareholders. Shareholders are required to report their share of income (from Schedule K-1) on their individual (F1040) income tax returns. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

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

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

    • Claims and/or amended returns involving Ponzi Scheme issues (including language discussing removal of phantom or fraudulent income). Route to Examination as CAT-A ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Note:

      For more information on fraudulent arrangements (aka "ponzi schemes" ) see Revenue Ruling 2009-09, Rev. Proc. 2009-20, and Rev. Proc. 2011-58 which modifies Rev. Proc. 2009-20.

  4. See IRM 21.7.9.4.1.6, Duplicate Filing Conditions Involving Returns Prepared Under IRC Section 6020(b), when the TC 150 is a 6020(b) and the TC 976 is the taxpayers original return or when the TC 150 is the taxpayers return and the TC 976 is the 6020(b).

  5. Taxpayers electing to be considered as an S corporation, should mail their original election or fax a photocopy to the campus listed in the Instructions for Form 2553, (Cincinnati or Ogden) based on the taxpayer's geographical location.

  6. The campus notifies the corporation if its election is accepted and when it takes effect. The corporation is also notified if its election is not accepted. See IRM 3.13.2.22.10, Chief Counsel Referrals, for a list of the CP Notices that are sent to the taxpayer. Generally, the corporation should receive notification within 60 days if mailed or faxed. If Box Q1 in Part II on page 3 is checked, a ruling letter from the IRS in Washington, DC, generally takes an additional 90 days for the Form 2553 to be accepted.

  7. If the corporation is not notified of denial or acceptance within 40 days of the date mailed or faxed, or within 130 days if box Q1 is checked, view CC ENMOD and look for the following codes and advise the taxpayer accordingly (either by correspondence, Letter 385C, S Corporation Election (F2553) Acknowledged/ Accepted, or by telephone):

    • TC 090 - Small Business Election accepted

    • TC 093 - Application for Sub-Chapter S Election Form 2553

    • TC 094 - Sub-Chapter S election denied

  8. Although the time frames in paragraph (6) above may not have passed, If either of the time frames in paragraph (7) above has passed, and no information is available, or the transaction code on the account is TC 093, prepare Form e-4442/4442, Inquiry Referral. Mark the date the Form 2553 was faxed or mailed, and advise taxpayer they will be contacted by the end of the time period in (5) above. FAX to BMF Entity Unit in the appropriate campus:

    • Cincinnati - 855-270-4081

    • Ogden - 855-214-7520

  9. Certain taxpayers are unable to file Form 1120S electronically due to a mismatch on the filing requirements. In these cases, the taxpayer has filed Form 2553 and an un-reversed TC 090 is on ENMOD. However, the filing requirements have not been updated to 1120-02. Therefore, the return is rejected. If you receive a call from a taxpayer who states that they tried to file Form 1120S electronically but were rejected, check for an un-reversed TC 090 on the account for the tax period in question and follow the chart below:

    If Then
    If the taxpayer has a valid S Corporation election (TC 090) but their filing requirement code is 01
    Inform the taxpayer of the valid election.
    Tell them to follow the instructions provided by their ERO/e-file provider to file their return.

    Note:

    If their ERO/e-file provider has not contacted the e-help desk unit, advise the caller that the ERO/e-file provider should call the e-help desk toll-free at 1-866-255-0654 for instruction. See IRM 3.42.7.1.1, Hours of Operation.

    If the taxpayer has already contacted the e-help desk and they were unable to help them Tell the taxpayer to file their Form 1120S on paper and request abatement if and when they receive a penalty notice from the service. Apologize for the inconvenience. Also, prepare a Form 4442 and route to Entity. Entity will input a TC 092 and then a TC 090 (a cycle later) in an attempt to re-instate the 1120-02 filing requirement.
Relief for Late S Corporate Elections
  1. IRC 1362(b)(1) provides that a small business corporation may make an election to be an "S" Corporation for any taxable year:

    • At any time during the preceding taxable year, or

    • At any time during the taxable year and on or before the 15th day of the third month of the taxable year.

  2. Under IRC 1362(b)(3), if an S corporation election is made after the 15th day of the third month of the taxable year and on or before the 15th day of the third month of the following taxable year, then the S corporation election is treated as made for the following taxable year.

  3. If an election is made after the date prescribed in IRC 1362(b) or no election is made for any taxable year, the Secretary may determine whether there is reasonable cause to treat the election as timely.

  4. IRC 1362(b)(5) provides that if:

    1. an election under IRC 1362(a) is made for any taxable year (determined without regard to IRC 1362(b)(3)) after the date prescribed by IRC 1362(b) for making the election for the taxable year, or no election is made for any taxable year, and

    2. the Secretary may treat the election as timely made for the taxable year (and IRC 1362(b)(3) shall not apply) if the Secretary determines that there was reasonable cause for the failure to timely make the election.

  5. Previously the following revenue procedures provided procedures by which taxpayers could request relief:

    • Rev. Proc. 97-48

    • Rev. Proc. 2002-59

    • Rev. Proc. 2003-43

    • Rev. Proc. 2004-48

    • Rev. Proc. 2007-62

  6. Revenue Procedure 2013-30 facilitates the granting of relief to taxpayers that request relief previously provided in numerous other revenue procedures by consolidating the provisions of those revenue procedures into one revenue procedure and extending relief in certain circumstances. It is the controlling revenue procedure for all late elections including those that were pending under the older revenue procedures.

  7. Rev. Proc. 2013-30 provides special procedures to obtain automatic relief for certain S corporation’s elections. Generally, relief is available when all the following conditions are met:

    • The Requesting Entity intended to be classified as an S corporation;

    • The Requesting Entity requests relief under this revenue procedure within 3 years and 75 days after the Effective Date:

    • The failure to qualify as an S corporation as of the Effective Date was solely because the Election Under Subchapter S was not timely filed by the Due Date of the Election Under Subchapter S; and

    • In the case of a request for relief for a late S corporation, the Requesting Entity has reasonable cause for its failure to make the timely Election Under Subchapter S and has acted diligently to correct the mistake upon its discovery. In the case of a request for relief for an inadvertently invalid S corporation election or an inadvertent termination of an S corporation election due to the failure to make the timely ESBT or QSST election, the failure to file the timely Election Under Subchapter S was inadvertent and the S corporation and the person or entity seeking relief acted diligently to correct the mistake upon its discovery.

  8. Rev. Proc. 2013-30 provides a simplified method to request relief for a late S corporation election when the entity fails to qualify solely because of the failure to timely file the election. This provision allows that certain entities may be granted relief for failure to timely file the election if the request for relief is filed within 24 months of the due date of the election.

  9. An eligible entity may elect to be classified by filing Form 8832, Entity Classification Election. The election is effective on the date specified on the Form 8832 and:

    1. The election cannot be more than 75 days prior to the date on which the election is filed and

    2. The election cannot be more than 12 months after the date on which the election is filed.

    3. The Commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election.

  10. Revenue Procedure 2009-41, 2009-2 I.R.B. 439, provides relief with respect to late entity classification elections for an eligible entity’s initial classification election or change in classification election. Eligible entities meeting the requirements under Section 4 of that revenue procedure must request relief within 3 years and 75 days of the requested effective date of the eligible entity’s classification election.

  11. Rev. Proc 2013-30 modifies and supersedes the revenue procedures below for taxpayers to request relief for late S corporation elections, Electing Small Business Trust (ESBT) elections, Qualified Subchapter S Trust (QSST) elections, Qualified Subchapter S Subsidiary (QSub) elections, and late corporate classification elections which the taxpayer intended to take effect on the same date that the taxpayer intended that an S corporation election for the entity should take effect:

    • Rev. Proc. 2003-43, 2003-1 I.R.B. 998

    • Rev. Proc. 2004-2, 2004-2 I.R.B. 172

    • Rev. Proc. 2007-2, 2007-2 I.R.B. 786

  12. Rev. Proc. 2013-30 also:

    • Incorporates certain relief provisions included in: Rev. Proc 97-48, 1997-2 I.R.B. 521 and Rev. Proc. 2004-49, 2004-2 I.R.B. 210.

    • Supersedes the relief provided in Situation 1 of Rev. Proc. 97-48.

    • Obsoletes the relief provided in Situation 2 of Rev. Proc. 97-48 because such relief is no longer available.

    • Modifies and supersedes the relief provided in sections 4.01 and 4.02 of Rev. Proc. 2004-49.

    • Obsoletes the relief provided in section 4.03 of Rev. Proc. 2004-49 because the time period for its narrow scope of relief has expired.

  13. Rev. Proc. 2003–43 provides a simplified method for taxpayers to request relief for late ESBT and QSST elections if the request for relief is filed within 24 months of the due date of the election

  14. Rev. Proc. 2013-30 provides the exclusive simplified methods for taxpayers to request relief for late S corporation elections, ESBT elections, QSST elections, QSub elections, and late corporate classification elections which the taxpayer intended to take effect on the same date that the taxpayer intended that an S corporation election for the entity should take effect.

  15. This revenue procedure provides procedures for situations within its scope that are in lieu of the letter ruling process ordinarily used to obtain relief for a late Election Under Subchapter S (as defined in Section 4.01(5)) pursuant to IRC 1362(b)(5), IRC 1362(f), or section 301.9100-1 and section 301.9100-3. Accordingly, user fees do not apply to corrective actions under this revenue procedure.

  16. Section 4.01 of Rev. Proc. 2013-30 provides the definitions of various terms. Section 4.02 provides the requirements for relief and section 4.03 provides the general procedural requirements for relief. Section 5 of this revenue procedure provides a simplified method for taxpayers to request relief for late S corporation elections (which may or may not include a Deemed Entity Classification Election (as defined in Section 4.01(1) of this revenue procedure).

  17. A requesting entity seeking relief for a late S corporation election under section 5.01 of this revenue procedure must file a completed Form 2553, signed by (1) an officer of the corporation authorized to sign, and (2) all persons who were shareholders at any time during the period that began on the first day of the taxable year for which the election is to be effective and ends on the day the completed Election Form is filed.

  18. Taxpayer's may file the required forms electronically through Modernized e-File (MeF) or on paper. Code and Edit (C&E) will edit Error Resolution System (ERS) Action Code (AC) 347 on paper returns and MeF will generate ERS AC 347 for electronically filed Form 1120S citing Rev. Proc. 2013-30. See IRM 3.12.2.7.5.1, ERS Action Code 347 - Revenue Procedure 2013-30, for more information.

  19. Section 6 of Rev. Proc 2013-30 provides a simplified method for taxpayers to request relief for late ESBT and QSST elections. Section 7 of this revenue procedure provides a simplified method for taxpayers to request relief for late QSub elections.

  20. Section 8.01, except as provided in Section 8.02 of Rev. Proc. 2013-30, is effective September 3, 2013, the date of publication of this revenue procedure in the Internal Revenue Bulletin. This revenue procedure applies to requests pending with the IRS Service Center pursuant to Rev. Proc. 97-48, Rev. Proc. 2003-43, Rev. Proc. 2004-48, and Rev. Proc. 2007-62 on September 3, 2013, and to requests received thereafter. It also applies to all ruling requests pending in the IRS national office on September 3, 2013, and to requests for relief received thereafter.

  21. An entity that does not meet the requirements for relief or is denied relief under Rev. Proc 2013-30 may seek relief by requesting a letter ruling. The procedural requirements for requesting a letter ruling are described in Rev. Proc. 2015-1, 2015–1 I.R.B. 1, (or successors).

  22. Rev. Proc. 2013-30 provides relief if the taxpayer satisfies the general requirements of Section 4 and the specific requirements applicable to that taxpayer under Sections 5 through 7 of this revenue procedure. See IRM 3.12.2.7.5.1, ERS Action Code 347 - Revenue Procedure 2013-30, for Entity's procedures for processing returns requesting relief under Rev. Proc. 2013-30.

Estimated Tax Payments (Subchapter S Corporations)
  1. Generally, the Subchapter S corporation must make estimated tax payments for the following taxes when the total of these taxes is $500 or more:

    • Tax on certain capital gains

    • Tax on built-in gains

    • Excessive net passive income tax

    • Investment credit recapture tax

  2. The due date and extension to file requirements are the same as Form 1120. See the Instructions for Form 1120S for more information regarding the payment of tax.

Required Tax Year (Subchapter S Corporations) and Exceptions
  1. Subchapter S corporations must generally use a calendar year.

  2. An exception is made when a business purpose for having a different tax year is established. An approved exception is identified by TC 054.

  3. The Subchapter S corporation can make a Section 444 election to have a tax year other than a required tax year.

    1. The election is filed on Form 8716.

    2. It is identified by TC 055.

    3. See IRM 21.7.4.4.6, Form 8716 Election to Have a Tax Year Other Than a Required Tax Year, for more information.

Refundable Credit (Form 1120S)
  1. Form 4136, Credit for Federal Tax Paid on Fuels, is used to claim the refundable credit listed on Form 1120S.

  2. If the taxpayer files a nontaxable return and attaches Form 4136, the refund is allowed during initial processing.

  3. If the credit is not claimed on the initial return and the taxpayer files an amended return with Form 4136 attached, follow procedures in IRM 21.7.4.4.9.1, Form 4136, Credit for Federal Tax Paid on Fuels.

Item Reference Number (IRN) 886, Form 1120S
  1. Adjust IRN 886 when there is a change to the ordinary income (taxable income) line.

  2. See IRM 21.7.4.4.4.12, Adjusting Tax and Item Reference Number (IRN) 886, for more information on IRN 886.

  3. See IRM 21.7.4.4.4.11.2.7, regarding adjusting taxable income when converting Form 1120 back to Form 1120S.

Form 8869, Qualified Subchapter S Subsidiary Election (Under Section 1361(b)(3) of the Internal Revenue Code)
  1. Form 8869 is used by a parent S corporation to elect to treat one or more of its eligible subsidiaries (see (2) below) as a qualified Subschapter S subsidiary (QSub). The QSub election results in a deemed liquidation of the subsidiary into the parent. Following the deemed liquidation, the QSub is not treated as a separate corporation; all of the subsidiary's assets, liabilities and items of income, deduction, and credit are treated as those of the parent.

    Note:

    Because the liquidation is a deemed liquidation, it is not necessary to file Form 966, Corporate Liquidation and Dissolution. However, a final return for the subsidiary may have to be filed if it was a separate corporation prior to the date of liquidation.

  2. An eligible subsidiary is a domestic corporation whose stock is owned 100 percent by an S corporation and is not one of the following ineligible corporations:

    • A bank or thrift institution that uses the reserve method of accounting for bad debts under Section 585.

    • An insurance company subject to tax under the rules of Subchapter L of the Code.

    • A corporation that has elected to be treated as a possessions corporation under Section 936.

    • A Domestic International Sales Corporation (DISC) or former DISC.

  3. Form 8869 should be filed at the campus where the subsidiary filed its most recent return. However, if the parent S corporation forms a subsidiary, and makes a valid election effective upon formation, Form 8869 should be filed at the campus where the parent S corporation filed its most recent return. Generally, a determination as to the acceptance of the election is sent within 60 days of receipt at the campus.

  4. The election can be made at any time during the tax year. However, the effective date depends upon when it was filed. The effective date cannot be more than:

    1. Two months and 15 days prior to the date of filing the election, or

    2. 12 months after the date of filing the election.

  5. Once the QSub election is made, it remains in effect until terminated. If the election is terminated, IRS consent is generally required for another election by the parent corporation (or its successor) on Form 8869 for any tax year before the fifth tax year after the first tax year in which the termination took effect. See Regulations Section 1.1361–5(c) for more details.

  6. The following transaction codes on the entity module pertain to Form 8869.

    • TC 082 - Acceptance of Form 8869

    • TC 083 - Reversal of TC 082

    • TC 084 - Termination of Form 8869

    • TC 085 - Reversal of TC 084

    • TC 086 - Effective date of revocation

    • TC 087 - Reversal of TC 086

  7. If a taxpayer contacts the Service regarding the filing of Form 8869, research CC ENMOD for the transaction codes in paragraph (6) directly above and advise taxpayer of the status. If the account reflects that the Form 8869 was either accepted or denied and the taxpayer states they received no response from IRS, prepare Form 4442 and route to Entity. If it has been more than 60 days since the taxpayer submitted Form 8869 and they have not received a response, or the Service has no record of receiving the form, advise the taxpayer to re-file Form 8869 at the location that they originally filed Form 8869. In addition, instruct the taxpayer to enclose an explanation on why they are re-filing the form and to provide any proof they may have that they filed the form timely.

  8. See the General Instructions for Form 8869 for additional information.

Converting Form 1120 Back to Form 1120S
  1. When a taxpayer files a Form 1120S (Document Code 16) and does not have a valid Small Business Election, Form 2553 (TC 090 on ENMOD) on file, the TC 150 goes Unpostable Code 310 RC 4. Per IRM 3.13.222.62, Unpostable Code (UPC) 310 Reason Code 4, Entity searches for a valid election. If a valid election is not found, Entity contacts/corresponds with the taxpayer. At this point, Entity inputs a TC 971 AC 375 to identify that the 1120S has failed to post and that a phone call was made or a letter was issued to the taxpayer. See IRM 3.13.222.62, Unpostable Code (UPC) 310 Reason Code 4, for the action Entity takes based on the taxpayer’s response.

  2. If the taxpayer does not respond to Entity’s contact, Entity converts the Form 1120S to a Form 1120 (See IRM 3.11.16.4.2, Conversion of Form 1120S to Form 1120). Entity inputs TC 971 AC 376 to identify the conversion from Form 1120S to Form 1120 and that no reply was received. This action freezes the module from refunding or credit electing.

  3. If the taxpayer contacts the Service after the return has been processed as a Form 1120 and claims that they have a valid election, follow the instructions in IRM 21.7.4.4.4.11.2(6) and (7). If a valid election (TC 090) is found on the account, the freeze is released when the TC 090 posts. If the TC 971 was input to an incorrect EIN or tax module, input TC 972 AC 376 to reverse the TC 971 which will release the credit.

  4. When Entity determines that the taxpayer should have been classified as a small business and the previously converted Form 1120 should be converted back to a Form 1120S, they prepare a Form 3465 and route it to Accounts Management stating: "REMOVE THE TAX FROM POSTED FORM 1120 – TC 150 SHOULD BE A FORM 1120S." Entity ensures that the filing requirement of "02" is set.

  5. Accounts Management removes the tax from the account as requested. Input the adjustment using blocking series 18 so that it becomes the controlling DLN and has the original return attached to it. Only adjust taxable income if the original return is secured, was filed electronically, or if the taxpayer sends a copy or faxes a copy of their return. It is not necessary to pull the original return strictly to adjust the taxable income.

  6. When a Form 1120 is converted back to a Form 1120S, the return due date needs to be corrected. See IRM 21.7.4.4.4.2.1.2, Correcting the Form 1120 Due Date, for the procedures to input TC 971 Action Code 358 to change the return due date on TXMOD. The return due date for Form 1120S is the 15th day of the third month following the end of the tax year.

  7. In addition, remove any penalties that were manually assessed since they do not apply to Form 1120S such as ES penalty, or penalties that were manually restricted. Also, address systemic penalties if necessary. FTF and FTP will systemically abate when the tax is fully abated. Determine whether a penalty should be charged for failure to file an S corporation return under IRC 6699 or complete return as required under IRC 6037. The penalty should be based on the number of shareholders reported on the original Form 1120S return. Entity will notate the number of shareholders on the Form 3465. See IRM 21.7.4.4.4.11.2.8, Failure to File S Corporation Return , and IRM 20.1.2.5, Failure to File S Corporation Return - IRC 6699, for more information.

  8. If the taxpayer never filed Form 8832, Entity Classification Election, and/or Form 2553, Election by a Small Business Corporation, and intended to be classified as a small business, advise them to see Rev. Proc. 2013.30, to request relief for a late S corporation election. (See IRM 21.7.4.4.4.11.2.1.). However, if the taxpayer never intended to be classified as a small business, advise them to file a Form 1120.

Failure to File S Corporation Return Penalty
  1. Section 9, Penalty for Failure to File S Corporation Returns, of the Mortgage Forgiveness Debt Relief Act of 2007, P.L. 110-142, adds section 6699, Failure to File S Corporation Return to the IRC. See IRM 20.1.2.5, Failure to File S Corporation Return - IRC 6699, for more information.

  2. A S Corporation may be assessed a penalty under IRC 6699 for failure to file a timely and complete return as required under IRC 6037. The return is considered incomplete when Form 1120S is lacking the required information required by section 6037, such as Schedule(s) K-1, or a Schedule L, Balance Sheet. See IRM 3.12.217.2.18, Field 01MSC - Missing Schedule Code, for information on missing schedule codes. The incomplete return penalty is assessed with TC 240 or TC 246. The late filing penalty is assessed with TC 160 or TC 166. The provision is effective for returns that are due after December 20, 2007. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

  4. For the purpose of the penalty, a "shareholder" is any person who held any shares in the corporation during any part of the taxable year covered by the return in question.

  5. Initially, the penalty was set to be assessed at $85 per shareholder for each month or part of a month that the return was late or incomplete, for up to 12 months. However, section 128 of the Workers, Retiree, and Employer Recovery Act of 2008, P.L. 110-458, increased the penalty by $4 to $89 per shareholder per month. The increase is effective for returns due after December 31, 2008, without regard to extensions. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. Section 16 of the Worker, Homeownership, and Business Assistance Act of 2009, P.L. 111-92, increased the penalty to $195 per shareholder per month for returns with a tax year beginning after December 31, 2009. For manual penalty adjustments, follow the chart below:

    If the tax period is and the penalty amount per shareholder per month is
    200812 through 200912 $89
    201001 through 201011 the tax period begins on or before 12/31/2009 $89
    201001 through 201011 the tax period begins after 12/31/2009 $195
    201012 through 201709 the tax return is due on or before December 31, 2017 $195
    201710 and subsequent the tax return is due after December 31, 2017 $200
  7. Caution:≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  8. Section 208, Division B, Title II, of the Tax Increase Prevention Act of 2014, P.L. 113-295, amends the Internal Revenue Code to require an annual inflation adjustment to the penalty under IRC 6699. The inflation adjustments are made in $5 increments and required for returns due in calendar years after 2014. For returns due in 2015 through 2017 the penalty remained at $195 per shareholder per month the return is delinquent.

  9. Per Chief Counsel, the Failure to File Penalty increases to $200 per shareholder, per month, for a maximum of 12 months, for tax returns due after December 31, 2017.
    Example 1 - A fiscal year return that begins November 1, 2016 and ends October 31, 2017(201710) is due January 15, 2018. Because the return is due in 2018, the penalty increases to $200 per shareholder, per month, for a maximum of 12 months.
    Example 2 - A fiscal year return that begins October 1, 2016 and ends September 30, 2017 (201709) is due December 15, 2017. Because the return is due in 2017, the penalty remains at $195 per shareholder, per month, for a maximum of 12 months.

  10. A CP 162 NoticeFiling Penalty - S Corporation, is sent when there is no tax owed and the taxpayer has been assessed a Failure to File Penalty or an Incomplete Return Penalty. A CP 161 Notice No Math Error, Balance Due (Except Form 1065), is issued if tax is owed and a Failure to File Penalty or an Incomplete Return Penalty has been assessed.

    Note:

    Programming problems were identified with the processing of Form 1120S returns in processing cycles 201103 through 201106. Notice Review attempted to stop the notices and correct the accounts. A recovery was performed. However, if you receive a taxpayer inquiry questioning the penalty amount, check the IDRS message file (cc MESSG) for special instructions. If none are posted, follow the chart above and re-compute the penalty based on figures shown above, the tax period beginning start date and the number of shareholders shown on cc BRTVU. Apologize for any inconvenience.

  11. If you receive an inquiry from a taxpayer who has received a penalty notice for either filing late (TC 16X) or for filing an incomplete return (TC 24X) claiming that the number of shareholders is incorrect, perform the following research and confirm the number of Schedules K-1 filed matches number of Schedules K-1 claimed:

    • Research IDRS command code BMFOLR, line 13, in the field that reads "1120S SHRHLDRS" or

    • For electronically filed returns, review the return via command code TRDBV or via the Employee User Portal (EUP).

  12. If you are able to verify the number of shareholders claimed by the taxpayer matches our records, adjust the penalty accordingly (≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ). The penalty is computed at the dollar amount shown in the chart above. multiplied by the number of persons who were shareholders (during any part of the taxable year) for each month or fraction thereof that such failure continues, but not to exceed 12 months. See prior revisions of this IRM for the penalty amount for returns due before January 1, 2009.

  13. If unable to verify the accuracy of the oral statement:

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , inform the taxpayer to submit a written request for penalty abatement or to file an amended return (Form 1120-S with box H(4) checked) to correct the number of shareholders and (if applicable) the schedules K-1 attached to the return and request abatement.

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , adjust penalty based on number of shareholders the taxpayer claimed.

  14. If an amended return is received correcting the number of shareholders, adjust the penalty accordingly. The penalty is computed at $89 or $195 (see chart above) multiplied by the number of persons who were shareholders (during any part of the taxable year) for each month or fraction thereof that such failure continues, but not to exceed 12 months.

  15. See IRM 20.1.1.3.1, Unsigned or Oral Requests for Penalty Relief, for penalty relief guidelines if the request is received either orally or in writing, (but is unsigned) and does not exceed oral statement ceiling. See IRM 20.1.1.3.6.4, Oral Statement Ceiling Exceeded, when the amount exceeds the oral statement ceiling. If the penalty was caused by service error, oral statement ceiling does not apply, see IRM 21.5.2.4.9.2, Oral Statement and Penalty Relief Request, for more information.

Form 1120-H, U.S. Income Tax Return for Homeowners Associations
  1. Homeowners associations elect to file Form 1120-H to take advantage of tax benefits provided by Section 528. These benefits allow the association to exclude exempt function income from its gross income. The filing requirement code is 10.

  2. A homeowners association which is a corporation may elect to file Form 1120 because the tax may be less than that figured on Form 1120-H. The taxable income of a homeowners association that files its tax return on Form 1120-H is taxed at a flat rate of 30 percent for condominium management associations and residential real estate associations. See paragraph (6) below for timeshare associations. These rates apply to both ordinary income and capital gains.

  3. The association makes the election to file Form 1120-H each year:

    1. The election must be made no later than the time, including extensions, for filing an income tax return for the year in which the election is to apply.

    2. Once Form 1120-H is filed, the election cannot be revoked for that year without the consent of the Commissioner.

  4. See IRM 21.7.4.4.4.2 , Form 1120 Series Due Dates - Tax Years Beginning Before January 1, 2016, and IRM 21.7.4.4.4.2.1 , Form 1120 Series Due Dates - Tax Years Beginning After December 31, 2015, for information regarding the return due date for Form 1120-H. Also, see IRM 21.7.4.3.5 , Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax and Other Returns, Tax Years Beginning Before January 1, 2016, and IRM 21.7.4.3.6 , Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax and Other Returns, Tax Years Beginning After December 31, 2015, for information regarding extensions for Form 1120-H.

  5. Estimated tax, alternative minimum tax (AMT), Investment Credit, Work Opportunity Credit, Welfare-to-Work Credit, Empowerment Zone Employment Credit, and Indian Employment Credit do not apply to Form 1120-H. However, a homeowners association which does not elect to file Form 1120-H may be required to make payments of estimated tax.

  6. The TPRA of 1997 permits timeshare associations to report tax on Form 1120-H. However, the tax rate for these associations is 32 percent rather than 30 percent. See the Instructions for Form 1120-H for more specific information.

Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations
  1. A political organization is a party, committee, association, fund (including a separate segregated fund described in IRC 527(f)(3) set up by a IRC 501(c) organization), or other organization. A political organization is organized and operated primarily for the purpose of accepting contributions or making expenditures, or both, to influence the selection, nomination, election, or appointment of any individual to any public office or office in a political organization, or the election of Presidential or Vice Presidential electors.

  2. The taxable income of a political organization is the excess of the gross income for the tax year (excluding exempt function income) over the deductions which are directly connected with that income. Taxable income also includes exempt function income (as defined in (4) below) for any period for which a political organization has not notified IRS that it is to be treated as such.

  3. The net operating loss deduction is not allowed, nor are other special deductions for corporations.

  4. The exempt function income is derived from:

    • Contributions of money or property

    • Membership dues, fees, or assessments paid by members of a political party

    • Proceeds from a political fund-raising or entertainment event (including bingo games) or from the sale of political campaign material, if those amounts are not received in the active conduct of a trade or business

  5. A political organization, whether or not it is tax-exempt, must file Form 1120-POL if it has any political organization taxable income. An exempt organization that is not a political organization must file Form 1120-POL if it is treated as having political organization taxable income under IRC 527(f)(1). An organization that files Form 1120-POL may also be required to file the following forms:

    • Form 8871, Political Organization Notice of Section 527 Status

    • Form 8872, Political Organization Report of Contributions and Expenditures

  6. The return due dates, payment dates, and requests for extensions are generally the same as those for Form 1120. The filing requirement code is 09.

  7. See IRM 21.7.4.4.4.2, Form 1120 Series Due Dates - Tax Years Beginning Before January 1, 2016, and IRM 21.7.4.4.4.2.1, Form 1120 Series Due Dates - Tax Years Beginning After December 31, 2015, for information regarding the return due date for Form 1120-POL. Also, see IRM 21.7.4.3.5, Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax and Other Returns, Tax Years Beginning Before January 1, 2016, and IRM 21.7.4.3.6, Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax and Other Returns, Tax Years Beginning After December 31, 2015, for information regarding extensions for Form 1120-POL.

  8. All Form 1120-POL are processed at Ogden. See IRM 21.7.7.4.5, Form 1120-POL, U.S. Income Tax Return For Certain Political Organizations, for more information on Form 1120-POL, Form 8871, Political Organization Notice of Section 527 Status, and Form 8872, Political Organization Report of Contributions and Expenditures. Also see the General Instructions for Form 1120-POL for more specific information.

Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return
  1. Form 1120-PC is filed by domestic non-life insurance companies subject to tax under Section 831 and by foreign corporations carrying on an insurance business within the U.S. which would qualify as a nonlife insurance company subject to tax under IRC 831, if they were U.S. corporations. See the Instructions for Form 1120-PC for more specific information.

  2. The return due dates, payment dates, and requests for extensions are generally the same as those for Form 1120. The filing requirement code is 04.

  3. See IRM 21.7.4.4.4.2, Form 1120 Series Due Dates - Tax Years Beginning Before January 1, 2016, and IRM 21.7.4.4.4.2.1, Form 1120 Series Due Dates - Tax Years Beginning After December 31, 2015, for information regarding the return due date for Form 1120-PC. Also, see IRM 21.7.4.3.5, Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax and Other Returns, Tax Years Beginning Before January 1, 2016, and IRM 21.7.4.3.6, Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax and Other Returns, Tax Years Beginning After December 31, 2015, for information regarding extensions for Form 1120-PC.

IRC Section 847 Payments and Requirements
  1. Section 847(2) requires insurance companies to make a special estimated tax payment in an amount equal to the tax benefit derived from the additional deduction permitted under Section 847. Section 847(3) requires companies allowed the deduction to establish a special loss discount account.

  2. Form 1120-PC and Form 1120-L filers claim the credit for special estimated tax payments on a specific line. Other Form 1120 filers (consolidated Form 1120 filers with insurance companies as subsidiaries) electing the provisions under this section, write, in the margin near Schedule J, Part II, line 13, write "Form 8816 " and the amount. Taxpayers must attach a schedule showing their computation of estimated tax payments. See the Form 8816 instructions for more specific information.

  3. The area performing the credit transfer (determined by campus management) receives a copy of the return showing the credit, from Code & Edit.

  4. The special estimated tax payment(s) is not subject to estimated tax penalty. The payment(s) is applied over a 15-year period against a portion of the corporation tax liability. In the 16 year, any amounts which remain in a corporation 15 year account are treated as estimated tax payments for that year. Refer to IRM 3.17.243, Miscellaneous Accounting, for processing instructions.

  5. Loose Form 8816 should be associated with the taxpayer's Form 1120, Form 1120-L or Form 1120-PC. Any issues involving Form 8816 should be referred to the Accounting Branch in Ogden Submission Processing.

Form 1120-L, U.S. Life Insurance Company Income Tax Return
  1. Form 1120-L is filed by domestic life insurance companies subject to tax under IRC 801, and foreign corporations which would qualify as life insurance companies if they were U.S. corporations. See the Instructions for Form 1120-L for additional information.

  2. The return due dates, payment dates, and requests for extensions are generally the same as those for Form 1120. The filing requirement code is 03.

  3. See IRM 21.7.4.4.4.2, Form 1120 Series Due Dates - Tax Years Beginning Before January 1, 2016, and IRM 21.7.4.4.4.2.1, Form 1120 Series Due Dates - Tax Years Beginning After December 31, 2015, for information regarding the return due date for Form 1120-L. Also, see IRM 21.7.4.3.5, Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax and Other Returns, Tax Years Beginning Before January 1, 2016, and IRM 21.7.4.3.6, Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax and Other Returns, Tax Years Beginning After December 31, 2015, for information regarding extensions for Form 1120-L.

  4. A foreign corporation which does not maintain an office or place of business in the U.S. has until the 15th day of the sixth month after the end of the tax year to file.

Form 1120-IC-DISC, Interest Charge Domestic International Sales Corporation Return
  1. Form 1120-IC-DISC is an informational return and is filed by domestic corporations that have elected to be treated as an IC–DISC and have satisfied the requirements under IRC 992. It is also filed by a domestic corporation that is a former DISC or former IC-DISC. Generally, an IC-DISC is not taxed on its income. Shareholders of an IC-DISC are taxed on its income when the income is actually (or deemed) distributed.

  2. Form 1120-IC-DISC is due on or before the 15th day of the ninth month after its tax year ends. No extensions are allowed.

  3. A corporation must be organized under the laws of a state or the District of Columbia to be an IC-DISC and must meet certain requirements. See the General Instructions for Form 1120-IC-DISC, for information on the requirements. Also, see IRC 992(d) for a list of the corporations that are ineligible to be treated as a DISC.

  4. A corporation files Form 4876-A, Election To Be Treated as an Interest Charge DISC. Form 4876-A, must be filed within 90 days after the beginning of the tax year if it is the taxpayers first tax year. For any other year other than the taxpayers first taxable year, the election must be made during the 90 days preceding the first day of that tax year. See the General Instruction for Form 4876-A for more information.

  5. Form 4876-A is worked in Code and Edit. If you receive an inquiry regarding Form, 4876-A, follow the instructions in the if and then table of IRM 21.7.12.7.2, Form 1120-IC-DISC, Interest Charge Domestic International Sales Corporation Return and Form 4876-A, Election To Be Treated as an Interest Charge DISC.

  6. Form 1120-IC-DISC is processed as NMF. The MFT is 23 and the tax class is 6. See IRM 21.7.12.7.2.1 through IRM 21.712.7.2.4, for more information on Form 1120-IC-DISC. Route loose Form 1120-IC-DISC to the Cincinnati campus, Stop 6111G. If CIS case, reassign to 0241358315. Taxpayers are instructed to file Form 1120-IC-DISC at the Cincinnati campus at the following address:

    Cincinnati Submission Processing Center
    201 W. Rivercenter Blvd
    Covington, KY 41019

Form 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons
  1. Form 1120-ND is filed by nuclear decommissioning funds to report contributions received, income earned, the administrative expenses of operating the fund, and the tax on modified gross income. If there are initial taxes on self-dealing with the fund, the return is also used to report and pay the Section 4951 taxes on self-dealing.

  2. Except for self-dealers, the due dates for filing, paying, and requesting extensions are the same as those for Form 1120. The filing requirement code is "11" .

  3. See IRM 21.7.4.4.4.2, Form 1120 Series Due Dates - Tax Years Beginning Before January 1, 2016, and IRM 21.7.4.4.4.2.1, Form 1120 Series Due Dates - Tax Years Beginning After December 31, 2015, for information regarding the return due date for Form 1120-ND. Also, see IRM 21.7.4.3.5, Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax and Other Returns, Tax Years Beginning Before January 1, 2016, and IRM 21.7.4.3.6, Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax and Other Returns, Tax Years Beginning After December 31, 2015, for information regarding extensions for Form 1120-ND.

  4. See the Instructions for Form 1120-ND for the return due date for self-dealers. In addition, Form 7004 must be filed by self-dealers to request an extension of time to file. See the Instructions for Form 1120-ND, for more specific information.

Form 1120-F, U.S. Income Tax Return of a Foreign Corporation
  1. A foreign corporation must file Form 1120-F if, during the tax year, it:

    • Engaged in a trade or business in the U.S., whether or not it had income from that trade or business.

    • Had income, gains, or losses treated as if they were effectively connected with that U.S. trade or business.

    • Had income from any U.S. source, only if its tax liability is not fully satisfied by withholding of tax at source.

    • Overpaid income tax which it wants refunded.

  2. A corporation does not need to file a Form 1120-F if:

    • It did not engage in a U.S. trade or business during the year, and its entire U.S. tax was withheld at the source

    • Its only income is not subject to U.S. taxation under IRC 881(d).

    • It is a beneficiary of an estate or trust engaged in a U.S. trade or business, but would itself, otherwise not need to file.

    • It files Form 1120-L as a foreign life insurance company.

    • It files Form 1120-PC as a foreign property and casualty insurance company.

    • It files Form 1120-FSC, it has filed Form 8279, Election To Be Treated as a FSC or as a Small FSC, and the election is still in effect.

  3. See IRM 21.7.4.4.4.2, Form 1120 Series Due Dates - Tax Years Beginning Before January 1, 2016, and IRM 21.7.4.4.4.2.1, Form 1120 Series Due Dates - Tax Years Beginning After December 31, 2015, for information regarding the return due date for Form 1120-F. Also, see IRM 21.7.4.3.5, Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax and Other Returns, Tax Years Beginning Before January 1, 2016, and IRM 21.7.4.3.6, Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax and Other Returns, Tax Years Beginning After December 31, 2015, for information regarding extensions for Form 1120-F.

  4. A foreign corporation that does not maintain an office or place of business in the United States must generally file Form 1120-F by the 15th day of the sixth month after the end of its tax year.

  5. The MFT is 02 and the filing requirement code is "06." See IRM 21.8.2.9, Foreign 1120 Series Returns, for working these accounts, and the Instructions for Form 1120-F for more specific information.

  6. These returns are filed at the following location:

    Internal Revenue Service
    Ogden Campus
    P. O. Box 409101
    Ogden, UT 84409

  7. Forward all cases and correspondence to Ogden's Accounts Management Section at the following location:

    Internal Revenue Service
    Ogden Campus
    MS 6552
    1973 N. Rulon White Blvd.
    Ogden, UT 84404

Form 1120-FSC, U.S. Income Tax Return of a Foreign Sales Corporation
  1. Form 1120-FSC is filed to report a foreign sales corporation’s income, deductions, credits, and taxes. The MFT is 02 and the filing requirement code is "15."

  2. See IRM 21.7.4.4.4.2, Form 1120 Series Due Dates - Tax Years Beginning Before January 1, 2016, and IRM 21.7.4.4.4.2.1, Form 1120 Series Due Dates - Tax Years Beginning After December 31, 2015, for information regarding the return due date for Form 1120-F. Also, see IRM 21.7.4.3.5, Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax and Other Returns, Tax Years Beginning Before January 1, 2016, and IRM 21.7.4.3.6, Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax and Other Returns, Tax Years Beginning After December 31, 2015, for information regarding extensions for Form 1120-FSC. See the Instructions for Form 1120-FSC for more specific information.

  3. These returns are filed at the following location:

    Internal Revenue Service
    Ogden Campus
    P. O. Box 409101
    Ogden, UT 84409

  4. Forward all cases and correspondence to Ogden's Accounts Management Section at the following location:

    Internal Revenue Service
    Ogden Campus
    MS 6552
    1973 N. Rulon White Blvd.
    Ogden, UT 84404

  5. See IRM 21.8.2.9, Foreign 1120 Series Returns, for working these accounts.

  6. Also, for information on Form 8873, Extraterritorial Income Exclusion, see IRM 21.7.4.4.14.

Form 1120-SF, U.S. Income Tax Return for Settlement Funds
  1. Under IRC 468B, Special rules for designated settlement funds, designated settlement funds (DSFs), qualified settlement funds (QSFs) for which a grantor trust election is not made, and disputed ownership funds (DOFs) taxed as qualified settlement funds must file Form 1120-SF. In general, DSFs are created by taxpayers who elect to be treated as DSFs and are used to pay the present and future claims against the electing taxpayer which arise out of personal injury, death, or property damage.

  2. QFSs generally are a fund, account, or trust that is:

    • Ordered or approved by a governmental authority (including a court of law).

    • Created to resolve or satisfy one or more contested claims that have resulted or may result form an event (or related series of events) that has occurred and that has given rise to at least one claim asserting liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 or arising out of a tort, breach of contract, or violation of law, and

    • A trust under applicable state law or segregated from other assets of the transferor. A DOF taxed as a QSF generally is an escrow account, trust, or fund that is established to hold money or property subject to conflicting claims of ownership and consists entirely of passive investment assets.

  3. Form 1120-SF is filed by DSFs and QSFs for which a grantor trust election is not made, and DOFs taxed as qualified settlement funds to report contributions received, income earned, administrative expenses of operating the fund, and the tax on its investment earnings.

  4. The income is taxed at the highest rate applicable to trusts. The Jobs and Growth Tax Relief Reconciliation Act of 2003 reduced the tax rate for tax years beginning after December 31, 2002 to 35 percent. For tax years beginning in 2013 and subsequent, the tax rate on a fund's modified gross income has increased to 39.6%. The filing requirement code is "16" .

  5. The return due dates, payment dates, and requests for extensions are generally the same as those for Form 1120. Forms 1120-SF are filed at either Cincinnati or Ogden, based on the table located in the Instructions for Form 1120-SF.

  6. See IRM 21.7.4.4.4.2, Form 1120 Series Due Dates - Tax Years Beginning Before January 1, 2016, and IRM 21.7.4.4.4.2.1, Form 1120 Series Due Dates - Tax Years Beginning After December 31, 2015, for information regarding the return due date for Form 1120-F. Also, see IRM 21.7.4.3.5, Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax and Other Returns, Tax Years Beginning Before January 1, 2016, and IRM 21.7.4.3.6, Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax and Other Returns, Tax Years Beginning After December 31, 2015, for information regarding extensions for Form 1120-SF.

Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts
  1. Form 1120-REIT is filed to report the income, gains, losses, deductions, and credits of real estate investment trusts as defined in IRC 856. See IRC 856(c) for the REIT income and asset qualification tests.

  2. The return due dates, payment dates, and requests for extensions are generally the same as those for Form 1120. The filing requirement code is "18."

  3. See IRM 21.7.4.4.4.2, Form 1120 Series Due Dates - Tax Years Beginning Before January 1, 2016, and IRM 21.7.4.4.4.2.1, Form 1120 Series Due Dates - Tax Years Beginning After December 31, 2015, for information regarding the return due date for Form 1120-REIT. Also, see IRM 21.7.4.3.5, Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax and Other Returns, Tax Years Beginning Before January 1, 2016, and IRM 21.7.4.3.6, Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax and Other Returns, Tax Years Beginning After December 31, 2015, for information regarding extensions for Form 1120-REIT. See the Instructions for Form 1120-REIT, for more information.

  4. For information on Form 8875, Taxable REIT Subsidiary Election, see IRM 21.7.4.4.13.

  5. Route correspondence requests for extension of "foreclosure property" grace period pursuant to IRC 856(e) by a real estate investment trust (REIT, Form 1120-REIT) to Ogden Accounts Management, Mail Stop 6276. If CIS case re-control to 0437405253.

  6. An extension request is timely if it is filed more than 60 days before the grace period would expire.

    • The grace period expires as of the close of the third table year following the taxable year in which the REIT acquired the foreclosure property (the second taxable year for qualified health care properties).

    • Accordingly, if the grace period would expire on December 31 of a particular year, the extension request must be dated and filed by October 31 of that year to be timely. See IRM 3.11.212.1.7, Determination of Timely Filing – General, for more information.

  7. If the request is timely filed, Ogden Accounts Management will send the taxpayer a Letter 96C, Acknowledgment Letter for General Use Inquiry. In addition, Ogden will input a CIS history statement that an extension request was received and that a Letter 96C was issued. Capture the screen of the Letter 96C for a record of the paragraphs used.

  8. In the 96C letter use the open paragraphs and the enclosure option to address extension requests. Input the two open paragraphs per the following two bullets and follow the instructions in the third bullet:

    • If your extension request for foreclosure property described in IRC 856(e)(3) or IRC 860G(a)(8) is timely filed (i.e., more than 60 days before the grace period expires), then the grace period shall be automatically extended: (1) in the case of qualified health care property, for 4 years less the term of any prior grace period extension, and (2) in other cases, for three years.

    • However, if your extension request is timely filed and the Service subsequently reviews your request and determines that it shall not be granted, then the automatic extension of the grace period set out in the preceding paragraph shall end after the 30th day after you are notified by certified mail that the request was not granted. (See Treas. Reg. Section 1.856-6(g)(5).)

    • Attach a copy of the extension request that contains the taxpayers name, their EIN, date of request, and property description (the address) of each property that the taxpayer is requesting a foreclosure extension for.

  9. If the request is not timely filed Ogden Accounts Management will send the taxpayer a Letter 3064C, IDRS Special Letter. In addition, Ogden will input a CIS history statement that an extension request was received and that a 3064C letter was issued. Capture the screen of the Letter 3064C, for a record of the paragraphs used.

  10. In the Letter 3064C, use the open paragraphs and the enclosure option to address extension requests. Input the two open paragraphs per the first two of the following bullets and follow the instructions in the third bullet

    • An extension request for foreclosure property described in IRC 856(e) or IRC 860G(a)(8) must be filed more than 60 days before the grace period would otherwise expire. Your request is untimely, since it was filed after this deadline. The property is also ineligible for the automatic extension provided for a timely filed request. See Treas. Reg. Sections 1.856-6(g) (3), (5).

    • While your extension request was untimely filed, you may make a separate request for the Service to treat it as timely filed, pursuant to Treas. Reg. Section 1.856-6(g) (6), by establishing that (1) there was reasonable cause for failure to file the extension request within the prescribed time and (2) you filed the separate request within a reasonable time under the circumstances.

    • Attach a copy of the extension request that contains the taxpayer’s name, its EIN, date of request, and property description (the address) of each property that the taxpayer is requesting a foreclosure extension for.

  11. If a subsequent inquiry is received AFTER the 96C has been sent (check ENMOD), advise the taxpayer that they may call the non toll-free numbers below if they have any questions and may speak to one of the:

    Senior Program Specialists (Technical Tax Analysts)
    Internal Revenue Service
    LB&I, Financial Services
    @ 212-298-2171 and/or 212-298-2250
    Between 8:00 AM and 4:30 PM (EST)

Form 8927, Determination Under IRC 860(e)(4) by a Qualified Investment Entity
  1. Form 8927, Determination Under Section 860(e)(4), by a Qualified Investment Entity, is filed by a RIC (Regulated Investment Company, Form 1120-RIC), or a REIT (Real Estate Investment Trust, Form 1120-REIT). Form 8927 is filed when a RIC or REIT seeks to make a determination under IRC 860(e)(4). When properly completed and filed with the Internal Revenue Service, Form 8927 will be treated as a statement by the taxpayer attached to its amendment or supplement to a return of tax for the relevant tax year for purposes of IRC 860(e)(4).

  2. Generally, the date Form 8927 is mailed is the date of determination under IRC 860(e)(4). See section 4 of Rev. Proc. 2009-28, 2009-20 I.R.B. 1011, for details. Also, see the General Instructions for Form 8927 for more information.

  3. If a loose Form 8927, or correspondence citing section 860 of the IRC, or deficiency dividend procedures is received in Accounts Management, route to:

    Internal Revenue Service
    Ogden Submission Processing Center
    P.O. Box 9941
    Mail Stop 4912
    Ogden, UT 84409

  4. If an amended return is received with Form 8927 attached or with correspondence described in the paragraph directly above, route the case to the above address.

Form 1120-RIC, U.S. Tax Return for Regulated Investment Companies
  1. Form 1120-RIC is filed to report the income, gains, losses, deductions, and credits of regulated investment companies as defined in IRC 851.

  2. The return due dates, payment dates, and requests for extensions are generally the same as those for Form 1120. The filing requirement code is "17" .

  3. See IRM 21.7.4.4.4.2, Form 1120 Series Due Dates - Tax Years Beginning Before January 1, 2016, and IRM 21.7.4.4.4.2.1, Form 1120 Series Due Dates - Tax Years Beginning After December 31, 2015, for information regarding the return due date for Form 1120-RIC. Also, see IRM 21.7.4.3.5, Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax and Other Returns, Tax Years Beginning Before January 1, 2016, and IRM 21.7.4.3.6, Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax and Other Returns, Tax Years Beginning After December 31, 2015, for information regarding extensions for Form 1120-RIC. See the Instructions for Form 1120-RIC for more information.

  4. A domestic corporation that meets certain conditions must file Form 1120-RIC if it elects to be treated as a RIC for the tax year (or has made an election for a prior tax year and the election has not been terminated or revoked). The election is made by computing taxable income as a RIC on Form 1120-RIC.

  5. The term “regulated investment company” applies to any domestic corporation that:

    • is registered throughout the tax year as a management company or unit investment trust under the Investment Company Act of 1940 (ICA),

    • has an election in effect under the ICA to be treated as a business development company, or

    • is a common trust fund or similar fund that is neither an investment company under section 3(c)(3) of the ICA nor a common trust fund as defined under section 584(a).

  6. In addition, the RIC must meet the (1) income test, (2) asset test, and (3) distribution requirements. See the Instructions for Form 1120-RIC for more information on these requirements.

  7. Per section 101 of the RIC Modernization Act of 2010, P.L. 111-325, there is no limit on the number of tax years that a RIC can carryover a net capital loss for tax years beginning after December 21, 2010.

Form 1120X, Amended U.S. Corporation Income Tax Return
  1. Form 1120X is filed to correct previously filed Form 1120 and Form 1120-A (if applicable). Other types of Form 1120 can be corrected by filing an amended form and checking the box for "Amended Return" shown at the top of the form.

  2. An amended or corrected return posts to a taxpayer’s account as a TC 976 and generates a CP/TRNS 193. Refer to IRM 21.7.9, Duplicate Filing Conditions, for information on resolving duplicate filing conditions.

  3. Form 1120X are no longer worked in Submission Processing. All Form 1120X are routed directly to Accounts Management. Use blocking series 00 when making adjustments when the original return is secured and blocking series 15 without the original return. See IRM 21.7.9.4, Duplicate Filing Conditions Procedures, for more information.

Pre-Adjusted Form 1120X Procedures
  1. Prior to April, 2008, many Form 1120X, were worked in Submission Processing. These adjustments were processed in the 20 through 29 blocking series.

  2. If a TC 150 with math error codes is already on the module, a TRNS 193 generates and is sent to Accounts Management for review. A TRNS 193 also generates when an adjustment in blocking series 29 (disaster claim) posts.

  3. Action required:

    1. Review Form 1120X and TRNS 193 to verify all adjustments have posted and the refund or offset action was made.

    2. If the adjustment did not post, input the correct adjustment.

    3. Verify the taxable income was adjusted, if necessary, adjust.

    4. Math verify Form 1120X,≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and:

    If And Then
    An incorrect refund was issued The incorrect refund was due to a math error or erroneous refund 1. Use CFOL command codes to math verify the original return.
    2. Refer to IRM 21.4.5, Erroneous Refunds, for information on processing erroneous refunds and IRM 21.5.4, General Math Error Procedures, for information on returns involving mathematical and clerical errors.
    An incorrect refund was issued The incorrect refund was not due to a math error or erroneous refund 1. Use CFOL command codes to math verify the original return.
    2. Input TC 29X to correct the account using blocking series 00 or 15.
    3. Send a letter to the taxpayer explaining the change.
    There is no change Refile using the 1120X DLN. (If the original return was secured, input TC 290 $.00, blocking series 00 to refile the return.)
Line on Form 1120X To Apply Overpayment as Credit Elect
  1. Form 1120X contains a line where taxpayers can designate to have their overpayment applied as a credit elect to estimated taxes for the succeeding year per IRC 6402(b).

  2. A credit elect on a corporate income tax return can only be applied to the immediately succeeding tax period and is irrevocable. Use command code ADD48 and transaction code TC 830 (debit) and command code (CC) ADC48, and transaction code (TC) TC 710 (credit) to apply an overpayment as a credit elect to the immediately succeeding tax. BPI "0" must be input with command code ADD48/ADC48. See IRM 21.5.8.3.3, Determining Correct Credit Transfer Format, for complete instructions.

    Example 1 - In 2017, a taxpayer files Form 1120X correcting a 201612 tax period and requests the overpayment be applied as a credit elect to estimated tax for 201712. Transfer following the instructions in paragraph (2) directly above.

  3. An overpayment from Form 1120X can be transferred to another MFT/tax period and is not considered a credit elect. To transfer an overpayment to another MFT/tax period, transfer with CC ADD24 and TC 820 (debit) and CC ADC24 with TC 700 (credit).

  4. See IRM 21.7.4.4.5, Estimated Tax Overpayment, Credit Elect – General, for more specific information on credit elects and due to programming issues determining the proper dates. See IRM 21.7.4.4.4.2 and IRM 21.7.4.4.4.2.1 for the correct return due date for Forms 1120 series returns since the return due date changed for tax years beginning after December 31, 2015. Also, see IRM 21.5.8.4.3, Determining Correct Credit Transfer Format, for more information on the command codes and transaction codes.

Form 1120-C, U.S. Income Tax Return for Cooperative Associations
  1. Effective with tax periods ending on or after December 31, 2006 (200612 and subsequent), Form 1120-C, U.S. Income Tax Return for Cooperative Associations, replaces Form 990-C, Farmers' Cooperative Association Income Tax Return. See IRM 21.7.4.4.17, Form 990-C, Farmers Cooperative Association Income Tax Return, for information regarding Form 990-C.

    Note:

    Due to this change, payments may not have been properly credited to the Form 1120-C account, or overpayments intended for the Form 1120C account may have refunded to the taxpayer. Follow normal payment tracer procedures in IRM 21.5.7, Payment Tracer. If the taxpayer requested a credit elect from the 2006 Form 990C (MFT 33) account to the 2007 Form 1120C (MFT 02) account but the credit elect amount refunded and the refund was not returned, do not abate or reduce penalties for this reason. Also, ensure that penalties have been assessed correctly. Ensure that the proper prior year tax is considered when working ES Penalties.

  2. Form 1120-C, U.S. Income Tax Return for Cooperative Associations, is filed to report income, gains, losses, deductions, credits and to figure the income tax liability of the cooperative. Every cooperative must file Form 1120-C, whether or not it has taxable income. The MFT is 02, tax class 3, doc code 032, and the filing requirement code is 20.

  3. Generally, a farmer’s cooperative is a farmer, fruit growers, or like association organized and operated on a cooperative basis to:

    • Market the products of members or other producers and return to them the proceeds of sales, less necessary marketing expenses, or

    • Purchase supplies and equipment for the use of members or other persons and turn over the supplies and equipment to them at actual cost, plus necessary expenses.

  4. A member is anyone who shares in the profits of the cooperative association and is entitled to participate in the management of the association.

  5. For tax years beginning before January 1, 2016, a cooperative described in IRC 6072(d) must file its income tax return by the 15th day of the ninth month after the end of its tax year. Any cooperative not described in IRC 6072(d)must file its income tax return by the 15th day of the third month after the end of its tax year. In addition, cooperatives may file Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns, to request an automatic six month extension of time to file. Form 7004 must be filed on or before the original due date of the Form 1120-C that is being filed.

  6. For tax years beginning after December 31, 2015, a cooperative described in IRC 6072(d) must file its income tax return by the 15th day of the ninth month after the end of its tax year. Any cooperative not described in IRC 6072(d) must file its income tax return by the 15th day of the fourth month after the end of its tax year, unless its tax year ends on June 30 and begins before January 1, 2026, in which case its income tax return is due the 15th day of the third month after the end of its tax year.

  7. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  8. For tax years beginning after December 31, 2015, a cooperative may file Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns, to request an automatic five-month, six-month, or seven-month extension based on its fiscal year ending month, regardless of whether the cooperative is described in IRC 6072(d). The cooperative must file Form 7004 on or before the original due date of its Form 1120-C. (See IRM 21.7.4.3.6, Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax and Other Returns - Tax Years Beginning After December 31, 2015, for more information).

  9. Cooperatives with a SC80 are tax-exempt under IRC 521 (type of Org. code 6) and SC93 (Type of Org. code 7) are non-exempt. If the EO status shown on CC ENMOD is 40, it is treated as SC93, non-exempt.

  10. Cooperatives must make estimated tax payments, like a regular corporation must make.

  11. Form 1120-C is filed at the Ogden Internal Revenue Service, Ogden, UT 84201-0027.

  12. Beginning in January 2007, Form 990-C is obsolete and has been replaced with Form 1120-C, U.S. Income Tax Return for Cooperative Associations. Therefore, the last period that Form 990-C can be filed is tax period 200611. See IRM 21.7.4.4.17, Form 990-C, Farmers Cooperative Association Income Tax Return, for information on Form 990-C.

  13. Follow normal BMF CAT-A/claim procedures in IRM 21.5.3, General Claims Procedures.

Adjusting Tax and Item Reference Number (IRN) 886
  1. Anytime taxable income is changed due to an adjustment (including TC 290 $.00) to an income tax return (Form 990-T, Form 1041, Form 1120, Form 1120-C and Form 1120S), Item Reference Number (IRN) 886 must be input to correct the taxable income/ordinary income/unrelated business taxable income on the Master file. Action required:

    • Input IRN 886 to increase taxable income

    • Input IRN 886 with a minus sign to decrease taxable income.

  2. Anytime that the tax reported on a Form 990T, Form 1041 series return, or a Form 1120 series return is changed, input:

    • TC 290 to increase the tax.

    • TC 291 to decrease the tax.

Insolvent Financial Institutions/Failed Savings and Loans, and Failed Banks
  1. IRS is authorized to pay refunds to a statutory or court-appointed fiduciary of an insolvent member of an affiliated group filing a consolidated income tax return.

  2. Tax returns can be filed on behalf of failed savings and loans. The returns and claims are generally prepared by large accounting firms. There are various ways to identify these returns/claims:

    • The words "Savings and Loan" or "Savings Bank" in the entity portion.

    • PBA codes 6030, 6060, 6090, or 6120.

    • Notations that the tax should be abated or refunded based on IRC Sections 7507 or IRC section 597, Notice 89-102, or "FIRREA" .

    • Large liabilities but no remittance.

    • Income but not a tax liability.

    • Asterisks on the tax due line.

    • "RTC" or "FDIC" in the entity portion.

  3. Failed Savings and Loans accounts are coded with the Large Corp indicator and are worked in the Large Corp. Units. See IRM 21.7.1.4.11.10, Failed Savings and Loans, for more information.

Resolution Trust Corporation (RTC)/Federal Deposit Insurance Corporation (FDIC) Returns
  1. On January 1, 1996, RTC was taken over by FDIC. FDIC is now filing tax returns for institutions under RTC control. The entity section of the return shows "FDIC," however, the top of the return should be stamped "RTC Return."

  2. Returns identified by Exam as RTC or FDIC returns are blocked with a BS of 499 or 979.

  3. For those returns which reflect income but no tax liability, the liability is computer generated and a Math Error Notice sent to the taxpayer.

  4. C&E/ERS does not input a Taxpayer Notice Code (TPNC) if the return has a refund. If a notice is inadvertently generated, Notice Review should stop the notice.

Adjustment Procedures (RTCs/FDICs)
  1. Accounts Management employees must have any returns, claims, correspondence, or internally generated notices with a savings and loan, savings bank, or bank type entity as described above, classified by Exam. Failed savings and loans are coded with an LCI.

  2. Any return or correspondence not reflecting an LCI but, nevertheless, has a savings or bank type entity, must be reviewed by Exam before any adjustments or refunds are allowed. Suspend to Exam as 2CATA and use suspense reason HQ Reserved 5.

  3. If there is a clear indication the return was reviewed by Exam, do not have the return reclassified.

  4. Please contact the Headquarter's analyst for this IRM if the Large Corp Unit receives a Failed Savings and Loan case.

Insolvent Financial Institutions/Failed Banks
  1. Route Form 1120X amended returns involving failed banks meeting any of the following three criteria to Exam in Ogden:

    • Return states "Claim for Refund under IRC 6402(k) or IRC 6402(i)" .

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

  2. See IRM 21.5.9.4.2.1, Carryback Applications/Claims from Financial Institutions in Receivership - Form 56-F Filed, for carrybacks application/claim received from a financial institution, and the ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

Form 4466 Transcripts (Form 1120)
  1. Form 4466 transcripts are generated when both a Form 1120 corporation return (TC 150) and a manual refund (TC 840 with blocking series 30 - 39) posts to MF, resulting in a zero or debit module balance. The manual refund is the result of a Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax. These transcripts indicate the taxpayer may have received an excessive refund of estimated tax (ES) and could be liable for an ES penalty.

  2. Scan the transcript to determine if the taxpayer is subject to an ES penalty. (The related return need not be secured to assess the penalty.) Resolve the transcript by following the table below.

    If And Then
    Module balance is zero No money was paid with the return (TC 610) or no subsequent payment was made after issuance of the original TC 840 Taxpayer is not subject to the penalty and the transcript may be disposed of as classified waste.
    Module balance is zero There is a TC 610 amount and/or a subsequent payment made after issuance of the original TC 840 Taxpayer’s excessive refund of ES is the amount of the payment.
    1. Compute the ES penalty based on the TC 610 subsequent payment amount from the TC 840 date to the due date of the return.
    2. Input TC 170 in blocking series 15 to assess the penalty.
    Module balance is a debit Taxpayer’s excessive refund is the amount of the debit (except when the debit is created by previously assessed or accrued penalty and/or interest charges).
    1. Combine the TC 610 payment (and similar credits) with the debit amount to determine the excessive refund.
    2. Compute the ES penalty based on the excessive refund amount from the TC 840 date to the due date of the return.
    3. Input TC 170 in blocking series 15 to assess the penalty.
    The Form 4466 refund was issued after the return’s original due date There is no penalty assessed on the excessive refund amount.
  3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

Modernized e-file Program (MeF) for Corporate and Exempt Organization Returns
  1. Beginning in January 2004, IRS began accepting certain tax year 2003 electronically filed corporate (Form 1120 and Form 1120S) and exempt organization returns. (See IRM 21.7.7.3.14, Modernized Electronic Filing, for MeF for exempt organizations). This was the first phase of the rollout of the Modernized e-File Project (MeF). MeF allows taxpayers to receive refunds via direct deposit and allows e-filers to e-pay their balance due through an authorized electronic funds withdrawal. Beginning in January 2007, Form 1120-F for TY 2006 were accepted. See IRM 3.42.4.1.7, e-fileRevenue Procedures and Program Publications, for a complete list of e-file program publications and revenue procedures pertaining to the Modernized e-File Program.

  2. The MeF Project is a major modernization initiative which will develop the modernized platform for filing returns electronically. The MeF Project provides for the filing of tax and information returns electronically through the internet via registered electronic originators, Electronic Management System (EMS), or web Services. Eventually all forms will be included in the project. Electronic transmissions for these returns will be directed to the Ogden Submission Processing Center. Beginning February 17, 2010, the Service began accepting Form 1040, U.S. Individual Income Tax Return through the Modernized e-file system. See IRM 3.42.5.23, IRS e-file for 1040 Modernized e-File (MeF), for more information on Form 1040 and the MeF system.

  3. Business taxpayers can get information electronically concerning the MeF project by going to the IRS Web site @ www.irs.gov/efile and clicking on the e-file logo in the bottom right hand corner and then clicking on the left and on the type of business involved.

  4. Employees can assess e-filed corporate and exempt organization returns processed in MeF though the Employee User Portal (EUP) on their NT workstations. Documents are in HTML format. The retrieval, display, printing and archiving of the electronic return and up to (eventually) 700 different schedules and attachments is through Microsoft Internet Explorer via the EUP.

  5. Electronically filed Form 1120 and Form 1120S returns are processed in Ogden. Returns filed via the MeF system are assigned the following codes (See IRM 3.42.4.8.2.1, Researching e-file BMF Identification Codes, for more information.):

    Form Filing Location CodeDLN Digits 1 & 2 Tax ClassDLN Digit 3 Document CodeDLN Digits 4 & 5
    1120 88/93
    (OVFL 92)
    3 10 and 11
    1120S 16
    1120-F 93 (92 overflow)
    60 (ECI Foreign Address)
    78 (ECI US Possession Address)
    66 and 67
  6. Electronically filed Form 1120 and Form 1120S (MeF) returns that are rejected by the system, fall-out to ERS/Rejects and must be processed as a paper return. Beginning in January 2012, rejected (MeF) Form 1120 returns will be renumbered in ERS/Rejects with FLC 91 and blocking series 960-978, and rejected (MeF) Form 1120S returns will be renumbered with FLC 91 and blocking series 900-999. This will allow end users to identify these paper returns as originally filed electronically but were rejected and were processed as paper returns.

  7. IRS e-file providers and applicants are required to submit their IRS e-file applications online. Providers and applicants must register for e-services in order to submit or update an e-file provider application online and pass a suitability test. This applies to Electronic Returns Originators (ERO), Transmitters, Software Developers and Intermediate Service Providers. Business and individuals can apply to the program on-line on the IRS Web site @ www.irs.gov/efile. Type in e-services as the IRS keyword and press enter. Additionally, a fingerprint card or evidence of professional status must be submitted for each application. Taxpayers may call the e-help desk toll-free at 1-866-255-0654 for assistance. See IRM 3.42.7.1.1, Hours of Operation.

  8. Large taxpayers filing only their own return are not required to pass a suitability background check. IRS only performs the suitability checks discussed in Publication 3112 on applicants that prepare returns for profit. Refer these taxpayers to the IRS Web site @ www.irs.gov, keyword "Large Taxpayer." Taxpayers may also call the e-Help Desk toll-free at 1-866-255-0654 for assistance.

  9. To file Form 1120 electronically, transmitters, and software developers MUST successfully pass Acceptance or Assurance Testing System (ATS). The ATS process tests hypothetical scenarios to ensure the participant's computer program has the correct file specifications to file returns electronically, that required fields will post to Master file correctly and that Providers understand the mechanics of IRS e-file. Communication testing is a requirement for reporting Agents and Transmitters. See Publication 3112, IRS e-file Application and Participation, and Publication 5078, Modernized e-file (MeF) Test Package Business Submissions, Assurance Testing System (ATS), for more information on the testing process for the current tax year. Taxpayers may also call the Help Desk toll-free at 1-866-255-0654. Testing for Form 1120 for TY 2017 is available in ATS beginning November 7, 2017.

  10. Beginning January 2018, the MeF system began accepting TY 2017 MeF filed corporate returns. For processing year 2016, the MeF system will accept tax years TY 2015, TY 2016 and TY 2017. Beginning with TY 2006 returns, original, amended, and superseding returns are required to be e-filed if the taxpayer is required to file electronically (Unless the taxpayer has received a waiver to file that particular tax return on paper. See IRM 3.42.4.16.3, Certain Corporations and Tax-Exempt Organizations Waiver Procedures). Only the MeF system accepts amended returns. See IRM 21.7.9.4.1.2.2, Modernized e-file (MeF) Amended Returns, for more information on filing amended returns through the MeF system. Taxpayers who filed an original return through any other system must complete an amended return on paper and file it with the campus where they would file a paper return. For carrybacks filed via the MeF system, see IRM 21.5.9.5.1.1, Carrybacks Filed via the Modernized e-File (MeF) System (Ogden AM Campus Only), for more specific information.

  11. Paper Form 8453 (signature documents) are not sent to the IRS for returns filed through MeF. Preparer's must scan a signed, completed Form 8453 and attach it to the electronic return.

  12. Alternatively, most taxpayers can use a Personal Identification Number (PIN) to file their returns. Form 8879-C, IRS e-file Signature Authorization for Forms 1120, is used in the modernized e-file program. This form authorizes an officer of a corporation and an ERO to use a PIN to electronically sign a corporation's electronic income tax return and, if applicable, an Electronic Funds Withdrawal Consent.

  13. The Practitioner PIN option can only be used if the taxpayer uses an ERO. Large Taxpayers who file their returns directly with IRS must use a Form 8453 signature document. For purposes of electronic filing, the IRS defines a “Large Taxpayer” as a business or other entity with assets of $10 million or more, or a partnership with more than 100 partners, which originates the electronic submission of its own return(s).

Modernized e-file (MeF) - Electronic Filing of Corporate and Exempt Organization Returns
  1. Beginning in January 2004, IRS began accepting certain TY 2003 electronically filed corporate returns (Form 1120, Form 1120-F, and Form 1120S). In addition, Form 990, Form 990-EZ, Form 1120-POL and Form 8868 for exempt organizations (See IRM 21.7.7.3.14, Modernized Electronic Filing) were also accepted.

  2. The MeF System also accepts Form 990-PF, Return of Private Foundation, and Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. See IRM 3.42.4.6.3, Business e-file Returns Processed by OSPC, for a complete listing of the corporate and tax-exempt organization forms and tax returns that can be filed electronically.

  3. Temporary Regulations (TD 9175), mandated that corporations with assets of $50 million or more and exempt organizations with assets of $100 million or more to electronically file their tax returns for tax years ending on or after December 31, 2005. Final regulations (TD 9363) require corporations that have assets of $10 million or more and file at least 250 returns annually to electronically file their Form 1120 and Form 1120S for tax years ending on or after December 31, 2008. This requirement extends to foreign corporations filing Form 1120-F, who have assets of 10 million or more and who file at least 250 returns annually and is effective for tax years ending on or after December 31, 2008. See Treas. Reg. 301.6011-5.

  4. TD 9363 also requires certain exempt organizations to file their returns electronically. For tax years ending on or after December 31, 2006, exempt organizations with $10 million or more in total assets may be required to e-file if the organization files at least 250 returns in a calendar year. Private foundations and non-exempt charitable trusts are required to file Form 990-PF electronically regardless of their assets size, if they file at least 250 returns annually. See Treas. Reg. 301.6033-4 for more information. See the table below.

    Threshold for Filing Electronically Date Mandated to File Electronically
    Corporations with Assets of $50 million or more Taxable years ending on or after December 31, 2005 (200512)
    Exempt organizations with assets of $100 million or more Taxable years ending on or after December 31, 2005 (200512)
    Corporations and exempt organizations with assets of $10 million or more Taxable years ending on or after December 31, 2006 (200612).
    Private foundations or IRC 4947 (a)(1) trusts under IRC 6033 Taxable years ending on or after December 31, 2006 (200612)
  5. Under these regulations, an entities assets are determined based on total assets at the end of the taxable year as reported on the entity’s Form 1120, Form 1120-F, Form 1120S or Form 990.

  6. The electronic filing requirement only applies to entities that file at least 250 returns, including income tax, excise tax, employment tax and information return (includes Form W-2 and Form 1099), over a calendar year. All members of a controlled group of corporations are required to file their Forms 1120 electronically if the total number of returns required to be filed by the controlled group of corporations is at least 250. Under these regulations, corrected or amended returns are not included in determining the 250 return threshold.

  7. The returns that are excluded from electronic filing are set forth in Publication 4163, Modernized e-file (MeF) Information for Authorized IRS e-File Providers for Business Returns, and on the IRS Web site @ www.irs.gov.

  8. IRS e-file Signature Authorizations allow an officer of the entity to enter their Personal Identification Number (PIN) as their signature on the corporation’s or exempt organization’s electronically filed return, and if applicable, consent to electronic funds withdrawal, or authorize their EEO to enter their PIN for them. The following signature authorization forms are completed and signed, but are not sent to the IRS. The ERO must retain the Form 8879 for three years from the return due date, extended due date or the IRS received date, whichever is later.

    Form Number Title
    8879-C IRS e-file Signature Authorization for Form 1120
    8879-I IRS e-file Signature Authorization for Form 1120-F
    8879-EO IRS e-file Signature Authorization for an Exempt Organization
    8879-S IRS e-file Signature Authorization for Form 1120S
  9. Corporate officers who do not use the Practitioner PIN method for signing the Form 1120, Form 1120-F, Form 1120-POL, Form 1120S, Form 990, Form 990-EZ, Form 990-PF, Form 8453-I or Form 8879-S as outlined in paragraph (8) above, must sign their return using the appropriate form indicated in the list below:

    • Form 8453-C, U.S. Corporation Income Tax Declaration for an IRS e-file return

    • Form 8453-S, U.S. S Corporation Income Tax Declaration for an IRS e-file Return

    • Form 8453-EO, Exempt Organization Declaration and Signature for Electronic Filing

    • Form 8453-I, Foreign Corporation Income Tax Declaration for an IRS e-file Return

    Note:

    These forms are signed, scanned and submitted with the electronic return in PDF format.

  10. DO NOT attach information (e.g., loose forms, schedules, and correspondence) to an electronically filed return. To identify an electronic DLN, see Document 6209, Section 4, Document Locator Number, Part 3 Campus and Filing Location Codes or IRM 3.42.4.8.2.1, Researching e-file BMF Identification Codes. Use the following procedures: File the information using TC 290 $.00 with the applicable blocking series for the type of return/situation you are adjusting using the non-refile DLN. 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.

  11. These regulations also allow the Commissioner to waive the requirement to file electronically in case of undue hardship. Because the Treasury Department and IRS believe that electronic filing will not impose significant burdens on taxpayers under these regulations, the Commissioner only grants waivers in exceptional cases.Notice 2010-13, 2010-4 I.R.B. 327, sets out the procedures by which a taxpayer can request a hardship waiver.

Corporate and Exempt Organization Penalty for Failure to File Electronically
  1. Per IRS Temporary Regulation T.D. 9175, 2005-10 I.R.B., beginning January 1, 2006, certain corporations and exempt organizations are required to file electronically if they meet certain thresholds. Treasury Decision T.D. 9363 extended the requirement to e-file for certain corporations including Form 1120-F, beginning January 2009. See IRM 21.7.4.4.4.15.1 directly above to identify those corporations and exempt organizations mandated to file electronically beginning in 2005.

  2. On November 11, 2005, IRS issued Notice 2010-13 providing guidance on steps large corporations and tax-exempt organizations can take to seek waivers from electronic filing. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

Known e-file Issues and Solutions - Form 1120
  1. Periodically, problems arise that prevent taxpayers from being able to file electronically through the Modernized e-file (MeF) System. When this occurs, Electronic Tax Administration (ETA), LB&I, or Submission Processing will issue a work-around to taxpayers by posting information on the IRS Web site. Go to www.irs.gov, click on e-file, then click on Corporations, and click on the link for Large and Mid-Size Corporations and it will take you to e-file for Large and Mid-Size Corporations. Under the table on contents, there will be a link to the Known e-file Issues and Solutions web-page.

  2. Currently, there are links to TY 2013, TY 2014 and TY 2015. When taxpayers contact the e-help unit with processing problems, taxpayers are directed to this site. In addition, Accounts Management will issue SERP Alerts or IPUs if the situation warrants. For example, an Alert was issued due to a problem with name control mismatches on Form 1120 and Form 1065 MeF returns.

  3. If you receive a call from a taxpayer stating that they are having problems e-filing, research the web-page. If you are unable to find any information, refer the caller to the e-help desk unit toll-free at 1-866-255-0654. See IRM 3.42.7.1.1, Hours of Operation.

Failure to File Form 1120, with a Form 5471 or a Form 5472 Penalty
  1. Beginning January 2009, Master file systemically assesses IRC 6038 penalties on Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, that are attached to a late filed Form 1120. Beginning in 2013, Master file also systemically assesses IRC sections 6038 penalties on Form 5472, Information Return of a Foreign Owned Corporation, returns that are attached to late filed Form 1120 returns. The penalty is $10,000 per Form 5471 or Form 5472 attached to the late filed Form 1120.

  2. The systemically assessed Form 5471 penalty appears on MFT 13 as a TC 240 with Penalty Reference Number (PRN) 623 for 2009 and as PRN 599 for 2010 and subsequent years. See IRM 20.1.9.3, IRC 6038 - Information Reporting With Respect to Foreign Corporations and Partnerships, for more information. The systemically assessed Form 5472 penalty also posts to MFT 13 as a TC 240 but with PRN 711. See IRM 20.1.9.5, IRC 6038A(d) - Information Reporting for Certain Foreign-Owned Corporations, for more information. Both penalties carry doc code 54, and 00 as the first two digits of the blocking series.

  3. Penalties that are manually assessed by Exam will post as TC 240 with PRN 623 for failure to file Form 5471, or with PRN 625 for failure to file Form 5472. The doc code will be 54 (or 51, if it’s a quick or prompt assessment). BMFOLA will show that the input employee was in one of the Exam CCP teams in Cincinnati, Memphis, or Ogden. Accounts Management (AM) does not consider penalty abatement requests for the penalties assessed by Exam. Exam will consider all penalty abatement requests for Exam (manually) assessed Form 5471 and/or Form 5472 Failure to File (FTF) penalties.

  4. A CP 215 Notice, Civil Penalty - 500 and 600 Series, generates as a result of the TC 240 penalty assessment on the MFT 13 module. The CP 215 notice instructs the taxpayer to send penalty abatement requests to Accounts Management’s International Unit in the Ogden campus. Ogden works the requests using instructions in IRM 21.8.2.21.2, Form 5471 Penalties Systemically Assessed from Late-Filed Form 1120 Series or Form 1065., and in IRM 21.8.2.22.2, Form 5472 Penalties Systemically Assessed from Late-Filed Form 1120 Series.

  5. Chief Counsel has determined that the same reasonable cause criteria can be used for the systemically assessed Form 5471 and Form 5472 penalties and the FTF penalties assessed on late filed Form 1120. Since the late filed Form 1120 penalties generate a CP notice from MFT 02, requests for abatement will instruct the taxpayer to reply to either the Cincinnati or Ogden campus. Cincinnati and Ogden work cases where the taxpayer is only requesting that the Form 1120 FTF penalty be abated. Abatement requests for the Form 1120 FTF penalty and a Form 5471 or Form 5472 FTF penalty may be received in either campus. Follow the table below.

    If And Then
    Taxpayer is only requesting abatement of a late filed Form 1120 penalty (Research to determine if all required Form 1120 have been filed (or have a valid extension) for all years not on retention.). Not all required returns are posted at Master file (BMFOL). Contact the corporation regarding the status of the missing returns:
    1. If the taxpayer states that they have not filed the required forms, advise the corporation that the abatement request cannot be considered until the missing return(s) have been filed, and to submit a request at that time.

    2. If the corporation states that they have filed the missing returns, suspend the request for 40 days until all returns have posted. If the missing returns do not post in the time frame given, follow (a) above.

    All required returns are posted at Master file Consider abatement based on “normal” reasonable cause criteria in IRM 20.1.1.3, Criteria for Relief from Penalties, for the failure to file penalty. Do not consider First Time Abatement unless only a single year is involved and there is no prior penalty history. Penalty relief for all subsequent tax periods will be based on the showing of reasonable cause. See IRM 20.1.1.3.6.1, First Time Abate (FTA).
    Taxpayer requests abatement of both penalties Consider the request for the late filed Form 1120 penalty only. Follow the instructions in the two rows directly above. If all returns have posted, process the FTF penalty abatement request. Afterwards, route the Form 5471 penalty abatement request to:
    Internal Revenue Service
    Ogden Campus
    MS 6552
    1973 N. Rulon White Blvd.
    Ogden, UT 84404
  6. If you determine that you need to reprocess a TC 150 return where a Form 1120 FTF penalty and either a Form 5471 or a Form 5472 FTF penalty have been assessed, take the following action:

    • Abate the tax. If the account is not restricted the FTF penalty and any FTP penalty will be systemically abated. Any interest charged on the unpaid tax and any interest assessed on the FTF and/or FTP penalties will also be systemically abated. Manually abate any penalties (See IRM 20.1.2.1.5, Manual Penalty Adjustments) and/or interest (see IRM 20.2.8.1, Restricted Interest Overview) that has been systemically restricted from re-computing by a restricting (manual) transaction code. Use the appropriate hold code to hold any money/credit and to prevent a CP 210 Notice or a CP 220 Notice from generating.

    • Send a request to the address in the "then" box in the second row of paragraph (4) directly above, and request that they remove the Form 5471 penalty. Explain that you have reprocessed the return.

    • Reprocess the return to the correct EIN/tax period following normal procedures (see IRM 21.7.9, Duplicate Filing Conditions). Master file will determine whether the penalties will be assessed when the return posts.

Form 1120 and Reinstated Exempt Organization Determination
  1. Per the Pension Protection Act of 2006 (PPA), if an organization fails to submit the annual electronic notice (Form 990-N) or fails to file Form 990, Form 990-EZ, or Form 990-PF as required, for three consecutive years, its tax-exempt status is revoked as of the submission/filing due date of the third year. The system will put the organization in status 97 if there has been no TC 150 (or other satisfying transaction) posting for three years and one month, and the filing requirements are updated to Form 1120-01.

  2. Many of these taxpayers will seek reinstatement. It is also possible that some taxpayers may file Form 1120 while they seek a retroactive reinstatement. If you receive an inquiry from a taxpayer who filed Form 1120 while awaiting reinstatement and has subsequently been reinstated, advise them that if the reinstated exemption covers the period for which they filed the Form 1120, then they must file an amended return (Form 1120X), an explanation or cover letter of the situation, and a copy of the determination letter stating the exemption has been reinstated and the effective date of the exemption.

  3. If the taxpayer submits the proper documentation, process the amended return that covers the period that the taxpayer filed the Form 1120 for and adjust the account. For example; a calendar year taxpayer's exempt status is revoked effective May 15, 2010. Taxpayer files a 201012 Form 1120 to cover the short year return for the remainder of 2010. If the proper documentation is submitted, abate the tax. Manually abate any penalty and/or interest that is restricted from re-computing by a manual penalty transaction code (see IRM 20.1.2.1.5, Manual Penalty Adjustments) or restricted interest transaction code (see IRM 20.2.5.6, Restricted Interest). Unrestricted penalties and interest will systemically re-compute when the tax is abated. If the proper documentation is not submitted, send a Letter 916C, No Consideration Letter, and advise the taxpayer of what is needed.

Forms 1120 Series and Form 1120S - Review Required
  1. Forms 1120 and Forms 1120S that meet certain criteria require a review ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ A systemic TC 570 is placed on the tax module to set the –R freeze to hold any refund until the return and related information can be reviewed.

  2. These accounts can be identified by a TC 570 with all fives in the blocking series and serial number of the Document Locator Number (DLN), i.e., XXXXX-XXX-55555-X.

  3. If an inquiry is received from a Form 1120 or Form 1120S filer inquiring about the expected refund, research the account for a TC 570 posted to the account as described in the paragraph above.

  4. If the tax module contains a TC 570 with all five’s, prepare a Form 4442 and notate "unreversed TC 570" , and leave a history item on IDRS of "TC570ALL5S" and "ROUTETOFRP" , and route to:
    Internal Revenue Service
    Attn: FRP M/S 4450
    1973 N. Rulon White Blvd.
    Ogden, UT 84404

  5. Advise the taxpayer that their inquiry is being forwarded to another department for resolution and apologize for the delay in resolving the issue.

  6. Effective January 1, 2017, Computer Condition Code "E" may be edited on Form 1120 or Form 1120S (any year) if it is determined that the return is a potential identity theft filing. See IRM 3.11.16.8.1.5, CCC "E" – Potential ID Theft Filing, for additional information.

  7. If a tax examiner in Submission Processing (SP) Code and Edit (C&E) finds a case with attachments or correspondence indicating the taxpayer is a victim of ID Theft, the case is referral to one of the SP BMF ID Theft liaisons. If the SP BMF Theft Liaison says the return is ID Theft, the tax examiner will edit CCC E. See IRM 25.23.11.7.3, Returns Selected for RICS Review, for additional information.

  8. When CCC "E" is edited on a return a TC 971 AC 711 will post to IDRS Master file. This TC 971 code will cause the return to post as a TC 973 instead of a TC 150. In addition, a 5263C letter is sent to the taxpayer requesting them to validate the filing of the return.

  9. If the taxpayer contacts the Service by telephone and the criteria above is meet, follow the guidance in IRM 25.23.11.7.3. If correspondence is received responding to the 5263C letter, route to:
    RICS Unit, OSC
    Mail Stop 9002
    Ogden, UT 84401

  10. For more information on potential BMF identify theft, see IRM 25.23.11, Business Master File (BMF) Identity Theft Procedures for Accounts Management

Form 966 - Corporate Dissolution or Liquidation
  1. A corporation or farmer’s cooperative must file Form 966, Corporate Dissolution or Liquidation, if it adopts a resolution or plan to dissolve the corporation or liquidate any of its stock. Form 966 must be filed within 30 days after the resolution or plan is adopted to dissolve the corporation or liquidate any of its stock. If the resolution or plan is amended or supplemented after Form 966 is filed, the taxpayer is required to file another Form 966 within 30 days after the amendment or supplement is adopted.

  2. If a loose Form 966 is received in Accounts Management, associate the Form 966 with the entity referred to in the Employer Identification Number box on the top of the form. If box 7b is checked yes because the taxpayer filed as part of a consolidated group, associate the form with the entity’s EIN listed in box 7d. Associate with the tax period listed in box 7a.

  3. If you are working a Form 966 scanned into CIS, the CIS image is the source document and it remains in CIS for further recall. If TC 150 has not posted and you have a paper Form 966 case (non CIS), input TC 930 push code to have Form 966 attached to Form 1120 after the return posts.

  4. If a loose Form 966 is received in Accounts Management with a CP 259 Notice or a CP 518 Notice, route as follows:

    • If received in Cincinnati – route to Brookhaven CSCO Stop 661

    • If received in Ogden – route to Memphis CSCO Stop 811

    • If received in any other site, refer to Line 7e On Form 966 for the BMF site where the return was filed and follow the guidelines in the two bullets above by referring to either Brookhaven or Memphis

    • If return was electronically filed, route to Memphis address above

  5. If Form 966 is received with "Filed pursuant to Notice 97-4" written across the top and "Section 1361(b)(3)(B)" is entered on Line 10 of Form 966, route to BMF Entity address below based on where the original return was filed:

    • CSPC - Stop 343

    • OSPC - Mail Stop 6273

Estimated Tax Overpayment, Credit Elect - General

  1. Per IRC 6402(b), the IRS is authorized to credit an overpayment against estimated tax for the succeeding taxable year. A credit under IRC 6402(b) is generally referred to as a "credit elect overpayment" or simply a "credit elect." Once the taxpayer makes the election to have the overpayment applied to their next year’s estimated taxes (credit elect), it cannot be revoked.

  2. Overpayments will offset to BMF balance due accounts, then to DMF accounts, before the credit elect is applied to the next year’s estimated taxes.

  3. Pursuant to Treas. Reg. 301.6402-3(a)(5) and Treas. Reg. 301.6611-1(h)(2)(vii), credit (overpayment) interest is never allowed when an overpayment is applied as a credit elect to estimated taxes for the immediately succeeding tax period.

  4. A systemic credit elect by Master file appears on IDRS with transactions code TC 836 (debit) and transaction code TC 716 (credit). A credit elect is input manually to IDRS via command code (CC) ADD48 with TC 830 and cia CC ADC48 with TC 710. BPI 0 must be input with CC ADD48/ADC48. See IRM 21.5.8.3.3, Determining Correct Credit Transfer Format, for complete information.

  5. Current Master File programming for credit elects on Form 1120 series returns incorrectly calculates the installment due date to be the return due date plus one month. While the result is technically correct when transferring a timely overpayment from a period beginning before 1/1/2016, it is no longer correct for periods beginning after 12/31/2015 because the due date of most Form 1120 returns is now equal to the due date of the first installment of estimated tax for the succeeding period. Therefore, adding one month is incorrect. However, even though Master File uses the incorrect date, there is no harm to the taxpayer because the credit elect is considered timely for the first installment of the succeeding year in the current estimated tax penalty programming. There are, however, debit (underpayment) interest implications in the case of a subsequent assessment: The systemic credit transfer will need to be reversed and input with the correct date when making an assessment of tax on MFT 02 for periods beginning after 12/31/2015, unless the period ends in 06. See IRM 21.7.4.4.4.2 and IRM 21.7.4.4.4.2.1 for the return due dates for Forms 1120 series returns.
    EXAMPLE: An overpayment comprised of timely/prepaid credit is applied as a credit elect from the Form 1120 module for the period 201612 to the estimated tax account of Form 1120 for 201712. Master File incorrectly posts the TC 836 and TC 716 with a date of 05/15/2017, instead of the proper date of 04/15/2017. Although Master File used the incorrect date, the credit side of the transfer (TC 716) will still be considered timely for estimated tax purposes. If, however, a subsequent assessment is made on the 201612 tax module, debit (underpayment) interest will be computed incorrectly. Reverse the credit elect dated 05/15/2017 with command code ADD48 with TC 832 and CC ADC8 with TC 712. Re-input via CC ADD48 with TC 830 and CC ADC 48 with TC 710 with the correct date of 04/15/2017.

  6. Use CC ADD48 and TC 830 (debit), and CC ADC48 with TC 710 (credit) to apply an overpayment as a credit elect to the immediately succeeding tax period. See the chart below:

    If Then
    Credit elect overpayment transfer consists of credits dated by the ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Transaction date of the TC 830 (debit) and TC 710 (credit) is the due date of the first installment of estimated tax for the succeeding year (see IRM Exhibit 20.1.3-2).
    Credit elect overpayment transfer consists of a credit or partial credit dated after the due date of the return ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Transaction date of TC 830 (debit) and TC 710 (credit) is the 23C date of the payment.

    Note:

    Input separate transfers to accommodate multiple late payments, or when an overpayment is comprised of both timely and late payments/credits. For each transfer use the later of the first installment due date or the transaction date of the payment creating that portion of the overpayment being transferred.



    EXAMPLE 1: In 2017, a taxpayer files Form 1120X correcting a 201612 tax period and requests the overpayment be applied as a credit elect to estimated tax for 201712. Since the overpayment is comprised entirely of prepaid credit, input TC 830 and TC 710 with the due date of the first installment of estimated tax for the succeeding year, 04/15/2017.

    EXAMPLE 2: The scenario is the same as in Example 1 directly above except the overpayment is comprised entirely of a subsequent payment dated June 2, 2017. TC 830 and TC 710 will both carry a date of June 2, 2017.

  7. An overpayment applied as a credit elect can only be transferred to the immediately succeeding tax period. For example, an overpayment from a 201412 Form 1120 cannot be transferred as a credit elect to the estimated tax for the 201612 Form 1120. However, a taxpayer may make a written request to apply an overpayment to another MFT/tax period. To transfer an overpayment to another MFT/tax period, transfer with CC ADD24 and TC 820 (debit), and CC ADC24 with TC 700 (credit) using the same dates as in the examples above. See IRM 20.2.4.6.2, Rules for Applying Offsets Under Section 6402, for instructions, including payment of credit (overpayment) interest on the offset when applicable.

  8. While interest is prohibited when applying an overpayment as a credit elect under IRC 6402(b), interest may be allowed when an overpayment is applied to an outstanding liability under IRC 6402(a). See IRM 20.2.4.6, Offsets, and IRM 20.2.4.6.1, Interest on Offsets, for additional information.

  9. Per the Surface and Transportation and Veterans Health Care Choice Improvement Act, for tax years beginning after December 31, 2015, the return due date for most Form 1120 series return has changed from the 15th day of the third month, to the 15th day of the fourth month. See IRM 21.7.4.4.4.2 and IRM 21.7.4.4.4.2.1 for the return due dates for Forms 1120 series returns.

  10. See IRM 21.7.4.4.5.1 for special computer capabilities on certain income tax and EO returns.

Credit Elect Computer Programming on Certain Income Tax/EO Returns
  1. The computer automatically generates credit elect for subsequent overpayments on accounts where the amount of credit elect posted is less than indicated on the original forms below:

    • Form 1120

    • Form 1041

    • Form 990-C/1120C

    • Form 990-T

    • Form 990-PF

  2. This capability only exists until the end of the year from which the credit elect originated. For instance, the computer generated credit elect capability:

    • For a 201603 return, ends on March 31, 2017

    • For a 201612 return, ends on December 31, 2017

      Example:

      A taxpayer files Form 1120 for 201612 on March 15, 2017.

    • The return reflects a credit elect amount of $1,500 to be applied to 201712.

    • However, for some reason, the amount available for credit elect is only $1,000.

    • The computer stores a figure of $500 as a reference for any subsequent credit which becomes available on the 201612 account.

    • The taxpayer files a claim for a $600 decrease on June 15, 2017.

    • The only action required is input of the appropriate TC(s) to allow the credit.

    • The computer generates a refund of $100 from the 201612 account and credit elect of $500 to 201712.

  3. Hold codes do not prevent computer generated credit elect offsets during the year.

  4. Exercise care at the end of the year when adjusting an account. If an additional amount should go to credit elect and the adjustment may not post until after the automatic offset expiration, use the appropriate HC and manually transfer the credit elect using TC 830/710. The credit elect must also be manually transferred if the taxpayer files an amended return or claim (requesting the overpayment be transferred as credit elect) after the computer generated credit elect capability expires.

  5. The computer does not generate a secondary TC 836 if a TC 832 has been input and the mathematical/clerical error indicator is present in the module.

Form 8716, Election to Have a Tax Year Other Than a Required Tax Year

  1. Eligible partnerships, subchapter S corporations, and personal service corporations (PSC) that do not qualify to adopt or retain a fiscal year based on business purposes (See Rev. Proc. 2002-39 and Rev. Proc. 2006-46) can file Form 8716 to use a tax year other than the required tax year. Generally, the tax year must be a fiscal year month (FYM on ENMOD) ending in September, October, or November.

  2. Under the election, the required payment is reported on Form 8752, Required Payment or Refund Under Section 7519.

  3. The following transaction codes (TC) are used to post the election:

    • 052 - Reversal of posted TC 053, TC 054, or TC 055

    • 053 - Change in accounting period Form 1128

    • 054 - Retain FY (Rev. Proc. 2002-38)

    • 055 - Adopt or change FY per IRC 444 election

    • 057 - Reversal of IRC 444 election

    • 058 - Rejection of Form 8716

    • 059 - Rejection of Form 1128

  4. The TCs are displayed on CC ENMOD with the effective date of the election. TC 057 indicates a computer generated termination of a Section 444 election when a calendar year return is filed.

  5. Forward any unprocessed Forms 8716 or requests for accounting period changes to Entity Control. Follow normal procedures for any adjustment requests received.

  6. The Internal Revenue Service no longer mails out blank Forms 8752. Taxpayers are instructed to download the form from the IRS Web site @ www.irs.gov, or by calling the forms number at 1-800-829-3676.

Form 8752, Required Payment or Refund Under Section 7519

  1. Form 8752 is filed by partnerships and S corporations who made the Section 444 election to file their income tax return on a fiscal year rather than a calendar year basis. The Form 8752 is used to remit the required payment. The required payment is intended to represent the value of the tax deferral by the owners of those entities through the use of a taxable year other than the required year. Generally, the tax year must be a FY ending in September, October, or November. The required payment is considered a deposit.

  2. The deferral period cannot exceed three months and cannot increase the deferral period of the taxable year that is being changed. Therefore, a taxpayer with a required taxable year ending December 31, can only adopt a FY ending in September, October, or November. Taxpayers electing Section 444 are not required to remit a payment until a liability in excess of $500 has been incurred. Thereafter, the taxpayer must continue to make the required payment even when the amount due is below the $500 threshold.

  3. Forms 8752 are MFT 15, document code 23, and tax class 2. See the General Instructions for Form 8752 for line by line computation instructions. They are annual returns due by May 15 of each year in which the election is in effect. Use blocking series 00 when making adjustments when the original return is secured and blocking series 17 without the original return.

  4. Personal service corporations do not file Form 8752 even though they are subject to Section 444 and must file Form 8716.

  5. The required payment module has some of the same characteristics as other tax modules, but caution must be used when adjusting the accounts and performing credit transfers. It is recommended that the campuses train a select group of tax examiners (TE) to specialize in resolving Form 8752 accounts.

  6. Form 8752 accounts are very complex. Although these accounts have some of the same characteristics as other tax modules, extreme caution must be used when adjusting the accounts and performing credit transfers. The TC 150 amount is not a tax, it is considered a deposit and is referred to as the "required payment." The moving of payments, and the abatements and additions to the required payment have a rolling effect on multiple modules. Payments roll forward from one tax period to the next as a TC 766 credit. Adjustments to one tax period can effect the TC 766 on multiple periods. These cases are worked by specialists in the Cincinnati campus and by the Restricted Interest Team in Ogden Accounts Management.

  7. Correspondex Letter 4501C, Form 8752, Required Payment or Refund Under Section 7519, should be used to respond to all taxpayer inquiries and IRS initiated action involving Form 8752.

Election Year, Base Year, Required Tax Year (Form 8752)
  1. The election year is the taxable year of a partnership or S corporation with respect to which an election is in effect under Section 444.

  2. The base year is the taxable year (the taxable year is not the same thing as the required tax year mentioned in (3) below) of the partnership or S corporation preceding the applicable election year.

  3. The required tax year is a calendar year.

    Example:

    If the taxpayer has decided to continue with a FY ending of October (201610) and previously filed and received approval via the Form 8716 election, the taxpayer’s current election year is November 1, 2015 - October 31, 2016. The base year is November 1, 2014 - October 31, 2015. The required tax year still remains the calendar year (201512, 201612, etc.).

Penalties (Form 8752)
  1. IRC 7519(f)(4)(a) provides for a 10 percent underpayment penalty on payments made after the payment due date of May 15. They are identified by TC 246, reference code 684. The penalty may be abated for reasonable cause. See IRM 20.1.1, Introduction and Penalty Relief and IRM 20.1.10.17, IRC 7519, Required Payment for Entities Electing Not to Have Required Taxable Year, for more information.

  2. Failure to File (TC 16X) and Failure to Pay (TC 27X) penalties under IRC 6651 do not apply to Section 7519 underpayments. If either penalty has been manually assessed on a Form 8752 account, abate the penalties.

  3. First-time abatement does not apply to the 10 percent underpayment penalty. Also, lack of funds is never grounds for abating the penalty. If the taxpayer is experiencing a lack of funds they should consider terminating the election and adopting the required calendar year. In addition, the fact that the taxpayer would have received a refund in the year following the year they owed the deposit, does not establish reasonable cause for the abatement of the penalty. For example, taxpayer filed Form 8752 for MFT 15 tax period 201512 for $10,000 and did not make the payment. On the 201612 Form 8752 return the taxpayer had zero liability. The fact that the taxpayer would have received a refund of the $10,000 on the 201612 return does not establish reasonable cause for the abatement of the penalty on 201512. See IRM 20.1.1.3, Criteria for Relief from Penalties, for reasonable cause criteria for penalty abatement.

Posting of the Payment (Form 8752)
  1. The required payment (line 9a) posts as the TC 150 amount. The system credits the payment and automatically rolls that amount forward to the following year’s account. It posts on the following year’s account as a TC 766. (There will not be a corresponding debit for that amount.) When the following year’s return posts, one of three situations occur. See the examples below.

    Example:

    Excess credit:

    1. TC 150 is $5,000.

    2. TC 766 is $8,000.

    3. The system rolls over $5,000 to the following year and issues a refund of $3,000.

    Example:

    Balance due:

    1. TC 150 is $8,000.

    2. TC 766 is $5,000.

    If Then
    Balance due is paid with the return (TC 610 for $3,000) The system rolls over credit of $8,000.
    Balance due is not paid with the return A balance due notice is issued for $3,000 plus penalty and interest. The system rolls over the credit of $5,000 and, when paid, an additional credit of $3,000 rolls over.

    Example:

    Zero balance:

    1. TC 150 is $5,000.

    2. TC 766 is $5,000.

    3. The system rolls over $5,000.

Form 8752 Credit Transfers
  1. The following procedures describe credit transfers on Forms 8752. It is very important to understand how credits are applied and the effect a change in credits has on each account involved before an attempt is made to move payments.

  2. Once a liability is assessed, the credits are frozen on that account up to the TC 150 amount. Do not attempt to adjust the posted credit below the assessment amount. If so, the adjustment unposts because the system has already used the credit in the automatic roll over program. Therefore, it is not available, unless the liability is reduced first.

    Example:

    Form 8752 for 201612 posts with a TC 150 of $2,000. Credits up to the $2,000 assessment are frozen from being transferred out of the account. Attempts to transfer the credit go unpostable.

  3. Any adjustments to the existing credits affects all subsequent year accounts by amounts corresponding to any credit transfer from a prior year.

    Example:

    TC 291 for $2,000 is input to a fully paid 201412 account. The system pulls credits which rolled to subsequent Form 8752 accounts (201512 and 201612) back to the period adjusted to compensate for the tax decrease.

  4. The necessity to move payments from one account to another can occur when working Form 8752 accounts. The most common credit transfer on these types of cases is when a payment was applied to the incorrect period with a return present on the account from which you are moving the credit, and the payment belongs on another account. Action required:

    1. Input TC 291, HC 4, in blocking series 17 and reduce the tax liability to zero.

    2. Input a credit transfer with the date of your payment and use TC 570 on the debit side to create an -R freeze.

    3. Input TC 290, HC 4, in blocking series 18 with your documentation for the credit transfer. Use a posting delay code 1 to allow your credit transfer to post.

    Example:

    The accounts involved are Form 8752 accounts for 201512 and 201612.

    1. The 201512 account has a liability of $10,000 and a TC 766 of $5,000. This leaves the account in balance due of $5,000 plus penalty and interest.

    2. The 201612 account has a liability of $10,000, a TC 766 of $5,000, and a TC 670 for $5,000. The timely TC 670 was intended for 201512.

    3. Input TC 291 on 201612 for $10,000, HC 4, blocking series 17.

    4. Input credit transfer for $5,000 to move the TC 670 to 201512 using TC 570 on the debit side to create an -R freeze.

    5. Input TC 290 for $10,000, HC 4, blocking series 18, and posting delay code 1 on 201612 to reassess the liability and allow your credit transfer one cycle to post.

    6. Both the 201512 and 201612 accounts will be in zero balance after the TC 670 for $5,000 posts to 201512. An additional TC 766 will post to 201612, and then another TC 766 for $5,000 will roll (post) to 201712. Creating a total credit balance of $10,000 on 201712.

    Note:

    Never move a TC 766 at any time. Form 8752 accounts are not subject to offset-in/offset-out criteria.

Form 8752 Tax Adjustments
  1. The necessity to adjust tax on Form 8752 can arise due to any of the situations described in the following subsections. These instructions are intended to cover the most common cases and are not intended to cover every situation.

Incorrect Percentage Used (Form 8752)
  1. If the incorrect percentage was used to compute the tax liability and the taxpayer has not terminated the Section 444 election, take the following action:

    1. Analyze the taxpayer’s account to determine the correct tax period and percentage.

    2. Edit the correct percentage onto the Form 8752 and recompute the liability.

    3. Input the necessary adjustment to correct the assessment and send a closing letter to the taxpayer explaining the action taken.

Form 8752 Posts To Incorrect Period, Correct Return Unavailable
  1. If a return posts to an incorrect period and you do not have the correct return for that period, contact the taxpayer by phone or C-Letter to secure the necessary return.

  2. If you are unable to secure the return, take the following action:

    1. Prepare the return for re-input by completing Form 13596, Reprocessing Returns, and attaching it to the return.

    2. Input TC 291 for the amount of the TC 150, HC 4, and blocking series 17.

    3. Transfer any credits received with the return or identified by the taxpayer to be applied to this liability.

      Caution:

      Never move TC 766 credits. The computer will automatically move the credit forward when appropriate.

    4. lnput TC 290, HC 4, posting delay code 1, and blocking series 18 to reassess the posted liability and prevent the TC 766 from refunding.

    5. Open a monitor base and wait for the TC 766 to post.

    6. When the TC 766 posts, input TC 291, HC 4 to reduce the tax liability to zero. (This creates a "-K" freeze to hold the credit until the taxpayer files a return.)

Form 8752 Posts to Incorrect Period, Return Available
  1. If you are able to secure the return for the period from which you are reprocessing the TC 150 return, take the following action:

    1. Prepare the TC 150 document for re-input by preparing Form 13596, Reprocessing Returns, and attaching it to the return. See IRM 21.7.9.4.1.1, TRNS 193s Involving Reprocessing Returns, for more information.

    2. If a payment was received with the return, an adjustment to release the credit transfer freeze must be done before transferring the credit.

    3. Input TC 291 for the original TC 150 amount using HC 4.

    4. Input your credit transfer to move the credit to the prior period. (Since there is no return on the period to which your credit transfer is posting, a TC 570 is not needed on the debit side in this instance.)

    5. Input TC 290 for the correct liability assessment (based on the correct return for the period involved), HC 4, blocking series 00, and posting delay code 1.

Form 8752 Overpayments
  1. Form 8752 overpayments are considered a return of a deposit, not an overpayment of tax. No legal basis exists for offsetting the overpayment to any outstanding balance due. Accounts with a TC 130 posted are frozen and will require a manual refund of the overpayment to bypass the V- freeze.

  2. There is no line on Form 8752 to designate a credit elect of the overpayment. Overpayments on original returns are automatically refunded if the credit(s) TC 766 and/or payment(s) exceed the required payment amount. Overpayments that are the result of tax adjustments can be held and applied per the taxpayer’s request as a convenience to the taxpayer. A held overpayment can be applied to pay penalty and interest on other Form 8752 modules only. The taxpayer must be informed of this action.

  3. Overpayments on modules that are the result of a posted TC 766 amount cannot be applied to prior year returns. Doing so may double credit the accounts and generate erroneous refunds.

  4. Caution must be used whenever moving an overpayment from one tax period to another. Rarely will this occur. The only time an overpayment can be moved from one module to the next is when the payment(s) and TC 766 credit exceed the posted TC 150. For example, TC 150 posts to 201612 for $3,000 with a TC 766 in the amount of $2,500, payment of $600, creating an overpayment of $100. Normally this overpayment will refund. However, if an overpayment can be held on a subsequent tax adjustment the money can be moved forward. Overpayments that are the result of a payment (TC 610/TC 670) can only be applied to prior year(s) to pay penalty and interest after all of the tax has been paid or netted out.

  5. Be extremely careful when transferring overpayments with a TC 700 or TC 710. Moving overpayments backwards or forwards can cause erroneous refunds. You must have a true understanding of the rolling effects of credits transfers and abatements/additions to the required payments on these accounts before taking any action. Contact the manager or lead of a Form 8752 specialist in the Cincinnati or Ogden campus when in doubt.

Form 8752 Refunds
  1. IRC 7519(c)(3), requires the Service to hold any refund of the required payment until the later of the applicable April 15 date or 90 days after the day on which the claim is filed with the Service. Since this requires extensive programming to detain the taxpayer’s refund until the 90th day, a waiver to the above requirement was approved.

  2. The waiver permits the Service to pay the refund as soon as practical, but not earlier than April 15 and not later than the 90th day after the claim is filed.

  3. A request to obtain a refund of an over-deposit under IRC 7519 is treated as a return of a deposit general claim against the government (although IRC 6603 is not applicable). Section 7519 requires a running deposit balance that is adjusted each year. An entities required payment may increase, decease, or stay the same from any one year to the next, depending on the entities base year income and the applicable tax rates.

  4. See IRM 21.7.4.4.7.8.1, regarding any period of limitation for obtaining a refund of an over deposit of IRC 7519 payments.

  5. Request that all delinquent Form(s) 8752 be filed for all prior applicable election years before processing a request for a refund of IRC 7519 payments. If the taxpayer fails to file prior years’ returns or files such returns late and the information cannot be verified, any overpayment shown on the pending claim for refund may be rejected. Issue a disallowance letter as described in IRC 6532(a), and the taxpayer will have two years to file suit.

    Note:

    The taxpayer’s election is generally not terminated for the failure to file Form 8752.

  6. The following is an example of a Partnership electing to file Form 8752 under IRC 444 election but thereafter failing to file annually. In extreme instances, an entity might fail to file Forms 8752 after making the IRC 444 election until it liquidates or terminates its IRC 444 election.

    Example:

    Assume Partnership’s tax year ends on 9/30. On 5/15/2012, Partnership timely files an initial Form 8752 for its tax year ending 9/30/2011, making a required payment of $650. Partnership timely files its Forms 1065 each year, but does not file any additional Forms 8752 or make any required payments until 2016. On 5/15/2017, Partnership files a 201612 Form 8752 seeking a refund of the $650. Assuming Partnership had an IRC 444 election in effect for the years 2011 through 2016, Partnership’s claim for refund on the Form 8752 filed on 5/15/2017 is timely because the $650 required payment Partnership made in 2012 is, in effect, a deposit, it rolls forward into 2016. In order to determine the proper amount of any refund, the Service generally requires all delinquent Forms 8752 to be filed before processing Partnership’s 2016 Form 8752. Once the Forms 8752 that were due on 5/15 of each intervening year (2012 through 2015) are filed and an entry is made on the module for each period, the Service determines whether the $650 required payment made in 2012 (which rolled forward into each of the succeeding years) was sufficient for those years. If the amount that Partnership was required to have on deposit for each of the succeeding years was zero, and if in 2016 the amount of the liability is zero, then the Partnership is entitled to the $650 refund. However, if the Form 8752 reflects a liability in 2013, 2014, or 2015, then the appropriate 10-percent underpayment penalty and interest should be assessed and collected.

Refunds Involving Termination of Section 444 Election
  1. In the case of a refund resulting from the termination of the Section 444 election, the term "applicable calendar year" means the calendar year following the calendar year in which the final applicable election year ends.

  2. In order to claim the refund, the taxpayer must:

    1. File a final Form 8752.

    2. Check box C on Form 8752, or write at the top "Termination of Section 444 Election" .

    3. Complete lines 10 - 12.

    Example:

    The taxpayer FYM is 09. Taxpayer decides to adopt the calendar year. Taxpayer files short period Form 1120S return for the period 10/1/2015 - 12/31/2015, thus terminating the election effective 9/30/2015. A final Form 8752 for the period January 2015 – December 2015 stating the Section 444 election had been terminated and requests a refund of the required payment. The taxpayer is entitled to a refund not earlier than April 15, 2016, nor later than the 90th day after the date the final return for January - December 2015 is received.

Refunds Involving Continuation of Section 444 Election
  1. The steps below illustrate how a refund is issued when the taxpayer continues a Section 444 election.

    1. The taxpayer files a Form 8752 for the period January - December 2014 on May 15, 2015 for $10,000.

    2. The taxpayer files a Form 8752 for the period January - December 2015 on January 15, 2016 for $7,000.

    3. On April 15, 2016, the taxpayer will receive a refund in the amount of $3,000 for the excess credit from the 201512 return over the 201412 return. In other words, if the liability on the 201512 return is less than the liability on the 201412 return, then the taxpayer is entitled to a refund of the difference.

No Interest on Section 444 Refunds
  1. The statute does not provide for issuance of credit interest with respect to any refund made under this section under authority of Treasury Regulation section 1.7519-2T(a)(6)(iii).

  2. IDRS is programmed to not allow credit interest on such overpayments.

Section 7519 Statute of Limitations, Period for Assessment
  1. A required payment is due only for a limited time, e.g., 5/15/YR1 to 5/15/YR2. Once the subsequent election year begins, a new required payment is computed and due. If a prior required payment was not made, the Service does not attempt to collect it; instead, interest and a possible penalty under IRC 7519(f)(4) may be assessed.

  2. Required payments are treated as employment taxes for the purpose of the statute of limitations on assessment. Per IRC 7519(f)(1), the interest and any penalty described in (1) above may be assessed under IRC 6201 though 6207, subject to the period of limitations in IRC 6501 (and collected under IRC 6301 through 6306, subject to the period of limitations in IRC 6502). The deficiency procedures do not apply to required payments because they are treated as employment taxes and not as income taxes for assessment purposes.

  3. If a taxpayer filed Form 8752 for a prior period and the three-year assessment period in IRC 6501(a) expires for that period (and there are no exceptions that would extend it), the Service can no longer examine the Form 8752, adjust the payment, and assess interest and penalties on the shortfall for that period. If the taxpayer has not filed for a prior period, the Service may determine the proper payment and assess interest and penalties at anytime.

Section 7519 Statute of Limitations, Period for Claiming a Refund of a Payment.
  1. A request to obtain an over-deposit of the IRC 7519 amounts is treated as the return of a deposit, and not a tax. See IRM 25.6.1.10.2.12.8, Claim for IRC 7519 Payment Made in Connection with a Section 444 Election, regarding the lack, at the present time, of any period of limitations on filing a claim requesting a return of a IRC 7519 payment.

Non-refundable Credits, Income Tax Returns

  1. A non-refundable credit is a credit claimed to reduce tax liability. These credits, subtracted from the tax amount, are limited to the amount of tax liability.

  2. Any excess credit is non-refundable, but, generally, still available if the tax liability increases at a later date or can be applied against tax liabilities in other periods (carryback/carryforward). See IRM 21.5.9, Carrybacks, for more information on carrybacks. Also, see the applicable subsection for information on each specific credit to determine if it is available for carryback/carryforward.

  3. Take the following action:

    • When allowing a credit or an additional credit amount, input a TC 291 up to the amount of tax that has posted to the module.

    • Input a TC 290 for the amount of change when decreasing the credit.

    • Input a TC 290 for $.00 when a claim is received to increase a credit and the tax on the module is zero. Send a L 916C, No Consideration letter.

General Business Credit, Form 3800
  1. Form 3800 must be filed to claim any of the general business credits. See the Instructions for Form 3800, for instructions on computing the tax credits.

  2. The appropriate credit form must be attached and the total credit summarized on Form 3800.

  3. If only one of the credits in IRM 21.7.4.4.9, Refundable Credits Income Tax Returns, are applicable, the Form 3800 is not necessary. The taxpayer should only file the appropriate credit form.

  4. See IRM 21.7.4.4.4.9 for a list of the applicable credits.

Priority of Credits
  1. The General Business Credits reported on Form 3800 are treated as used on a first-in, first-out basis by offsetting the earliest-earned credits first. Therefore, the order in which the credits are used in any tax year is;

    1. Carryforwards to that year, the earliest ones first, as of the close of the tax year in which the credit is used:

    2. The general business credit earned in that year, and

    3. The carryback to that year.

  2. The components of the general business credits reported on TY 2017, Form 3800, are used in the following order:

    1. Investment, (Form 3468, Part II only) (attach Form 3468))

    2. Reserved

    3. Credit for Increasing Research Activities, Form 6765

    4. Low-income Housing, Form 8586, (Part I only)

    5. Disabled Access, Form 8826

    6. Renewable Electricity, Refined Coal, and Indian Coal Production Credit, Form 8835

    7. Indian Employment, Form 8845

    8. Orphan Drug, Form 8820

    9. New Markets, Form 8874

    10. Small Employer Pension Plan Start-up Costs, Form 8881

    11. Employer-Provided Child Care Facilities and Services, Form 8882

    12. Biodiesel and Renewable Diesel Fuels, Form 8864

    13. Low Sulfur Diesel Fuel Production Credit, Form 8896

    14. Distilled Spirits, Form 8906

    15. Nonconventional Source Fuel, Form 8907 (carryforward only)

    16. Energy Efficient Home, Form 8908

    17. Energy Efficient Appliance, Form 8909 (carryforward only)

    18. Alternative Motor Vehicle, Form 8910 (carryforward only

    19. Alternative Fuel Vehicle Refueling Property, Form 8911

    20. Enhanced Oil recovery Credit, Form 8830

    21. Mine Rescue Team Training, Form 8923

    22. Agricultural Chemicals Security, Form 8931

    23. Credit for Employer Differential Wage Payments, Form 8932

    24. Carbon Dioxide Sequestration, Form 8933

    25. Qualified Plug-in Electric Drive Motor Vehicle, Form 8936

    26. Qualified Plug-in Electric Vehicle (carryforward only), Form 8834

    27. New Hire Retention(carryforward only), Form 5884-B

    28. General Credits from an Electing Large Partnership, Schedule K-1, Form 1065-B

    29. Oil and Gas Production from Marginal Wells, Form 8904

    30. Investment (Form 3468, Part III) (attach Form 3468)

    31. Work Opportunity, Form 5884

    32. Biofuel Producer Credit, Form 6478

    33. Low-income Housing, Form 8586, Part II

    34. Renewable Electricity, Refined Coal, and Indian Coal Production Credit, Form 8835

    35. Employer Social Security and Medicare Taxes Paid on Certain Employee Tips, Form 8846

    36. Qualified Railroad Track Maintenance, Form 8900

    37. Small Employer Health Insurance Premiums, Form 8941

    Note:

    Due to the limitations of the Arbortext software, the letters listed above do not necessarily correspond with those on Form 3800.

  3. See Form 3800 and the Instructions for Form 3800 for more specific information.

  4. The IRS has created pages on www.irs.gov for information on various forms as they are being updated. The site will contain information regarding any future developments to the form such as legislation enacted after the form is released.

  5. Use the following format to check to see if a form has updated information; www.irs.gov/form####. For example, to check to see if Form 3800 has any updates, input www.irs.gov/form3800, or for Form 6478 input www.irs.gov/form6478.

Use of Other Credits Prior to Allowance of General Business Credit
  1. The tax liability must be reduced by the following other credits not taken on Form 3800, before the General Business Credit:

    • Foreign Tax Credit, Form 1116

    • American Samoa Economic Development Credit, Form 5735,
      Forward any case or correspondence relating to Form 5735 to:
      Internal Revenue Service
      Philadelphia Campus
      BLN 1-D08.113
      2970 Market Street
      Philadelphia, PA 19104

    • Nonconventional Source Fuel Credit (separate schedule must be attached)

    • Qualified Electric Vehicle Credit, Form 8834

    • Credit for Prior Year Minimum Tax - Corporations, Form 8827

    • Qualified Zone Academy Bond Credit (valid for periods 199901 and subsequent), Form 8860

  2. See Form 3800 and the Instructions for Form 3800 for more specific information.

Form 8844, Empowerment Zone Employment Credit
  1. The Revenue Reconciliation Act of 1993 amended IRC 38 and added new section 1396 and section 1397 to the Internal Revenue Code to allow an income tax credit for qualified wages and certain training and educational expenses paid or incurred on behalf of qualified zone employees.

  2. Form 8844 is filed to claim the empowerment zone employment credit, and, previously, the renewal community employment (EZRCE) credit. (Section 753(a)(1), of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, repealed the renewal community employment credit for calendar years after 2009.):

  3. The empowerment zone employment credit is 20 percent of the employer's qualified wages (up to $15,000) paid or incurred during the calendar year for qualified empowerment zone employees,

  4. The empowerment zone employment credit has been modified by various legislation. Below is a listing of the legislation that has extended the empowerment zone employment credit:

    • Section 753(a)(1), of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, extended the credit to December 31, 2011.

    • Section 327(a), of the American Taxpayer Relief Act of 2012, P.L. 112-240, extended the credit for two years and is effective after December 31, 2011 and on or before December 31, 2013.

    • Section 139, of the Tax Increase Prevention Act of 2014, P.L. 113-295, extended the credit for one year and is effective after December 31, 2013 and on or before December 31, 2014. See Notice 2015-26 for more information.

    • Section 171 of the Protecting Americans From Tax Hikes Act of 2015, P.L. 114-113, extended the credit for two years and is effective on or before December 31, 2016.

  5. A qualified empowerment zone employee is any employee (full-time or part-time) of the employer who:

    1. Performs substantially all of the services for that employer within an empowerment zone in the employer's trade or business, and

    2. Has their principal residence within that empowerment zone while performing those services. (Employees who work in the Washington, DC empowerment zone may live anywhere in the District of Columbia.)

  6. Beginning with wages paid after December 31, 2015, Section 171 of the Protecting Americans From Tax Hikes Act of 2015, P.L. 114-113, an employee shall be treated as a resident of an empowerment zone if the employee is a resident of an:

    • Empowerment zone,

    • Enterprise community, or

    • A qualified low-income community within an applicable nominating jurisdiction.

  7. A qualified renewal community employee is any employee (full-time or part-time) of the employer who:

    1. Performs substantially all of the services for that employer within a renewal community in the employer's trade or business, and

    2. Has their principal residence within that renewal community while performing those services.

  8. The credit is a component of Form 3800, General Business Credit, however, IRC 38, provides a special tax liability limitation for the credit. For 2007 and prior, the credit is figured separately and is never carried to Form 3800. For 2008 and subsequent, the allowable credit is figured in Part II of Form 3800. The credit is based on designated qualified areas nominated by state and local government in 1994.

  9. Publication 954, Tax Incentives for Distressed Communities (Obsolete 3/18/2011) advises taxpayers of the tax incentives available for businesses located in to-be-designated empowerment zones and enterprise communities.

  10. See the General Instructions for Form 8844 for more specific information, and for a listing of the Urban Areas, Rural Areas, and parts of Washington, DC that make up the Empowerment Zones and for a listing of the Renewal Communities. This information can also be found by using the RC/EZ/EC Address Locator at hud.gov/crlocator. Also, see Notice 2016-28, 2016-15 I.R.B. 576, and IR-2016-91 for more information.

Carryback/Carryforward of Excess Credits
  1. Generally, for taxable years beginning prior to 1998, excess business credits can be carried back three years beginning with the earliest year. Any unused credit after the carryback, may then be carried forward 15 years.

  2. The TPRA of 1997 changed these provisions for taxable years beginning in 1998 and subsequent. Generally, it provides that credits can only be carried back one year. Any unused credit after the carryback can be carried forward 20 years. See IRM 21.5.9, Carrybacks, for more information on carrybacks.

  3. Section 2012, General Business Credits of Eligible Small Businesses for 2010, of the Creating Small Business Jobs Act of 2010, P. L. 111-240, extended the carryback period for eligible small business credits from one year to five years. The provision allows for a five year carryback of unused general business credits for "eligible small businesses" and is effective for credits determined in a taxpayer's first taxable year beginning after December 31, 2009. In addition, general business credits can be carried back the full 5 years under the Creating Small Business Job Act of 2010 regardless of when the credit was implemented. See IRM 21.5.9.5.6.1, Small Business Jobs Act of 2010 (PL 111-240, Section 2012) - Five Year Carryback of Eligible Small Business Credits, for more information.

  4. Section 2013, General Business Credits of Eligible Small Businesses in 2010, of the Creating Small Business Jobs Act of 2010, P. L. 110-240, provides that the tentative minimum tax is treated as being zero for eligible small business credit. Thus, an eligible small business credit may offset both regular and alternative minimum tax (AMT) liability. The provision applies to credits determined in the first taxable year beginning after December 31, 2009, and the carryback of such credit. See IRM 21.5.9.5.6.1, , Small Business Jobs Act of 2010 (PL 111-240, Section 2012) - Five Year Carryback of Eligible Small Business Credits, for more information.

  5. The Instructions for Form 3800 direct the taxpayer to attach a detailed computation of their carryforward of the General Business Credit showing for each credit, the tax year the credit originated and how it was applied to Form 3800.

Expiration of Credits
  1. When credits expire, the date they expire may not coincide with the return period ending date for which they are valid.

    Example:

    If a credit expires December 31, 2014, the credit is valid on returns through period ending 201511. The taxpayer could have activity during December 2014 (when the credit was still available) which would be included on the 201511 return which includes the December 2014 period.

Information on Specific Non-Refundable Credits
  1. The sections in this subsection contain information on various non-refundable credits.

  2. See IRM 21.8.2.10, Foreign Tax Credit (Form 1116 and Form 1118), for information on the foreign tax credit.

Form 3468, Investment Credit
  1. Form 3468 is used to claim the investment credit. The investment credit consists of the rehabilitation credit, the energy credit, the qualifying advanced coal project credit, the qualifying gasification project credit, the qualifying advanced energy project credit, and the Qualifying Therapeutic Discovery Project Credits.

  2. Taxpayers are allowed a credit on Form 3468 for qualified rehabilitation expenditures made for any qualified rehabilitation building. Qualified rehabilitation expenditures must meet six requirements. See the Instructions for Form 3468 for specific information. Also, see the instructions to determine which expenditures qualify as qualified rehabilitation expenditures.

  3. Section 1307(b), of the Energy Tax Incentives Act of 2005, P.L. 109-58, added the qualifying advanced coal project credit under IRC 48A, and the qualifying gasification project credit under IRC 48B, to the investment credit. See IRM 21.7.4.4.8.3.1.2 for more information on the qualifying advanced coal project credit and the qualifying gasification project credit.

  4. Section 1302(b), Div. B Title I, Credit for Investment in Advanced Energy Facilities, of the American Recovery and Reinvestment Act of 2009, P.L. 111-5, added IRC 48C, Qualifying Advanced Energy Project Credit to the Investment Tax Credit under IRC section 46. See IRM 21.7.4.4.8.3.1.3, for more information on the qualifying advanced energy project credit.

  5. In addition, Section 9023(a), Title IX, Qualifying Therapeutic Discovery Project, of the Patient Protection and Affordable Care Act, P.L. 111-148, added new IRC 48D. The provision added the Qualifying Therapeutic Discovery Project Credits to the Investment Tax Credit under IRC section 46. The credit is available for qualified investment in qualified therapeutic discovery projects made in 2009 and 2010. See Notice 2010-45, 2010-23 I.R.B. 734, for more specific information on the Qualifying Therapeutic Discovery Project Credits. Under IRC 46, the amount of the investment credit for any taxable year is the sum of the:

    1. Rehabilitation credit

    2. Energy credit

    3. Qualifying advanced coal project credit

    4. Qualifying gasification project credit

    5. Qualifying advanced energy project credit, and (See Notice 2009-72, 2009-37 I.R.B. 325 and Notice 2013-12, 2013-10 I.R.B. 543.)

    6. Qualifying therapeutic discovery project credit

  6. The sections listed below of the Emergency Economic Stabilization Act of 2008, P.L. 110-343, added or extended the following credits on Form 3468 through December 31, 2016:

    Section #
    of Division A
    Title I
    Section Title Description
    103 Energy credit Any property using solar energy, qualified fuel cell property, and microturbine property. It also allows an energy tax credit for combined heat and power system property.
    104 Energy credit for small wind property Allows an energy tax credit for 10 percent of expenditures for wind turbines used to generate electricity.
    105 Energy credit for geothermal heat pump system Allows an energy tax credit for 30 percent of expenditures for equipment which uses the ground or ground water as a thermal energy source to heat a structure or as a thermal energy sink to cool a structure.”
  7. Section 1102(a), Division B, Title I, of the American Recovery and Reinvestment Act of 2009, P.L. 111-5, added an Election of Investment Credit in Lieu of Production Tax Credit that allows a taxpayer to make an election on Form 3468 for renewable energy facilities that are placed in service after 2008 and the construction of which begins before 2017 in lieu of the tax credit for producing electricity from renewable resources on Form 8835. Notice 2009-52, 2009-25 I.R.B. 1094, provides a description of the procedures that taxpayers are required to follow to make an irrevocable election to take the investment tax credit in lieu of the production tax credit.

  8. Section 1103, Division B, Title I, of the American Recovery and Reinvestment Act of 2009, P.L. 111-5, Repeal of Certain Limitations on Credit for Renewable Energy Property, repeals the $4,000 limitation on the energy tax credit for qualified small wind energy property placed in service during the taxable year. This section also repeals limitations on property financed by subsidized energy property under IRC 48, (energy tax credit), and in certain circumstances the credits under IRC 25C, (non-business energy credit property) and IRC 25D, (residential energy efficient property). The provision is effective for qualified property placed in service after December 31, 2008. Notice 2009-53, 2009-25 1095, provides guidance regarding the conditions under which taxpayers may rely on a manufacturer's certification.

  9. Section 302, Div. P., Title III, of the Protecting Americans from Tax Hikes Act of 2015, P.L. 114-113 (PATH Act), significantly extended the election for a taxpayer that owns a wind facility to elect to claim the investment tax credit under section 48 in lieu of the production tax credit under section 45. Additionally, section 303 of the PATH Act extended the credit for solar energy facilities and provided that the credit will phase down in increments to 10% for facilities that are placed in service after January 1, 2024.

  10. The reforestation credit was repealed by the American Jobs Creation Act of 2004 effective for expenditures paid or incurred after October 22, 2004.

  11. Under IRC section 46 and the general business credit rules of IRC 38, any unused portion of these credits remaining, after the tax is reduced to zero in a taxable year, can be carried back one year and carried forward 20 years to reduce taxes for that taxable year. See IRM 21.7.4.4.8.1.4, Carryback/Carryforward of Excess Credits, for tax years beginning prior to 1998. The carryover rule continues to apply for property placed in service before 1986.

  12. See Form 3468 and the Instructions for Form 3468 for specific information on claiming the investment credit and the recapture of the credit.

  13. Also, see Notice 2015-4, 2015 I.R.B. 407 and Notice 2015-51, 2015-31 I.R.B. 133, which provides performance and quality standards that small wind energy property must meet to qualify for the energy credit under section 48. Notice 2015-51 modifies Notice 2015-4 by providing a revised effective date for certain small wind energy property that meets the performance and quality standards of International Electrotechnical Commission 61400-1, 61400-12, and 61400-11.

  14. Process Form 3468 as follows:

    1. Math verify Form 3468

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit

Carryforward of Investment Credit
  1. If the credit claimed is a carryforward credit, request records of the account for the three preceding tax years (from the year the credit originated), for tax years beginning prior to 1998 or for the previous year for tax years beginning in 1998 and subsequent, and:

    If Then
    The credit can be applied to tax owed for preceding years 1. Reject the claim.
    2. The taxpayer must indicate if recaptured investment credit or alternative minimum tax is included in the TC 150 amounts. Do NOT secure the original return to verify.
    3. Instruct the taxpayer to refile and follow carryback procedures or Form 1120X instructions.
    There is no tax to be reduced on the three preceding years (for tax years beginning prior to 1998) or for the preceding year (for tax years beginning 1998 and subsequent) Allow the carryforward claim.
Credit for Investment in Clean Coal Facilities
  1. Section 1307(b) of the Energy Policy Act of 2005, P.L.109-58, creates two new investment tax credits:

    • The Qualifying Advanced Coal Project Credit, and

    • The Qualifying Gasification Project Credit

  2. The first credit, the Qualifying Advanced Coal Project Credit under IRC 48A of the Code, established a program to allocate an investment tax credit in the amount of 20 percent of eligible basis for projects using integrated gasification combined cycle "IGCC" and 15 percent for projects using other advanced coal-based electricity generation technology. IRS Notice 2006-24, 2006-11 I.R.B. 595, establishes the qualifying advanced coal project program.

  3. See the following announcements for more information:

    • Announcement 2010-56, 2010-39 I.R.B. 398, discloses the results of the 2009-10 allocation round under IRC 48A.

    • Announcement 2011-62, 2011-40 I.R.B. 483, discloses the results of the 2010-11 allocation round under the qualifying advanced coal project program of § 48A of the Internal Revenue Code. This announcement also serves as notice to applicants that a 2011-12 allocation round under the qualifying advanced coal project program is currently open pursuant to Notice 2009-24, 2009-16 I.R.B. 817.

    • Announcement 2013-2, 2013-2 I.R.B. 271, discloses the results of the 2011–12 allocation round which is the final allocation round under phase II of the qualifying advanced coal project pogram of section 48A of the code.

    • Announcement 2013-43 , 2013-46 I.R.B. 524, discloses the results of the 2012-13 Phase III allocation round under the qualifying advanced coal project program of § 48A of the Internal Revenue Code.

    • Announcement 2016-33, 2016-39 I.R.B. 422 announces the certifications resulting from the results of the 2012-2013 Phase III allocation round under the qualifying advanced coal project program of section 48A.

  4. In addition, see the following IRC 48A notices for more information:

    • Notice 2007-52, 2007-26 I.R.B. 1456 which clarifies, modifies, amplifies and supersedes Notice 2006-24, 2006-11 I.R.B. 595

    • Notice 2008-26, 2008-9 I.R.B. 487, which updates and amplifies Notice 2007-52, 2007-26 I.R.B. 1456

    • Notice 2008-96, 2008-44 I.R.B. 1077, which updates and amplifies Notice 2007-45, 2007-22 I.R.B. 1456

  5. Section 111 of the Emergency Economic Stabilization Act of 2008, P.L. 110-343, increases to 30 percent the investment tax credit under IRC 48A. It also added a requirement for projects receiving IRC 48A credits to capture and sequester at least 65 percent of such project’s total carbon dioxide emissions. IRS Notice 2006-24, 2006-11 I.R.B. 595. Additionally, Act section 115 creates a new tax credit for carbon dioxide sequestration under IRC 45Q. See IRM 21.7.4.4.8.3.36, Carbon Dioxide Sequestration Credit, Form 8933, for more information.

  6. Notice 2009-24, 2009-16 I.R.B. 817, updates the procedures for the allocation of credits for the qualifying advanced coal project program under IRC 48A. The notice also announces the beginning of an allocation round of credits in the amount of $1.25 billion for qualifying advanced coal-based generation technology projects under Phase II of the qualifying advanced coal project program. Notice 2009-24 clarifies, modifies, and amplifies Notice 2007-52.

  7. Notice 2011-24, 2011-14 I.R.B. 603, modifies Notice 2009-24 by updating the rules relating to the qualifying advanced coal project program under IRC 48A. Specifically, this notice updates the rules regarding the separation and sequestration of carbon dioxide emissions for Phase II of the qualifying advanced coal program and provides for the annual measurement of separated and sequestered carbon dioxide by applying the recapture rules of IRC 50(a) in the event that a taxpayer fails to attain or maintain the carbon dioxide separation and sequestration requirements of IRC 48A. Except as specifically provided in this notice, the qualifying advanced coal project program will be conducted in the manner and under the procedures provided in Notice 2009-24.

  8. See Notice 2012-51, 2012-33 I.R.B. 150, which discloses the result of the review of the credits allocated under section 48A Phase I program, and establishes an additional program. (“the section 48A Phase III program”) to reallocate the remaining credits of section 48A Phase I program (“the section 48A Phase III credits”). The procedures in this notice apply only to section 48A Phase I credits that are available for reallocation under the section 48A Phase III program. Notice 2012-51, 2012-33 I.R.B. 150 amplifies Notice 2009-24, 2009-16 I.R.B. 817.

  9. Notice 2015-14, 2015-10 I.R.B. 722, updates and amplifies the procedures for the allocation of credits under the qualifying advanced coal project program of § 48A by announcing the immediate beginning of the 2015 reallocation round (“Round 2”) of the § 48A Phase III program. This Notice updates and amplifies Notice 2012-51, 2012-33 I.R.B. 150.”

  10. The second credit, the Qualifying Gasification Project Credit under IRC 48B of the Code, authorizes the allocation of an investment tax credit in the amount of 20 percent of eligible basis for certain gasification projects. Qualified gasification projects convert a solid or liquid produced from coal, petroleum residue, biomass, or other material recovered for their energy or feedstock value into a synthetic gas composed primarily of carbon monoxide and hydrogen for direct use of subsequent chemical or physical conversion. IRS Notice 2006-25, 2006-11 I.R.B. 609, establishes the qualifying gasification project program. See Notice 2006-25 for the requirements for the project.

  11. See Announcement 2010-56, 2010-39 I.R.B. 398 for the results of the 2009-10 Allocation Round of the Qualifying Advanced Coal Project Program and the Qualifying Gasification Project Program for more information.

  12. See the following IRC 48B notices

    • Notice 2007-53, 2007-1 I.R.B. 1474

    • Notice 2006-25, 2006-1 I.R.B. 609

    • Notice 2008-97, 2008-44 I.R.B. 1080

  13. Section 112 of the Emergency Economic Stabilization Act of 2008, P.L. 110-343, increases to 30 percent the investment tax credit for certain gasification projects. It also added a requirement for projects receiving IRC 48B credits to capture and sequester at least 75 percent of such project’s total carbon dioxide emissions. See IRM 21.7.4.4.8.3.1, Form 3468, Investment Credit, and the Instructions for Form 3468, for more specific information.

  14. See the following IRC 48B Notice:

    • Notice 2009-23, 2009-16 I.R.B. 802

    • Notice 2007-53, 2007-26 I.R.B. 1474

    • Notice 2011-24, 2011-14 I.R.B. 603

    • Announcement 2010-56, 2010-39 I.R.B. 398, discloses the results of the 2009-10 allocation round under the qualifying advanced coal project program of § 48A and the qualifying gasification project program of § 48B. This announcement also serves notice to applicants that no allocation round will be conducted under the qualifying gasification project program.

    • Announcement 2016-34, 2016-39 I.R.B. 422, which discloses the results of the Phase III allocation round under the qualifying gasification project program of § 48B. This announcement also serves as notice to applicants that no additional allocation rounds will be conducted under Phase III of the qualifying gasification project program.

    • Announcement 2017-6, 2017-24 I.R.B. 1262, which modifies and supersedes Announcement 2016-34, 2016-39 I.R.B. 422.

  15. Notice 2014-81, 2014-53 I.R.B. 1001, establishes the § 48B Phase III program of the qualifying gasification project program to reallocate the § 48B Phase I credits that are available for allocation after the conclusion of the § 48B Phase I program.

  16. The IRC 48A and IRC 48B credits apply to periods after August 8, 2005, the date of the enactment of the Emergency Economic Stabilization Act of 2008. Both credits are claimed on Form 3468, Investment Credit. See IRM 21.7.4.4.8.3.1, Form 3468, Investment Credit, for more information.

  17. Section 111(d), Div. B., Title I, of the Energy Improvement and Extension Act of 2008, P.L. 110-343, amended IRC 48A (and by reference IRC 48B) by allowing the Competitive Certification Awards Modification Authority to allow the Secretary to modify the terms of any competitive certification award and any associated closing agreement where such modification (unless the Secretary determines that the dollar amount of tax credits available to the taxpayer under such section would increase as a result of the modification or such modification would result in such project not being originally certified:

    • Is consistent with the objectives of such section

    • Is requested by the recipient of the competitive certification award, and

    • Involves moving the project site to improve the potential to capture and sequester carbon dioxide emissions, reduce costs of transporting feedstock, and serve a broader customer base)

  18. Action required:

    • Math verify Form 3468

    • Input TC 291 to increase the credit and TC 290 to decrease the credit

Credit for Investment in Advanced Energy Facilities:
  1. Section 1302(b), Division B, Title I, of the American Recovery and Reinvestment Act of 2009, P.L. 111-5, added IRC 48C, Qualifying Advanced Energy Project Credit, to the Investment Tax Credit under IRC 48. The provision is effective with respect to qualified progress expenditures made after February 17, 2009.

  2. The qualified advanced energy project credit for any taxable year is an amount equal to 30 percent of the qualified investment for such taxable year with respect to any qualified advanced energy project of the taxpayer.

  3. A qualifying advanced energy project is a project which re-equips, expands or establishes a manufacturing facility for the production of:

    • Property designed for use in the production of energy from the sun, wind, geothermal deposits (within the meaning of IRC 613(e)(2)), or other renewable resources.

    • Fuel cells, microturbines, or an energy storage system for use with electric or hybrid-electric motor vehicles.

    • Electric grids to support the transmission of intermittent sources of renewable energy, including property for the storage of such energy.

    • Property designed to capture and sequester carbon dioxide emissions.

    • Property designed to refine or blend renewable fuels (but not fossil fuels) or to produce energy conservation technologies (including energy-conserving lighting technologies and smart grid technologies).

    • New qualified plug-in electric drive motor vehicles (as defined in IRC 30(D) or components which are designed specifically for use with such vehicles, including electric motors, generators, and power control units.

    • Other property designed to reduce greenhouse gas emissions as may be determined by the Secretary of the Treasury.


    Exception: The project does not produce any property which is used in the refining or blending of any transportation fuel (other than renewable fuels) (i.e., a qualifying advanced energy project can produce property which is used in the refining or blending of any transportation fuel only if the property is used solely in the refining or blending of transportation fuels that are renewable fuels).

  4. Eligible property is any property (other than a building or its structural components) that meets the following requirements:

    1. The property is necessary for the production of specified advanced energy property described in IRC 48C(c)(1)(A)(i) or section 4.02 of Notice 2009-72, 2009-37 I.R.B. 325

    2. The property is: tangible personal property; or other tangible property (not including a building or its structural components), but only if such property is used as an integral part of the qualifying investment credit facility, and

    3. To which depreciation (or amortization in lieu of depreciation) is allowable

  5. The Service will consider a project under the qualifying advanced energy project program only if the U.S. Department of Energy (DOE) provides a recommendation and ranking for the project (DOE recommendation). DOE will provide a recommendation and ranking only if it determines that the project has a reasonable expectation of commercial viability and merits a recommendation based on the criteria in IRC 48C(d)(3)(B). Accordingly, a taxpayer must submit, for each project that it sponsors:

    • A preliminary application and a final application for recommendation by DOE (application for DOE recommendation), and

    • An application for certification under IRC 48C(d)(2) by the Service (application for IRC 48C certification).

  6. See Notice 2009-72, 2009-37 I.R.B. 325, for Phase I of the qualifying advanced energy project program and Notice 2013-12, 2013-10 I.R.B. 543, for Phase II of the program. Also see the Instructions for Form 3468 for more specific information on claiming the qualifying advanced energy project credit.

Form 8942, Application for Certification of Qualified Investments Eligible for Credits and Grants Under the Qualifying Therapeutic Discovery Project Program
  1. Section 9023, Qualifying Therapeutic Discovery Project, of the Patient Protection and Affordable Care Act, P.L. 111-148, added new section 48D to the Internal Revenue Code (IRC). IRC 48D, provides for a 50 percent non-refundable investment tax credit up to a maximum credit of $5 million per firm and $1 billion overall, for qualified investment in qualified therapeutic discovery projects made in 2009 and 2010. See IRM 21.7.4.4.8, Non-refundable Credits, Income Tax Returns, for more information on non-refundable credits. See the October 1, 2016 revision of IRM 21.7.4 for more information when working a case involving the qualifying therapeutic discovery project.

Form 5884, Work Opportunity Credit
  1. The Work Opportunity Credit was previously known as the Jobs Credit until it expired December 31, 1994. For workers beginning work after September 30, 1997, who work at least 120 hours but less than 400 hours for the employer, the credit is 25 percent.

    Note:

    An employer cannot claim the welfare-to-work credit with respect to wages of any employee on which the work opportunity credit is claimed.

  2. The work opportunity credit has been modified by various legislation. See the 08/22/2016 revision of this IRM for a complete list of legislation that extended the work opportunity credit before 2014. Below is a listing of the most recent legislation that has extended the work opportunity credit:

    • Section 119, of the Tax Increase Prevention Act of 2014, P.L. 113-295, extended the credit for one year for qualified individuals who begin work for the employer after December 31, 2013 and on or before December 31, 2014. See Notice 2015-13 for guidance on claiming the credit under section 119 of the act.

    • Section 142 of the Protecting Americans from Tax Hikes Act of 2015, P.L. 114-113, extended the work opportunity tax credit for five years for qualified individuals who begin work for the employer after December 31, 2014 and on or before December 31, 2019. In addition, the Act added a new targeted group, qualified long-term unemployment recipients who begin work after 2015.

  3. Qualified first-year wages are wages paid or incurred for work performed during the one-year period beginning on the date the certified individual begins work for the taxpayer. The amount of qualified wages that may be taken into account for a qualified employee is limited to $6,000 or $3,000 for a qualified summer youth employee.

  4. To claim the credit, taxpayers generally must request and be issued a certification for each employee from the state employment security agency (SESA) to prove that the employee is a member of a targeted group. Taxpayers must receive the certification by the day the individual begins work, or they must complete Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity and Welfare-to-Work Credits, on or before the day the taxpayer offers the individual a job.

  5. The credit can only be claimed as a general business credit and must be carried to Form 3800, General Business Credit. The allowable credit will then be figured on Form 3800. Any unused portion of this credit remaining, after the tax is reduced to zero, can be carried back one year to reduce taxes for that year. It can then be carried forward 20 years.

  6. See the General Instructions for Form 5884 for more specific information on the targeted groups, rules concerning qualified wages, and specific instructions for completing the form.

  7. The tentative minimum tax is zero for purposes of determining the tax liability limitation with respect to the work opportunity credit. Therefore, the work opportunity credit.

  8. Action required:

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ math verify the form.

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit.

Form 8884, Expanded Work Opportunity Credit, New York Liberty Zone
  1. The Job Creation and Workers Assistance Act of 2002, P.L. 107-147, created another targeted group for the Work Opportunity Credit. Generally the targeted group is individuals who perform substantially all their services in the recovery zone for a business located in a defined area of New York City referred to as the "New York Liberty Zone" ("Liberty Zone" ). The Liberty Zone includes businesses located on or south of Canal Street, East Broadway (east of its intersection with Canal Street), or Grand Street (east of its intersection with East Broadway) in the borough of Manhattan.

  2. See the October 1, 2014 and previous revisions of this IRM for information on the Work Opportunity Credit, New York Liberty Zone.

Form 5884-A, Work Opportunity Credit, Hurricane Katrina Employees
  1. Section 201, of the Work Opportunity Tax Credit for Hurricane Katrina Employees, Katrina Emergency Tax Relief Act of 2005, P.L. 109-73, provides for a credit for hiring qualified Hurricane Katrina employees as defined directly below.

  2. A Hurricane Katrina Employee is:

    • Any individual who on August 28, 2005, had a main home in the core disaster area and who is hired during the two-year period beginning August 28, 2005 for a position in which the principal place of employment is located in the core disaster area, or

    • Any individual who on such date had a main home in the core disaster area, who is displaced from such residence by reason of Hurricane Katrina, and who is hired on or after August 28, 2005 and on or before December 31, 2005.

  3. See the October 1, 2014 and previous revisions of this IRM for information on the Work Opportunity Credit, Hurricane Katrina Employees.

Employee Retention Credit for Employers Affected By Hurricane Katrina, Rita, and Wilma (Form 5884-A, Credit for Employers Affected by Hurricanes Katrina, Rita, and Wilma)
  1. Section 201, of the Employee Retention Credit for Employers Affected by Hurricane Katrina, Katrina Emergency Tax Relief Act of 2005, P.L. 109-73, provides for a credit against tax in an amount equal to 40 percent of the qualified wages for each eligible employee of such employer. The amount of qualified wages applicable to any individual can not exceed $6,000 paid or incurred for each employee during the period August 29, 2005 through December 31, 2005.

  2. Section 201, of the Gulf Opportunity Zone Act of 2005, P.L. 109-135, extended the Employee Retention Credit for Employers affected by Hurricane Katrina, to victims of Hurricane Rita and Hurricane Wilma beginning with the dates shown in the chart below and ending on December 31, 2005.

    Specific Hurricane Beginning After
    Katrina August 28, 2005
    Rita September 23, 2005
    Wilma October 23, 2015
  3. See the October 1, 2014 and previous revisions of this IRM for information on the Employee Retention Credit for Employers Affected By Hurricane Katrina, Rita, and Wilma.

Form 5884-A, Hurricane Katrina Housing Credit
  1. Form 5884-A, Credit for Employers Affected by Hurricanes Katrina, Rita, and Wilma, is also filed to claim the Hurricane Katrina Housing Credit.

  2. The credit is equal to 30 percent of the value (up to $600 per month, per employee) of in-kind lodging furnished to a qualified employee from January 1, 2006 through July 1, 2006 and which is excluded from the employee’s income.

  3. See the October 1, 2014 and previous revisions of this IRM for information on the Credit for Employers Affected by Hurricanes Katrina, Rita, and Wilma.

Form 5884, Work Opportunity Credit - Incentives to Hire Unemployed Veterans and Disconnected Youth
  1. Section 1221, Incentives to Hire Unemployed Veterans and Disconnected Youth, of the American Recovery and Reinvestment Act of 2009, P.L. 111-5, adds new paragraph (14) to IRC 51(d). The provision allows for a credit for unemployed veterans and disconnected youth hired in 2009 or 2010. Any unemployed veteran or disconnected youth who begins work for the employer during 2009 or 2010 is treated as a member of a targeted group for purposes of the work opportunity credit.

  2. See the October 1, 2016 and prior revisions of this IRM for information on the - work opportunity credit - incentives to hire unemployed veterans and disconnected youth.

  3. An individual is a member of a targeted group if such individual is a:

    • Qualified IV-A recipient

    • Qualified veteran

    • Qualified ex-felon

    • Designated community resident

    • Vocational rehabilitation referral

    • Qualified summer youth employee

    • Qualified food stamp recipient

    • Qualified SSI recipient, or

    • Long-term family assistance recipient

  4. See IRM 21.7.4.4.8.3.2, Work Opportunity Credit, and the General Instructions for Form 5884 for more specific information on claiming the credit and the action required to adjust an account.

  5. Notice 2009-28 sets forth the statutory definitions of "unemployed veteran" and "disconnected youth," and provides guidance on the definition of "disconnected youth." It also provides transition relief for employers who hire unemployed veterans or disconnected youth after December 31, 2008, and before July 17, 2009. Notice 2010-69 clarifies section D of Notice 2009-28. Notice 2009-69 explains that "not readily employable by reason of lacking a sufficient number of basic skills" includes individuals who have worked occasionally since high school graduation / receipt of GED certificate. Notice 2009-69 also provides extended transition relief for filing of Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit.

  6. Businesses planning to claim the newly-expanded work opportunity tax credit (WOTC) for eligible unemployed veterans and unskilled younger workers hired during the first part of 2009, had until August 17, 2009 to request the certification required for these workers. Issue Number IR-2009-55 offers guidance to businesses hiring unemployed veterans and certain youths on claiming the tax credit.

Form 5884, Work Opportunity Credit - Section 261, Returning Heroes and Wounded Warriors Work Opportunity Tax Credits, of the VOW to Hire Heroes Act of 2011, Title II, subtitle D, of Pub. L. No. 112-056
  1. The Work Opportunity Credit (WOTC) which expired for workers who began working after December 31, 2011, is extended for one year for those employers hiring qualified veterans only. Section 261, Returning Heroes and Wounded Warriors Work Opportunity Tax Credits, of the VOW to Hire Heroes Act of 2011, Title II, subtitle D, of Pub. L. No. 112-056, enhances the work opportunity credit by providing two new categories to the qualified veteran targeted group. The Act extended the credit only with respect to qualified veterans who begin work for the employer on or before December 31, 2012. The Act also increases the qualified first-year wages used to figure the credit. For-profit organizations claim the credit on Form 5884, Work Opportunity Credit. See the General Instructions for Form 5884 for more specific information on claiming the credit.

  2. In addition, the Act amends IRC 52 and IRC 3111 to make a credit available to "qualified tax-exempt organizations" that hire qualified veterans for which the work opportunity Credit (WOTC) would have been allowable under IRC 51 if the organization were not a qualified tax-exempt organization. Specifically, the Act adds new IRC 3111(e), which permits qualified tax-exempt organizations that hired qualified veterans on or after November 22, 2011 (and has been extended to on or before January 1, 2020), to claim a credit against payroll taxes. The credit is taken on the employer share of social security tax imposed under IRC 3111(a). The credit for tax-exempt organizations is claimed on Form 5884C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans. See IRM 21.7.2.5.22, Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, for more information on how tax-exempt organizations claim the credit on their employment tax return.

  3. Section 261(b) of the Act amends IRC 51(d)(3)(A). The term “qualified veteran”, as amended, means any veteran who is certified by the Designated Local Agency (DLA) as any of the following:

    • Being a member of a family receiving assistance under a supplemental nutrition assistance program under the Food and Nutrition Act of 2008 for at least a 3 month period ending during the 12 month period ending on the hiring date.

    • Entitled to compensation for a service-connected disability, and (I) having a hiring date which is not more than one year after having been discharged or released from active duty in the Armed Forces of the United States, or (II) having aggregate periods of unemployment during the 1-year period ending on the hiring date which equal or exceed 6 months.

    • Having aggregate periods of unemployment during the1-year period ending on the hiring date which equal or exceed 4 weeks (but less than 6 months).

    • Having aggregate periods of unemployment during the1-year period ending on the hiring date which equal or exceed 6 months.

  4. The WOTC is equal to 25 percent (16.25 percent for tax-exempt organizations) of the qualified first-year wages for employees who worked for the employer at least 120 hours but fewer than 400 hours, and 40 percent (26 percent for tax-exempt organizations) of the qualified first-year wages for employees who worked for the employer at least 400 hours. Under IRC 51(b)(3) as amended by the Act, the amount of the first-year wages which may be taken into account with respect to any individual shall not exceed:

    • $6,000 per year in the case of any individual who is a qualified veteran by reason of subsection (d)(3)(A)(i) (a veteran certified as being a member of a family receiving assistance under a supplemental nutrition assistance program under the Food and Nutrition Act of 2008 for at least a 3 month period ending during the 12 month period ending on the hiring date) and subsection (d)(3)(A)(iii) (a veteran certified as having aggregate periods of unemployment of at least 4 weeks but less than 6 months in the year prior to being hired).

    • $12,000 per year in the case of any individual who is a qualified veteran by reason of IRC 51(d)(3)(A)(ii)(I), a disabled veteran certified as having a hiring date which is not more than one year after having been discharged or released from active duty in the Armed Forces of the United States.

    • $14,000 per year in the case of any individual who is a qualified veteran by reason of IRC 51(d)(3)(A)(iv), a veteran certified as having aggregate periods of unemployment during the 1-year period ending on the hiring date which equal or exceed 6 months.

    • $24,000 per year in the case of any individual who is a qualified veteran by reason of IRC 51(d)(3)(A)(ii)(II), a disabled veteran certified as having aggregate periods of unemployment during the 1-year period ending on the hiring date which equal or exceed 6 months.

  5. Section 261(c) of the Act amends IRC 51(d)(13) and provides for a simplified certification process. An employer must obtain certification that an individual is a targeted group member before the employer may claim the credit. Certification of an individual’s targeted group status is obtained from a DLA (a State employment security agency established in accordance with 29 U.S.C sections 49-49n). An employer must submit Form 8850, Pre-screening Notice and Certification Request for the Work Opportunity Credit, to the DLA not later than the 28 day after the individual begins work for the employer. See the Instructions for Form 8850 for more information.

  6. Notice 2012-13, 2012-09 I.R.B., provides guidance on the Returning Heroes and Wounded Warriors Work Opportunity Tax Credits. The notice also provides employers who hire qualified veterans additional time beyond the 28-day deadline in IRC 51(d)(13) for submitting Form 8850 to DLAs. The notice provides additional guidance on electronic signature and electronic submission of Form 8850 and also informs all employers that the Internal Revenue Service (IRS) will allow the signature and submission of Form 8850 by facsimile to DLA that choose to accept such submissions.

  7. Per paragraph (2) above, tax-exempt organization claim a credit against payroll taxes. For other employers, the credit is a non-refundable credit and is claimed on Form 5884, Work Opportunity Credit. See the General Instructions for Form 5884 for more specific information on claiming the credit. Action required:

    • Math verify Form 5884

    • Input TC 291 to increase the credit and a TC 290 to decrease the credit

Form 5884, Work Opportunity Credit - Section 142 of the Protecting Americans from Tax Hikes Act of 2015, P.L. 114-113
  1. Taxpayers use Form 5884 to claim the work opportunity credit for qualified first-year and/or second-year wages you paid to or incurred for targeted group employees during the tax year. A business doesn't have to be located in an empowerment zone or rural renewal county to qualify for this credit.

  2. Section 142 of the Protecting Americans from Tax Hikes Act of 2015, P.L. 114-113, (the Act), extended the work opportunity credit for five years for qualified individuals who begin work for the employer after December 31, 2014 and on or before December 31, 2019. In addition, the Act added a new targeted group, qualified long-term unemployment recipients who begin work after December 31, 2015.

  3. The term “qualified long-term unemployment recipient” means any individual who is certified by the designated local agency as being in a period of unemployment which:

    • Is not less than 27 consecutive weeks, and

    • Includes a period in which the individual was receiving unemployment compensation under State or federal law.

  4. An individual is a member of a targeted group if such individual began working for the taxpayer after December 31, 2014 and on or before December 31, 2019 and is a:

    • Long-term family assistance recipient

    • Qualified recipient of Temporary Assistance for Needy Families (TANF)

    • Qualified IV-A recipient

    • Qualified veterans

    • Qualified ex-felon

    • Designated community resident

    • Vocational rehabilitation referral

    • Qualified summer youth employee

    • Qualified SSI recipient

    • Supplemental Nutrition Assistance Program (SNAP) benefits (food stamps) recipient

    • Qualified long-term unemployment recipient (for individuals who begin work after December 31, 2015)

  5. See IRM 21.7.4.4.8.3.2, for more information on claiming the credit. Also, see IRM 21.7.4.4.8.3.2.5., for the credit for the incentives to hire unemployment veterans and disconnected youth, and IRM 21.7.4.4.8.3.2.6, which enhanced the work opportunity credit by providing two new categories to the qualified veteran targeted group.

  6. Notice 2016-22, 2016-13 I.R.B. 488, provides guidance and transitional relief for employers claiming the work opportunity credit under section 51 and section 3111(e) of the Internal Revenue Code, as extended and amended by P.L. 114-113. See Notice 2016-22 for more specific information.

  7. Action required

    • Math verify, Form 5884

    • Input TC 291 to increase the credit and a TC 290 to decrease the credit.

Form 6478, Biofuel Producer Credit
  1. Form 6478, Biofuel Producer Credit, is used to figure the credit for alcohol, etc., used as fuel under IRC 40 and to claim the credit for the tax year in which the sale or use occurs in a trade or business. The credit consists of the following:

    • Alcohol mixture credit

    • Alcohol credit

    • Small ethanol producer credit

    • Cellulosic biofuel producer credit (added by P.L. 110–246, section 15321, of the Heartland, Habitat, and Horticulture Act of 2008). The credit is available for cellulosic biofuel that the taxpayer produces after December 31, 2008, and before January 1, 2013. See Notice 2008-110, 2008-51 I.R.B. 1298, as modified by Notice 2009-34, 2009-17 I.R.B. 876, for guidance on the cellulosic biofuel producer credit

    • Second generation biofuel producer credit

    Note:

    The alcohol mixture, alcohol, and small ethanol producer credits expired for fuels sold or used after 2011. See the October 1 ,2015 revision of this IRM for more information on these credits.

  2. Section 404(a) of the American Taxpayer Relief Act of 2012, P.L. 112-240, extended the credit for qualified cellulosic biofuel production for one year to December 31, 2013. However, section 404(b) modified IRC 40 by striking "cellulosic biofuel" and inserting "second generation" effective for fuels sold or used after January 2, 2013 and on or before December 31, 2013.

  3. Section 152, Extension of Second Generation Biofuel Producer Credit, of the Tax Increase Prevention Act of 2014, P.L. 113-295, extended the credit for qualified second generation biofuel production for one year and is effective for fuels sold or used after December 31, 2013 and on or before December 31, 2014.

  4. Section 184 of the Protecting Americans from Tax Hikes Act of 2015, P.L. 114-113, extended the credit for qualified second generation biofuel production for two years and is effective for fuels sold or used after December 31, 2014 and on or before December 31, 2016.

  5. Qualified cellulosic biofuel production is cellulosic biofuel which is produced by a taxpayer, and which during the tax year:

    1. Is sold by the producer to another person: (i) for use by the buyer in the buyer’s trade or business to produce a qualified cellulosic biofuel mixture (other than casual off-farm production), (ii) for use by the buyer as a fuel in a trade or business, or (iii) who sells the cellulosic biofuel at retail to another person and puts the cellulosic biofuel in the retail buyer’s fuel tank; or

    2. Is used or sold by the producer for any purpose described in (3)(a) above.

  6. A qualified cellulosic biofuel mixture combines cellulosic biofuel with gasoline or a special fuel. The producer of the mixture either used it as a fuel, or sold it as fuel to another person.

  7. Generally, cellulosic biofuel, for credit purposes, is any liquid fuel, which:

    • Is produced from any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis,

    • Meets the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act (42 U.S.C. 7545), and

    • Is not alcohol of less than 150 proof. In figuring the proof of any alcohol, disregard any added denaturants (additives that make the alcohol unfit for human consumption).

  8. Section 404(b), Algae Treated as a Qualified Feedstock, of the American Taxpayer Relief Act of 2012, P.L. 112-240, modified and renamed the credit as the second generation biofuel producer credit that includes cellulosic biofuel and added biofuels derived from algae-based fuel and covers fuel sold or used after January 2, 2013, and before January 1, 2014.

  9. Qualified second generation biofuel production is second generation biofuel which during the tax year:

    1. Is sold by the producer to another person (i) for use by the buyer in the buyer’s trade or business to produce a qualified second generation biofuel mixture (other than casual off-farm production), (ii) for use by the buyer as a fuel in a trade or business, or (iii) who sells the second generation biofuel at retail to another person and puts the second generation biofuel in the retail buyer’s fuel tank; or

    2. Is used or sold by the producer for any purpose described in (7)(a) above.

  10. Generally, second generation biofuel, for credit purposes, is any liquid fuel, which:

    • Is derived by, or from, qualified feedstocks;

    • Meets the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act (42 U.S.C. 7545), and

    • Is not alcohol of less than 150 proof. In figuring the proof of any alcohol, disregard any added denaturants (additives that make the alcohol unfit for human consumption).

  11. A qualified feedstock is:

    • Any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis, and

    • Any cultivated algae, cyanobacteria, or lemna.

  12. Special rules for algae. Second generation biofuel also includes certain liquid fuel, which:

    • Is derived by, or from, any cultivated algae, cyanobacteria, or lemna, and

    • Is not alcohol of less than 150 proof (disregard any added denaturants), but only if this fuel is sold by the producer to another person for refining by such other person into a liquid fuel which will meet the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act (42 U.S.C. 7545), and not include any fuel if: (i) More than 4 percent of the fuel (determined by weight) is any combination of water and sediment, (ii) The ash content of the fuel is more than 1 percent (determined by weight), or (iii) The fuel has an acid number greater than 25.

      Note:

      Once this fuel is sold by the producer to another person for refining by such person into a fuel which will meet these requirements, neither the producer nor any other person can use such fuel (or any fuel derived from such fuel) to figure a second credit for qualified second generation biofuel production.

  13. Qualified cellulosic biofuel production and qualified second generation biofuel production does not include purchasing alcohol and increasing the proof of the alcohol through additional distillation. Nor does it include cellulosic biofuel or second generation biofuel that is not both produced in the United States or a U.S. possession and used as a fuel in the United States or a U.S. possession.

  14. Cellulosic biofuel and second generation biofuel does not include any fuel if:

    • More than 4 percent of the fuel (determined by weight) is any combination of water and sediment,

    • The ash content of the fuel is more than 1 percent (determined by weight), or

    • The fuel has an acid number greater than 25.

  15. See the General Instructions for Form 6478 for definitions, special rules and the coordination with excise tax credits on Form 720, Form 8849, or Form 4136, and on the recapture of the credit.

  16. All producers of cellulosic or second generation biofuel must be registered by the IRS. See Form 637, Application for Registration (For Certain Excise Tax Activities).

  17. Action required:

    1. Math verify Form 6478.

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit.

    3. Input IRN 884 for the amount of the credit. Use a positive amount to increase the credit and a negative amount to reduce the credit.

Form 6765, Credit for Increasing Research Activities
  1. Taxpayers use Form 6765 to figure and claim the credit for increasing research activities (research credit) or to elect the reduced credit under section 280C. The research credit is generally allowed for expenses paid or incurred for qualified research. Qualified research means research that satisfies the following test:

    • For which expenses may be treated as section 174 expenses;

    • Which is undertaken for the purpose of discovering information (i) which is technological in nature, and (ii) the application of which is intended to be useful in the development of a new or improved business component of the taxpayer; and

    • Substantially all of the activities of which constitute elements of a process of experimentation for a new or improved function, substantially all of the activities of which constitute elements of a process of experimentation for a new or improved function performance, reliability or quality.

  2. Partnerships and S corporations must file Form 6765 to claim the credit. All other taxpayers are generally not required to complete or file this form if their only source for this credit is a partnership, S corporation, estate, or trust. Instead, they can report this credit directly on Form 3800, General Business Credit. The exception is an estate or trust and the credit can be allocated to the beneficiaries on Form 1041. For more details, see the Instructions for Form 1041 Schedule K-1, Box 13.

  3. As part of the general business credit, any portion of the research credit that cannot be used in the current year can be carried back one year to reduce taxes for that taxable year. It can then be carried forward 20 years.

  4. See Form 6765 and the Instructions for Form 6765 for specific information on claiming the research credit.

  5. The research credit has been modified and extended by various provisions of legislation over the years. See previous revisions of this IRM for a complete list of legislation that previously extended the research credit before 2009. Below is the most recent legislation that has extended the research credit, along with paragraphs (5) & (6) below:

    • Section 731, Title VII, of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, extended the credit for two years for any amount paid or incurred for taxable years beginning after 12/31/2009 and on or before 12/31/2011.

    • Section 301(a), Title III, of the American Taxpayer Relief Act of 2012, P.L. 112-240, extended the credit for two years for amounts paid or incurred for taxable years beginning after 12/31/2011 and on or before 12/31/2013.

    • Section 111, Div. A, Title I, of the Tax Increase Prevention Act of 2014, P.L. 113-295, extended the credit for one year for amounts paid or incurred for taxable years beginning after 12/31/2013 and on or before 12/31/2014.

  6. Section 121(a), Div. Q, of the Protecting Americans from Tax Hikes Act of 2015, of P.L. 114-113, (the Act), permanently extended the research credit for expenses paid and incurred after 12/31/2014. In addition, per section 121(b) of the Act, the credit is allowed against the alternative minimum tax for eligible small businesses (as defined in IRC 38(c)(5)(C)) and is effective for taxable years beginning after 12/31/ 2015.

  7. Section 121(c) of the Act allows qualified small businesses to elect to claim the payroll tax credit portion of the research credit as a credit against the employer portion of social security tax. This provision is effective for tax years beginning after 12/31/2015. The credit against the employer portion of social security tax is in lieu of a credit against income tax. The provision does not apply to organizations which are exempt from taxation under section 501. See IRM 21.7.2.5.28, Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities, and Notice 2017-23, 2017-16 I.R.B. 1100, for additional information.

  8. Notice 2008-39, 2008-13 I.R.B. 684, established the filing address for certain claims for credit or refund reported on amended Forms 1120 or on Forms 1120X, generated by the research credit. Research Credit Suspension Period claims ARE NOT covered by this notice.

  9. Notice 2008-39 only applies to taxpayers required to file Form 1120 with claims for credit or refund attributable, in whole or in part, to the research credit that were not:

    • Reported on an original income tax return or an amended income tax return, filed on or before the due date of the original Form 1120, including extensions, and

    • Filed with the Internal Revenue Service on or before 03/31/2008.

  10. Claims attributable in whole or part, to the research credit and reported on Form 1040 or Form 1040X ARE NOT subject to this notice. Form 1045 and Form 1139 also ARE NOT subject to the notice.

  11. All claims subject to this notice should indicate Refund-Research Credit at the top of the claim/return and must include a completed Form 6765 (and a copy of the Form 6765 they filed with their original return, if any) and must:

    • Explain in detail the grounds which the credit is claimed

    • Provide facts sufficient to apprise the Service of the exact basis thereof; and

    • Include a written declaration under the penalties of perjury

    Note:

    Accounts Management in Ogden and Cincinnati follow the general claims instructions in IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing, for claims that do not meet the criteria in paragraph (11) above.

  12. Per Notice 2008-39, all claims subject to this notice are worked in Accounts Management at the Ogden campus only. Notice 2008-39 instructs taxpayers to file claims at the following address:
    Internal Revenue Service
    1973 N. Rulon White Blvd.
    Ogden, UT 84201

  13. Notice 2008-39 does not apply to those claims for credit or refund subject to the electronic filing requirements for amended returns stated in Treas. Reg. section 301.6011-5.

  14. If an amended Form 1120 or Form 1120X subject to this notice is received in Accounts Management (other than Ogden) prepare a Form 3210 Transmittal, and route to Ogden Accounts Management, Mail Stop OSC 6552. For CIS cases, reassign to 04330907362. Ogden will suspend the case to Exam based on the taxpayer's Business Operation Division (BOD) code. For CIS cases received in Ogden, suspend to Exam as 2CATA. Use suspense reason OTHER for Small Business Self Employed (SB/SE) cases, and use suspense reason HQ Reserved 5, for LB&I cases. Only claims which involve a change in the amount of R&E claimed should be routed CAT-A.

  15. If the case is routed back to Accounts Management (Cincinnati or Ogden) stamped "Accepted as Filed," the case is worked in AM in the campus that sent the referral to Exam.

  16. Action required:

    1. Math verify Form 6765

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit

Form 8586, Low-Income Housing Credit
  1. The taxpayer must submit a Form 8609 (with Part I completed (prior to 2005)) from the state or local agency for each building a credit is being claimed and the accompanying Schedule A. If the only credit claimed on the Form 8586 is from a flow-through entity (partnership, S corporation, estate, trust), Form 8609 is not required.

  2. Form 8609-A, Annual Statement for Low-Income Housing Credit, is filed by a building owner to report compliance with the low-income housing provisions and calculate the low-income housing credit.

  3. For TY 2006 and subsequent, the credit can only be claimed as a general business credit and must be carried to Form 3800, General Business Credit. The allowable credit is then figured on Form 3800. Any unused portion of this credit remaining, after the tax is reduced to zero, can be carried back one year to reduce taxes for that year. It can then be carried forward 20 years.

  4. Action required:

    1. Verify Form 8609 (issued by the state or local agency) is filed with Form 8586 showing the allocation of credit amount for each building claimed on Form 8586.

    2. Math verify Form 8586.

    3. Input TC 291 to increase the credit or TC 290 to reduce the credit.

Form 8830, Enhanced Oil Recovery Credit
  1. The Enhanced Oil Recovery Credit is for certain costs paid or incurred which result in increased oil production.

  2. Form 8830, Enhanced Oil Recovery Credit, is used to compute the 15 percent credit of the qualified enhanced oil recovery costs for the tax year. The credit is phased out as crude oil prices increase, using a ratio set out in IRC 43(b). There is no reduction of the credit for TY 2005. However, the credit has been completely phased-out in TY 2006-2015 as the continued high price of crude oil has caused the enhanced oil recovery credit to be completely phased out per IRC section 43.

  3. Form 8830 was not issued for TY 2006 through TY 2015 due to the continued high price of crude oil; however it will apply again for tax years beginning in 2016. Notice 2016-44 announces the inflation adjustment factor and phase-out amount for the enhanced oil recovery credit for taxable years beginning in calendar year 2016. However, per the notice, there will be no phase-out in 2016. The credit will also apply for tax years beginning in 2017. See the general Instructions for Form 8830 for more information on claiming the credit.

Form 8826, Disabled Access Credit
  1. Form 8826 is used by eligible small businesses to claim the 50 percent credit for eligible access expenditures to comply with the requirements under the Americans with Disabilities Act of 1990 (Public Law 101-336). The credit is part of the general business credit. For purposes of the credit, an eligible small business is any business or person that:

    • Had gross receipts for the preceding tax year that did not exceed $1 million or had no more than 30 full-time employees during the preceding year, and

    • Elects (by filing Form 8826) to claim the disabled access credit for the tax year.

  2. This credit cannot be claimed as a deduction in figuring taxable income, capitalized, or used in figuring any other credit to the extent of the credit being claimed on Form 8826. Any unused portion of this credit remaining, after the tax is reduced to zero, can be carried back one year to reduce taxes for that year. It can then be carried forward 20 years. See IRM 21.7.4.4.8.1.4, Carryback/Carryforward of Excess Credits, for tax years beginning prior to 1998.

  3. See the General Instructions for Form 8826 for eligible access expenditures and for expenditures that are not included.

  4. Action required:

    1. Math verify Form 8826

    2. Input TC 291 to increase the credit and TC 290 to reduce the credit

Form 8835, Renewable Electricity, Refined Coal, and Indian Coal Production Credit
  1. Section 1914(a), Title XIX, of the Energy Policy Act of 1992, P.L. 102-486, revised IRC 38 and added new IRC section 45 (electricity produced from certain renewable, etc...., also known as the Production Tax Credit (PTC)), to allow an income tax credit on the sale of electricity produced in the United States (within the meaning of section 638(1)) and U.S. possessions (within the meaning of section 638(2)) from qualified energy resources.

  2. Section 507(a)-(c), Title V, of the Ticket to Work and Work Incentives Improvement Act of 1999, P.L. 106-170, extended and modified the placed in service rules of the PTC, added poultry waste as a qualified energy resource, and provided special rules regarding credit eligibility for government-owned facilities using poultry waste, and for electricity sold to utilities under certain contracts.

  3. Section 710(a), Title VII, of the American Jobs Creation Act of 2004, P.L. 108-357, expanded the definition of qualified energy resources to include wind, closed-loop biomass, open-loop biomass, geothermal or solar energy, small irrigation power, landfill gas, and trash combustion. Section 710(b) expanded the list of qualified facilities eligible for the PTC by including wind facilities (placed in service after 12/31/1993 and before 1/1/2006), closed-loop biomass facilities (placed in service after 12/31/1992 and before 1/1/2006), and open-loop biomass, geothermal or solar energy, small irrigation power, landfill gas, and trash facilities (placed in service after 10/22/2004 and before 1/1/2006). Section 710(b) also provided that refined produced from a qualified refined coal production facility placed in service after 10/22/2004 and before 1/1/2009 may be eligible for the PTC. Section 710(c) of the Act also provided a special credit rate and credit period for electricity produced and sold after 10/22/2004.

  4. Section 1301(c) and section 1301(d), Title XIII, of the Energy Policy Act of 2005, P.L. 109-58, extended and modified the PTC to include hydropower and Indian coal production facilities.

  5. Section 101(a), Div. B, Title I, of the Emergency Economic Stabilization Act of 2008, P.L. 110-343, extended the PTC for wind and refined coal facilities for one year.

  6. The credit has been modified by various legislation. Below is a list of some of the legislation that has impacted the credit. See paragraph (14) below for the placed in service dates for various categories. Also, see Form 8835 and the Instructions for Form 8835 for more specific information:

    • Section 201, Div. A, Title II, of the Tax Relief and Health Care Act of 2006, P.L. 109-432; 121 Stat. 2482, 2484;

    • Section 1101(a)-(b), Div. B, Title I, of the American Recovery and Reinvestment Act of 2009, P.L. 111-5,123 Stat. 319;

    • Section 702(a), Title VII, of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, 124 Stat. 3296;

    • Section 406(a) and section 407(a), Title IV, of the American Taxpayer Relief Act of 2012, P.L. 112-240, 126 Stat. 2313;

    • Section 154(a) and section 155(a), Div. A, Title I, of the Tax Increase Prevention Act of 2014, P.L. 113-295, 128 Stat. 4010; and

    • Section 301, Div. P. Title III, of the Protecting Americans from Tax Hikes Act of 2015, P.L. 114-113 (PATH Act), extended the credit for wind facilities by changing the date by which construction must begin to 01/01/2020 with the credit phased out over the last three years.

    • Section 186(a)-(d), Div. Q, Title I, of the PATH Act also extends the period in which a taxpayer producing coal at an Indian coal facility and selling it to an unrelated third party may claim the PTC from the 9-year period to an 11-year period beginning on 01/01/2006.

    • Section 187(a), Div. Q, Title I, of the PATH Act extends the date by which a taxpayer must begin construction on closed-loop biomass, open-loop biomass, geothermal energy, landfill gas, trash, qualified hydropower, and marine and hydrokinetic renewable energy facilities from 01/01/2015 to 01/01/2017.

    • Section 187(b), Div. Q, Title I, of the PATH Act amends IRC 48(a)(5)(C)(ii) to allow a taxpayer to elect to claim the ITC instead of the PTC for wind, closed-loop biomass, open-loop biomass, geothermal or solar, landfill gas, trash, qualified hydropower, marine and hydrokinetic facilities that following facilities that begin construction before 01/01/2017 and are placed in service after 2008.

  7. Form 8835 is filed to claim the renewable electricity, refined coal, and Indian coal production credit. The credit is allowed only for the sale of electricity, refined coal, or Indian coal produced in the United States or U.S. possessions from qualified energy resources at a qualified facility.

  8. Generally, the credit is 1.5 cents per kilowatt-hour (kWh) for the sale of electricity produced by the taxpayer from qualified energy resources at a qualified facility during the credit period. With the exception of certain closed-loop biomass facilities, the credit is reduced for grants, tax-exempt bonds, subsidized energy financing and is adjusted annually based on inflation. The credit for electricity produced at qualified facilities using: wind, closed-loop biomass, geothermal, and solar are listed in the second column. The credit for electricity produced at qualified facilities using: open-loop biomass, small irrigation power, landfill gas, trash, hydropower, marine, and hydrokinetic renewables is reduced by one-half in any calendar year after 2003 and are listed in the third column:

    Tax year Amount per kWh for electricity produced at qualified facilities using: wind, closed-loop biomass, geothermal, and solar Amount per kWh for electricity produced at qualified facilities using: open-loop biomass, small irrigation power, landfill gas, trash, hydropower, marine and hydrokinetic renewables (see note below)
    2013 and 2014 .023 .011
    2015 and 2016 .023 .012
    2017 .024 .012

    Note:

    Credit is available for electricity sold by facilities using marine and hydrokinetic energy after 10/3/2008.

  9. In addition, the amount of the credit is phased out as the market price of electricity (or refined coal in the case of refined coal production credit) exceeds certain threshold levels. The PTC has not been phased out for calendar years 2005- 2016. See Form 8835 and the Instructions for Form 8835 how to figure the credit. See the chart below for the factor to use to figure the amount of the credit:

  10. The phaseout also does not apply to:

    • Electricity sold in 2007 - 2016 that was produced from wind.

    • Refined coal sold during calendar years 2007- 2016.

    • Electricity sold in calendar years 2007 - 2016, that was produced from closed-loop biomass, geothermal energy, solar energy, small irrigation power, and municipal solid waste.

    • Electricity sold in calendar years 2005 - 2016 that was produced from open-loop biomass.

    • Electricity sold in calendar years 2006 - 2016 that was produced from qualified hydropower.

    • Electricity sold in calendar years 2009 - 2016 that was produced from marine and hydrokinetic energy.

  11. Annually the Service publishes the inflation adjustment factor and reference prices for each calendar year for the PTC and the refined coal production credit under section 45 of the Internal Revenue Code. The inflation adjustment factor and reference prices are used in determining the availability of the credits. The inflation adjustment factor and reference prices apply to sales of kilowatt hours of electricity produced from qualified energy resources in that calendar year and refined coal produced in the United States or a possession thereof.:

    Tax Year Notice Number
    2013 Notice 2013-33, 2013-22 I.R.B. 1140
    2014 Notice 2014-36, 2014-22 I.R.B. 1058
    2015 Notice 2015-32, 2015-20 I.R.B. 967 and Notice 2016-11, 2016-6 I.R.B. 312
    2016 Notice 2016-34 2016-22 I.R.B. 1016
    2017 Notice 2017-33, 2017-22 I.R.B. 1256
  12. Generally, section 45(e)(8)(A) provides that the credit is $4.375 per ton for the sale of refined coal produced, and section 45(e)(10)(B)(i) provides that the credit is $1.50 per ton for the sale of Indian coal produced in calendar years 2006 through 2009 and $2.00 per ton for calendar years beginning after 2009. See the table below for the credit amount per ton for the sale of refined coal and Indian coal:

    Tax Year Credit amount per ton for refined coal produced and sold Credit amount per ton for Indian coal produced and sold
    2013 $6.59 $2.308
    2014 $6.601 $2.317
    2015 $6.710 $2.354
    2016 $6.810 $2.387
    2017 $6.909 Not Available
  13. The PTC for electricity produced at qualified facilities placed in service before 10/23/2004 has expired. See previous revisions of Form 8835 and associated instructions for more information.

  14. The PTC for electricity and refined coal produced at qualified facilities placed in service after 10/22/2004 (after 10/02/2008, for electricity produced from marine and hydrokinetic renewables), and Indian coal produced at facilities placed in service after 08/08/2005 (see paragraph (15) below), may be taken on Form 8835 (Part II). The credit includes the following:

    • Wind facility placed in service after 12/31/1993 and the construction of which begins before 01/01/2020. This does not include any facility for which any qualified small wind energy property expenditure (as defined in section 25D(d)(4)) is used in determining the residential energy efficient property credit.

    • Closed-loop biomass facility placed in service after 12/31/1993 and the construction of which begins before 01/01/2017.

    • Closed-loop biomass facility modified before 01/01/2017 to co-fire with coal or other biomass (or both), and placed in service before 01/01/2017. The facility will be treated as modified before 01/01/2017, if the construction of the modification begins before 01/01/2017. See section 45(d)(2)(ii).

    • Closed-loop biomass facility that is a new unit placed in service after 10/03/2008, in connection with a facility described in section 45(d)(2)(A)(i), but only to the extent of the increased amount of electricity produced at the facility by reason of the new unit.

    • Open-loop biomass facility using agricultural livestock waste placed in service after 10/22/2004 and the construction of which begins before 01/01/2017 with a nameplate capacity rating that is not less than 150 kilowatts.

    • Open-loop biomass facility using any other biomass the construction of which begins before 01/01/2017.

    • Open-loop biomass facility that is a new unit placed in service after 10/03/2008, in connection with a facility described in section 45(d)(3)(A), but only to the extent of the increased amount of electricity produced at the facility by reason of the new unit.

    • Geothermal energy facility placed in service after 10/22/2004, and the construction of which begins before 01/01/2017. The facility does not include any property described in IRC 48(a)(3) the basis of which is taken into account by the taxpayer for purposes of determining the energy credit under IRC 48.

    • Solar energy facility placed in service after 10/22/2004 and before 01/01/2006. The facility does not include any property described in IRC 48(a)(3) the basis of which is taken into account by the taxpayer for purposes of determining the energy credit under IRC 48.

    • Small irrigation power facility placed in service after 10/22/2004 and before 10/03/2008.

    • Landfill gas or trash facility using municipal solid waste placed in service after 10/22/2004 and the construction of which begins before 01/01/2017.

    • Trash facilities include a new unit placed in service in connection with a facility placed in service on or before 10/22/2004, but only to the extent of the increased amount of electricity produced at the facility by reason of the new unit.

    • A refined coal production facility originally placed in service after 10/22/2004 and before 1/1/2012. See Notice 2010-54, 2010-40 I.R.B. 403, for more information on refined coal facilities.

    • A refined coal facility producing steel industry fuel (or any modification to a facility) which is placed in service before 01/01/2010.

    • Hydropower facility producing incremental hydroelectric production attributable to efficiency improvements or additions to capacity described in section 45(c)(8)(B) placed in service after 08/08/2005 and before 01/01/2017. An efficiency improvement or addition to capacity shall be treated as placed in service before 01/01/2017, if the construction of the improvement or addition begins before 01/01/2017, and any other facility producing qualified hydroelectric production described in section 45(c)(8) placed in service after 08/08/2005, and the construction of which begins before 01/01/2017.

    • Indian coal production facility placed in service on or after 10/3/2008.

    • Marine and hydrokinetic renewable energy facility placed in service on or after 10/03/2008 the construction of which begins before 01/01/2017.

      Note:

      A qualified facility does not include a refined coal production facility or landfill gas facility using municipal solid waste to produce electricity, if the production from that facility is allowed as a credit under section 45K.

  15. The PTC for Indian coal produced at a qualified Indian coal production facility has been extended and modified. Section 186, Div. Q, of the Protecting Americans from Tax Hikes Act of 2015, P.L. 114-113, amended the PTC for Indian Coal produced at a qualified Indian coal facility (a facility that produces Indian Coal) during the 11-year period beginning on 01/01/2006 and sold by the taxpayer to an unrelated person (either directly by the taxpayer or after sale or transfer to one or more related persons) during such 11-year period. In addition, the provision modifies the credit for tax years beginning after 12/31/2015 by allowing the credit to be claimed against the alternative minimum tax.

  16. Notice 2013-29, 2013-20 I.R.B. 1085, provides guidance on determining when construction has begun on a qualified facility for purposes of the PTC. Notice 2013-29 provides two methods that a taxpayer may use to establish that construction of a qualified facility has begun:

    • By starting physical work of a significant nature (Physical Work Test), or

    • By demonstrating, after the facility is placed in service, that 5-percent or more of the total cost of the facility was paid or incurred before 01/01/2017 (5-percent Safe Harbor). Both of these methods require that a taxpayer maintain a continuous program of construction to be determined by the relevant facts and circumstances (Continuous Construction Test and Continuous Efforts Test, respectively, and the Continuity Requirement, collectively).

  17. The following bullets summarize the IRS guidance regarding the PTC under IRC 45 and the Investment Tax Credit (ITC) under IRC 48:

    • Notice 2013-60, 2013-44 I.R.B. 431, clarifies in part Notice 2013-29, 2013-20 I.R.B. 1085

    • Notice 2014-46, 2014-36, I.R.B. 520, clarifies and modifies Notice 2013-29 and Notice 2013-60.

    • Notice 2015-25, 2015-13, I.R.B. 814, updates Notice 2013-29, Notice 2013-60, and Notice 2014-46.

    • Notice 2016-31 , 2016-23, I.R.B. 1025, Notice 2016-31 was previously released by the Service on May 5, 2016. This second release reflects three revisions made to the Notice: (1) to modify the deadline for the Continuity Safe Harbor in section 3, (2) to correct a math error in the example in section 6.02(1), and (3) to insert language regarding the effective date of the publication in section 7.

  18. For TY 2006 and subsequent tax years the PTC can only be claimed as a general business credit and must be carried to Form 3800, General Business Credit. The allowable credit will then be figured on Form 3800.

  19. Any unused portion of the PTC remaining, after the tax is reduced to zero, can be carried back one year to reduce taxes for that year. It can then be carried forward 20 years. See IRM 21.7.4.4.8.1.4, Carryback/Carryforward of Excess Credit, for tax years beginning prior to 1998.

  20. Action required:

    1. Math verify Form 8835

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit

Form 8907, Nonconventional Source Fuel Credit
  1. Section 1321 and section 1322, Title XIII, of the Energy Policy Act of 2005, P.L. 109-58, modified the credit for producing fuel from a non-conventional source by redesignating section 29 to section 45K and by making section 45K a component of the general business credit under section 38.

  2. The credit is for the domestic production (within the United States) and sale of fuel produced from nonconventional sources which include:

    • Gas produced from biomass

    • Liquid, gaseous, or solid synthetic fuels produced from coal (including lignite), and

    • Coke or coke gas (if sold on the later of January 1, 2006, or the date such facility is placed in service, and ending on the date which is 4 years after the date such period began)

  3. Section 211 of the Tax Relief and Health Care Act of 2006, P.L. 109-432, made changes to the credit relating to coke and coke gas. Coke and coke gas that is produced in a facility that produces coke or coke gas from petroleum-based products does not qualify for the credit. This change is effective back to the date of enactment.

  4. Gas produced from biomass, and liquid, gaseous, or solid fuels produced from coal (including lignite), qualify for the credit if:

    • It is produced by the taxpayer in a facility located in the United States or a U.S. possession that was placed in service after December 31, 1992, and before July 1, 1998, pursuant to a binding contract in effect before January 1, 1997, and

    • The fuel was sold before January 1, 2008.

  5. Coke and coke gas qualifies for the credit if:

    • It is not produced in a facility that produces coke or coke gas from petroleum-based products.

    • It is produced by the taxpayer in a facility located in the United States or a U.S. possession that was placed in service before January 1, 1993, or after June 30, 1998, and before January 1, 2010, and

    • The fuel is sold during the period beginning on the later of January 1, 2006, or the date the facility is placed in service and ending 4 years after the date the period began.

  6. The section 45K credit is not available for fuel sold after 12/31/2013. Form 8907, Nonconventional Source Fuel Credit is used to claim the credit. Any unused credit can be carried back one year and forward 20 years. However, the credit, cannot be carried back to a taxable year ending before January 1, 2006.

  7. For TY 2006 through 2013, the credit can only be claimed as a general business credit and must be carried to Form 3800, General Business Credit. The allowable credit will then be figured on Form 3800.

  8. The income tax credit is equal to the product of $3 multiplied by the barrel-of-oil equivalent of qualified fuels. However, this amount must be adjusted by multiplying it by the inflation adjustment factor for the type of qualified fuel and the calendar year in which the sale occurs. See the General Instructions for Form 8907 on figuring the credit.

  9. See the chart below for the notice number that contains the nonconventional source fuel credit amount, inflation adjustment factor, and reference price under 45K of the IRC. Starting in calendar year 2008, the credit is only available for fuel produced from coke or coke gas (other than from petroleum based products). Also, see the General Instructions for Form 8907 for more information on figuring the credit. The section 45K credit is not available for fuel sold after 12/31/2013 but the Service continues to publish an annual section 45K reference price notice for using in computing credits under section 43, section 45I, and under section 613A the percentage depletion allowance for oil and gas produced from marginal wells.

    For calendar year See
    2013 Notice 2013-25, 2013-17 I.R.B. 978
    2014 (Reference price only) Notice 2014-25, 2014-17 I.R.B. 981
    2015 (Reference price only) Notice 2015-45, 2015-26 I.R.B. 1140
    2016 (Reference price only) Notice 2016-43, 2016-29 I.R.B. 132
    2017 (Reference price only) Notice 2017-24, 2017-17 I.R.B. 1127
  10. The nonconventional source fuel credit for coke and coke gas expired on December 31, 2013. To claim a credit for fuel sold in 2013, the facility producing the fuel must have been placed in service during 2009 so that some fuel sold in 2013 was sold during the 4 year period that began when the facility was placed in service. The credit is not available for fuel produced in a facility placed in service after 2009.

  11. Action required:

    1. Input TC 291 to increase the credit or TC 290 to reduce the credit.

    2. Input IRN 883 to record the credit. Use a positive amount to increase the credit or a negative amount to decrease the credit.

Credit for Prior Year Minimum Tax, Form 8801 (Estates and Trusts) and Form 8827 (Corporations)
  1. These forms are used to compute the minimum tax credit for any alternative minimum tax incurred in prior years and to compute any minimum tax credit carryforward to be used in future years.

  2. For tax years 1987 – 1989, all taxpayers, including corporate taxpayers, generated a minimum tax credit only for the portion of their prior year alternative minimum tax (AMT) liability attributable to AMT deferral items. For 1990 and subsequent years, corporate taxpayers generate a minimum tax credit for all of their AMT liability, while the minimum tax credit for all other taxpayers continues to be limited to the portion of the AMT liability attributable to deferral items.

  3. For its first tax year ending after March 31, 2008, a corporation can elect to claim a refundable credit for certain unused minimum tax credits in lieu of the special depreciation allowance for eligible qualified property. For its first tax year ending after December 31, 2008, a corporation can choose to have this election apply to extension property (See IRM 21.7.4.4.18.10, The Housing and Economic Recovery Act of 2008 P.L. 110-289, Election to Accelerate Research Credit and Alternative Minimum Tax in Lieu of Bonus Depreciation, for more information), can choose not to have this election apply to extension property, or can choose to make this election only for extension property if the election was not made in its first tax year ending after March 31, 2008. See IRM 21.7.4.4.9.3, Sequestration of Form 8827 Credit, for cases involving Form 8827 for tax years ending in 2009 and subsequent.

  4. Action required for tax years ending prior to 2009 and for working Form 8801 cases:

    1. Math verify Form 8801 or Form 8827

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit

Form 8845, Indian Employment Credit, and Accelerated Depreciation for Business Purpose on an Indian Reservation
  1. Form 8845 is used by employers of American Indians who are qualified employees to claim this credit. Qualified employee means, for any tax period, any employee who meets all three of the following tests. (See the General Instructions for Form 8845 for those employees who are not considered qualified employees.)

    • The employee is an enrolled member, or the spouse of an enrolled member, of an Indian tribe. Each tribe determines who qualifies for enrollment and what documentation, if any, is issued as proof of enrollment status. Examples of appropriate documentation will vary from one tribe to another and may include a tribal membership card, Certified Degree of Indian Blood (CDIB) card, or letter from the tribe or tribal enrollment office. Employers should retain a copy of the proof of enrollment status provided by the employee.

    • Substantially all the services performed by the employee for the employer are performed within an Indian reservation (defined below).

    • The employee's principal residence while performing such services is on or near the reservation where the services are performed.

    Note:

    However, the employee shall be treated as a qualified employee for any tax year only if more than 50 percent of the wages paid or incurred by the employer to the employee during the tax year are for services performed in the employer's trade or business. Each member of a controlled group must meet this requirement independently. Also, see the instructions for lines 1 and 2 of Form 8845.

  2. In most cases, the credit is 20 percent of the excess of an employer’s current year qualified wages and employee health insurance costs over the sum of the corresponding amounts paid or incurred during calendar year by the employer (or predecessor).

  3. In general, qualified Indian reservation property means property described in IRC 168(j)(2), and which is:

    • Used by the taxpayer predominately in the active conduct of a trade or business within an Indian reservation,

    • Not used or located outside the Indian reservation on a regular basis,

    • Not acquired (directly or indirectly) by the taxpayer from a person who is related to the taxpayer (within the meaning of section 465(bb)(3)(C), and

    • Not property (or any portion thereof) placed in service for purposed of conducting or housing class I, II, or III gaming (as defined in section 4 of the Indian Regulatory Act (25 U.S.C. 2703).

    Note:

    See IRC 168(j)(4)(B) & (C) for the exception for alternative depreciation property and special rule for reservation infrastructure investments.

  4. The Indian employment credit, and the accelerated depreciation for business purpose on an Indian Reservation, has been modified by various legislation. See the 08/22/2016 revision of this IRM for a complete list of legislation that extended the credit before 2014. Below is a listing of recent legislation that has extended the Indian employment credit and accelerated depreciation for business property on an Indian reservation:

    • Section 114 and section 124, of the Tax Increase Prevention Act of 2014, P.L. 113-295, extended the credit and the accelerated depreciation rules for property placed in service for one year for taxable years beginning after December 31, 2013 and on or before December 31, 2014.

    • Section 161 of the Protecting Americans from Tax Hikes Act of 2015, P.L. 114-113, extended the Indian employment tax credit for two years and Section 167 of the Act extended the accelerated depreciation rules for property placed in service for two years for taxable years beginning after December 31, 2014 and on or before December 31, 2016. Section 167 also modifies the deduction to permit taxpayers to elect out of the accelerated depreciation rules and applies to taxable years beginning after December 31, 2015 and on or before December 31, 2016.

  5. See the General Instructions for Form 8845 for specific information on claiming the Indian employment credit and see the Specific Instructions for Part III for Form 4562, Depreciation and Amortization (Including Information on Listed Property), for the accelerated depreciation rules for property on Indian Reservations.

  6. Any unused portion of this credit remaining, after the tax is reduced to zero, can be carried back one year to reduce taxes for that year. It can then be carried forward 20 years. See IRM 21.7.4.4.8.1.4, Carryback/Carryforward of Excess Credits, for tax years beginning prior to 1998.

  7. Action required:

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ math verify the form.

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit.

Form 8846, Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips
  1. Certain food and beverage establishments use Form 8846, Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips, to calculate and claim a credit under IRC section 45B for social security and Medicare taxes paid or incurred by the employer on certain employees’ tips. For more information on the employees involved, see the General Instructions for Form 8846. The credit is part of the general business credit and is reported on Form 3800, General Business Credit.

  2. Any unused portion of this credit remaining, after the tax is reduced to zero, can be carried back one year to reduce taxes for that year. It can then be carried forward 20 years. See IRM 21.7.4.4.8.1.4, Carryback/Carryforward of Excess Credits, for tax years beginning prior to 1998.

  3. The amount of the tip credit is based on the amount of tips in excess of those treated as wages for purposes of the Fair Labor Standards Act (FLSA) as in effect on January 1, 2007. The tip credit is determined based on a minimum wage of $5.15 per hour. Therefore, if the amount of the minimum wage increases, the amount of the FICA tip credit will not be reduced. The provision applies to tips received for services performed after December 31, 2006.

  4. Under section 45B, the tentative minimum tax is zero for purposes of determining the tax liability limitation to the credit for taxes paid with respect to employee cash tips. Therefore, the credit for taxes paid with respect to cash tips may offset the alternative minimum tax and is effective for taxable years beginning after December 31, 2006.

  5. Action required:

    1. Math verify Form 8846

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit

Form 8847, Credit for Contributions to Selected Community Development Corporations
  1. This credit is figured over a 10 year period beginning with the tax year a qualified community development corporation contribution is made.

  2. When a contribution is made, the community development corporation furnishes a Schedule A of Form 8847, with Part I completed. The contributor must complete Part II of Schedule A and attach it to Form 8847 each year the credit is claimed. If Schedule A is not completed or attached to Form 8847, contact the taxpayer to obtain a completed Schedule A. (Fax copies are acceptable.)

  3. For TY 2006 and subsequent the credit can only be claimed as a general business credit and must be carried to Form 3800, General Business Credit. The allowable credit will then be figured on Form 3800.

  4. For TY 2005 and prior, Form 8847, Credit for Contributions to Selected Community Development Corporations must be submitted. The credit may need to be carried to Form 3800, General Business Credit, if two or more credits are claimed.

  5. Any unused portion of this credit remaining, after the tax is reduced to zero, can be carried back one year to reduce taxes for that year. It can then be carried forward 20 years. See I IRM 21.7.4.4.8.1.4 for tax years beginning prior to 1998.

  6. Action required:

    1. Math verify Form 8847

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit

Form 8820, Orphan Drug Credit
  1. Form 8820 is used to compute the Orphan Drug Credit. The credit was previously reported on Form 6765 until it expired December 31, 1994. It was reinstated permanently for amounts paid or incurred beginning July 1, 1996 and is part of Form 3800. The credit is 50 percent of qualified clinical testing expenses paid or incurred during the tax year.

  2. For TY 2005 and prior, Form 8820, Orphan Drug Credit, must be submitted. The credit may need to be carried to Form 3800, General Business Credit, if two or more credits are claimed.

  3. For TY 2006 and subsequent, the credit can only be claimed as a general business credit and must be carried to Form 3800, General Business Credit. The allowable credit is then figured on Form 3800. Taxpayers that are not partnerships, S corporations, estates, or trusts, and whose only source of this credit is from those pass-through entities, are not required to complete or file Form 8820. Instead, they can report this credit directly on Form 3800.

  4. For tax years beginning 1998 and subsequent, any unused portion of this credit remaining, after the tax is reduced to zero, can be carried back one year to reduce taxes for that year. It can then be carried forward 20 years.

  5. See IRM 21.5.3-3 Exhibit, for Cat-A criteria involving Form 8820.

  6. See the General Instructions for Form 8820, for definitions and more specific instructions.

  7. Action required:

    1. Math verify Form 8820

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit

Form 8861, Welfare-to-Work Credit
  1. The Taxpayer Relief Act of 1997 added this credit as part of the General Business Credit. This credit can be claimed for wages paid or incurred to long-term family assistance recipients during the tax year. The credit cannot be claimed for workers starting employment after December 31, 2005.

  2. The Tax Relief and Health Care Act of 2006, P.L. 109-432, combined the Welfare-to-Work Credit and the Work Opportunity Credit. To calculate a credit for any employee hired after December 31, 2006, use Form 5884, Work Opportunity Credit. (See IRM 21.7.4.4.8.3.2, Form 5884, Work Opportunity Credit, for more information). Form 8861 is obsolete as of 10-27-2009.

    Note:

    An employer cannot claim the Work Opportunity Credit with respect to wages of any employee on which the Welfare-to-Work Credit is claimed.


    See the October 1, 2016 and prior revisions of this IRM for more information on the Welfare-to-Work Credit.

Trans-Alaska Pipeline Liability Fund Credit
  1. This credit is part of the General Business Credit. It is applicable to an extremely small number of large corporations.

  2. There is no form for the credit. A statement must be attached to show how the credit was computed under IRC 4612(e).

  3. Any unused portion of this credit remaining, after the tax is reduced to zero, can be carried back one year to reduce taxes for that year. It can then be carried forward 20 years. See IRM 21.7.4.4.8.1.4 for tax years beginning prior to 1998.

  4. Action required:

    1. Do not adjust this credit without contacting the Large Corporation Unit.

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit.

Form 8860, Qualified Zone Academy Bond Credit
  1. A Qualified Zone Academy Bond (QZAB) is a taxable bond issued after 1997 by a state or local government, the proceeds of which are used to improve certain eligible public schools. For TY 2007 and prior, the credit is claimed on Form 8860. See paragraph (6) below and IRM 21.7.4.4.8.3.17.1, for claiming the credit for tax years beginning in 2008.

  2. The Job Creation and Workers Assistance Act of 2002, P.L. 107-147, extended the QZAB Credit. The provision authorized issuance of up to $400 million in qualified zone academy bonds annually for calendar years 2002 and 2003. In addition, Section 304 of the Working Families Tax Relief Act of 2004 extended the credit through 2004 and 2005.

  3. Section 105 of the Tax Relief and Health Care Act of 2006, P.L. 109-432, extended the Qualified Zone Academy Bond Credit for two years through December 31, 2007. In addition, the provision imposes on QZAB issuers the arbitrage requirement of IRC 148 that applies to tax-exempt bonds. It also imposes new spending requirements for QZABs. Finally, issuers of QZABs are required to report to the IRS bonds they issued in a manner similar to the information returns required for tax-exempt bonds.

  4. To be an eligible holder of this type of bond, the taxpayer must be a bank, insurance company, or other corporation actively engaged in the business of lending money, or shareholder of an S Corporation that is an eligible holder. The credit is allowed annually.

  5. The credit can be claimed on Form 1120 and Form 1120S. Individuals are eligible to claim the credit (on Forms 1040) if they are shareholders in an S Corporation that is an eligible holder. Estates and trusts also claim the credit on Form 1041.

  6. P.L. 110-343, Division C, Title III, section 313 of the Emergency Economic Stabilization Act of 2008, P.L. 110-343, extended the credit for two years through December 31, 2009. Form 8860 became obsolete for tax years beginning in 2008. Taxpayers are instructed to use Form 8912, Credit to Holders of Tax Credit Bonds, to compute the annual income tax credit which functions as interest paid on bonds and to claim the credit from QZABs for tax years beginning in 2008. See IRM 21.7.4.4.8.3.17.1 for more information regarding Form 8912.

  7. See the General Instructions for Form 8860 for more specific information.

  8. Action required:

    1. Math verify Form 8860

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit

Form 8912, Credit to Holders of Tax Credit Bonds
  1. Taxpayers use Form 8912 to claim the Clean renewable energy bond (CREB) credit, Qualified forestry conservation bond (QFCB) credit, New clean renewable energy bond (NCREB) credit, Qualified energy conservation bond (QECB) credit, Qualified zone academy bond (QZAB) credit, Qualified school construction bond (QSCB) credit, and Build America bond (BAB) credit. The holder of the bond is generally allowed an annual income tax credit in lieu of, or in addition to, receiving periodic interest payments on the bonds. Prior to TY 2008, the credit on QZABs was claimed on Form 8860. See IRM 21.7.4.4.8.3.17 for more information.

  2. A CREB is any bond issued after 2005 and before 2010 by a qualified issuer (such as a cooperative electric company or governmental body) where 95 percent of the proceeds of which are used for capital expenditures incurred by a qualified borrower for a qualified project.

  3. A QFCB is any bond issued after May 22, 2008, by a qualified issuer as a qualified forestry conservation bond. 100 percent of the available project proceeds of which are used for one or more qualified forestry conservation purposes. Section 15316, Qualified Forestry Conservation Bonds, of the Food, Conservation, and Energy Act of 2008, P.L. 110-246, allows the issuance of up to $500,000,000 of the QFCBs for qualified forestry conservation purposes.

  4. A NCREB is any bond issued after October 3, 2008, by a qualified issuer as a new clean renewable energy bond and 100 percent of the available project proceeds of which are used for capital expenditures incurred by governmental bodies, public power providers, or cooperative electric companies for one or more qualified renewable energy facilities. Division B, section 107, New Clean Renewable Energy Bonds, of the Energy Improvement and Extension Act of 2008, P.L. 110–343, provided for a national volume cap of $800,000,000 for NCREBs to finance qualified renewable energy facilities. Section 1111, Increased Limitation on Issuance of New Clean Renewable Energy Bonds, of Title 1 of Division B of the American Recovery and Reinvestment Act of 2009, P.L. 111-5, increased the national limitation for new CREBs by $1.6 billion to $2.4 billion.

  5. A QECB is any bond issued after October 3, 2008, by a state or local government as a qualified energy conservation bond and 100 percent of the available project proceeds of which are used for one or more qualified energy conservation purposes. Section 301, Qualified Energy Conservation Bonds, of the Energy Improvement and Extension Act, Division C of P.L. 110-343, provided national authority too issue $800,000,000 of QECBs, Section 1112, Increased Limitations on Issuance of Qualified Energy Conservation Bonds of Title 1 of Division B of the American Recovery and reinvestment Act of 2009, P.L. 111-5, increased the national limitation for QECBs by $2.4 billion to $3.2 billion.

  6. A QZAB is any bond issued by a state or local government as a qualified zone academy bond and 100 percent of the available project proceeds of which are used to improve certain eligible public schools (for QZABs issued before October 4, 2008, 95 percent or more of the proceeds are used to improve certain eligible public schools). Below is a list of recent legislation that extended the QZAB credit:

    • Division C, Section 313, of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008, P.L. 110-343, provided national authority to issue $400,000,000 of qualified zone academy bonds for 2008.

    • Section 1522, of the American Recovery and Reinvestment Act of 2009 Act, P.L. 111-5, extended the authority to issue QZAB and increased the national limitations for QZABs. The provision authorizes the issuance of up to $1,400,000,000 in QZAB annually for 2009 and 2010. . See Notice 2009-30, 2009-16 I.R.B. 852, and Notice 2010-22, 2010-10 I.R.B. 435, for the maximum face amount of QZAB that may be issued for each State for calendar years 2008, 2009, and 2010, respectively, under IRC 54E.

    • Section 758(a), of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, extended the credit for one year to December 31, 2011. In addition, section 758(a) sets the national limitation at $400,000,000 for 2011. See Rev. Proc. 2011-19, 2011-6 I.R.B. 465, for the maximum face amount of QZAB that may be issued for each State for calendar year 2011 under IRC 54E(c)(2).

    • Section 310(a), of the American Taxpayer Relief Act of 2012, P.L. 112-240, extended the authority to issue QZAB for two years for calendar years 2012 and 2013. Notice 2013-3, 2013-7 I.R.B. 484, provides for the allocation of the national limitation for qualified zone academy bonds among the States, the District of Columbia, and the possessions of the United States for 2013.

    • Section 120, of the Tax Increase Prevention Act of 2014, P.L. 113-295, extended the authority to issue QZABs for calendar year 2014. Notice 2015-11, 2015-11 I.R.B. 618, provides for the allocation of the national limitation for qualified zone academy bonds among the States, the District of Columbia, and the possessions of the United States for 2014.

    • Section 164 of the Protecting Americans from Tax Hikes Act of 2015, P.L. 114-113, authorizes the issuance of $400 million of qualified zone academy bonds for 2 years for calendar year 2015 and 2016. Notice 2016-20, I.R.B. 2016-9, provides for the allocation of the national limitation for qualified zone academy bonds among the States, the District of Columbia, and the possessions of the United States.

  7. A QSCB is any bond issued after February 17, 2009, by a state or local government as a qualified school construction bond where 100 percent of the available project proceeds of which are used for the construction, rehabilitation, or repair of a public school facility or for the acquisition of land on which the bond-financed facility is to be constructed. Section 1521, Qualified School Construction Bonds, of Title 1 of Division B of the American Recovery and Reinvestment Act of 2009 Act, P.L. 111-5, added QSCB as a new tax credit bond to the IRC and provided a national bond limit for QSCB of $11 billion for 2009 and 2010, each. See Notice 2009-35, 2009-17 I.R.B. 876, and Notice 2010-17, 2010-17 I.R.B.519, for the maximum face amount of QSCBs that may be issued for each State, large school districts, certain possessions, and Indian tribal governments for calendar years 2009 and 2010, respectively, under IRC 54AA.

  8. A BAB is any bond issued after February 17, 2009 and before January 1, 2011, by an issuer who makes an irrevocable election to have the rules of IRC 54A apply and except for that election, the interest on the bonds would have been excluded under section 103. Section 1531, Build America Bonds, of Title 1 of Division B of the American Recovery and Reinvestment Act of 2009 Act, P.L. 111-5, added BABs as a tax credit bond to the code.

  9. See Form 8912 and its instructions for the definitions of a qualified issuer, qualified borrower, and qualified project and see the specific information on claiming the credits.

  10. Action required:

    1. Math verify Form 8912

    2. Input TC 291 to increase the credit and TC 290 to decrease the credit

Form 8882, Credit for Employer-Provided Childcare Facilities and Services
  1. Section 205(a) of the Economic Growth and Tax Relief Reconciliation Act of 2001, PL 107-16, provided for a new credit for employers: Form 8882, Credit for Employer-Provided Childcare Facilities and Services under new IRC 45F. Employers use Form 8882 to claim the credit for qualified childcare facilities, and resource and referral expenditures.

  2. A qualified childcare facility is a facility that meets the requirements of all applicable laws and regulations of the state or local government in which it is located, including the licensing of the facility as a childcare facility. See the General Instructions for the other conditions that must be met, and for the requirements to claim the credit for qualified childcare facility expenditures and for qualified childcare resources and referral expenditures.

  3. The credit is part of the General Business Credit. It is effective for tax years beginning after December 31, 2001 and before December 31, 2010. Therefore, the first full 12 month period for which the credit is valid is 200212. Employers may claim the credit on their original return or on a timely filed amended return. See the General Instructions for Form 8882 for controlled groups and recapturing of the credit.

  4. Section 101(a), Temporary Extension of 2001 Tax Relief, of the Tax Relief Unemployment Insurance Reauthorization Act of 2010, P.L. 111-312 extended the credit to tax years beginning on or before December 31, 2012. The credit was made permanent by section 101 of the American Taxpayer Relief Act of 2012, P.L. 112-240.

  5. The credit is limited to $150,000 per taxable year. For the taxable year, the credit is equal to the expenses incurred by the employer equal to:

    1. 25 percent of the qualified childcare facility expenditures; plus

    2. 10 percent of the qualified childcare resource and referral expenditures paid or incurred during the tax year

  6. Action required:

    1. Math verify Form 8882

    2. Input TC 291 to increase the credit and TC 290 to reduce the credit

Form 8881, Credit for Small Employer Pension Plan Startup Costs
  1. Section 619(a) of the Economic Growth and Tax Relief Reconciliation Act of 2001, PL 107-16, provided for a new credit for small employers: Form 8881, Credit for Small Employer Pension Plan Startup Costs. Employers use Form 8881 to claim the credit for qualified start-up costs incurred in establishing or administrating an eligible employer plan.

  2. To be an eligible small employer, the taxpayer must have had no more than 100 employees during the tax year preceding the first credit year who received at least $5,000 of compensation from the taxpayer during that tax year. However, a taxpayer is not an eligible small employer if, during the three tax years preceding the first credit year, they established or maintained a qualified employer plan with respect to which contributions were made, or benefits were accrued, for substantially the same employees as are in the new qualified employer plan. See IRC 45E(c) for rules for controlled groups and predecessor employers. The credit can be claimed on Form 1120 and Form 1041. A partnership or S corporation that is an eligible small employer, completes part 1 on the form to figure the credit to pass through to its partners and shareholders on Schedule K-1 and is subsequently claimed on Form 1040.

  3. The credit is allowed under IRC 45E and is part of the General Business Credit. The credit is allowed only for costs paid or incurred in tax years beginning after 2001 with respect to qualified employer plans first effective after 2001. Therefore, the first full 12 month period for which the credit is valid is 200212.

  4. The credit (equal to 50 percent of the start-up costs paid or incurred during the tax year) is limited to the first three years of the start-up costs of the plan. The credit cannot exceed $500 for the first credit year and each of the two taxable years immediately following the first credit year. See the General Instructions for Form 8881 for more specific information.

  5. This credit was originally set to expire December 31, 2010, but was made permanent by section 811 of the Pension Protection Act of 2006, P.L. 109-280.

  6. Action required:

    1. Math verify Form 8881

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit

Form 8874, New Markets Credit
  1. The Community Renewal Tax Relief Act of 2000 created the New Markets Credit. Taxpayers use Form 8874 to claim the New Markets Credit for qualified equity investments made in qualified community development entities (CDE) after December 31, 2000. The credit is part of the General Business Credit, Form 3800. For more information, see IRC 45D. Also, see Notice 2006-60, for interim guidance on how an entity meets the requirements to be a qualified active low-income community business when its activities involve certain targeted populations under IRC 45D(e)(2).

  2. The new markets credit has been modified by various legislation. Below is a listing of recent the legislation that has extended the new markets credit:

    • Section 305(a), of the American Taxpayer Relief Act of 2012, P.L. 112-240, extended the credit for two years and is effective after December 31, 2011 and on or before December 31, 2013. In addition, section 305(a) sets the maximum amount of qualified equity investments at $3.5 billion for both 2012 and 2013.

    • Section 115, of the Tax Increase Prevention Act of 2014, P.L. 113-295, extended the credit for one year and is effective after December 31, 2013 and on or before December 31, 2014. In addition, section 115(a) sets the maximum amount of qualified equity investments at $3.5 billion for 2014.

    • Section 141 of the Protecting Americans from Tax Hikes Act of 2015, P.L. 114-113, extended the new markets credit for five years and is effective to calendar years beginning after December 31, 2014 and on or before December 31, 2019. In addition, the provision sets the maximum amount of qualified equity investments at $3.5 billion during the period.

  3. A qualified equity investment is generally stock in a corporation or a capital interest in a partnership that is:

    • Acquired solely for cash at its original issue (or from a taxpayer for whom the investment was a qualified equity investment)

    • Used predominantly by the CDE to make qualified low-income community investments, and

    • Designated by the CDE as a qualified equity investment

  4. A qualified community development:

    • Is an entity certified as a qualified CDE by the Department of the Treasury's Community Development Financial Institution (CDFI) Fund

    • Maintains accountability to residents of low-income communities through their representation on any governing board or advisory board of the entity

    • Primary mission is serving, or providing investment capital for, low-income communities or persons

  5. Qualified CDEs also include specialized small business investment companies and community development financial institutions. See IRC 45D(c)(2) for more information.

  6. A credit generally is allowed on each of seven credit allowance dates. The credit allowance dates are the date the qualified equity investment is made in a CDE and that date on each of the next six years.

  7. The credit is equal to the qualified investment multiplied by:

    • 5 percent with respect to the first three credit allowance dates

    • 6 percent with respect to the remainder of the credit allowance dates

  8. The New Markets Credit may not be carried back to a tax year ending before 2001.

Form 8864, Biodiesel and Renewable Diesel Fuels Credit
  1. Section 302, Biodiesel Income Tax Credit, of the American Jobs Creation Act of 2004, P.L. 108-357, created IRC 40A, Biodiesel and Renewable Diesel Used as Fuel. The credit applied to certain fuels produced, and sold or used, after December 31, 2004 and on or before December 31, 2006.

  2. The following legislation extended the credit for fuels, produced, and sold or used (see prior revisions of IRM 21.7.4 for a list of legislation that extended the credit prior to January 1, 2012):

    • Section 405(a) Extension of Incentives for Biodiesel and Renewable Diesel, of the American Taxpayer Relief Act of 2012, P.L. 112-240, extended the credit for fuels produced, and sold or used, for two years through December 31, 2013.

    • Section 153 of the Tax Increase Prevention Act of 2014, P.L. 113-295, extended the credit for fuels produced, and sold or used, for one year through December 31, 2014.

    • Section 185 of the Protecting Americans from Tax Hikes Act of 2015, P.L. 114-113, extended the credit for two years for fuels produced, and sold or used after December 31, 2014 and on or before December 31, 2016. The provision also extends through 2016 the existing $1.00 per gallon tax credit for biodiesel and biodiesel mixtures, and the small agri-biodiesel producer credit of 10 cents per gallon. The provision also extends through 2016 the $1.00 per gallon production tax credit for diesel fuel created from biomass. The provision extends through 2016 the fuel excise tax credit for biodiesel mixtures.

  3. Taxpayers use Form 8864, Biodiesel and Renewable Biodiesel Fuels Credit, to claim the section 40A biodiesel and renewable diesel fuels credit, which consist of the credits listed below. The sum of these credits is the biodiesel fuels credit for purposes of IRC 38, General Business Credit:

    • Biodiesel (other than agri-biodiesel)

    • Agri-biodiesel

    • Renewable diesel

    • Biodiesel (other than agri-biodiesel) included in a biodiesel mixture

    • Agri-biodiesel included in a biodiesel mixture

    • Renewable diesel included in a renewable diesel mixture, and

    • Small agri-biodiesel producer credit

  4. Per IRC 40A(b)(3), no credit shall be allowed for a biodiesel credit or a biodiesel mixture credit under IRC 40A unless the claim includes a Certificate for Biodiesel described in Notice 2005-62, section 2, paragraph (h)(2), and a statement that the claimant has no reason to believe any information in that certificate is false. See Notice 2005-62, for more information on the certificate rules. In addition, see the General Instructions for Form 8864 for the definition of biodiesel, agri-biodiesel, renewable diesel, biomass, and other related terms.

  5. Lines 1, 2, and 3 are for claiming the credit for 100 percent biodiesel (B100), agri-biodiesel and renewable diesel fuel. These fuels must not be a mixture. The credit is allowed only to the person who:

    • Sold at retail to another person and placed in the fuel tank of that person’s vehicle, or

    • Used as a fuel in a trade or business

  6. No credit is allowed for fuel used in a trade or business that was purchased in a retail sale described above.

  7. Lines 4, 5, and 6 are for claiming a biodiesel mixture, agri-biodiesel mixture, and renewable diesel mixture credit. A qualified biodiesel mixture means agri-biodiesel, biodiesel other than agri-biodiesel, or renewable diesel that is mixed with diesel fuel, without regard to any use of kerosene. But treat the kerosene as diesel fuel when figuring the renewable diesel mixture credit for certain aviation fuel. The credit is allowed only to the producer of the mixture (i.e., blender). The credit is allowed only for the taxable year the mixture was sold or used and the producer in its trade or business, must have:

    • Sold the mixture to any person for use as a fuel, or

    • Used the mixture as a fuel

  8. The biodiesel credit and the biodiesel mixture credit are $1 per gallon multiplied by the number of gallons of biodiesel sold or used.

  9. Line 7, qualified agri-biodiesel production, means up to 15 million gallons of agri-biodiesel which is produced by an eligible small agri-biodiesel producer, and which during the tax year:

    • Is sold by such producer to another person: (1) for use by such person in the production of a qualified biodiesel mixture in such other person's trade or business (other than casual off-farm production); (2) for use by such person as a fuel in a trade or business; or (3) who sells such agri-biodiesel at retail to another person, and places such agri-biodiesel in the fuel tank of such other person, or

    • Is used or sold by such producer for any purpose described in the bullet directly above.

  10. An eligible small agri-biodiesel producer is a person who, at all times during the tax year, has an aggregate productive capacity for agri-biodiesel not in excess of 60 million gallons.

  11. The small agri-biodiesel producer credit is $.10 per gallon multiplied by the number of gallons used or sold.

  12. Only one credit is allowed with respect to any amount of any type of biodiesel or renewable diesel. If any amount is claimed (or will be claimed) with respect to any amount of biodiesel or renewable diesel on Form 720, Quarterly Federal Excise Tax Return, Form 8849, Claim for Refund of Excise Taxes, or Form 4136, Credit for Federal Tax Paid on Fuels, then a claim cannot be made on Form 8864 for that amount of biodiesel or renewable diesel.

  13. Special Rule for 2014. Under section 160(e), of the Tax Increase Prevention Act of 2014, P.L. 113–295, per Notice 2015-3, Biodiesel and Alternative Fuels; Claims for 2014; Excise Tax, claimants could make a one-time claim on Schedule 3 (Form 8849), Certain Fuel Mixtures and the Alternative Fuel Credit, for the credits and payments allowable under section 6426(c), section 6426(d), and section 6427(e) for biodiesel (including renewable diesel) mixtures and alternative fuels sold or used during calendar year 2014. Claimants may also continue to claim the IRC section 34 refundable income tax credit for a biodiesel mixture or an alternative fuel on Form 4136, Credit for Federal Tax Paid on Fuels. The one-time claim provision referred to above, does not apply to claims on Form 4136.

  14. Special Rule for 2015. Per section 185(b)(4) and section 192(c), of the Protecting Americans From Tax Hikes Act of 2015, P.L. 114-113, and Notice 2016-5, , 2016-6 I.R.B. 302, claimants may make a one-time claim on Schedule 3 (Form 8849), Certain Fuel Mixtures and the Alternative Fuel Credit, for the credits and payments allowable under section 6426(c), section 6426(d), and section 6427(e) for biodiesel (including renewable diesel) mixtures and alternative fuels sold or used during calendar year 2015. Claimants may also continue to claim the IRC section 34 refundable income tax credit for a biodiesel mixture or an alternative fuel on Form 4136, Credit for Federal Tax Paid on Fuels. The one-time claim provision referred to above does not apply to claims on Form 4136.

  15. See IRM 21.7.8.4.5.4, Form 8849, Schedule 3, Certain Fuel Mixtures and the Alternative Fuel Credit, and IRM 21.7.8.4.7.3.1, Biodiesel an Alternative Fuels Incentives Claims, for more information on claiming the credit for 2014 and 2015.

  16. Action Required:

    1. Math verify Form 8864

    2. Input TC 291 to increase the credit and TC 290 to decrease the credit

Form 8896, Low Sulfur Diesel Fuel Production Credit
  1. Section 339 of the American Jobs Creation Act of 2004, P.L. 108-357, created IRC 45H, Credit for Production of Low Sulfur Diesel Fuel. The Credit is claimed on Form 8896, Low Sulfur Diesel Fuel Production Credit (LSDFPC), and is part of the general business credit. Low sulfur diesel is defined as diesel fuel with a sulfur content of 15 parts per million or less in taxable years ending after such date.

  2. The LSDFPC generally is five cents for every gallon of low sulfur diesel fuel produced at a qualified small business refinery during the taxable year. The credit is part of the general business credit.

  3. For each facility, qualified costs are costs paid or incurred to comply with the Highway Diesel Fuel Sulfur Control Requirements of the Environmental Protection Agency (EPA) during the period beginning January 1, 2003, and ending on the earlier of:

    • The date one year after the date on which the refiner must comply with these EPA requirements with respect to such facility, or

    • December 31, 2009.

  4. The LSDFPC cannot exceed an amount equal to 25 percent of the qualified capital costs incurred by the small business refiner with respect to such facility, reduced by, the aggregate LSDFPC for all prior years for such facility. See the General Instructions for Form 8896 for a reduced percentage. The LSDFPC cannot be carried back to a tax year before 2003.

  5. The small business refiner must obtain certification from the IRS (which will consult with the Environmental Protection Agency (EPA) that the taxpayer's qualified costs will result in compliance with applicable EPA regulations. See Rev. Proc. 2007-69, 2007-49 I.R.B. 1137, for details and for the due date of the certification.

  6. For TY 2006 and subsequent, the credit can only be claimed as a general business credit and must be carried to Form 3800, General Business Credit. The allowable credit is then figured on Form 3800.

  7. Rev. Proc. 2007-69, Credit for Production of Low Sulfur Diesel Fuel, explains the procedures for small business refiners to obtain a certification from the Internal Revenue Service. Also, see the General Instructions for Form 8896 for more specific information.

  8. Action required:

    1. Math verify Form 8896

    2. Input TC 291 to increase the credit and TC 290 to decrease the credit

Form 8900, Qualified Railroad Track Maintenance Credit
  1. Section 245 of the American Jobs Creation Act of 2004, P.L. 108-357, created IRC 45G, Railroad Track Maintenance Credit. This section applies to qualified railroad track maintenance expenditures paid or incurred by an eligible taxpayer for taxable years beginning after December 31, 2004, and before January 1, 2008. The credit is claimed by an eligible taxpayer on Form 8900. For TY 2006 and subsequent, the credit can only be claimed as a general business credit and must be carried to Form 3800, General Business Credit. The allowable credit is then figured on Form 3800.

  2. The qualified railroad track maintenance credit has been modified by various legislation. Below is a listing of the legislation that has extended the qualified railroad track maintenance credit:

    • Division C, Title III, section 316(a) of the Emergency Economic Stabilization Act of 2008, P.L. 110-343, extended the credit for two years for expenditures paid or incurred after December 31, 2007 and on or before December 31, 2009.

    • Section 734 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, extended the credit for two years for expenditures paid or incurred for taxable years beginning after December 31, 2009 and on or before December 31, 2011.

    • Section 306(a) of the American Taxpayer Relief Act of 2012, P.L. 112-240, extended the credit for two years for expenditures paid or incurred for taxable years beginning after December 31, 2011 and on or before December 31, 2013.

    • Section 116 of the Tax Increase Prevention Act of 2014, P.L. 113-295, extended the credit one year for expenditures paid or incurred for taxable years beginning after December 31, 2013 and on or before December 31, 2014.

    • Section 162 of the Protecting Americans from Tax Hikes Act of 2015, P.L. 114-113, extended the railroad track maintenance tax credit for two years for expenditures paid or incurred for taxable years beginning after December 31, 2014 and on or before December 31, 2016.

  3. An eligible taxpayer includes Class II and Class III railroads as these terms are defined by the Surface Transportation Board.

  4. Eligible taxpayers also include persons (including Class I railroad) who:

    • Transport property using the rail facilities of a Class II or Class III railroad, or who furnishes railroad-related property or services to a Class II or Class III railroad, but only with respect to miles of railroad track assigned to such person by such Class II or Class III railroad.

  5. Qualified railroad track maintenance expenditures include expenditures for maintaining railroad track (including roadbed, bridges, and related track structures) owned or leased as of January 1, 2005, by a Class II or Class III railroad. Section 423 of the Tax Relief and Health Care Act of 2006 modifies the definition of qualified railroad track expenditures so that the term means "gross expenditures" (whether or not otherwise chargeable to capital account). See the General Instructions for Form 8900 for additional information regarding maintenance expenditures.

    Note:

    Section 162(b) of the Protecting Americans from Tax Hikes Act of 2015, P.L. 114-113, changed "January 1, 2005" to "January 1, 2015" effective for expenditures paid or incurred in tax years beginning after December 31, 2015.

  6. Any unused credit may be carried back one year and carried forward for up to 20 years.

  7. The credit allowed for any taxable year cannot exceed the product of $3,500 multiplied by the sum of:

    • The number of miles of railroad track owned or leased by the eligible taxpayer as of the close of the taxable year, and

    • The number of miles of railroad track assigned to the eligible taxpayer by a Class II or Class III railroad which owns or leases such railroad track as of the close of the taxable year

  8. Action required:

    1. Math verify Form 8900

    2. Input TC 291 to increase the credit and TC 290 to decrease the credit

Form 8906, Distilled Spirits Credit
  1. Section 11126 of the Safe Accountable, Flexible, and Efficient Transportation Equity Act of 2005, P.L. 109-59, created the Distilled Spirits Credit under IRC 7652.

  2. Generally, the credit is computed by multiplying the number of cases of bottled distilled spirits purchased or stored during the tax year by the average tax-financing cost per case for the most recent calendar year ending before the beginning of the tax year.

  3. The amount of the distilled spirits credit for any taxable year is the amount equal to the product of the number of cases of distilled spirits purchased or stored during the tax year by the average tax financing cost per case:

    • For eligible wholesalers who hold a permit under the Federal Alcohol Administration Act and are not a state or political, subdivision thereof or an agency of either, the number of cases bottled in the United States, and which were purchased by wholesalers directly from the bottler, or

    • For taxpayers subject to IRC 5005 whom are not eligible wholesalers, the number of cases of bottles of distilled spirits which are stored in a warehouse operated by, or on behalf of, a State or political subdivision thereof, or an agency of either, on which title has not passed on an unconditional sale basis

  4. The credit is claimed on Form 8906. The credit is part of the general business credit and is effective for tax years beginning after September 30, 2005. Section 114 of the Tax Relief and Health Care Act of 2006 temporarily suspends the limitation on the amount of excise taxes on rum paid over to Puerto Rico and the Virgin Islands. See the General Instructions for Form 8906 for more specific information and an example on how to compute the credit.

  5. The distilled spirits credit has been modified by various legislation. Below is a listing of the legislation that has extended the pre-2008 cover over amount of $13.25 per proof gallon to distilled spirits brought into the United States:

    • Division C, Title III, section 308 of the Emergency Economic Stabilization Act of 2008, P.L. 110-343, extended the pre-2008 cover over amount for two years to distilled spirits brought into the United States after December 31, 2007 and on or before December 31, 2009.

    • Section 755 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, extended the pre-2008 cover over amount for two years to distilled spirits brought into the United States after December 31, 2009 and on or before December 31, 2011.

    • Section 329(a) of the American Taxpayer Relief Act of 2012, P.L. 112-240, extended the pre-2008 cover over amount for two years to distilled spirits brought into the United States after December 31, 2011 and on or before December 31, 2013.

    • Section 140 of the Tax Increase Prevention Act of 2014, P.L. 113-295, extended the pre-2008 cover over amount for one year to distilled spirits brought into the United States after December 31, 2013 and on or before December 31, 2014. After December 31, 2014, the cover over goes back to $10.50 per proof.

    • Section 172 of the Protecting Americans from Tax Hikes Act of 2015, P.L. 114-113, extended the pre-2008 cover over amount for two years to distilled spirits brought into the United States after December 31, 2014 and on or before December 31, 2016. After December 31, 2016, the cover over goes back to $10.50 per proof.

  6. The average tax-financing cost per case on Line 2 is as follows:

    Year Amount
    2011 .12695
    2012 .10575
    2013 .08433
    2014 - 2016 .08456
    2017 .11603
  7. Action required:

    1. Math verify Form 8906

    2. Input TC 291 to increase the credit and TC 290 to reduce the credit

Form 8904, Credit for Producing Oil and Gas from Marginal Wells
  1. Section 341 of the American Jobs Creation Act of 2004, P.L. 108-357, created IRC 45I, Credit for Producing Oil and Gas from Marginal Wells. This section applies to production in taxable years beginning after December 31, 2004.

    Note:

    The credit is claimed on Form 8904. However, Form 8904 has not been developed due to the high cost of oil and natural gas and is obsolete as of September 30, 2014.

  2. The marginal well production credit for any taxable year is an amount equal to the product of:

    • The credit amount, and

    • The qualified credit oil production and the qualified natural gas production which is attributable to the taxpayer

  3. The credit amount is $3 per barrel of qualified crude oil production, and $.50 per 1,000 cubic feet of qualified natural gas production.

  4. The $3 and $.50 credit is reduced (but not below zero) as oil and gas prices increase.

  5. The credit is reduced to zero when the price for a barrel of oil or the price per cubic foot of natural gas reaches certain limits. The credit has been phased out since TY 2005.

Form 8834, Qualified Plug-in Electric and Electric Vehicle Credit, TY 2006 and Prior
  1. Form 8834, Qualified Plug-in Electric and Electric Vehicle Credit, is used to claim the credit for qualified electric vehicles placed in service during the tax year. The credit is part of the general business credit. The credit was scheduled to be reduced for vehicles placed in service during 2004, 2005 and 2006, and completely phased out in 2007. However, section 318, Title III, of the Working Families Tax Relief Act of 2004, P.L. 108-311, restored the full credit for 2004 and 2005. The credit is reduced by 75 percent (to $1,000) in 2006 and completely phased out in 2007.

  2. See the October 1, 2016 and prior revisions of this IRM for information on the Qualified Plug-In Electric and Electric Vehicle Credit that is applicable to TY 2006 and prior .

Form 8834, Qualified Plug-in Electric and Electric Vehicle Credit
  1. Section 1142, Division B, Title I, of the American Recovery and Reinvestment Act of 2009, P.L. 111-5, amends IRC 30, Credit for Certain Plug-in Electric Vehicles. The bill restores and updates the electric vehicle credit for plug-in electric vehicles that do not qualify for the larger plug-in electric drive motor vehicle credit provided in IRC 30D.

  2. The amount of the credit is 10 percent of the cost of any qualified plug-in electric vehicle placed in service by the taxpayer during the taxable year, and cannot exceed $2,500.

  3. "A qualified plug-in electric vehicle" is a specified vehicle which:

    • The original use commences with the taxpayer

    • Is acquired for use or lease by the taxpayer and not for resale

    • Is made by a manufacturer

    • Is manufactured primarily for use on public streets, roads, and highways

    • Is either a low speed vehicle or a vehicle with two or three wheels that has a gross vehicle weight rating of less than 14,000 pounds

    • Is propelled to a significant extent by an electric motor which draws electricity from a battery which has a capacity of not less than four kilowatt hours (2.5 kilowatt hours in the case of a vehicle with two or three wheels), and is capable of being recharged from an external source of electricity

  4. A "specified vehicle" is any vehicle that is a low speed vehicle within the meaning of section 571.3 of title 49, Code of Federal Regulations (as in effect on February 17, 2009), or has two or three wheels.

  5. The credit is claimed on Form 8834 and is effective for vehicles acquired after February 17, 2009 and before January 1, 2012. If a vehicle is acquired after February 17, 2009 and on or before December 31, 2009, no credit is allowed for the vehicle under this provision if a credit is allowable under IRC 30D.

  6. Taxpayers with tax years ending after February 17, 2009, who claim the qualified plug-in electric vehicle credit must use the July 2009 revision. Other 2008 filers can use either the February 2009 or July 2009 revision to claim the credit.

  7. If the credit was due to a vehicle not subject to depreciation (not used in a trade or business), the taxpayer cannot use part of the credit because of the tax liability limit, the unused credit is lost. The unused or excess credit cannot be carried back or forward to other tax years. If the credit was due to a vehicle used in a trade or business, the unused credit may be carried back or forward under the general business credit (IRC 39).

  8. See IR 2009-045, Tax Breaks Available for Taxpayers Who Purchase Qualified Plug-In Electric Vehicles, for more information.

  9. Notice 2009-58, 2009-30 I.R.B. 163, sets forth interim guidance, pending the issuance of regulations, relating to the qualified plug-in electric vehicle credit under IRC 30. Specifically, the notice provides procedures for a vehicle manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) to certify to the Internal Revenue Service that a vehicle of a particular make, model, and model year meets the requirements that must be satisfied to claim the specified plug-in electric vehicle credit under IRC 30.

  10. Notice 2009-89, 2009-48 I.R.B. 714, sets forth interim guidance, pending the issuance of regulations, relating to the qualified plug-in electric drive motor vehicle credit under IRC 30D, as in effect for vehicles acquired after December 31, 2009. Specifically, the notice provides procedures for a vehicle manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) to certify to the Internal Revenue Service both:

    • That a motor vehicle of a particular make, model, and model year meets certain requirements that must be satisfied to claim the qualified plug-in electric drive motor vehicle credit under IRC 30D,

    • The amount of the credit allowable with respect to that motor vehicle.

  11. This notice also provides guidance to taxpayers who purchase motor vehicles regarding the conditions under which they may rely on the vehicle manufacturer’s (or, in the case of a foreign vehicle manufacturer, its domestic distributor’s) certification in determining whether a credit is allowable with respect to the vehicle and the amount of the credit.

  12. Beginning with tax year 2011, taxpayers are required to report the 17 character alpha-numeric vehicle identification number (VIN) for each vehicle that qualifies for the credit.

  13. The qualified plug-in electric vehicle credit expired for vehicles, other than those with two- or three- wheels, acquired after December 31, 2011. However, taxpayers that acquired the plug-in electric vehicle before 2012, but placed the vehicle in service after December 31, 2011, may still be able to claim the credit on Form 8834. Pursuant to new IRC 30D(g), taxpayers can claim a credit for certain two- or three-wheeled vehicles acquired after 2011 on Form 8936. See IRM 21.7.4.4.8.3.37.1, American Taxpayer Relief Act of 2012, P.L. 112-240, Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit (Including Qualified Two- or Three-Wheeled Plug-In Electric Vehicle), for more information.

  14. Section 183, Div. P, Title I, of the Path Act extends the section 30D credit for 2-Wheeled Plug-In Electric Vehicles acquired after 12/21/2014 for 2 years through 12/31/2016.

Form 8910, Alternative Motor Vehicle Credit
  1. Section 1341, Title XIII, of the Energy Policy Act of 2005, P.L. 109-58, provides the Alternative Motor Vehicle Credit for each new alternative motor vehicle placed in service by the taxpayer during the taxable year. For new qualified hybrid and advanced lean-burn technology vechicles, the credit begins to phase out (or is reduced) during the second calendar quarter after the quarter in which the company sells its 60,000th alternative Motor vehicle. The four types of vehicles that qualify are:

    • Qualified fuel cell motor vehicle

    • Advanced lean burn technology motor vehicle

    • Qualified hybrid motor vehicle

    • Qualified alternative fuel motor vehicle

    Note:

    See paragraph (20) for the dates that the various vehicles must be purchased by to qualify for the credit. Only the qualified fuel cell motor vehicle credit has been extended.

  2. A qualifying fuel cell vehicle is a motor vehicle that is propelled by power derived from one or more cells which convert chemical energy directly into electricity by combining oxygen with hydrogen fuel which is stored on board the vehicle and may or may not require reformation prior to use.

  3. The amount of credit for a fuel cell vehicle is determined by a base credit amount that depends upon the weight class of the vehicle and, in the case of automobiles or light trucks, an additional credit amount that depends upon the rated fuel economy of the vehicle compared to a base fuel economy. The base fuel economy is the 2002 model year city fuel economy ratings for various weight classes. The credit is available to the vehicle owner, including the lessor of a vehicle subject to a lease.

  4. The base credit amount for a new qualified fuel cell motor vehicle is:

    Gross Weight in Pounds Credit Amount
    Not more than 8,500 $8,000 ($4,000 - placed in service after December 31, 2009)
    More than 8,500 but not more than 14,000 $10,000
    More than 14,000 but not more than 26,000 $20,000
    More than 26,000 $40,000
  5. The credit for a qualified fuel cell vehicle weighing less than 8,500 pounds and placed in service after December 31, 2009 is reduced to $4,000.

  6. The table below shows the additional credits for passenger automobiles and light trucks based on their fuel economy:

    Credit Amount If fuel economy of the qualifying fuel cell motor vehicle is:
    At least But less than
    $1,000 150 percent of the base fuel economy 175 percent of the base fuel economy
    $1,500 175 percent of the base fuel economy 200 percent of the base fuel economy
    $2,000 200 percent of the base fuel economy 225 percent of the base fuel economy
    $2,500 225 percent of the base fuel economy 250 percent of the base fuel economy
    $3,000 250 percent of the base fuel economy 275 percent of the base fuel economy
    $3,500 275 percent of the base fuel economy 300 percent of the base fuel economy
    $4,000 300 percent of the base fuel economy
  7. Notice 2008-33, 2008-12 I.R.B. 642, provides procedures for a vehicle manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) to certify to the Internal Revenue Service both:

    • That a particular make, model, and model year meets certain requirements that must be satisfied to claim the qualified fuel cell motor vehicle credit, and

    • The amount of the credit allowable for the specific vehicle.

  8. A qualifying advanced lean burn technology motor vehicle is a vehicle purchased on or before December 31, 2010 and is a passenger automobile or light truck with an internal combustion engine which:

    • Is designed to operate primarily using more air than is necessary for complete combustion of the fuel

    • Incorporates direct injection

    • Achieves at least 125 percent of the 2002 model year city fuel economy

    • In the case of 2004 and later models, has received a certificate that it meets or exceeds certain EPA emissions standards

  9. The amount of credit is the sum of two components (See chart below at paragraph (14). The conservation credit is the same as for the hybrid vehicle.):

    • A fuel economy credit amount that varies with the rated fuel economy of the vehicle compared to a 2002 model year standard as described in a table, and

    • A conservation credit based on the estimated lifetime fuel savings of a qualified vehicle compared to a comparable 2002 model year vehicle

  10. The table below shows the Fuel Economy Credit available to a qualifying advanced lean burn technology motor vehicle which achieves a fuel economy (on a gasoline gallon equivalent basis) exceeds that of a base fuel economy:

    Credit Amount If fuel economy of the qualifying advanced lean burn technology motor vehicle is:
    At least But less than
    $400 125 percent of the base fuel economy 150 percent of base fuel economy
    $800 150 percent of the base fuel economy 175 percent of the base fuel economy
    $1,200 175 percent of the base fuel economy 200 percent of the base fuel economy
    $1,600 200 percent of the base fuel economy 225 percent of the base fuel economy
    $2,000 225 percent of the base fuel economy 250 percent of the base fuel economy
    $2,400 250 percent of the base fuel economy
  11. A qualifying hybrid motor vehicle is a motor vehicle that draws propulsion energy from on-board sources of stored energy which includes both an internal combustion engine or heat engine using combustible fuel and a rechargeable energy source system (e.g., batteries). A qualifying hybrid motor vehicle weighing less than 8,500 pounds must be purchased on or before December 31, 2010 (December 31, 2009 for vehicles weighing more than 8,500 pounds).

  12. The amount of credit for the purchase of a qualifying hybrid motor vehicle varies with the rated fuel economy of the vehicle compared to a 2002 model year. A qualifying hybrid automobile or light truck which has a gross vehicle weight rating of not more than 8,500 pounds, must have a maximum available power from the rechargeable energy storage system of at least four percent. In the case of an automobile or light truck, the amount of credit is the sum of two components:

    • A fuel economy credit amount that varies with the rated fuel economy of the vehicle compared to a 2002 model year standard, and

    • A conservation credit based on the estimated lifetime fuel savings of a qualifying vehicle compared to a comparable 2002 model year vehicle

  13. The table below shows the Fuel Economy Credit available to a qualifying hybrid passenger automobile or light truck whose fuel economy (on a gasoline gallon equivalent basis) exceeds that of a base fuel economy:

    Credit Amount If Fuel Economy of the Hybrid Motor Vehicle Is:
    At least But less than
    $400 125 percent of the base fuel economy 150 percent of the base fuel economy
    $800 150 percent of the base fuel economy 175 percent of the base fuel economy
    $1,200 175 percent of the base fuel economy 200 percent of the base fuel economy
    $1,600 200 percent of the base fuel economy 225 percent of the base fuel economy
    $2,000 225 percent of the base fuel economy 250 percent of the base fuel economy
    $2,400 250 percent of the base fuel economy
  14. The table below shows the conservation credit

    Estimated Lifetime Fuel Savings (gallons of gasoline) Conservation Amount
    At least 1,200 but less than 1,800 ........... $250
    At least 1,800 but less than 2,400 ........... $500
    At least 2,400 but less than 3,000 ........... $750
    At least 3,000 ........................................... $1,000
  15. A credit is also available for certain new qualified heavy hybrid vehicles with a gross vehicle weight rating in excess of 8,500 pounds. A qualifying heavy hybrid motor vehicle also draws propulsion energy from on-board sources of stored energy which are both an internal combustion or heat engine using consumable fuel, and a rechargeable energy storage system. See Notice 2007-46, 2007-23 I.R.B. 1342, for more specific information.

  16. The amount of credit is determined by the estimated increase in fuel economy and the incremental cost of the hybrid vehicle compared to a comparable vehicle powered solely by a gasoline or diesel internal combustion engine that is comparable in weight, size, and use of the vehicle.

  17. A qualified alternative fuel motor vehicle is a vehicle that uses alternative fuels such as compressed natural gas, liquefied natural gas, liquefied petroleum gas, hydrogen, and any liquid fuel that is at least 85 percent methanol. They operate only on qualifying alternative fuels and are incapable of operating on gasoline or diesel (except in the extent gasoline or diesel fuel is part of a qualified mixed fuel, described below).

  18. Certain mixed fuel vehicles, that is vehicles that use a combination of an alternative fuel and petroleum-based fuels, are eligible for a reduced credit. If the vehicle operates on a mixed fuel that is at least 75 percent alternative fuel, the vehicle is eligible for 70 percent of the credit. If the vehicle operates on a mixed fuel that is at least 90 percent alternative fuel, the vehicle is eligible for 90 percent of the credit.

  19. The credit for the purchase of a new alternative fuel vehicle is 50 percent of the incremental cost of the vehicle, (the difference between the manufacturer’s suggested retail price for the vehicle and the same vehicle with a gasoline or diesel fuel engine), plus an additional 30 percent if the vehicle meets certain emissions standards, but not more than between $4,000 and $32,000 depending upon the weight of the vehicle. The table below shows the maximum permitted incremental cost for the purpose of calculating the credit by the applicable weight class:

    Vehicle Gross Weight Rating in Pounds Maximum Allowable Incremental Cost Maximum Allowable Credit
    Less than 8,500 $5,000 $4,000
    8,500 or more, but less than 14,000 $10,000 $8,000
    14,000 or more, but less than 26,000 $25,000 $20,000
    More than 26,000 $40,000 $32,000
  20. These provisions apply to vehicles placed in service after December 31, 2005. See the table below for the ending date that the vehicle must be purchased on or before:

    Vehicle type Must be Purchased on or Before (see IRC 30B(k))
    Qualified Fuel Cell Motor Vehicles Section 193 of the Protecting Americans from Tax Hikes Act of 2015, P.L. 114-113, extended the credit through December 31, 2016
    Qualified Hybrid Motor Vehicles that are automobiles and light trucks, and advanced lean-burn technology Vehicles December 31, 2010
    Qualified Hybrid Motor Vehicles that are Medium and Heavy Trucks December 31, 2009
    Qualified Alternative Fuel Vehicles December 31, 2010
  21. See Form 8910 and the Instructions for Form 8910 for more specific information. See IR-2006-012 and Notice 2006-9 , 2006-6 I.R.B. 413, for guidance for the process manufacturers can use to certify the amount of credit the purchaser of a hybrid or lean burn vehicle can claim. Taxpayers who purchase these vehicles can rely on the manufacturer’s certification when they claim the credit. See the October 1, 2009 revisions of this IRM for the notices and news releases issued in 2007. Also, see the following notices and news releases for more information. (Many of these notices can be found on irs.gov in an article titled News Releases, Fact Sheets and Legal Guidance on Hybrid Vehicles and Alternative Motor Vehicles.)

    • Notice 2006-54, 2006-26 I.R.B. 1180, provides procedures that a vehicle manufacturer (or, a domestic distributor of a foreign manufacturer) may use if it chose to certify a particular make or model and year vehicle. See the October 1, 2007 revision for 2006 New Releases

    • IR-2008-023: Credit for Honda Hybrids Begins to Phase-Out

    • IR-2008-113 : Vehicles Certified as Qualified Advanced Lean-Burn Technology Vehicles

    • IR-2009-042: Tax Credit for Ford Hybrids Begins Phase-Out. See Notice 2009-37, 2009-18 I.R.B. 898, for more information on the phase-out

    • Notice 2010-42, 2010-23 I.R.B. 733, Phase-out of Credit for New Qualified Hybrid Motor Vehicles and New Advanced Lean Burn Technology Motor Vehicles

  22. Beginning with tax year 2011, taxpayers are required to report the 17 character alpha-numeric Vehicle Identification Number (VIN) for each vehicle that qualifies for the credit.

  23. Section 193, Div. P, Title I, of the Path Act extends the credit for new qualified fuel cell motor vehicles purchased after 12/31/2014 for 2 years through 12/31/2016.

  24. Action required:

    • Math verify Form 8910

    • Input TC 291 to increase the credit and TC 290 to decrease the credit

Conversion Kits, Qualified Plug-in Electric Drive Motor Vehicle
  1. Section 1143, Division B, Title I, of the American Recovery and Reinvestment Act of 2009, P.L. 111-5, amends IRC 30B by allowing a credit for Converted Kits for any motor vehicle which is converted to a qualified plug-in electric drive motor vehicle. The credit is 10 percent of so much of the cost of converting the vehicle as does not exceed $40,000.

  2. A new "qualified plug-in electric drive motor vehicle" is a motor vehicle which:

    • Is acquired for use or lease by the taxpayer and not for resale

    • Is treated as a motor vehicle for purposes of title II of the Clean Air Act

    • Has a gross vehicle weight rating of less than 14,000 pounds, and

    • Is propelled to a significant extent by an electric motor which draws electricity from a battery which has a capacity of not less than four kilowatt hours, and is capable of being recharged from an external source of electricity

  3. The credit is available for vehicles placed in service after February 17, 2009. The credit is not available for conversions made after December 31, 2011. The credit is allowed under this provision regardless of whether a credit has been allowed for the vehicle under IRC 30B (other than subsection (i)) in any preceding taxable year. The credit is claimed on Form 8910, Alternative Motor Vehicle Credit.

Form 8911, Alternative Fuel Vehicle Refueling Property Credit
  1. Section 1342, Title XIII, of the Energy Policy Act of 2005, P.L. 109-58, enacted the Credit for Installation of Alternative Fueling Stations under IRC 30C. The provision provides for a 30 percent credit for the cost of installing all alternative vehicle refueling property to be used in a trade or a business of the taxpayer, or installed at the principal residence of the taxpayer for property placed in service after December 31, 2005 and before January 1, 2010 (January 1, 2015 for hydrogen fuel property). Form 8911 is used to claim the credit.

  2. The alternative fuels vehicle refueling property credit has been modified by various legislation. Below is a listing of the legislation that has extended the alternative fuels vehicle refueling property credit:

    • Section 207 Division B, Title II of the Emergency Economic Stabilization Act of 2008, P.L. 110-343, Alternative Fuel Vehicle Refueling Property Credit, extended the credit for one year for property placed in service in taxable years beginning after December 31, 2009 and on or before December 31, 2010.

    • Section 711 Title VII, of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, extended the credit for one year for property placed in service in taxable years beginning after December 31, 2010 and on or before December 31, 2011.

    • Section 402(a), Title IV of the American Taxpayer Relief Act of 2012, P.L. 112-240, extended the credit for two years for property placed in service in taxable years beginning after December 31, 2011 and on or before December 31, 2013 usi