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3.11.14  Income Tax Returns for Estates and Trusts (Forms 1041, 1041-QFT, and 1041-N)

Manual Transmittal

October 25, 2016

Purpose

(1) This transmits revised IRM Section 3.11.14, Returns and Documents Analysis, Income Tax Returns for Estates and Trusts, (Forms 1041, 1041-QFT, and 1041-N).

Material Changes

(1) Made various editorial changes throughout the IRM, including tax years, line numbers, and tax rate changes.

(2) IPU 16U0788 issued 04-21-2016 Numerous changes to table formats for 508 compliance. No changes to contents of the tables unless listed in the material changes separately.

(3) IPU 16U0036 issued 01-04-2016 IRM 3.11.14.1.10(2) - Added paragraph to Exam Funny Box subsection on Form 1099-OID.

(4) IPU 16U0645 issued 03-31-2016 IRM 3.11.14.1.10(2) Made paragraph bold to indicate that it is specific to 1041 returns.

(5) IRM 3.11.14.1.11(2) Added CCC E to BMF ID Theft.

(6) IRM 3.11.14.1.2(1) Added link to TBOR for taxpayers.

(7) IRM 3.11.14.2.1(4) Added photocopied returns editing procedure.

(8) IRM 3.11.14.2.2(1) Removed statement to move blank forms.

(9) IPU 16U0190 issued 01-26-2016 IRM 3.11.14.1.11(1) Removed edit the return from the BMF ID Theft procedures.

(10) IRM 3.11.14.5.1(6) Deleted reference to IRM 3.0.273.

(11) IRM 3.11.14.5.2(4)Deleted (2) and (3).

(12) IRM 3.11.14.5.3.2(2) Added Paragraph (2), instructions for returns that appear to be duplicate filings

(13) IPU 16U0645 issued 03-31-2016 IRM 3.11.14.5.3.5(1) Updated IRM reference for Frivolous Arguments.

(14) IRM 3.11.14.7.2(2) - Revised instructions for editing CCC D on returns prepared under IRC 6020(b)

(15) IRM 3.11.14.7.3 Added subsection on CCC E for BMF ID Theft.

(16) IPU 16U0788 issued 04-21-2016 IRM 3.11.14.7.18(1) - Added CCC 2 for returns with Form 8938 attached.

(17) IRM 3.11.14.8.2.1(2) Added cross reference to 3.11.14 12.3.

(18) IRM 3.11.14.8.7 Changes manual refund criteria from $10 million to $100 million.

(19) IRM 3.11.14.8.8.3(1)(c) Revised instructions for editing CCC D on returns prepared under IRC 6020(b)

(20) IRM 3.11.14.8.8.3(2)(c) Added note for exception to not edit CCC D.

(21) IRM 3.11.14.9.5(12) Added line 4i requires Form 6765 be attached to Form 3800.

(22) IPU 16U0036 issued 01-04-2016 IRM 3.11.14.9.5(18) , (32), (36), and (38) - Added MSCs for expired credits which can be taken on certain prior year returns.

(23) IPU 16U0036 issued 01-04-2016 IRM 3.11.14.10(3) and (4) - Revised instructions for assigning received dates on returns filed late due to the rejection of a timely filed electronic return.

(24) IPU 16U0645 issued 03-31-2016 IRM 3.11.14.10(4) Added new paragraph with table for received dates on rejection of timely filed electronic returns.

(25) IRM 3.11.14.10(7)(1) Added insufficient postage to table.

(26) IPU 16U0645 issued 03-31-2016 IRM 3.11.14.10(8) Added new paragraph for determining EEFax received dates.

(27) IRM 3.11.14.10(8) Deleted paragraph for determining EEFax received dates and replaced with paragraph (10) how to determine EEFax received dates received from other areas. IPU 16U0645 instructions removed.

(28) IRM 3.11.14.11.5(4) Seventh row If/Then added a note: The taxpayer must indicate that the tax period was changed.

(29) IRM 3.11.14.12.3(5) Added note for Bankruptcy exemption amount and Fiduciary Codes.

(30) IRM 3.11.14.13.2(3) Added any repeating numbers may be circled out.

(31) IRM 3.11.14.13.3(2) Removed exception for MOD-IEIN. Added if no other indications of type of entity, use trust rules for name control.

(32) IRM 3.11.14.13.3(4) Added new prefixes for MODI-EIN assigned EINs.

(33) IPU 16U0190 issued 01-26-2016 IRM 3.11.14.13.3(5) Added row for underlining the name control.

(34) IRM 3.11.14.13.5(1) Added instructions for 8822/8822-B changes.

(35) IRM 3.11.14.16.5.2(1) Added note If Line 2(b)(2) has a negative amount, see IRM 3.11.14.16.3

(36) IRM 3.11.14.16.5(3) Corrected last two If rows to Line 4 is blank, zero, or illegible,

(37) IRM 3.11.14.16.5(8) Removed instructions to X and move out of sequence additional Schedule Ds. It they are the only Schedule D and not to be transcribed then they must be X’d.

(38) IPU 16U0190 issued 01-26-2016 IRM 3.11.14.17.4(2)(1) Changed second If/Then row to X out the negative amount and rewrite as a positive amount.

(39) 3.11.14.17.6(2) Added a table showing exemption amounts, fiduciary codes and trust codes.

(40) IRM 3.11.14.20.2(2) Added to note or one not having significant money amounts distributed to taxpayers (or statement attached showing distribution),

(41) IPU 16U1184 issued on 07-06-2016 IRM 3.11.14.20.5(1)(3) Removed exception for 1099. We will correspond for Form 1099 when credit is claimed.

(42) IRM 3.11.14.22(3) and (8) Added to arrow up fiduciary’s signature from preparer’s line, if fiduciary’s name is in the entity.

(43) 3.11.14.27.2.5(1)(d) Removed outdated instructions.

(44) IRM 3.11.14.27.2.12(1)(b) and (c) Removed outdated instructions.

(45) IRM 3.11.14.27.2.35(2) Added exception for pass through entities.

(46) IRM 3.11.14.27.2.35(4) Added instructions for new Line C, Credit Period Limitation check box on Form 8941.

(47) IRM 3.11.14.30(2) Added cross reference to 3.11.14.36.1

(48) IPU 16U0036 issued 01-04-2016 IRM 3.11.14.31(1) and (3) - Added instructions to add Section 1291 Interest notated at bottom of front page, Form 1041 to Line 23 amount.

(49) IRM 3.11.14.43(4) Added note to correspond, if DOD is not on return or IDRS.

(50) IRM 3.11.14.46.2.3(1)(1) Removed obsolete bullet.

(51) IPU 16U0645 issued 03-31-2016 IRM 3.11.14.47(3) Revised instructions for CP 259/518 and Letters 112C, 282C, 2255C or 2284C.

(52) IPU 16U0036 issued 01-04-2016 IRM 3.11.14.47(3) - Added Form 14157 to Routing Guide.

(53) IPU 16U0036 issued 01-04-2016 IRM 3.11.14.47(3) - Updated Collections’ CP and letters routing.

(54) IPU 16U0788 issued 04-21-2016 IRM 3.11.14.47(3) Updated Routing Guide for Attachments - Added Note to CP 259/518 and Letters 112C, 282C, 2255C or 2284C.

(55) IPU 16U0190 issued 01-26-2016 IRM 3.11.14.47(4) Updated routing guide to reflect old CP 2030 and 2351 as letters.

(56) Exhibit 3.11.14-15 Added that Form 1041 extensions are now 5 1/2 months.

(57) IPU 16U0036 issued 01-04-2016 Exhibit 3.11.14-17 - Added caution for Form 1099-OID.

(58) IPU 16U0036 issued 01-04-2016 Exhibit 3.11.14-20 - Added expired credits to Missing Schedule Code chart.

Effect on Other Documents

IRM 3.11.14 dated October 30, 2015 (effective 01-01-2016) is superseded. This IRM also incorporates the following IRM Procedural Updates (IPUs) - 16U0036, 16U0190, 16U0645, 16U0788, 16U0807, 16U1184, and 16U1249.

Audience

Wage and Investment (W&I) Code and Edit Tax Examiners

Effective Date

(01-01-2017)

Linda J. Brown
Director, Submission Processing
Wage and Investment Division

3.11.14.1  (01-01-2016)
Overview

  1. The purpose of Document Perfection is to code and perfect (edit) documents being input to the Automated Data (ADP) System to make them adaptable to computer processing and to recognize and properly dispose of accompanying attachments. Special codes are entered into the computer to perform specific functions.

  2. Instructions in this IRM are for a typical return. Apply the instructions as far as possible when a situation is not explained.

  3. In case of a conflict of instructions between this general sub-section and the subsequent specific sub-section, the specific sub-section will govern.

  4. Numerical listings (e.g., (1), (2)) indicate paragraph numbers to be followed in order.

  5. Alpha and bullet listings (e.g., a., b., c.) indicate instructions or information that is important but the order in which they are to be considered is not important.

  6. This IRM cannot address every possibility that may arise while correcting returns or documents. Taxpayer intent must be taken into consideration. In some cases, it may be necessary to refer the issue to your Subject Matter Expert (SME), lead and/or manager to determine the proper corrective action.

  7. IRM 3.11.14 provides Code & Edit procedures for the following returns and their related Schedules and Forms:

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

    • Form 1041-QFT (U.S. Income Tax Return for Qualified Funeral Trusts).

    • Form 1041-N (U.S. Income Tax Return for Electing Alaska Native Settlement Trusts (ANST)).

  8. Form 1041 is used by a fiduciary of a domestic estate, trust, or bankruptcy estate to report the following:

    • Income received and expenses incurred during the taxable period by the estate or trust.

    • Income that is either accumulated or held for future distribution or distributed currently to the beneficiaries.

    • Any applicable tax liability of the fiduciary.

    Note:

    Only foreign trusts can claim Form 1042-S, Form 8288-A, and Form 8805 withholding credits. They should be filed on 1040-NR returns with an EIN and processed in Cincinnati on NMF. If received as Form 1041, convert and transship.

  9. Form 1041-QFT was added to the Internal Revenue Code by the Taxpayer Relief Act of 1997 to permit certain trusts which previously filed Form 1041 as Grantor Trusts to elect Qualified Funeral Trust status. See IRM 3.11.14.44, for detailed instructions.

    • All Domestic Forms 1041-QFT will be processed at the Cincinnati Submission Processing Campus (CSPC) and all International Forms 1041-QFT will be processed at the Ogden Submission Processing Campus (OSPC).

      Exception:

      Domestic Forms 1041-QFT that are erroneously sent to Ogden will be processed in Ogden.

  10. Form 1041-N was added by IRC §671 of the Economic Growth and Tax Relief Reconciliation Act of 2001. AllForms 1041-N will be processed at the Ogden Submission Processing Campus (OSPC) only. See IRM 3.11.14.45, for detailed instructions.

3.11.14.1.1  (01-01-2016)
♦IRS Employee Contacts - RRA98, IRC §3705(a)♦

  1. The Restructuring and Reform Act of 1998 (RRA98), IRC §3705(a), provides identification requirements for all IRS employees working tax-related matters. IRS employees are required to give their name and unique identification number during taxpayer telephone, face-to-face and written contact. In addition, a telephone number is required on all taxpayer correspondence. This will provide taxpayers with enough information to identify an IRS employee who has previously assisted with tax-related matters.

  2. All IRS employees who communicate by telephone, correspondence or face-to-face, with taxpayers or their personal representatives, on tax-related matters are required to provide (at a minimum) the following information:

    1. Telephone Contact - Their title (e.g., Mr., Mrs., Ms., Miss), last name and badge identification (ID Card) number.

    2. Face-to-Face Contact - Their title (e.g., Mr., Mrs., Ms., Miss), provided as appropriate during the conversation, their last name and badge identification (ID Card) number.

    3. Correspondence - All correspondence must include a telephone number that taxpayers can call for answers to any questions they may have. In addition, manually generated and handwritten correspondence must have the employee’s title (e.g., Mr., Mrs., Ms., Miss), last name, and IDRS (Integrated Data Retrieval System) number, letter system number, or their badge identification (ID Card) number.

    4. The IDRS number and numbers for some other letter systems are automatically generated. If it is not generated, or a handwritten note is prepared, the badge identification (ID Card) number must be used. Toll-free employees may also provide their location for identification purposes. Faxes to taxpayers on tax-related matters, is considered manually-generated correspondence and must include the required information.

    5. Correspondence, whether sent directly to the taxpayer or to the taxpayer's personal representative, must contain the required information.

    6. When a taxpayer requests to speak with a specific employee who previously handled the inquiry or request, or complains about the level of service previously provided, every attempt should be made to resolve the taxpayer's inquiry. If the issue cannot be resolved, the employee should refer the inquiry using established procedures to his or her manager.

    7. Correspondex letters will require a specific employee name and telephone number only if the employee initiating the correspondence is in the best position to respond to any questions that the taxpayer may have about the correspondence, or the employee is asking the taxpayer to provide additional case-related information.

    8. Otherwise, if the taxpayer does not need to contact a specific employee, the correspondence needs only an IRS telephone number and standard signature.

    9. Secretaries, receptionists or other people who answer the telephone in functional offices need to identify themselves and should provide their badge identification (ID Card) number only if they are answering telephones which are routinely used to provide tax or account information.

    10. It is not necessary to repeat the badge identification (ID Card) number on a subsequent contact, when the nature of an employee's work involves multiple contacts with the same taxpayer, and the employee has given the taxpayer (either telephone or in-person) his or her badge identification (ID card) number on the first contact.

    Note:

    The Taxpayer Bill of Rights (TBOR), was adopted by IRS in June 2014 provides that taxpayers have the right to receive prompt, courteous and professional assistance in their dealings with the IRS. They are to be spoken to in a way that is easily understood and any correspondence from the IRS must be clear and understandable. They have the right to speak to a supervisor whenever quality service is not received.

3.11.14.1.2  (01-01-2017)
♦Taxpayer Advocate Service (TAS)♦

  1. Per the Taxpayer Bill of Rights (TBOR), taxpayers have the right to expect a fair and just tax system which provides taxpayers with the opportunity to have their facts and circumstances considered when it might affect their underlying liabilities, ability to pay, or ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service (TAS) if they are experiencing  financial difficulty or if the IRS has not resolved their tax issues properly and timely through normal channels. For additional information on the Taxpayer Bill of Rights, visit http://taxpayeradvocate.irs.gov/About-TAS/Taxpayer-Rights

  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.

3.11.14.1.2.1  (01-01-2016)
♦Taxpayer Advocate Service Level Agreements (SLA)♦

  1. The National Taxpayer Advocate has reached agreements with the Commissioners of the Wage & Investment (W&I) Division, Small Business/Self-Employed (SB/SE) Division, Tax Exempt & Government Entities (TE/GE), Criminal Investigation (CI), Appeals and Large Business & International (LB&I)), that outline the procedures and responsibilities for the processing of Taxpayer Advocate (TAS) casework when either the statutory or delegated authority to complete a case transaction rests outside of TAS. These agreements are known as Service Level Agreements (SLAs)

  2. The SLAs are located at http://tas.web.irs.gov/policy/sla/default.aspx under the heading "Policy/Procedures/Guidance" .

3.11.14.1.3  (01-01-2016)
Definitions

  1. Definitions:

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

    • Corpus - The principal sum or capital of a trust or an estate, as distinguished from interest or income.

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

    • Maker, Grantor, etc. - The person/organization to the extent such person /organization either creates a trust, or directly or indirectly makes a gratuitous transfer to the trust.

  2. Trusts - A legal entity created under state law and taxed under federal law. The trust can be created either under a will or inter vivos action.

    • Simple Trust - When the trust instrument requires that all income be distributed currently, with no authority to make charitable contributions or distribute amounts allocated to the corpus of the trust.

      Note:

      A trust is a Simple Trust only for the year in which it distributes income and makes no other distributions to beneficiaries. For a year when the trust does not meet these requirements, it is a "Complex Trust" .

    • Complex Trust - A trust which, for the taxable year, does not qualify as a "Simple Trust" .

    • Grantor Trust - A trust in which the grantor retains certain powers of ownership or benefits. In general, a grantor trust is ignored for tax purposes and all income, deductions, etc. from the trust is taxable Income of the grantor.

      Type of Trust Reporting Instructions
      Grantor Trusts (Non-Taxable) Report Income, Deductions, and Credits on Form 1040.
      Grantor Trusts (Partially Taxable) Report Income, Deductions, and Credits on Form 1041.
    • Ancillary and Domiciliary Trust - A trust which exists in a "foreign" state because the grantor is domiciled (resides) in another state.

    • Clifford Trust - A grantor type trust where the assets are placed in a trust but there is still some ownership taxable to the grantor.

    • Conservatorship - A trust (not an estate) which is usually set up for an incompetent person. (Not necessarily a trust for tax purposes)

    • Generation Skipping Trust - A trust with beneficiaries who are more than one generation younger than the grantor's generation.

    • Guardianship/Custodianship - A trust usually set up for a minor. (Not necessarily a trust for tax purposes)

    • Inter Vivos Trust - Established by a grantor during the grantor's lifetime.

    • Irrevocable Trust - The grantor or non-adverse party does not have power to revoke the trust. The trust will pay all taxes unless the grantor retains other powers of ownership or benefit. The trust cannot be revoked or amended.

    • Non-Explicit Trust - An arrangement that has substantially the same effect as a trust will be treated as a trust even though it is not an explicit trust. Examples of such arrangements are insurance and annuity contracts, arrangements involving life estates and remainders. Non-Explicit Trusts do not include Decedent's Estate.

    • Pooled Income Fund - A fund maintained by a public charity which provides contributors to the fund with an income interest for life with remainder to the public charity.

    • QTIP Trust –-A trust established, whether during life or at death, for the benefit of the grantor's or decedent's spouse that qualifies for the gift or estate tax marital deduction as qualified terminable interest property described in IRC §2523(f) (gift tax) or IRC §2056(b)(7) (estate tax).

    • Qualified Disability Trust - A qualified disability trust is normally a trust set up for a person that qualifies under the Social Security Act as being 100% disabled. The trust is entitled to a larger exemption than a simple or complex trust

    • Qualified/Pre-Need Funeral Trust - A trust which has elected to be taxed as a qualified funeral trust. Normally, one Form 1041-QFT will be filed in lieu of one or more Forms 1041. "However" , if Form 1041 is received with the notation "QUALIFIED FUNERAL TRUST" , "PRE-NEED FUNERAL TRUST" , etc., process as a Form 1041 filed for a Grantor Trust.

    • Residual Trust - Established under the terms of the will to receive that part of an estate that remains after the payment of all debts, charges, devises, and specific and pecuniary bequests.

    • Revocable Trust - The grantor or a non-adverse party has power to revoke the trust. The grantor of the trust will pay the taxes of the trust on their Form 1040 return. The trustee will file Form 1041 return for "Information Only" purposes, unless they select an optional filing method.

    • Testamentary Trust - Set forth or contained in a Will or a formal declaration of a person's wishes as to the disposition of the property after their death. A paper, instrument, document, gift, appointment, etc., is said to be "testamentary" when it is written or made so as not to take effect until after the death of the person making it, and to be revocable and retain the property under their control during their life, although they may have believed that it would operate as an instrument of a different character.

    • Trust Under the Will - The same as a "Testamentary Trust" .

  3. Estates - A legal entity created as the result of a person's death. The estate consists of the real and/or personal property of the deceased person. The estate pays any debts owed by the decedent and then distributes the balance of the estate's assets to the beneficiaries of the estate.

    • Ancillary and Domiciliary Estate - An estate which exists in a "foreign" state because the taxpayer was domiciled (resided) in another state at the time of death.

    • Bankruptcy Estate - A separate and distinct taxable entity from the individual debtor created when an individual debtor files for bankruptcy under Chapter 7 or 11. This creates a separate "estate" consisting of property that belongs to the debtor prior to the filing date.

    • Decedent's Estate - Estate of a deceased person that is a taxable entity separate from the decedent. It exists until the final distribution of the assets are made to the heirs and other beneficiaries.

    • Probate Estate - The same as an Estate Entity. Probating an estate in court is done to establish that the Will is authentic or valid.

  4. Exemption Amounts - Determined based on whether the fiduciary is filing for a decedent's estate or trust. Exemption amounts are claimed on Line 20 of Form 1041.

3.11.14.1.4  (01-01-2016)
Schedules/Forms Associated with Form 1041

  1. The following schedules are found within Form 1041:

    • Schedule A (Charitable Deductions) - Used by a trust that claims a contribution deduction under IRC §642(c), or by a trust described in IRC §4947(a)(2).

    • Schedule B (Income Distribution Deduction).

    • Schedule G (Tax Computation).

  2. Listed below are some additional schedules and forms which may be filed with Form 1041:

    • Schedule C (Form 1040) (Profit or Loss From Business (Sole Proprietorship)).

    • Schedule D (Form 1041) (Capital Gains and Losses).

    • Schedule D-1 (Form 1041, Continuation Sheet for Schedule D for 201212 and prior years only.

    • Schedule E (Form 1040) (Supplemental Income and Loss).

    • Schedule F (Form 1040) (Profit or Loss From Farming).

    • Schedule H (Form 1040) Household Employment Taxes.

    • Schedule I (Form 1041) (Alternative Minimum Tax).

    • Schedule J (Form 1041), Accumulation Distribution for Certain Complex Trusts.

    • Schedule K-1 (Beneficiary's Share of Income, Deductions, Credits, etc.) - Used to report each beneficiary's share of the Income, Deductions, Credits, and Alternative Minimum Taxable Income from the estate or trust.

    • Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts.

    • Form 3800 (General Business Credit).

    • Form 4136 (Credit for Federal Tax Paid on Fuels.

    • Form 4797 (Sale of Business Property).

    • Form 4952 (Investment Interest Expense Deduction).

    • Form 5884-B, New Hire Retention Credit.

    • Form 8938, Statement of Specified Foreign Financial Assets

    • Form 8941, Credit for Small Employer Health Insurance Premiums

    • Form 8948, Preparer Explanation for Not Filing Electronically.

    • Form 8960, Net Investment Income Tax - Individuals, Estates, and Trusts

    • Form 1041-A (U.S. Information Return - Trust Accumulation of Charitable Accounts) Used by a trust that claims a contribution deduction under IRC §642(c), or by a trust described in IRC §4947(a)(2)

    • Form 1041-ES (Estimated Tax for Estates and Trusts) - Used to figure and pay estimated tax for fiduciaries

    • Form 1041-T (Transmittal of Estimated Tax Credited to Beneficiaries) - Used by an estate or trust to make an election under IRC §643(g) to allocate an estimated tax payment to beneficiaries.

3.11.14.1.5  (01-01-2016)
♦Business Master File (BMF) Consistency♦

  1. The purpose of this initiative is to achieve consistency in the Business Master File (BMF) Code & Edit processing IRMs.

  2. Topics for BMF Consistency have been identified and developed as a coordinated effort between Cincinnati, Ogden, and Paper Processing Branch BMF Code and Edit/ERS.

  3. BMF Consistency subsections are identified by a ♦ (diamond) before and after the title.

  4. Text in normal print is the common processes for BMF returns. The text in BOLD print is form specific and applies to this IRM only.

3.11.14.1.6  (01-04-2016)
♦IRM Deviation Procedures♦

  1. IRM deviations must be submitted in writing following instructions from IRM 1.11.2.2.4., Internal Management Documents System - Internal Revenue Manual (IRM) Process, When Procedures Deviate from the IRM, and elevated through appropriate channels for executive approval.

3.11.14.1.7  (01-01-2016)
♦Foreign Currency♦

  1. For returns completed in other than U.S. currency, process as filed. However, if corresponding for missing/incomplete item(s), include in the letter to resubmit in U.S. currency.

3.11.14.1.8  (01-01-2016)
♦Protective Claims♦

  1. Returns marked as "Protective Claim" , "Protective Refund" , "Protective Claim for Refund" , or similar statement will be removed from the batch and routed to Accounts Management. Notate "Protective Claim" in the remarks box of Form 4227, Intra-SC Reject or Routing Slip.

    Note:

    If the return is amended, do not remove from batch. Edit Computer Condition Code "G" and follow normal processing procedures.

3.11.14.1.9  (01-04-2016)
♦Criminal Investigation (CI) "Funny Box" ♦

  1. Criminal Investigation (CI) investigates potential criminal violations of the Internal Revenue Code (IRC) and related financial crimes. Criminal violations of the IRC are willful attempts to evade or defeat the income tax. Flagrant criminal activity includes, but is not limited to, the failure to pay taxes due and/or taxes collected or withheld and false claims for refunds based on bogus return information.

  2. Pull any return identified as having any CI criteria found and place in "CI Funny Box" .

  3. CI "Funny Box" Criteria:

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

3.11.14.1.10  (03-31-2016)
♦Examination (Exam) "Funny Box" ♦

  1. The primary objective in identifying tax returns for examination is to promote the highest degree of voluntary compliance. Examination will provide support and assist Submission Processing (SP) with any questionable return identified during processing. Exam has a vast multitude of programs and tolerance criteria already identified in various IRM sections. Exam does not restrict SP with the flexibility to refer questionable returns other than what is currently identified in various IRMs.

  2. Some returns will need special care. If the withholding is≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , attach Form 4227 and place in the locally designated basket for Examination, Frivolous Return Processing (FRP) for review. Pay particular attention to returns with Form 1099-OID attached.

3.11.14.1.11  (01-01-2017)
♦BMF Identification (ID) Theft♦

  1. BMF Identification Theft is increasing. 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, provide the whole case to your senior/lead. Your senior/lead will expedite the case to the P&A staff for referral to one of the SP BMF ID Theft liaisons. The taxpayer must indicate that they are a victim of "ID Theft" ; do not send cases that are subject to "Funny Box" or "Fraud" review.

  2. Effective January 1, 2017, Computer Condition Code "E" will be edited on Form 1041, Form 1041-N, and/or Form 1041-QFT, (any year) after the SP BMF ID Theft Liaison identifies a potential identity theft filing.

3.11.14.2  (01-01-2016)
General Editing Guidelines

  1. The following general information can be used when editing Form 1041, U.S. Income Tax Returns for Estates or Trusts.

  2. General instructions eliminate repetition of the same instructions for each return. If the general instructions and the specific instructions conflict, follow the specific instructions.

  3. Do not edit brackets or parentheses around amounts clearly indicated to be negative by the presence of a minus sign (-).

    Reminder:

    It will be necessary to bracket negative amounts when editing negative entries on transcription lines (i.e., computing and entering a line entry, entering a missing line entry, etc.)

  4. Instructions for editing Schedules K-1 are in IRM 3.0.101, Schedule K-1 Processing.

  5. Received date is edited in MMDDYY format.

  6. If a current/prior year return is filed on a tax form for other than the appropriate tax year, convert the tax return to the current year format. See IRM 3.11.14.46.2(3).

  7. If a current year (2016) return is filed on a 2000 - 2015 tax form, renumber the prior year return to comply with current year line numbers.

  8. If a current year (2016) form is used to report prior year tax information, edit the tax period to reflect the prior year.

  9. If the prior year return is filed on the correct/incorrect 1041 tax form, renumber the prior year form to current year format (2000 and subsequent).

3.11.14.2.1  (01-01-2017)
♦Edit Marks♦

  1. Edit marks are edited on the return for transcription to the Automatic Data Processing (ADP) System through Input and Submissions Remittance Processing (ISRP). The editing can be entered in brown, red, orange, purple or green pencil/pen.

  2. The only items edited on the return are those to be transcribed except where specific instructions require editing of a non-transcribed item. Lines are left blank if the entry would be a zero amount unless otherwise instructed.

  3. The original entry on a return is never obliterated, altered or erased when deleting or correcting an entry. Always exercise care to ensure that the original entry remains legible. Perfected entries provide a legible "edit trail" for anyone who may work with the return later.

  4. For a description of specific edit marks, see the table below:

    Edit Marks Description
    "X" or "/" The "X" is used to delete tax data or to indicate that an item is not to be transcribed. A "/" can be used when deleting a form or schedule not being transcribed.
    "//$" The "//$" is used in the entity area to identify the beginning and ending of a foreign country code. For example, "/EI/$" is edited for "Ireland" or "/GM/$" is edited for "Germany" .
    "c/o" or "%" Indicates an "in-care-of-name" for transcription.
    Circle Indicates that an entry is not to be transcribed. Also used to delete entity data or a received date.

    Note:

    If the taxpayer circles an entry, edit the entry.

    Underline Indicates that an entry is to be transcribed. (e.g., Name Control, Tax Period, etc.).
    Arrow Indicates the correct placement of a misplaced entry. An arrow may be used if the misplaced item is close to the correct line and there is no question where the entry belongs.

    Note:

    A double arrow may be used if the same figure is to be transcribed in two different places (along with any required transcription data between the two arrows).

    Check Mark Indicates that an entry has been manually math verified and is correct, or that the Fiduciary's Employer Identification Number (EIN) needs to be transcribed.
    Bracket/Parenthesis Indicates a negative numerical amount.

    Note:

    C&E is not required to bracket negative amounts when brackets are preprinted on the form or schedule or when the taxpayer clearly indicates a negative amount with brackets () or "-" sign. It will be necessary to bracket negative amounts when editing negative entries on transcription lines (e.g., computing and entering a line entry, entering a missing line entry, etc.).

    Vertical Line or Decimal Point Indicates the separation of dollars and cents.
    Zero, Dash, None or N/A "ZERO" , "DASH" , "NONE" or "N/A" are considered valid entries except when specific instructions require editing of an entry.
    Edit Marks Made by Other IRS Functions Edit marks entered by other areas, such as Collection, Entity, or Accounts Management, are not to be re-edited except to place the marks in the correct area or to perfect for legibility. Do not edit (or write) over another area's edit marks.

    Exception:

    Photocopied Returns

    Photocopied Returns Re-edit or underline any valid, black edit marks. See IRM 3.11.14.45.3.1.1 , Correspondence Imaging System (CIS) Returns, and IRM 3.11.14.8.6 Re-Entry Document Procedures
    Rocker Indicates the amount paid when drawn under a remittance amount.

3.11.14.2.2  (01-01-2017)
Sequence - Form 1041

  1. Document Perfection is responsible for arranging Form 1041 in the following order when transcription line entries are present:

    • Pages 1, 2

    • Schedule I (Form 1041)

    • Form 4952

    • Schedule H (Form 1040)

    • Schedule D (Form 1041)

    • Form 4136

    • Form 8941

    • Form 5884-B not valid for 201212 and subsequent

    • Form 3800

    • Form 8960

      Note:

      It is not necessary to sequence Schedule I, Schedule D, Form 4952, Schedule H, Form 4136, Form 8941, Form 5884-B, Form 8960, or Form 3800 if there are no transcription line entries. There’s no need to X forms not in sequence order.

  2. Below are additional instructions:

    • Schedule D-1 (Form 1041), Pages 1 and 2 should be moved out of the sequence order for Form 1041 on 201212 and prior year returns only. Schedule D-1 is no longer valid.

    • "X" any prior year Schedule I that supports Form 8801 (Schedule G, Line 2c*). See IRM 3.11.14.27.3(2).
      *(Line 2d for 2009 and prior).

    • Place all Schedules K-1 (Form 1041), filed as attachments to Form 1041, as the last attachment in the package or follow local agreement. Detach current year Schedules K-1 through November 30th and all future year Schedules K-1. See IRM 3.0.101.3(2)e, Schedule K-1 Processing, for Schedule K-1 procedures.

3.11.14.2.3  (01-01-2016)
Dollar Tolerances

  1. Taxpayers must provide documentation to support claims for most gains, losses, debits, and credits ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. Unless otherwise instructed, correspond for documentation to support any claims ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

3.11.14.2.4  (01-01-2016)
Editing Dollars and Cents

  1. Edit forms and schedules as dollars only, except for the following Form 1041 lines which are dollars and cents:

    • Line 23 - Total Tax

    • Line 24a -Estimated Tax Payments

    • Line 24b - Credit to Beneficiaries

    • Line 24d - Tax Paid With Extension

    • Line 24e - Federal Income Tax Withheld

    • Line 24f - Regulated Investment Company Credit

    • Line 25 - Total Payments

    • Line 26 - Estimated Tax Penalty

    • Line 27/28 - Tax Due/Overpayment

    • Line 29a - Credit Elect

    • Line 29b - Refund

    Note:

    C&E is no longer required to edit a vertical line, 00, dash, or decimal point to indicate dollar and cents.

  2. For a display of Form 1041 transcription lines and related Forms and Schedules, see Exhibits 3.11.14-1 through 3.11.14-6.

3.11.14.2.5  (01-01-2016)
Significant Entries

  1. Reference is made throughout this IRM to "significant entries" . A significant entry is defined as any amount other than zero.

    Note:

    Blank, Dash, "None" , "N/A" , or zero are not significant entries unless otherwise specified.

3.11.14.3  (01-01-2016)
♦Action Codes♦

  1. Action Codes are used to indicate whether correspondence, research, or some other action is needed. The Action Code will set the suspense period to be assigned to the return and place the return in the workable or unworkable suspense inventory.

  2. When necessary, a three-digit action code will be assigned by the tax examiner.

  3. Edit the action code in the bottom left margin of the return.

  4. Assign action codes in the following priority order:

    1. Action Code 310 (Statute Control)

    2. Action Code 320 (Entity Control)

    3. Action Code 4XX.

    4. Action Code 6XX.

    5. Action Code 3XX.

    6. Action Code 2XX (Correspondence).

    Exception:

    When more than one action code is needed attach Form 4227. If more than one action code of the same priority is required (e.g. AC 310 and AC 341), edit the action code with the shortest suspense period on the form and attach Form 4227 to indicate the second unprocessable condition. See IRM 3.11.14.3(7) for suspense periods. Use Action Code 211, 215, 225 or 226 before Action Code 341 to ensure the return is complete before a manual refund is issued.

  5. Edit the following action codes when a return cannot be perfected:

    Action Code Description
    211 (First Correspondence) or 215 (International Correspondence)
    • Return is illegible, incomplete or contradictory and therefore cannot be processed.

    • The taxpayer notates on the return or attachment that they are reporting tax for more than one Tax Period or for more than one type of tax.

    225 (Missing Signature Correspondence)
    • Unsigned return (only issue for correspondence).

    226 (Missing Signature International Correspondence)
    • Unsigned foreign return (only issue for correspondence).

    480 (Early Filed Suspense)
    • Early-filed return.

    610 (Renumbered non-remittance) or
    611 (Renumbered with remittance)
    • A return is mis-blocked (e.g., Form 1065 found in a Form 1041 batch of work).

    640 (Void)
    • To delete the assigned DLN on the return (e.g., re-entry returns).

    650 (International)
    • An international return that must be forwarded to Ogden Submission Processing Center (OSPC).

  6. Continue perfecting the return after editing the action codes.

  7. Valid action codes are listed below:

    Action Code Description Workday Suspense Period
    211 First Taxpayer Correspondence 40
    212 Second Correspondence 25
    215 International Correspondence 45
    225 Taxpayer Correspondence (signature only) 40
    226 International Correspondence (signature only) 40
    310 Statute Control 10
    320 Entity Control 10
    331 Frivolous Review 3
    341 Manual Refund 10
    342 Credit Verification 10
    343 Black Liquor 10
    352 Name Research 3
    360 Other-in-House Research 10
    420 Management Suspense A 5
    440 Management Suspense C (LB&I review of 1120-F in OSPC only) 15
    480 Early Filed Suspense 150
    610 Renumber Non-remit 0
    611 Renumber Remit 0
    640 Void 0
    650 International 0

3.11.14.4  (01-01-2016)
CAF, Centralized Authorization File

  1. Editing of CAF codes is no longer required.

  2. The Centralized Authorization File (CAF) contains the type of authorization that the taxpayer gives a representative regarding the taxpayer's account. Representatives may submit Form 2848, Power of Attorney (POA) and Declaration of Representative or Form 8821, Tax Information Authorization (TIA).

    If ... Then ...
    Form 2848 or Form 8821 attached,
    1. Detach the Form 2848 or Form 8821 from the Form 1041.

    2. Edit the taxpayer's name and EIN on Form 2848 or Form 8821, if missing.

    3. Edit received date on Form 2848 or Form 8821.

    4. Route Form 2848 or Form 8821 to CAF function.

    5. Edit "Action Trail" in the lower left corner going vertically up the side of the return.

    A General POA or Durable POA or TIA is submitted on any document other than a Form 2848 or Form 8821,
    1. Take no action.

    2. Leave POA or TIA attached to the return.

    3. Do not route to the CAF unit.

3.11.14.5  (01-01-2016)
Unprocessable Conditions and Correspondence Action

  1. This section details the actions to be taken to resolve unprocessable conditions on Form 1041.

3.11.14.5.1  (01-01-2017)
Unprocessable Conditions

  1. A return must contain specific items before it is considered processable. Perfect all documents to the extent possible from schedules and other attachments. The specific items needed are:

    • An Employer Identification Number (EIN),

    • A legible name (for name control),

    • Valid tax period,

    • Legible tax data, if tax liability is indicated, and

    • A signature attesting to the perjury statement Jurat shown on the document.

  2. Conditions which make a return unprocessable are:

    • Name so illegible or incomplete that the name control cannot be determined.

    • The EIN or Taxpayer Identification Number (TIN) is other than nine numeric digits and cannot be perfected from information on the return or attachments.

    • The document has two or more different EIN's.

    • Taxpayer has stated that he/she has combined liability for more than one tax period or more than one type of tax.

    • Tax data entries are so incomplete, illegible or contradictory that the tax liability cannot be determined.

    • The return is mis-blocked.

    • The return is unsigned.

    • The return has only entity data and no other statements, attachments from the taxpayer.

    • Any condition set forth as unprocessable in the sections on processing specific documents.

  3. If a return contains no entity data, or the signature on the return is illegible and the alpha letter of the last name cannot be determined and the only entries are money amounts then give the return to the manager.

  4. Use the following guidelines for disposition of returns that cannot be perfected from schedules and other attachments and necessary data was not gotten through research. If you cannot correspond or send the return back to the taxpayer because of illegible entity data, consider the return unprocessable:

    If ... Then ...
    Unnumbered Returns,
    1. Remove Form 1041 from the batch.

    2. Give the return to the manager.

    Numbered Returns,
    1. Edit Action Code 640 (Void).

    2. Prepare a Form 4227 instructing the Rejects function to void the DLN.

    3. Forward the return to the Rejects function.

  5. If a Form 1041 is received with a second Form 1041 attached and the second return has the same EIN and Tax Period:

    • Leave the second return attached to the first.

    • "X" the first page of the second return and treat as an attachment to the first return.

      Exception:

      Do not "X" if an amended return. Detach amended return and process separately. The amended return will show on IDRS as a duplicate and be worked by Accounts Management.

3.11.14.5.2  (01-01-2017)
Perfecting Unprocessable Conditions

  1. Perfect all documents if possible. Examine schedules and other attachments for the information necessary to make the document processable.

    1. When found, edit on Form 1041.

    2. When perfection is not possible, prepare Form 4227 and notate the reason for rejection. Attach Form 4227 to the face of the document in a position that will leave the Entity data, Condition Codes and Remittance Amount visible for transcription.

    If ... Then ...
    Numbered Returns,
    1. Edit to extent possible.

    2. Edit Action Code 640 (Void).

    3. Leave the document in the block.

    Unnumbered Returns,
    1. Do not continue editing the return.

    2. Withdraw the document from the batch and continue to below.

  2. If liability for two or more Forms 1041 for the same tax class have been reported on one numbered return and the information necessary for the preparation of the individual returns is present:

    • Adjust the line entries on the multiple period return to reflect the liability for the earliest period.

    • Edit Action Code 610/611 (Renumber/Remittance Renumber) and leave the original return in the block.

    • Prepare the additional period returns.

    • Route the newly prepared returns for processing.

  3. If liability for two or more Forms 1041 for the same tax class have been reported on one unnumbered return and the information necessary for the preparation of the individual returns is present:

    1. Adjust the line entries on the multiple period return to reflect the liability for the earliest period.

    2. Prepare additional period returns.

    3. Retain all these unnumbered returns in the batch.

  4. Reject all non-remittance Forms 1041 showing taxable income but no tax computation and the taxpayer notates that the return is for an exempt organization (e.g., EXEMPT, NONTAXABLE, NONPROFIT, etc.):

    1. Prepare Form 4227 and notate "TAX EXEMPT STATUS PENDING" .

    2. Forward the return for shipment to the appropriate Key Area Examination function.

  5. For all other conditions, initiate correspondence action when the document cannot be perfected from attachments or schedules. The only exceptions are when the Name and Address are missing or are so illegible that correspondence is impossible, and when a document is being re-input after correspondence has already been conducted but the document still is unprocessable.

3.11.14.5.3  (01-01-2016)
♦Correspondence♦

  1. There are two types of correspondence that Code and Edit may encounter:

    • Correspondence received from taxpayers, and

    • Issuing correspondence to taxpayers.

3.11.14.5.3.1  (01-01-2016)
♦Definition of Correspondence from Taxpayers♦

  1. Correspondence is all written communications from a taxpayer or his/her representative, excluding tax returns, whether solicited or unsolicited. This includes:

    • Written communications in response to IRS requests for information or data.

    • Written communications, including annotated notice responses, that provide additional information or dispute a notice.

    • A telephone call that results in a written referral or research (Form e-4442, Inquiry Referral).

  2. The key to identifying taxpayer correspondence is to ask the following questions:

    • Is taxpayer waiting for a response from us?

    • Is taxpayer waiting for an action to be taken by us?

    • Is taxpayer asking a question?

    Note:

    A Post-It-Note, Sticky Note, or some other type of note stuck on the return by another function does not constitute correspondence from the taxpayer.

3.11.14.5.3.2  (01-01-2017)
♦Issuing Correspondence♦

  1. Issue correspondence to resolve any conditions causing the return to be unworkable or unprocessable.

    Exception:

    Do not correspond on returns prepared by Collections, IRC §6020(b) or by Examination, "Substitute for Return" (SFR).

  2. If the return is incomplete and appears to be a duplicate, give the return to the lead. The lead will initiate research for a Transaction Code (TC) 150 and/or any other research necessary to determine if the return should continue to be processed or other actions taken. A duplicate return could include any of the following:

    • A one page return, with or without a signature.

    • Incomplete returns indicating "Payment Only" .

    • Incomplete returns indicating they have previously e-filed.

    Note:

    This list is not all inclusive. Tax examiners may see other unusual documents that are not addressed in this subsection or in other areas of the IRM.

  3. Examine the return so that all of the conditions can be included in the same correspondence.

    If... And... Then...
    Correspondence is needed, Requires a response,
    1. Complete an approved Correspondence Action Sheet indicating the letter number (86C, 854C, 177C, 1355C, 3875C, etc.), MFT, and the appropriate paragraphs.

      Note:

      Within these paragraphs there may be fill-ins that the tax examiner will be required to enter, such as tax period, form number, DLN, etc.

    2. Attach the Correspondence Action Sheet to the front of the return below the Entity area.

    3. Edit Action Code 211 (First Correspondence) or 215 (International Correspondence) on the return.

    4. Finish editing the return and leave in the batch.

    Correspondence is needed, Does not require a response,
    1. Complete an approved Correspondence Action Sheet indicating the letter number (86C, 854C, 177C, 1355C, 3875C, etc.), MFT, and the appropriate paragraphs.

      Note:

      Within these paragraphs, there may be fill-ins that the tax examiner will be required to enter, such as, Tax Period, form number, DLN, etc.

    2. Photocopy first page of return and attach the Correspondence Action Sheet below the Entity area on the front of the return. Be sure the name and address shows clearly above the Correspondence Action Sheet.

    3. Forward the copy to the Correspondence area.

    4. Edit an Action Trail (e.g., "3875C SENT" ) in the lower left corner going vertically up the side of the return.

    5. Finish editing the return and leave in batch.

    Note:

    There may be additional letters that are exclusive to the tax examiner's campus. These letters are for specific forms or conditions where it was deemed necessary for processing. The tax examiner should go to his or her Lead or Manager for copies of these letters to facilitate processing.

3.11.14.5.3.3  (01-01-2016)
♦Correspondence Imaging System (CIS) Returns♦

  1. Correspondence Imaging System (CIS) is an inventory system for scanning all Account Management (AM) receipts into digital images and working the cases from those images.

  2. "CIS" returns are identified with "CIS Image-Do not correspond for Signature" stamped below the signature line or "CIS" annotated on the front of the return.

  3. Verify all edit marks and ensure placement is correct on a "CIS" return.

    If ... Then ...
    The edit marks are black, Underline the edit mark if correct or circle if incorrect.
    The edit marks are red or green, Circle if incorrect.
    The edit marks are missing or incorrect, Perfect as necessary.
  4. Follow the correspondence instructions below for "CIS" returns:

    If ... And ... Then ...
    The CIS return has a Form 13596 attached,

    Note:

    If there is an indication on the return that correspondence has been sent (e.g., CCC "3" is edited on the return), do not route the return to Accounts Management. Continue processing the return,

    The return is not complete (e.g., missing signature, schedules, or forms), Remove the return from the batch and route to AM.

    Caution:

    If the return comes back from AM with the information still incomplete, send the return to AM again to secure all the missing information. Indicate "Additional information needed to process incomplete CIS return," or similar language on Form 4227 (or other appropriate routing slip).

    Note:

    Do not correspond for missing information on "CIS" reprocessable/re-input returns.

    The "CIS" return does not have a Form 13596 attached, The return is not complete (e.g., missing signature, schedules, or forms), Follow normal correspondence procedures.

3.11.14.5.3.4  (01-01-2016)
♦Use of Fax for Taxpayer Submissions♦

  1. Tax return information can be received via fax as part of return perfection even if a taxpayer signature is required. In circumstances where contact with the taxpayer has been made and documented, fax signatures are acceptable.

  2. Contact with the taxpayer may be by telephone or correspondence. Follow local procedures to determine which method of contact will be used.

  3. Code and Edit examiners will indicate the fax paragraph on the approved Correspondence Action Sheet to advise taxpayers of the option to fax their response.

    Caution:

    Before disclosing any tax information, you must be sure you are speaking with the taxpayer or authorized representative. See the Taxpayer Authentication guidelines in IRM 21.1.3.2.3, Required Taxpayer Authentication and IRM 21.1.3.2.4, Additional Taxpayer Authentication. Also, before leaving any messages on a taxpayer's answering machine, review IRM 11.3.2.6.1, Leaving Information on Answering Machines/Voice Mail. Fax procedures contained in IRM 11.3.1.11, Facsimile Transmission of Tax Information, must be reviewed prior to faxing confidential information to the taxpayer.

3.11.14.5.3.5  (03-31-2016)
♦Frivolous Arguments♦

  1. A frivolous argument is used for the purpose of expressing dissatisfaction with the substance, form or administration of the tax laws by attempting to illegally avoid or reduce tax liabilities. Recognized frivolous arguments made by businesses include, but are not limited to, the examples in IRM 25.25.10, Frivolous Return Program (FRP), shown in Exhibit 3.11.14-17.

  2. Review the return to determine whether it appears to be a frivolous return.

    If ... Then ...
    The return meets any of the conditions identified as a frivolous return, (See Exhibit 3.11.14-17

    Exception:

    If the return shows Action Code 331 and has a Form 4227 attached with the remarks, "Refer to Examination FRP for audit after processing" , continue to next procedure.

    Remove return from the batch and place the return in the locally designated basket for Examination, Frivolous Return Processing (FRP) for review.
    Examination has selected the return as frivolous, e.g., indicated by Action Code 331 and a Form 4227 with the remarks, "Refer to Exam FRP for audit after processing" , but sends the return for processing, Continue processing the return using procedures in IRM 3.11.14. However, do not circle or void the Action Code indicating a frivolous return.

    Note:

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

3.11.14.6  (01-01-2016)
Examination of Attachments

  1. All attachments to the return being processed will be examined and action taken as required by the attachment.

  2. When an attachment has an effect on the document being processed, it will remain attached unless a specific instruction requires that it be detached.

    1. Notate any action taken on Form 1041, Form 1041-QFT, and/or Form 1041-N regarding attachments, photocopying, etc., to leave an action/working trail. Edit the Action Trail(s) in the lower left corner going vertically up the side of the return.

    2. Refer to the Campus Mail Routing Guide for proper disposition of attachments not found in the Routing Guide for Attachments, in IRM 3.11.14.47.

  3. If the document to be detached contains any information that is pertinent to the return being processed, photocopy or transfer the data to a blank piece of paper and attach it to the return.

  4. Forward any attachment requesting an adjustment or correspondence to Accounts Management Branch via Form 4227.

3.11.14.7  (01-01-2016)
♦Computer Condition Codes (CCC)♦

  1. Computer Condition Codes (CCC) are used to identify a special condition or computation for the computer. CCCs post to the Master File.

  2. Computer Condition Codes are edited in the center of Lines 1 and 2 of Forms 1041, 1041-QFT and 1041-N.

3.11.14.7.1  (01-01-2016)
CCC "C" - Invalid Vehicle Year or Service Date

  1. CCC "C" is an invalid code which will force the return to error correction.

  2. Edit CCC "C" if Form 8834, Form 8910, and/or Form 8936 include an invalid vehicle year or an invalid in service date.

    Form Valid Vehicle Year Valid In Service Date
    8834 see IRM 3.11.14.27.2.10 2009 After 2/17/2009 The last valid tax period for claiming this credit was 201211.
    8936 see IRM 3.11.14.27.2.34 2009 After 1/1/2009
    8910 see IRM 3.11.14.27.2.28 N/A After 2/17/2009

3.11.14.7.2  (01-01-2017)
♦CCC "D" - Reasonable Cause For Waiver of Failure To Pay Penalty♦

  1. Do not edit CCC "D" if the taxpayer requests abatement for "Failure to Pay timely" when the return is submitted. Send Letter 1382C to inform taxpayer of the proper procedure to follow to request penalty abatement, if, and when a penalty is assessed.

  2. Edit CCC "D" if an internal use form or routing slip is attached and indicates "DO NOT ASSESS FAILURE TO PAY PENALTY" .

    Note:

    Do not enter CCC "D" if the return was prepared by IRS under IRC 6020(b) and the return due date (without regard to extensions) is after July 30, 1996.

  3. Edit CCC "D" on a "Final" , Balance Due return if the Received Date is after the short period due date but on or before the regular full tax period due date ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

  4. Do not edit CCC "D" when pre-computed penalty is shown on the return.

  5. Edit CCC "D" on a complete Streamline return filing. See IRM 3.11.14.8.13.

3.11.14.7.3  (01-01-2017)
CCC E - Potential Identify Theft Filing

  1. Effective January 1, 2017, Computer Condition Code "E" may be edited on Form 1041, Form 1041-N, and/or Form 1041-QFT for any year, after the SP BMF ID Theft Liaison verifies a potential identify theft filing.

  2. 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, provide the whole case to your senior/lead. Your senior/lead will expedite the case to the Planning and Analysis (P&A) staff for referral to one of the SP BMF ID Theft liaisons. The taxpayer must indicate that they are a victim of "ID Theft" ; do not send cases that are subject to Funny Box or Fraud review.

  3. If the SP BMF Theft Liaison says the return is ID Theft, the tax examiner will edit CCC E.

3.11.14.7.4  (01-01-2016)
♦CCC "F" - Final Return♦

  1. Edit CCC "F" when the "Final Return" box is checked or there is another indication the estate or trust is not liable for future returns. Notations may include (but are not limited to):

    • Final

    • Out of Business

    • Liquidation

    • Exempt Under IRC §501(c)(3)

    • Dissolved

3.11.14.7.5  (01-01-2016)
♦CCC "G" - Amended Return♦

  1. See IRM 3.11.14.8.1 for Amended Return instructions.

3.11.14.7.6  (01-01-2016)
CCC "I" - Form 6781, Regulated Futures Contracts and Tax Straddles

  1. Edit CCC "I" when Form 6781 (Gains and Losses from Section 1256 Contracts and Straddles) is attached.

    Note:

    CCC "I" should be edited as a capital in block style to distinguish it from CCC 1.

3.11.14.7.7  (01-01-2016)
CCC "K" - Qualifying Small Business Taxpayer

  1. Edit CCC "K" , for taxable periods ending in 2009 only, when Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, box "E" is checked in Part II.

3.11.14.7.8  (01-01-2016)
CCC "N" - Allocation of Increase in Basis for Property Received from a Decedent

  1. Edit CCC "N" when Form 8939, Allocation of Increase in Basis for Property Received from a Decedent, is attached to Form 1041.

3.11.14.7.9  (01-01-2016)
CCC "O" - Manual Refund

  1. CCC "O" is edited when a Manual Refund will be issued and a Form 3753, or Form 5792 is attached. Verify that the Name Control, EIN, and Tax Period on the return are the same as the information on the attached form.

  2. When editing CCC "O" , research to determine if TC 840 (Manual Refund Transaction) has posted:

    If ... Then ...
    TC 840 has posted, Edit CCC "O" and continue processing the return.
    TC 840 has not posted, Edit Action Code 341 (Manual Refund).

3.11.14.7.10  (01-01-2016)
CCC "P" - Return Submitted under Streamlined Filing Compliance Procedures

  1. Edit CCC "P" on the return when "Streamlined" is written on the top of the return.

    Note:

    Ogden will process all returns submitted under the Streamline Program. See IRM 3.11.14.8.13.

3.11.14.7.11  (01-01-2016)
♦CCC "R" - Delinquent Return With Reasonable Cause Established♦

  1. CCC "R" is no longer edited when a reason is given by the taxpayer for a delay in filing a return. Issue Letter 1382C and continue editing the return.

  2. Edit CCC "R" on the return when any of the following conditions are present:

    • There is an indication such as "DO NOT ASSESS FAILURE TO FILE PENALTY" on a secured return annotated with TC "599" .

    • If an internal use form or routing slip is attached and indicates do not assess failure to file penalty.

      Note:

      All "R" coded returns must have an IRS received date. If one is not present, edit the IRS Received Date in the middle of the return.

  3. See IRM 3.11.14.11.2 (2) for possible editing of CCC "R" on short-period final returns.

  4. Edit CCC "R" on a complete Streamline return filing. See IRM 3.11.14.8.13.

    Caution:

    Never change the IRS Received Date when editing CCC R.

3.11.14.7.12  (01-01-2016)
CCC "T" - Reportable Transaction Disclosure Statement

  1. Edit CCC "T" when Form 8886, Reportable Transaction Disclosure Statement is attached to a return.

    Note:

    Previously used when Form 8271 was attached to a 200709 return or prior.

3.11.14.7.13  (01-01-2016)
CCC "V" - Qualified Therapeutic Drug Credit Claimed

  1. Edit CCC "V" when Form 3800, Part III, Lines 1a and/or 4a has a significant entry and Form 3468, Part II, Line 8 contains an entry.

    Note:

    This is only valid for tax period 201001 to 201010.

3.11.14.7.14  (01-01-2016)
♦CCC "W" - Return Cleared by Statute♦

  1. CCC "W" is used when the return has been cleared by Statute Control. See IRM 3.11.14.8.10.

3.11.14.7.15  (01-01-2016)
CCC "X" - Refund/Settlement Freeze

  1. Edit CCC "X" when any of the following conditions occur:

    If ... Then ...
    The taxpayer has requested part of the refund be applied to another account,
    1. Edit CCC "X."

    2. Photocopy Pages 1 and 2 of Form 1041 Page 1 of Form 1041-QFT or Form 1041-N.

    3. Prepare Form 3465, attach to the photocopy, and forward to Accounts Management.

    4. Notate Form 3465 PREPARED on the original Form 1041

    See Figure 3.11.14-1
    Form 1041-T is present. See IRM 3.11.14.20.2.

    Reminder:

    Subtract the tax, penalties and interest amounts from the remittance amount if available.

    Figure 3.11.14-1
    This image is too large to be displayed in the current screen. Please click the link to view the image.

3.11.14.7.16  (01-01-2016)
CCC "Y" - Short Period Return for Change of Accounting Period

  1. CCC "Y" is edited for a Change of Accounting Period. Enter only for short period returns due to change of accounting period not due to initial or final filing. See Short Period - Editing Proof of Entitlement, IRM 3.11.14.11.5 through 3.11.14.11.9.

  2. If a prepaid credit is claimed on a short-period Final return, see Short Period Returns - With Prepaid Credits, IRM 3.11.14.11.9.

  3. Don’t edit CCC "Y" for "Initial" or "Final" returns.

3.11.14.7.17  (01-01-2016)
CCC "1" - Like-Kind Exchanges (Form 8824)

  1. Edit CCC "1" when Form 8824, Like-Kind Exchanges, is attached.

3.11.14.7.18  (01-01-2017)
CCC "2" - Statement of Foreign Financial Assets (Form 8938)

  1. For Tax Year 2016 and later, Form 8938, Statement of Foreign Financial Assets, will be input into the General Purpose Programming (GPP) database. If attached process a TY 2016 Form 8938 per the instructions below:

    • Completely edit Form 1041,

    • Edit CCC 2,

    • Detach Schedules K-1.

    • Pull the Form 8938 from the return and sequence to the back of 1041 return (after schedules and attachment pages) and place it back to back so when the return is face down the Form 8938 is facing up.

    • Place the return in the designated bin.

      Note:

      Form 1041 with Form 8938 attached, must be batched separately. The input of Form 8938 will occur under Program Code 43300 after the parent Form 1041 has been transcribed. using normal procedures.

3.11.14.7.19  (01-01-2016)
♦CCC "3" - No Reply to Correspondence♦

  1. Edit CCC "3" when the return is unprocessable.

3.11.14.7.20  (01-01-2016)
♦CCC "4" - IRS Prepared Return Under IRC §6020(b)♦

  1. Edit CCC "4" when the IRS's Compliance Branch prepared a return and the Revenue Officer entered IRC §6020(b).

    Note:

    CCC "4" cannot be used with CCC "R" .

3.11.14.7.21  (01-01-2016)
CCC "8" - Waiver of Estimated Tax Penalty

  1. Edit CCC "8" when any of the following conditions are present:

    If... And... Then...
    The return is for a decedent estate (Fiduciary Code 1), See Figure 3.11.14-2 The date entity created is within two years of the tax year ending,

    Note:

    The date that a decedent’s estate is created is the date of death.

    Edit CCC 8.
    The taxpayer notated Testamentary Trust, Tstmtry, Trust Under the Will, T.U.W, or TR/W in the entity portion of return, The date entity created is within two years of the tax year ending, Edit CCC 8.

    Example:

    If the filer has entered 3-17-2016 in Section D, edit CCC "8" for any return with a Tax Year Ending on or before 3-16-2018.

    Caution:

    Do not edit CCC "8" if the "Date Entity Created" is after the Tax Period Ending Date.

    If... And... Then...
    The return is for a bankruptcy estate (Fiduciary Code 5 or 6), See Figure 3.11.14-3   Edit CCC 8.
    If Form 2210 is attached, See Figure 3.11.14-4 Any of the boxes in Part II, a through e are checked, Edit CCC 8.
    If Form 2210-F is attached, See Figure 3.11.14-4 Part I, box a is checked, Edit CCC 8.

    Reminder:

    Also, edit CCC "K" if Form 2210 box "F" is checked in Part II on a 2009 return only.

    If... And... Then...
    Schedule H (1040) is attached to the return, Form 1041 does not contain withholding credit (Line 24e), and Total tax without household employment tax is less than $1,000 (Schedule G, Line 7 minus Line 6, is less than $1,000), Edit CCC 8.
  2. Edit CCC "8" on a complete Streamline return filing. See IRM 3.11.14.8.13.

    Figure 3.11.14-2
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    Figure 3.11.14-3
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    Figure 3.11.14-4
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