4.19.3 IMF Automated Underreporter Program

Manual Transmittal

October 06, 2022

Purpose

(1) This transmits revised IRM 4.19.3, Liability Determination, IMF Automated Underreporter Program.

Material Changes

(1) IRM 4.19.3.2.8(1) - revised subsection to remove prior tax year instructions from table, renumbered remainder of subsection

(2) IRM 4.19.3.2.8(5) - added new (5) for TCJA legislation, removed (6)-(17) and (20)

(3) IRM 4.19.3.2.9(1) - revised to include ARP Act of 2021, added (3) for EIP3, (4) and (7), removed prior year procedures, new (10), renumber remainder of subsection

(4) IRM 4.19.3.2.10(1) - added new note for dates to allow credit

(5) IRM 4.19.3.2.10(4) - revised for dates to allow credit on Form 7202

(6) IRM 4.19.3.2.10(5) - revised (5) and bullet list for dates on Form 7202

(7) IRM 4.19.3.2.11 - new (3) - (8) for TY 2021 ARP revisions for CTC, DCB, RCTC, CDCC, DCB

(8) IRM 4.19.3.3.2(1) - added new caution for lost cases/lost responses

(9) IRM 4.19.3.3.5(1)&(2) - tax years updated for system and ordering cases from files

(10) IRM 4.19.3.4.3.2(4) - removed explanation of freeze code -E

(11) IRM 4.19.3.4.3.4(16) - changed paragraph 45 from send to auto generate.

(12) IRM 4.19.3.4.3.6 - moved TDC Overview from IRM 4.19.3.22.2.3

(13) IRM 4.19.3.5.2(17) - added Mixed IR Group Window for two or more income types

(14) IRM 4.19.3.5.6(2) - added Form 8915-F to bullet list

(15) IRM 4.19.3.5.10 - revised title to remove TY 2018 and subsequent

(16) IRM 4.19.3.5.11 - revised title to remove TY 2018 and subsequent

(17) IRM 4.19.3.8.1.1(2) - removed Medicaid procedures from table, added a note with Medicaid instructions

(18) IRM 4.19.3.8.2.1(1) - revised to include TY 2021 procedures for DCB, added note

(19) IRM 4.19.3.8.3.3(5) - moved verbiage for special paragraph from table to (5)

(20) IRM 4.19.3.8.3.5 - revised title to remove TY 2019 and subsequent

(21) IRM 4.19.3.8.4.2(2) - added new note for procedures for qualified dividends and to send paragraph 65

(22) IRM 4.19.3.8.6.1(2) - removed Medicaid procedures from table, added a note with Medicaid instructions

(23) IRM 4.19.3.8.7.1(2) - removed Medicaid procedures from table, added a note with Medicaid instructions

(24) IRM 4.19.3.8.9(1) - added instructions for fish for resale, added doc type and literal FRSL

(25) IRM 4.19.3.8.9.1(1) - added FRSL to compare with entries

(26) IRM 4.19.3.8.9.2 - added FRSL to subsection

(27) IRM 4.19.3.8.10.3.1(1) - removed ACTs for TY 2017 and TY 2018

(28) IRM 4.19.3.8.10.3.1(2)&(3) - removed added new (4)&(5) for clarification of Forms 8915A-F

(29) IRM 4.19.3.8.10.3.1(7)1) - added caution for qualified 2021 disaster distribution

(30) IRM 4.19.3.8.10.6(6) - added PSO, removed table

(31) IRM 4.19.3.8.10.8(7) - removed table, added bullets for line numbers for ECG amounts

(32) IRM 4.19.3.8.14(3) - removed Section 199 DPAD instructions, renumbered remainder of subsection

(33) IRM 4.19.3.8.16.1(1) - new (1) for ARP Act is no longer in effect for TY 2021, renumbered remainder of subsection

(34) IRM 4.19.3.8.18.1(3) - removed Medicaid procedures from table, added a note with Medicaid instructions

(35) IRM 4.19.3.8.25.1 -(6)f - removed instruction to access EUP

(36) IRM 4.19.3.8.27.1(8) - added GRDIS is systemically included on the notice, removed note

(37) IRM 4.19.3.8.29.1 - revised title to Long Term Care Benefits (LTC) - Analysis

(38) IRM 4.19.3.8.32.1(11) - added note for child tax credit cannot be claimed if F2555 is filed

(39) IRM 4.19.3.8.34 - removed Form 1040NR subsection

(40) IRM 4.19.3.9.6.1(1) removed table, added bulletlist, removed alphalist, new (2) and (3), renumbered remainder of subsection

(41) IRM 4.19.3.9.8 - revised title to Tuition and Fees Deduction (TUTFE) (TY 2020 and prior)

(42) IRM 4.19.3.9.8.1 - revised title to TUTFE Responses (TY 2020 and prior)

(43) IRM 4.19.3.9.9(2) - revised to include $600 for TY 2021

(44) IRM 4.19.3.12 - revised title to remove TY 2018 and subsequent

(45) IRM 4.19.3.12(1) revised to remove TCJA 2017 IRC 199A

(46) IRM 4.19.3.12.1 - revised title to remove TY 2018 and subsequent

(47) IRM 4.19.3.14.2 - removed 8814/ECR to schedule D window throughout subsection

(48) IRM 4.19.3.15.2(2) - revised qualifying persons, revised bullet listing

(49) IRM 4.19.3.15.4(1) - revised to add ARP changes for TY 2021, new bullet listing for money amount thresholds, added new note for unenrolled in advanced payments

(50) IRM 4.19.3.15.4(2) - added new (2) for ARP provision procedures for TY 2021, new (3) for money thresholds for safe harbor, renumber remainder of subsection

(51) IRM 4.19.3.15.4(5) - added new (5) for TY 2021 Refundable Credit and Advanced Credit cross references for TY 2021

(52) IRM 4.19.3.15.4(8) - removed 2015 ACT information, added note not to correspond for Form 8862

(53) IRM 4.19.3.15.4(11) - added new note for CTC and RCTC

(54) IRM 4.19.3.15.4(15) - added system prompts for new window

(55) IRM 4.19.3.15.4.1 - revised title to remove TY 2018 and subsequent

(56) IRM 4.19.3.16.3(10) - removed (q), new (11) added cross reference for Forms 8915A-F, removed table for 8915A-E, (13) added new caution to use 5329 window for $ difference procedures

(57) IRM 4.19.3.16.8(1) - removed Reconciliation Act of 2010

(58) IRM 4.19.3.16.11 - removed SRP subsection, renumber remaining subsections

(59) IRM 4.19.3.17.3(5) - added note for election to use prior year income

(60) IRM 4.19.3.17.3(8)b - added note for election to use nontaxable combat pay with prior year income

(61) IRM 4.19.3.17.4 - revised throughout subsection to include references to new system window, Form 8812, must be attached to claim credit

(62) IRM 4.19.3.17.5 - new subsection for Refundable Tax Credit (RCTC), renumbered remainder of subsections

(63) IRM 4.19.3.17.7 - new subsection for Refundable Child and Dependent Care Credit

(64) IRM 4.19.3.18.1(1) - added note for TY 2021 tax return due dates

(65) IRM 4.19.3.18.3(2) - removed table with dollar amounts

(66) IRM 4.19.3.22.1(3) - added TDC Responses IRM 4.19.3.22.2.3.30

(67) IRM 4.19.3.22.1.1.2 - new (2) for missing correspondence, revised (3) to locate correspondence, added note

(68) IRM 4.19.3.22.1.5(2) - added new note to monitor cases in suspense

(69) IRM 4.19.3.22.1.26(1) - removed send paragraph 45 will auto generate.

(70) IRM 4.19.3.22.2(6)-(10) - added TDC Phone IRM 4.19.3.22.2.3.14, and renumbered remainder of subsection

(71) IRM 4.19.3.22.2.3 - 4.19.3.22.2.3.30 TDC subsections removed

(72) IRM 4.19.3.22.3.5(2) - added FRSL for when to accept response

(73) IRM 4.19.3.22.11.3(4) - added exception for TY 2021 tax return due date

(74) IRM 4.19.3.26.6(3)-(6) - added TDC Closed case IRM 4.19.3.22.2.3.24

(75) Exhibit 4.19.3-1 - revised to include AdvCTC, RCTC

(76) Exhibit 4.19.3-7 - revised dollar amounts, updated verbiage, removed paragraphs 110, 111, 112, 113, 183 and 198

(77) Exhibit 4.19.3-7 - added 227

(78) Exhibit 4.19.3-18 - revised to remove non applicable items

(79) Exhibit 4.19.3-19 - revised to add TY 2021 Filing Requirements

(80) Exhibit 4.19.3-21 - revised to add ACTON

(81) Changes were made throughout the IRM as follows:

  • Updated money amounts to include TY 2021 amounts and remove TY 2018 amounts

  • Updated form line/column numbers to include TY 2021 line numbers and remove TY 2018 line numbers (added tables where appropriate)

  • Throughout the IRM - Removed Form 2555-EZ

  • Throughout the IRM - TP was changed to Taxpayer

  • Throughout the IRM - he/she, himself/herself, his/hers, to their, them, they are, themselves

  • Updated dates to include TY 2021 and remove TY 2018 dates

  • Editorial changes have been made to weblinks, legal references and IRM references

  • Throughout the IRM - removed reference to SRP

  • Throughout the IRM - removed reference to PATH ACT 2015

Effect on Other Documents

This material supersedes IRM 4.19.3, effective 10/01/2021, for Tax Years 2021, 2020 and 2019. The following IRM Procedural Updates are incorporated: IPU 21U1217 (dated 11-01-2021), IPU 21U1334 (dated 12-13-2021), IPU 22U0025 (dated 01-03-2022), IPU 22U0173 (dated 01-28-2022), IPU 22U0272 (dated 02-14-2022), IPU 22U0804 (dated 7-11-2022)

Audience

AUR tax examiners at Small Business/Self-Employed sites

Effective Date

(10-06-2022)

Lori L. Caskey
Director, Exam Field and Campus Policy
Small Business Self-Employed

Program Scope and Objectives

  1. Purpose - This IRM section describes technical procedures for the Small Business/Self Employed (SB/SE), Individual Master File (IMF) Automated Underreporter Program (AUR). Specifically, IRM 4.19.3:

    1. Includes procedures for analysis and comparison of tax returns to third party information return documents.

    2. Outlines instructions for issuing AUR notices.

    3. Provides guidance for processing taxpayer written and telephone responses.

    4. Includes processes for AUR assessments.

    5. Provides instructions for reconsideration of AUR assessments.

  2. Audience - These procedures apply to all tax examiners who work in SB/SE IMF AUR.

  3. Policy Owner - The IMF AUR Program is under Small Business/Self-Employed Operations, Examination, Field and Campus Policy.

  4. Program Owner - IMF AUR Policy, which is under Examination, Field and Campus Policy, is responsible for providing guidance and procedures to work the IMF AUR Program, for the content of this IRM, and for oversight of the AUR system.

Background

  1. Potential AUR cases are systemically identified through computer matching of tax returns with corresponding Information Returns Master File (IRMF) payer information documents. Cases are selected for inventory in a manner determined to provide overall compliance coverage. Selected cases undergo an in-depth review by a tax examiner to identify underreported and/or over-deducted issues which require further explanation to resolve the discrepancy.

Authority

  1. Chapter 61 of the Internal Revenue Code (Information and Returns), Subchapter A (Records and Returns), Part III (Information Returns), sections 6031 – 6059, contain the requirements for the filing of information returns for income reporting purposes. Rev. Proc. 2005-32 provides authority to treat taxpayer contacts to verify a discrepancy between the taxpayer’s tax return and an information return, or between a tax return and information otherwise in the Service’s possession as taxpayer contacts and other actions not considered an examination, inspection or reopening.

Responsibilities

  1. The Director, Exam Field and Campus Policy, Small Business/Self Employed, is the executive responsible for the IMF AUR Program.

  2. The AUR Program Manager, Headquarters Exam Operations, Field and Campus Policy, IMF AUR Policy is responsible for IMF AUR policy and for providing guidance for the AUR Program.

Program Reports

  1. AUR inventory is monitored and managed using a series of specific, detailed reports accessed through the AUR system.

  2. IDRS reports applicable to AUR cases are accessed and monitored through the use of the Control-D reporting system.

Terms

  1. Terms used in this IRM are listed and defined in Exhibit 4.19.3-2, Glossary.

Acronyms

  1. Acronyms used in this IRM are listed and defined in Exhibit 4.19.3-1, Abbreviations.

Related Resources

  1. Internal Revenue Manuals and publications which may be helpful if in-depth research is needed to resolve unusual technical issues not covered in AUR instructions are listed in IRM 4.19.3.2.3, Related IRMs and Publications.

Overview of IMF Automated Underreporter

  1. This manual provides instructions for Automated Underreporter (AUR), the automated analysis and processing of potential underreported (U/R) and/or over-deducted (O/D) issues identified through information return (IR) matching.

  2. AVOID "AUDITING" RETURNS. All returns in the AUR inventory were previously screened for unallowable items and audit potential. They were not selected for action in either event. See IRM 4.19.3.22.1, Taxpayer Responses - Overview.

  3. Underreporter cases are built from two primary sources:

    • The Individual Master File (IMF) which contains information reported to IRS by taxpayers

    • The Information Returns Master File (IRMF)

  4. The IMF file contains information reported on:

    • Form 1040, U.S. Individual Income Tax Return

    • Form 1040-SR, U.S. Tax Return for Seniors

  5. The IRMF information is matched with the IMF information to verify the taxpayer reported all income as required. An AUR case results when computer analysis detects a discrepancy between the two data sources. Information in the IRMF file includes, but is not limited to:

    • Form W-2, Wage and Tax Statement

    • Form 1099-INT, Interest Income

    • Form 1099-DIV, Dividends and Distributions

  6. The information documents in the Form W-2 series (and Form 1099 if tax was withheld) should be attached to the tax return when it is filed.

  7. Taxpayers need not attach information documents in the Form 1099 (unless tax was withheld as noted above), Schedule K-1, Form 1098, and Form 5498 series to the return when it is filed.

  8. Discrepant cases are then categorized by type (for example, wage, dividend, interest discrepancy) and underreported range (for example, $200-499.99 tax change). These categories provide a logical system of criteria to select cases from the available inventory.

  9. After cases are selected from the inventory, they are worked according to procedures in this IRM.

  10. AUR Operations at seven campuses compile and control selected cases.

    1. Enterprise Computing Center at Martinsburg (ECC-MTB) sends tape information from the IRMF, Return Transaction File (RTF), Taxpayer Information File (TIF), and Payer Agent file. See IRM 4.19.3.6, Payer Agent/Fraud Information, for additional information on the Payer Agent file. This information downloads to the AUR system.

      Note:

      Data from the TIF and Payer Agent file is updated weekly.

    2. A computer tape containing Form 4251, Return Charge-Out, data prints on a Campus printer. Each Form 4251 contains a social security number (SSN), tax year, and other case identification information, represented in a bar code and numeric format.

    3. Federal Records Center (FRC) pulls and forwards paper returns to the Campus Files function for routing to Underreporter.

    4. Returns are controlled into the AUR system by scanning the bar code.

    Note:

    Electronically Filed Returns/Form 1040/ Form 1040-SR(ELF) are considered virtual cases and are systemically built into screening batches.

  11. Tax examiners perform an in-depth analysis of each case and determine if the discrepant income or deduction(s) in question are satisfactorily identified or addressed on the tax return. If so, they close the case. If reasonable doubt remains, they send the taxpayer either:

    • An AUR Notice, CP 2000 or

    • An Initial Contact Letter, CP 2501

    Note:

    The system auto generates CP 2501/ CP 2000 Notices for select income categories.

  12. At times HQ may issue specialized case processing procedures and/or direct a hold in case processing. These directives supersede normal AUR case processing procedures and all case processing time frames are suspended and do not apply.

    Note:

    Form 872A, Special Consent to Extend the Time to Assess Tax, must have HQ Policy approval prior to issuance.

  13. AUR is a self-contained system that displays all necessary information to process a case without accessing other systems. IDRS use should be limited to instances when this IRM directs such research.

  14. Process codes (PC) are used to provide an audit trail for AUR case processing. Integrated Data Retrieval System (IDRS) reflects PCs as pending actions until they post to the Master File.

    1. PC 0X (except 09) is computer generated to designate how and by which organization the case has been selected. PC 09 establishes an IDRS control base and reflects CP 2000 interest as pending.

    2. PC 20 adjusts Withholding (W/H), Excess Social Security/Railroad Retirement Tax (SSTAX) and Additional Medicare Tax withheld (MCTXW) only. A Letter 2893C is sent to advise the taxpayer , as outlined in IRM 4.19.3.17.1.2, Withholding - Miscellaneous, IRM 4.19.3.17.2, Social Security Tax/Tier 1 Railroad Retirement Tax, and IRM 4.19.3.17.1.4, Additional Medicare Tax (Withholding Reconciliation).

    3. PC 30 establishes an IDRS control base whenever a CP 2501 is generated.

    4. PC 55 updates an IDRS control base when a CP 2000 is generated. An amended CP 2000 Notice also updates the existing IDRS control base.

    5. PC 75 and 77 updates the IDRS control base when a Statutory Notice of Deficiency (A CP 3219A and Form 5564, Notice of Deficiency - Waiver) is issued/generated.

    6. Other PCs are input during AUR processing. Select pc looKup in the Analysis Menu from the Case Analysis Screen. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Process Codes (PC).

  15. Internal process codes (IPC) are codes used in AUR processing and do not post to IDRS. See Exhibit 4.19.3-3, AUR Internal Process Codes.

  16. See Exhibit 4.19.3-1, Abbreviations and Exhibit 4.19.3-2, Glossary, for a list of abbreviations and definitions used in AUR processing.

  17. See Exhibit 4.19.3-12, Titles of Forms and Schedules, for a complete list of Forms and their titles.

Taxpayer Advocate Service (TAS)

  1. Even though the IRS strives to improve its systems and provide better service, some taxpayers still have difficulty in getting solutions to their problems or appropriate responses to their inquiries. The purpose of the Taxpayer Advocate Service (TAS) is to give taxpayers someone to speak for them within the Service - an Advocate. TAS is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe an IRS system or procedure is not working as it should.

  2. The OAR may include Form 907, Agreement to Extend the Time to Bring Suit. Taxpayers have two years to appeal Letter 105C/106C. If Form 907 is filed in response to Letter 105C/106C issued by AUR, it must be signed by the Operations manager or approved delegate.

  3. Refer taxpayers to the Taxpayer Advocate Service (TAS) (see IRM Part 13, Taxpayer Advocate Service) when the contact meets TAS criteria (see IRM 13.1.7, Taxpayer Advocate Service (TAS) Case Criteria) and you cannot resolve the taxpayer’s issue the same day. The definition of "same day" is within 24 hours. "Same day" cases include cases you can completely resolve within 24 hours, as well as cases in which you have taken steps within 24 hours to begin resolving the taxpayer’s issues. Do not refer these cases to TAS unless they meet TAS criteria and the taxpayer asks to be transferred to TAS. Refer to IRM 13.1.7.5, Same Day Resolution by Operations. When referring cases to TAS, use Form 911, Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order), and forward to TAS. In addition provide the taxpayer with the number for the National Taxpayer Advocate (NTA) toll-free line, 877-777-4778 or TDY/TDD 800-829-4059 and advise the taxpayer TAS is available if they are not satisfied with the service he or she received.

    Note:

    It is important all IRS employees handle cases with the taxpayer’s best interest in mind.

Taxpayer Rights Background and Importance of the Statutory Notice of Deficiency
  1. Taxpayers have the right to appeal many IRS decisions in an independent forum. Taxpayers generally have the right to take their cases to court. Taxpayers also have the right to be informed. That is, they are entitled to clear explanations. Because the right to petition the U.S. Tax Court is a critical entitlement for taxpayers, it is important employees understand and educate taxpayers about the foundation and impact of this right on taxpayers and the IRS.

  2. A Notice of Deficiency (NOD), also called a Statutory Notice of Deficiency (Stat), SNOD or "90-Day Letter," is the legal notice in which the Commissioner determines the taxpayer’s tax deficiency. IRC 6212, IRC 6213, IRC 6214, and IRC 6215 require the IRS issue a Stat before assessing additional income tax, estate tax, gift tax, and certain excise taxes unless the taxpayer agrees to the additional assessment. The Stat is a legal determination that is presumptively correct and consists of the following:

    1. A letter explaining the purpose of the notice, the amount of the deficiency, and the taxpayer’s options.

    2. A waiver to allow the taxpayer to agree to the additional tax liability.

    3. A statement showing how the deficiency was computed.

    4. An explanation of the adjustments.

  3. The purpose of the Stat is to:

    1. Ensure the taxpayer is formally notified of the IRS’ intention to assess a tax deficiency.

    2. Inform the taxpayer of the opportunity and right to petition the U.S. Tax Court to dispute the proposed adjustments.

  4. A Stat is issued for unagreed deficiencies of income, estate, or gift tax liabilities as well as for certain excise taxes.

  5. The Stat must provide the taxpayer with notice of the Commissioner’s basis for determining the proposed deficiency.

  6. IRC 6212 requires the IRS issue this notice to the taxpayer’s last known address by certified or registered mail. Once the IRS issues this notice, the taxpayer has 90 days (150 days if the Stat is addressed to a person outside the United States) from the date the Stat is mailed to file a petition in the U.S. Tax court. This 90-day (or 150 day) period is statutory and IRS employees cannot extend it.

  7. If the taxpayer does not petition the U.S. Tax Court within the 90 days (or 150 days), the IRS is permitted to assess the deficiency, plus any additions to tax, after the 90 days (or 150 days) have passed. Although the IRS does permit reconsideration of examination assessments in some situations, the taxpayer loses significant administrative and judicial avenues to dispute the IRS’ decision if they do not file a petition. Therefore, it is critical that IRS employees understand the importance of the Stat and be able to explain its ramifications to taxpayers. The U.S. Tax Court website (www.ustaxcourt.gov) provides substantial information on the petition process.

  8. If the taxpayer does petition the U.S. Tax Court within the 90 days (or 150 days), the IRS is prohibited from making the assessment until after the court enters a decision. Once the taxpayer petitions, the IRS will usually send the case to Appeals to try to settle the case prior to the U.S. Tax Court hearing date unless the taxpayer has already been through the IRS’ administrative appeal process.

Statute Awareness Program

  1. The Statute Awareness Program was created to minimize barred assessments and erroneous abatements. Because of the time involved in the processing of AUR issues, AUR employees must be particularly watchful for conditions that may indicate statute imminent cases.

  2. If the case is Statute imminent take the appropriate actions to prevent a barred assessment. If the case is identified during a phone call and the case belongs to another site, notify the Site immediately of the imminent statute (in other words, phone call, email, fax statute referral, etc.).

  3. Although the system generates the Statute Listing on a weekly basis to alert management to statutes in danger of expiring, employees must be personally knowledgeable of the rules that govern the assessment statute expiration date (ASED). These rules are outlined in IRM 25.6, Statute of Limitations.

    Note:

    The ASED can be found in the STATUTE EXP DATE field on the Tax Account screen, but the date should be verified.

  4. Each functional area should ensure an adequate number of "Statute Specialists" are assigned.

Related IRMs and Publications

  1. Before disclosing any tax information, you must be sure you are speaking with or faxing information to the taxpayer or authorized representative. See the Taxpayer Authentication guidelines in IRM 4.19.3.22.2.2, Disclosure, for further information.

    • See IRM 4.19.3.22.2.4, Case Specific Inquires, for proper disclosure protocols before leaving messages on a taxpayer's answering machine or faxing confidential information.

    • See IRM 10.8.1, Information Technology (IT) Security-Policy Guidance for proper disclosure protocols before faxing confidential information to the taxpayer from a Facsimile (FAX), Electronic Facsimile (E-FAX), and IRS Internal Enterprise Electronic Facsimile (EEFAX) Transmission of Tax Information..

  2. The following additional IRMs and publications/documents are listed as a convenience when AUR determines in-depth research is required to resolve unusual technical issues not covered in AUR instructions, Form 1040 instructions and various publications. When reference to one of the related IRMs is required for AUR processing, the complete IRM reference is stated in this IRM.

    Note:

    Technical issues that occur frequently should be brought to the attention of the IRM 4.19.3, Liability Determination - IMF Automated Underreporter Program author for consideration for inclusion in this IRM.

    • IRM 2.3, IDRS Terminal Responses

    • IRM 2.4, IDRS Terminal Input

    • IRM 4.13.1, Audit Reconsiderations, Introduction

    • IRM 4.19.2, IMF Automated Underreporter (AUR) Control

    • IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures

    • IRM 10.5, Privacy and Information Protection

    • IRM 10.5.7, Use of Pseudonyms by IRS Employees

    • IRM 11.3, Disclosure of Official Information

    • IRM 13.1.7, Taxpayer Advocate Service (TAS) Case Criteria

    • IRM 20.1, Penalty Handbook

    • IRM 20.2, Interest

    • IRM 21.1.1, Accounts Management and Compliance Services Overview

    • IRM 21.1.3.18, Taxpayer Advocate Service (TAS) Guidelines

    • IRM 21.4.4, Manual Refunds

    • IRM 21.5, Account Resolution

    • IRM 25.6.1, Statute of Limitations Process and Procedures

    • Publication 17, Your Federal Income Tax (For Individuals)

    • Document 6209, IRS Processing Codes and Information

AUR Security

  1. The AUR system design protects both taxpayer data and the individual AUR users. ALL users are responsible for protecting taxpayer information. Users should access ONLY the data needed to perform their duties, and not divulge taxpayer information to any employee who does not have an official "need to know" . Users will report infractions to their managers immediately.

Electronic Filing System

  1. Returns are filed electronically by electronic transmitters or from a home computer through a third party vendor (On-Line Filing). Individual electronic returns are transmitted to Andover (ANSC), Austin (AUSC), Fresno (FSC), Kansas City (KCSC), Philadelphia (PSC) and Memphis (ECC-MEM).

  2. All electronically transmitted returns are identified by a unique document locator number (DLN). The file location codes (FLC) shown below are for the electronic filing of individual income tax returns. The second number listed is the rollover FLC used when a site exhausts the regular FLC for a given processing date.

    • ANSC - 16; 14

    • AUSC - 76; 75; 21 for U.S. Possessions; 20 for International returns

    • FSC - 80; 90

    • KCSC - 70; 79

    • PSC - 30; 32

    • ECC-MEM - 72; 64

      Note:

      The system will not allow a user to order a transaction code (TC) 150 document with the above FLC codes.

  3. Information such as loose forms, schedules, and correspondence CANNOT be attached to an ELF return. Do not use an attachment or association form.

  4. TRDB has a Tab option: "Dotted…" . Dotted line literals are only available on tax returns filed via Modernized e-File (MeF). MeF returns can be identified by a DLN Julian Date greater than 400. A TRDB screen, "Dotted…" tab display, with no entries, indicates either:

    1. The return was not filed via MeF (DLN Julian Date less than 400) or

    2. The MeF filed return included no dotted line literals.

    Note:

    For a complete list of dotted line literals see Exhibit 4.19.3-18, Form 1040 Dotted Line Literals.

  5. TRDB has a Tab option: "Attach" . When the user accesses the "Attach" tab, each statement/attachment the taxpayer electronically filed will be listed. There is no standard list of names/titles for the taxpayer to use so the statement/attachment will be listed by the file name the taxpayer used.

  6. No change PCs 15, 47, 48, 51, 52, 70, 71, 72, 73, 91, 92 and 93 automatically generate a TC 290-0 for electronically filed returns with a "Y" in the SOURCE DOCUMENT ATTACHED? field in the Assessment window.

    Caution:

    If there is no information (loose forms, schedules or correspondence) to be associated with the refile DLN, enter an "N" in the SOURCE DOC field in the Process Code window.

Integrated Automation Technologies (IAT)

  1. Automated Underreporter employees are mandated to use certain Integrated Automation Technologies (IAT) tools. When an action must be taken on IDRS (unable to complete the action within the AUR system) and an IAT tool is available, AUR employees with access to IAT tools are required to complete the action using the IAT tool. The IAT tools assist the tax examiner with IDRS research and input. See Exhibit 4.19.3-20, Mandated IAT Tools, for a list of mandated IAT tools.

    Note:

    See Exhibit 4.19.3-21, Additional IAT Tools Available (Use Not Mandated), for additional IAT tools.

  2. If an IAT tool is not functioning properly, the case should be worked using IDRS. For more information on each tool see IAT Website.

Tax Cuts and Jobs Act (TCJA) enacted December 2017

  1. The Tax Cuts and Jobs Act (TCJA) enacted December 2017 resulted in major tax reform legislation. TCJA delivered tax relief by reducing the tax rates and increasing the standard deduction. As a result , taxpayers now use only the newly redesigned Form 1040, U.S. Individual Income Tax Return / Form 1040-SR, U.S. Tax Return for Seniors and accompanying Schedules.

  2. One or more of these schedules may be used depending on the taxpayer’s income, credits, taxes or payments. The schedules are:

    • Schedule 1, Additional Income and Adjustments to Income

    • Schedule 2, Additional Taxes

    • Schedule 3, Additional Credits and Payments

  3. The deduction for personal exemptions for taxpayers, their spouse, or dependents was suspended for TY 2018 to 2025. To offset this change, the standard deduction amounts were increased. See IRM 4.19.3.13, Standard Deduction, for additional information.

    Note:

    The standard deduction is based on filing status and if the taxpayer is 65 years or older or blind, and if they can be claimed as a dependent on another return. See IRM 4.19.3.13, Standard Deduction, for additional information.

  4. TCJA legislation included, but limited to:

    • Changes to the itemized deductions claimed on Schedule A. See IRM 4.19.3.11, Changes to Itemized Deductions, for further information.

    • A non-refundable credit for dependents who do not qualify for the Child Tax Credit (CTC). See IRM 4.19.3.15.4.1, Other Dependent Credit.

    • Investors may elect to defer tax on eligible gains by investing the gains in a Qualified Opportunity Fund (QOF). See IRM 4.19.3.22.3.17, Securities Sales.

    • Student loans discharged due to death or disability are not included in income on loans discharged after December 31, 2017, and before January 1, 2026. See IRM 4.19.3.8.20.1, Cancellation of Debt (DBTCN) Analysis and IRM 4.19.3.22.3.16, Cancellation of Debt (DBTCN), for additional information.

    • Service members serving in the Sinai Peninsula can claim combat zone benefits retroactive to June 2015. See IRM 4.19.3.22.1.11, Combat Zone, for additional information.

    • Qualified Business Income deduction (QBID), also referred to as a IRC 199A deduction. See IRM 4.19.3.12, Qualified Business Income Deduction (QBID) for additional information.

    • A conversion of a traditional IRA to a ROTH IRA, and a rollover from any other eligible retirement plan to a ROTH IRA , cannot be recharacterized as having been made to a traditional IRA. See IRM 4.19.3.8.10.7, IRA Distributions, for additional information.

    • Section 199 DPAD was repealed in its entirety for taxable years beginning after December 31, 2017. However, a transition rule provides that section 199 DPAD passed through from a specified agricultural or horticultural cooperative after December 31, 2017, may be deductible by the patrons in a later taxable year, if the amount relates to a cooperative taxable year beginning before January 1, 2018. See IRM 4.19.3.9.10, Domestic Production Activity Deduction (DPAD).

  5. Losses from a trade or business of noncorporate taxpayers are limited when the net losses from all trade or business income is more than an inflation-adjusted threshold amount for tax years after 2017 and before 2026. The Coronavirus Aid, Relief and Economic Security Act (CARES Act) repealed limitation for tax years 2018, 2019 and 2020. For tax years 2018 and 2019, taxpayers may need to file an amended return if they filed TY 2018 and/or TY 2019 return(s) applying the limitation.

  6. The following provisions were extended by Further Consolidated Appropriations Act, 2020 and will expire :

    • Tuition and Fees Deduction (TUTFE). TUTFE will expire December 31, 2020.

    • Exclusion for qualified principal residence indebtedness discharged before January 1, 2021, unless an arrangement that was entered into and evidenced in writing before January 1, 2021. See IRM 4.19.3.8.20.1, Cancellation of Debt (DBTCN) – Analysis, and IRM 4.19.3.22.3.16, Cancellation of Debt (DBTCN), for additional information.

Coronavirus Aid, Relief, and Economic Security (CARES) Act and Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act of 2021

  1. The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. The Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act of 2021 was signed on December 27, 2020, and The American Rescue Plan (ARP) Act of 2021 was signed on March 11, 2021. The legislations allowed for advance payments of the recovery rebate credit, these payments are referred to as Economic Impact Payments (EIP).

  2. EIP (CARES = EIP1, CRRSA = EIP2) were issued to most eligible taxpayers in 2020. The amounts were based on the AGI of either TY 2019 or TY 2018 tax return. If, at the time EIP was issued, a tax year 2019 return was not processed, the TY 2018 AGI was used.

  3. EIP (ARP = EIP3) was issued to most eligible taxpayers between March and December of 2021. The amount was based on the AGI of their TY 2020 tax return. If a TY 2020 tax return was not processed when eligibility and amount of payment were determined, TY 2019 tax information may have been used.

  4. IRS began issuing EIP1 in April 2020, EIP2 in December 2020 and EIP3 in March 2021. The EIP amounts for each round are as follows:

    TY 20 CARES ACT (EIP1) TY 20 CRRSA Act (EIP2) TY 21 ARP Act (EIP3)
    $1,200 per individual ($2,400 for MFJ) $600 per individual ($1,200 for MFJ) $1,400 per individual ($2,800 for MFJ)
    $500 for each qualifying child/dependent under 17 years old $600 for each qualifying child/dependent under 17 years old $1,400 for each child/ dependent under 19 years old
  5. Economic Impact Payments can be identified on the tax account as:

    Note:

    The Recovery Rebate Credit (RRC) can be identified on the tax account screen as TC 766 with Credit Reference Number (CRN) 256.

    Transaction Code Credit Reference Number Description
    TC 766 CRN 338 amount attributable to the primary and secondary taxpayer
    TC 766 CRN 257 amount attributable to the children
  6. If the taxpayer claimed the RRC on their tax return, the IRS may correct the allowable amount of the RRC during original processing. If changes were made to the RRC during original processing, math error codes: 681, 682 and/or 683 may display on the tax account screen.

  7. During screening phase, no adjustment will be made to the RRC.

  8. During responses phase: If the taxpayer requests an adjustment to the RRC, advise the taxpayer the request must be submitted on Form 1040-X. Send PARAGRAPH 222, see Exhibit 4.19.3-7, CP PARAGRAPHS. If the taxpayer’s response includes a Form 1040-X and is requesting an adjustment to the RRC work all other AUR issues included on Form 1040-X and then forward the Form 1040-X to AM to process the RRC, see IRM 4.19.3.22.7.4, Referrals.

    Note:

    Include a statement informing AM that the AUR issues have been addressed.

  9. The Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act of 2021 permits penalty-free Coronavirus related distributions from retirement plans up to $100,000. A coronavirus-related distribution is defined as any distribution from an eligible retirement plan made on or after January 1, 2020, and before December 31, 2020, for:

    1. Taxpayer is diagnosed with the coronavirus.

    2. Taxpayer’s spouse or dependent is diagnosed with COVID-19, or

    3. Taxpayer experienced adverse financial consequences from being quarantined, furloughed, or laid off from work due to COVID-19.

    4. Taxpayer was unable to work due to childcare due to coronavirus.

    5. Taxpayer had to close or reduce the hours of their business, owned or operated due to coronavirus, or

    6. Taxpayer had a reduction in pay (or self-employment income) due to coronavirus or having a job offer, start date rescinded or delayed due to coronavirus.

  10. Taxpayer’s must meet the above requirements and complete the appropriate Form 8915, Qualified Disaster Retirement Plan Distribution and Repayments Series and report the distribution on Form 1040/1040-SR lines 4b or 5b.

Families First Coronavirus Response Act (FFCRA)

  1. The Families First Coronavirus Response ACT (FFCRA), enacted in March 2020 provides small and midsize employers refundable tax credits that reimburse them, dollar for dollar, for the cost of providing paid sick and family leave related to COVID-19. The FFRCA extends to self-employed individuals equivalent refundable tax credits against net income tax. The COVID-related Tax Relief Act of 2020 extended the period during which eligible self-employed individuals may claim tax credits to leave taken through March 31, 2021.

    Note:

    For TY 2021, taxpayers may claim similar tax credits for leave taken from April 1, 2021 through September 30, 2021.

  2. Self-employed individuals are eligible to receive qualified sick leave wages or qualified family leave wages under the Emergency Paid Sick Leave Act (EPSLA) or the Emergency Family and Medical Leave Expansion ACT (Expanded FMLA).

  3. For TY 2020 and subsequent, eligible self-employed individuals are allowed an income tax credit equal to their "qualified sick leave equivalent amount" or "qualified family leave equivalent amount" for leave taken for reasons under the EPSLA or the Expanded FMLA. The credits are taken on Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals.

  4. Taxpayers will complete Form 7202, Part I (TY 2020), Part I January 1, 2021 through March 31, 2021 or Part III, April 1, 2021, through September 30, 2021 (TY 2021) to claim Credit for Sick Leave and enter the amount on Form 1040/1040-SR Schedule 3, line 12b (TY 2020), line 13b ( for leave taken before April 1, 2021) or 13h ( for leave taken after March 31,2021) (TY 2021) if:

    • Taxpayer was subject to a federal, state, or local quarantine or isolation order related to COVID-19.

    • Taxpayer was advised by a health care provider to self-quarantine due to concerns related to COVID-19.

    • Taxpayer was experiencing symptoms of COVID-19 and seeking a medical diagnosis.

    • Taxpayer was caring for an individual who was subject to a federal, state, or local quarantine or isolation order related to COVID-19.

    • Taxpayer was caring for an individual who was advised by a health care provider to self-quarantine due to concerns related to COVID-19.

    • Taxpayer was caring for a son or daughter because the school or place of care for that child was closed or the childcare provider for that child was unavailable due to COVID-19 precautions.

  5. Taxpayers will complete Form 7202, Part II (TY 2020), Part II, January 1, 2021 through March 31, 2021, or Part IV, April 1, 2021 through September 30, 2021 (TY 2021) to claim Credit for Family Leave and enter the amount on Form 1040/1040-SR Schedule 3, line 12b (TY 2020), line 13b (for leave taken before April 1, 2021) or 13h (for leave taken after March 31, 2021) (TY 2021) if:

    • Taxpayer was unable to perform services as a self-employed individual because of certain coronavirus-related care the taxpayer provided to a son or daughter whose school or place of care was closed or whose childcare provider was unavailable for reasons related to COVID-19. And, for leave taken from April 1, 2021 through September 30, 2021, for all reasons which a taxpayer could have claimed the credit for sick leave.

      Note:

      The taxpayer may meet the requirements for both credits but can only count the day once and only use one or the other.

  6. Input/verify the appropriate amounts in the REFUNDABLE CREDITS portion of the Other Credit window of the drop-down menu in Return Value. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures.

    Note:

    IRS provided alternatives for this form to be included with an e-filed return. Some software providers allow the forms to be attached as a PDF file and others as a statement attached to the return. Accept attached statements in lieu of Form 7202 if they include reporting information similar to the actual form.

The American Rescue Plan (ARP) Act of 2021

  1. The American Rescue Plan (ARP) Act excludes from federal income tax the first $10,200 of unemployment benefits received in TY 2020 if the modified adjusted income is less than $150,000. The threshold of $150,000 applies to all filing statuses. The tax relief extends to both taxpayers who received benefits through federal unemployment programs as well as those who received traditional benefits through their state unemployment insurance fund. See IRM 4.19.3.8.16.1, Unemployment Compensation - Analysis for further information.

  2. The American Rescue Plan (ARP) ACT of 2021, enacted on March 11, 2021, suspended the repayment of excess advanced premium tax credit (APTC) amounts for TY 2020. See IRM 4.19.3.16.10, Excess Advance Premium Tax Credit (EAPTC) for further information.

    • If the taxpayer has already filed their TY 2020 tax return and had excess APTC, they do not need to file an amended tax return.

    • The IRS will reduce the excess APTC repayment to zero with no further action needed by the taxpayer.

    • The taxpayer will be reimbursed by the IRS for the excess Advance Premium Tax Credit they paid on their TY 2020 return.

  3. The American Rescue Plan (ARP) Act of 2021 was signed on March 11, 2021. The legislation allowed for advance payments of the recovery rebate credit, these payments are referred to as Economic Impact Payments (EIP3). The EIP was based on the taxpayer 2020 tax year information. See IRM 4.19.3.2.8, Coronavirus Aid Relief, and Economic Security (CARES) Act and Coronavirus Response Relief Supplemental Appropriations (CRRS) Act of 2021, for further information.

  4. ARP legislation was amended to extend the tax credits for paid sick and family leave for wages paid. Taxpayers can now claim credit from April 1, 2021 through September 30, 2021. See IRM 4.19.3.2.9, Families First Coronavirus Response Act for further information.

  5. Section 9611 of the American Rescue Plan Act (ARPA) increases the Child Tax Credit (CTC) for tax year 2021 and authorizes qualified individuals to receive periodic advance payments (in equal amounts) of up to 50% of the refundable portion of the Additional Child Tax Credit (AdvCTC). See IRM 4.19.3.15.4, Child Tax Credit, for further information.

  6. Beginning TY 2021, the American Rescue Plan (ARP) Act of 2021 expanded the Child Tax Credit as a fully refundable credit. Taxpayers must submit a completed Schedule 8812, Credits for Qualifying Children and Other Dependents. See See IRM 4.19.3.17.5, Refundable Child Tax Credit, for further information.

  7. The American Rescue Plan 2021 Act (ARP) Section 9631, enacted on March 11, 2021 amended the Child and Dependent Care Credit (CDCC), making it fully refundable for TY 2021 and increasing the maximum percentage rate to 50 percent. See IRM 4.19.3.17.5, Refundable Child and Dependent Care Credit, for further instructions.

  8. The ARP allows employers to amend dependent care plans to allow the taxpayer unused amounts in a subsequent year. Unused amounts are added to the maximum amount of Dependent Care Benefits (DCB) allowed for 2021. See IRM 4.19.3.8.2.1, Dependent Care Benefits, for further information.

Controlling Work

  1. Underreporter cases to be analyzed by AUR tax examiners are assembled into batches, which are then divided into work units. See Exhibit 4.19.3-5, Batch Types. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures for the following windows used to control cases:

    • Assign Work Unit window

    • Release Work Unit window

    • Transfer Work Unit window

    • Accept Transfer window

    • Assign Case window

    • Release Batch window

    • Transfer Case window

    • Request Case window

    • Universal Work window

Viewing Cases

  1. Each user may have clearance to view any case on the system. This function is necessary for any user answering taxpayer phone inquiries.

  2. To view any case take the following actions:

    1. Select the appropriate Tax Year from the AUR Year menu.

    2. Select reView from the AUR Main menu.

    3. Select View case from the Review menu.

    4. Input the SSN to be viewed.

    5. Click on the PHONE CONTACT field if viewing the case due to a taxpayer phone contact. The AUR program will extract telephone contact data based on this entry.

  3. The only entries that can be updated on the cases are:

    • Telephone number and contact hours on the Tax Account screen

    • Case notes on the Case Note window

    • Update address

    • Update third party contact

    • Update power of attorney (POA)

    • Action Required (Universal case) box

      Note:

      Any other changes will not save to the database.

  4. The Print menu option may be accessed when the user selects View Case from the Review menu.

Lost Cases

  1. When an SSN is assigned to a batch, and the corresponding paper case is missing, the case is considered a "lost case" .

    Caution:

    Do not confuse "lost cases" with "lost responses" . See IRM 4.19.3.22.1.1.2, Lost Responses, for additional information.

  2. When a lost case is identified:

    1. Select the Process Code window. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Process Code Menu.

    2. Input IPC LC (Lost Case).

      Caution:

      If the work unit contains both copies of Form 4251, it is not a lost case. Input IPC "0A" (Return Request).

    3. The AUR system moves the SSN to Batch Type (BT) 98XXX (immediately).

  3. If the missing case is an ELF return, see IRM 4.19.3.2.5, Electronic Filing System.

    1. Note:

      The system will not allow a user to input IPC LC when the case is a Virtual return. If there is no TRDB information for a case, see your Lead.

  4. Some cases are found to be missing after the work unit has been released by the tax examiner and is being disassembled by the Control Function. The Control Function notates "Lost Case" on a case transfer sheet and routes the case transfer sheet to the Lead. The Lead contacts the tax examiner who released the case.

    1. If the case is found, the tax examiner accepts and reworks the case on the system.

    2. If the case is not found, the tax examiner accepts and attempts to rework the case on the system, using a substitute Form 4251. If the case file contents are necessary to work the case, input IPC LC on the Process Code window and discard the case history/transfer sheet.

      Note:

      In an effort to eliminate unnecessary paper inventory, substitute charge outs should only be printed if absolutely necessary.

Wrong Pulls in Screening (WP)

  1. If the original tax return DLN and the Form 4251 DLN do not match:

    1. Leave the Form 4251 attached to the return.

    2. Input IPC "WP" and notate "WP" on the Form 4251.

    3. Leave the return in the work unit.

    The return is sent to FRC after the batch is disassembled.

  2. If the DLNs match, but the taxpayer's name is different, close the case with PC 29.

  3. If the tax return is for the incorrect tax year (the DLNs match, but the TY is different), close the case with PC 29 and route the return to be processed to the correct tax year.

Case History

  1. The Case History screen is used to determine the location or status of a particular case. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Viewing Cases. If the case is:

    1. Assigned to your unit, select the Unit Case History window from the Case Analysis menu.

    2. Assigned anywhere on the AUR system, select the Case History window (Analysis) using the Review option on the Main menu.

Archived Cases

  1. For TY 2012 and subsequent years, access the case data using View Case in the appropriate tax year on the system.

  2. For TY 2011 and prior, if information on the case is needed, the case must be ordered from files.

Case Information

  1. Each AUR case contains information for one tax account.

Underreporter Cases

  1. A case where a paper Form 1040/1040-SR was filed should have the tax return present in the case file. If the Form 4251 is batched without an original tax return, order the TC 150 return on the Tax Account screen.

    Note:

    A Form 4251 is not generated for Virtual returns. Tax examiners may notate the applicable PC/IPC next to the corresponding SSN on the work unit listing for Virtual returns.

  2. Some cases may have an amended return, Form 1040-X, Amended U.S. Individual Income Tax Return, attached to the original individual tax return.

    1. If the amended return was not processed, include it in the resolution of the case. Leave the amended return attached to the original return when the case is closed.

    2. If the amended return was processed, consider it in the AUR case resolution and refile separately when the case is closed.

  3. All cases have online data which displays in a series of screens. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures, for more information.

  4. An action trail MUST be made part of the case data whenever significant actions are taken. For example, when a case is closed in screening because the discrepant income has been determined to be reported somewhere other than where income would be normally reported, or an oral statement is accepted to revise a notice or close a case no change, use either the IR Note window or the Case Note window to document actions or leave an appropriate action trail. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Case Notes and Information Return Notes.

    Exception:

    At times HQ may direct closure of a case or cases with one of the HQ Identified Program Problem closing process codes. Case notes are not required on these cases.

    Caution:

    Do not include personally identifiable information (PII) in IR notes or case notes.

    Note:

    IR notes and Case notes are part of the official case file and may be viewed by the taxpayer.

  5. Form 4251 is attached to a return when it is pulled from the files at the Federal Records Center.

    Note:

    Virtual returns will have an individual work unit listing rather than a Form 4251.

    1. Form 4251 MUST remain with the paper return when the case is closed.

    2. Notate the applicable PCs and IPCs on Form 4251.

    3. Keep the Form 4251 in the front of the case file with the bar code visible.

Case Analysis Screen

  1. The Case Analysis screen is the main screen used by tax examiners for the analysis of AUR cases. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Case Analysis Overview.

  2. Certain Transaction Codes, Freeze Codes, or Indicators may require research, referral, or other specific actions. When these conditions are present, the Message window displays on the Case Analysis screen when the SSN of the case is entered. If this window displays, review the information on the Tax Account screen to determine the appropriate action to take.

  3. Within the Case Analysis screen various windows display, dependent upon the issues involved on an individual case. You must work certain windows in the proper order if two or more of them are present. The thirteen windows and their proper sequence are:

    1. Misc Adjust/Sch C Exp

    2. FICA Tax

    3. SST on Tips

    4. SE Tax

    5. SEP/SIMPLE

      Note:

      HSA/AMSA Contribution/Deduction. Although there is no HSA/AMSA window, this income type must be worked in the proper order. See IRM 4.19.3.9.2, Health Savings Account (HSA) or Archer Medical Savings Account (AMSA) Deduction.

    6. SSA/RRB

    7. IRA (CONTR)

    8. Savings Bond Exclusion

    9. EPAB

    10. Student Loan Interest Deduction (SLID)

    11. Tuition and Fees (TY 2020 and prior)

    12. Domestic Production Activity Deduction (TY 2019 and prior)

    13. 5329 window

    Example:

    The SE Tax window has been worked. Subsequently, the SST on Tips window is worked. The system displays a warning message describing the proper sequence. You must access the SE Tax window again to complete the proper sequence before going to the Return Value screen.

Tax Account Screen

  1. The Tax Account screen displays posted information from the taxpayer's Master File account. It contains the name and address, Date of Birth (DOB) for both primary and secondary taxpayers, return amounts, transactions, and other current data (including Reason Codes (RC)). The data is downloaded to the AUR system from ECC-MTB. The taxpayer's phone number and hours of contact can be entered. This screen is used to order a return if the related adjustment has posted to the account. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Tax Account Screen.

  2. Compare the Adjusted Gross Income (AGI) and Taxable Income (TXI) on the return with the AGI/TXI on the Tax Account screen. A mismatch could be due to a taxpayer and/or processing error. The AUR Function is responsible for issuing aCP 2000 to correct these types of errors.

    Note:

    If the processing error resulted in an erroneous refund, see IRM 4.19.3.5.13, Erroneous Refunds, for further information.

  3. If the AGI on the return and the AGI on the Tax Account screen do not match, the taxpayer/processing error may be found on page 1 of the return.

    1. The system displays the AGI as determined from Master File.

    2. Verify the AGI on the Tax Account screen.

    3. If appropriate, use the MISC ADJUSTMENT/SCHEDULE C EXPENSE window to account for the discrepancy. See IRM 4.19.3.5.9, Miscellaneous.

      Exception:

      If the taxpayer’s AGI/TXI return amounts were correct, a processing error changed the AGI/TXI, and the taxpayer did not receive a Math Error Notice because the change was below tolerance, correct the AGI (by entering the taxpayer's original amount in the AGI window). Leave a case note explaining the action taken.

  4. If the Tax Account screen displays an asterisk in the NEW TRANS field, a new TC has been added since the case was last analyzed. When an asterisk displays:

    1. Review the TC to determine if any action is required.

    2. Click on the asterisk and press ENTER to indicate the TC has been considered while working the case.

      Note:

      The system automatically totals TC 640 payments and displays a prompt: "Should amount be entered in Return Value Screen?" .

  5. If the Tax Account screen displays the Indicator KITA (Killed in Terrorist Action) or HSTG (Hostage in Terrorist Action) in the KITA IND field, or if the system displays the message "KITA/HSTG indicator present, close case" , use PC 18 to close the case.

    Note:

    Because taxpayer contact has not been made, no further actions are needed.

  6. If the Tax Account screen displays the indicator PDT (Potentially Dangerous Taxpayer), follow normal procedures and exercise caution when speaking to the taxpayer. When warranted, promptly report any assaults, threats, harassment, or forcible interference incurred during, or related to, the performance of official AUR duties to management and the local Treasury Inspector General for Tax Administration (TIGTA) office.

  7. If the Tax Account screen displays the indicator CAU (Caution Upon Contact), the taxpayer has previously threatened physical harm, threatened suicide; filed or threatened to file a frivolous lien or a frivolous civil or criminal legal action against an IRS employee, a former employee, a contractor, or an immediate family member of an IRS employee, a former employee, or contractor. Follow normal procedures and exercise caution when speaking to the taxpayer.

  8. When warranted, promptly report any new instances, see (7) above, using Form 13090, Caution Indicator Referral Report, and provide a copy of the completed form to management. Ensure the form contains:

    • The facts necessary to explain the incident, describing the exact words, and if applicable, body language or gestures made by the taxpayer,

    • The Taxpayer’s Social Security Number or Employer Identification Number, and

    • A minimal amount of tax information and only what is necessary to establish a nexus to tax administration.

      Note:

      See IRS Source, Emergency and Safety, or Office of Employee Protection (OEP), for additional information.

Power of Attorney (POA)
  1. A POA is on file when an indicator is displayed in the Centralized Authorization File (CAF) Indicator field. The indicator is either alpha or numeric. See Document 6209, IRS Processing Codes and Information, for the applicable POA indicators. A TC may also be present.

    • TC 960 is a CAF Indicator (POA on file)

    • TC 961 reverses the CAF Indicator (POA revoked)

  2. Prior to the issuance of a CP 2000/CP 2501 or Recomputation Notice, the CAF is automatically researched for the valid POA's name and address.

  3. If issuing a notice, and there is a valid POA on file:

    1. A copy of the notice is automatically created for the POA. (If there are multiple POAs, the notice is only created for the first two POAs authorized to receive notices per the CAF.)

    2. PARAGRAPH 178 automatically generates on the CP 2000/CP 2501 and Recomputation Notice to inform the taxpayer a copy is being sent to the POA. See Exhibit 4.19.3-7, CP PARAGRAPHS.

  4. If an original POA is found attached to the tax return (not detached during processing), see IRM 4.19.3.22.1.22, Letters From a Third Party and Authorization From a Valid Power of Attorney (POA), and IRM 21.3.7, Processing Third Party Authorizations onto Centralized Authorization File (CAF), for instructions on determining validity.

  5. Disregard invalid POAs. See IRM 4.19.3.22.1.22, Letters From a Third Party and Authorization From a Valid Power of Attorney (POA).

  6. If a POA is "valid" :

    Note:

    CAF will only accept the Form 2848 with a revision date of October 2011 or later.

    1. Make a photocopy for the AUR case file.

    2. Forward the original to the CAF Unit for processing.

    3. Input the POA information on the Update Address window (POA). See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Updating Address Information.

      Note:

      A foreign address requires a period ("." ) in the first position of the State field.

Freeze Codes
  1. If certain freeze codes are present on the tax module, a message window displays on the Case Analysis screen when the SSN of the case is entered. Access the Tax Account screen to determine the proper action.

  2. If there is a Freeze Code "-A" , the case is worked by AUR. See IRM 4.19.3.4.3.3, Transaction Codes Reflecting Tax Liability, for further instructions.

  3. A Freeze Code "-C " on the account indicates the taxpayer was involved in a military operation in a designated combat zone and may be entitled to special tax treatment.

    1. The -C freeze remains on the taxpayer's account even after the taxpayer is no longer in the combat zone. If a case has a -C freeze present additional research is necessary to determine the taxpayer's combat zone status.

    2. During screening if you receive the message: "12/31/9999 date is present, possible combat zone - See IRM 4.19.3.22.1.11, Combat Zone" , close the case using PC 15.

    Research IDRS CC IMFOLE for the Combat Indicator.
    If the Combat Indicator is Then
    1 The taxpayer is still serving in a combat zone. Close the case using PC 15.
    2 The taxpayer is no longer serving in a combat zone. Manual Interest computation may be required for the notice to generate.
    During screening, continue processing.

    Note:

    During screening, if the case requires manual interest, it will reject and be built to batch type 61. Case will be closed PC 27, only if the case is in BT 61.

  4. Freeze Code"-E" (TC 810 - code "4" ) indicates the case is currently being reviewed by the Frivolous Return Program (FRP). Refer the case to the FRP coordinator who will provide instructions to either continue processing or to transfer case. If FRP wants the case transferred, use PC 13.

  5. Freeze code"F-" (TC 971 - action code (AC) 089) freezes the entire account and most adjustments will unpost. Refer the case to the FRP coordinator who will provide instructions to either continue processing or to transfer case. If FRP wants the case transferred, use PC 13.

    Caution:

    Identity theft cases with a F- freeze should be referred after the taxpayer has provided the Form 14039 and/or police or law enforcement incident report for identity theft.

  6. Freeze Code "G-" indicates there is a TC 270/271, TC 500 or TC 780 on the account. The system alerts the tax examiner when Freeze Code "G-" is present, see the table below for the appropriate action to take.

    If And Then
    The Freeze Code "G-" is due to TC 270/271 The case is in screening phase Continue processing.

    Note:

    If the case requires manual interest, it will reject and be built to batch type 61. Case will be closed PC 27, only if the case is in BT 61.

    The Freeze Code "G-" is due to TC 270/271 The case is in CP 2501 or CP 2000 phase Continue processing.
    The Freeze Code "G-" is due to TC 270/271 The case is in Stat phase Continue processing.
    The Freeze Code "G-" is due to TC 500 The case is in screening phase Research IDRS CC IMFOLE for the Combat Indicator.
    • If the Combat Indicator is 1, close the case with PC 15.

    • If the Combat Indicator is 2, continue processing.

      Note:

      If the case requires manual interest, it will reject and be built to batch type 61. Case will be closed PC 27, only if the case is in BT 61.

    The Freeze Code "G-" is due to TC 500 The case is in response phase Research IDRS CC IMFOLE for the Combat Indicator.
    • Close all Combat Indicator 1 cases with a proposed tax increase with PC 15 and issue Letter 1802C.

    The Freeze Code "G-" is due to TC 780 The case is in screening through Stat phase See IRM 4.19.3.4.3.4, Other Transaction Codes and Math Error Codes.

  7. If a Freeze Code "-I" is present on Tax Account screen, see the table below:

    If case is in And Then
    Screening phase "-I" is present Continue processing.

    Note:

    If the case requires manual interest, it will reject and be built to batch type 61. Case will be closed PC 27, only if the case is in BT 61.

    CP 2501 phase ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Close case with PC 51.
    CP 2501 phase ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Continue processing.
    CP 2000 phase ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Continue processing.
    CP 2000 phase ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Continue processing, see IRM 4.19.3.21.1, No Response BT 84.
    CP 2000 phase ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Close case with PC 73, IRM 4.19.3.21.1, No Response BT 84.
    Stat phase "-I" is present Continue processing.
    Stat phase ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Continue Processing. See IRM 4.19.3.21.1, No Response BT 84.
    Stat Phase ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Close case with PC 93. See IRM 4.19.3.21.1, No Response BT 84.
    See IRM 4.19.3.18.10, Manually Computed Interest for the CP 2000, for additional information.

    Note:

    If a Manual Interest computation is required, and the tax examiner attempts to input Process Code (PC) 55, 57, 59, or 95 or Internal Process Code (IPC) RN or SR, the system alerts the tax examiner that IPC MI is required.

  8. A Freeze Code "L-" identifies an Innocent Spouse claim (Form 8857, Request for Innocent Spouse Relief) has been filed and is set by input of TC 971 AC 065. During the Response phase, refer to IRM 4.19.3.22.1.20, Innocent Spouse Relief Cases, for more information.

  9. Freeze Code "-L" (Audit Indicators TC 420 or 424, not reversed by TC 421) indicates the return is currently being requested or audited by Exam. During case analysis (screening phase), research IDRS CC TXMODA for a pending TC 421 that will reverse the "-L" freeze. If there is a reversal, continue normal processing.

  10. If there is No reversal, research IDRS CC AMDISA for the CURRENT-STATUS-CD/DATE field. The CURRENT-STATUS-CD/DATE field determines case action as follows:

    1. If the AMDISA CURRENT-STATUS-CD/DATE field is "33" or "34" the case is controlled by the Tax Equity and Fiscal Responsibility Act (TEFRA) function. Continue normal processing. Do not use the Exam transfer PCs to close TEFRA cases.

    2. If the AMDISA CURRENT-STATUS-CD/DATE field is "06" or "08" AWAITING CLASSIFICATION, the cases have not yet been screened for possible selection for examination. Do not use the Exam transfer PC’s to close the case, continue normal processing.

    3. If the AMDISA CURRENT-STATUS-CD/DATE field is "10" , use the primary business code (PBC), secondary business code (SBC) and employee group code (EGC) to locate the correct Exam contact by accessing the EXAM Employee Group Code (EGC) Contacts, under the Who/Where Tab on SERP, then select Employee Group Code (EGC) Listing Contacts.

    4. If Exam wants the case, use either PC 11 or 12 as appropriate to transfer the case to Exam. If Exam does not want the case, continue with normal processing.

      Note:

      To determine if the case is a Field or Campus audit see Document 6209 (http://serp.enterprise.irs.gov/databases/irm.dr/current/6209.dr/6209ch12.5.3.htm).

    5. If the conditions in a-c above are not met, input PC 13 (Case Analysis phase) to transfer the case to Exam.

  11. If the Freeze Code "-L" open TC 420/424 is present after an AUR notice has been issued, take the following actions:

    1. Research IDRS CC AMDISA to determine the primary business code (PBC), secondary business code (SBC) and employee group code (EGC).

    2. Use the PBC, SBC and EGC information from AMDISA to locate the correct Exam contact by accessing one of the following websites:

      If Then
      PBC is 301-309: Access: http://mysbse.web.irs.gov/exam/mis/contacts/empgroupcode/default.aspx
      PBC is other than 301-309: EXAM Employee Group Code (EGC) Contacts, under the Who/Where Tab on SERP.

    3. If the case is in CP 2501 or CP 2000 phase and Exam wants the case, input PC 38 (CP 2501) or PC 64 (CP 2000). Prepare Form 3210, including the appropriate Exam contact information, and leave it with the case.

    4. If the case is in Statutory Notice phase and Exam wants the case, see (12) below.

    5. If Exam does not want the case, leave a case note and continue normal processing. If an assessment is needed see IRM 4.19.3.22.10, Assessments.

  12. If Exam wants the case, take the following actions:

    1. Allow the statutory period to expire.

    2. Access the Assessment window and enter an "N" in the SOURCE DOCUMENT ATTACHED field and the appropriate priority code.

    3. Commit the Assessment window.

    4. Prepare Form 3210, including the appropriate Exam contact information, and leave it with the case.

    5. Input PC 94 and release the case.

  13. A Freeze Code "-O" on the Tax Account screen, is a Disaster Indicator set by TC 971 AC 086 or 087. See IRM 4.19.3.5.6, Declared Disaster Areas, for more information.

  14. Freeze Code "P-" indicates the case may be assigned in the FRP or Integrity and Verification Operation (IVO) held the refund. Research IDRS for the following:

    If And Then
    TC 599 AC 17 or 89 is present FRP has an open control (will show AUDT in control base) Refer the case to the FRP coordinator who will provide instructions to either continue processing or to transfer case. If FRP wants the case transferred, use PC 13.
    TC 720 TC 971 with either AC 052, 123, 129, 134, 617 is present During screening close the case no change using PC 28. If a notice was issued and there is a credit on the account, take the following actions to close the case:
    1. Access the MFT 30 Assessment window.

    2. Input/verify TC 290 .00.

    3. Input Hold Code 4.

    4. Remove all other transaction/reference codes.

    5. Input "N" in the SOURCE DOCUMENT ATTACHED field.

    6. Input remarks: No change.

    7. Change the AUTO/MANUAL IND field to "M" .

    8. Commit the Assessment window.

    9. Input PC 52 (CP 2501), PC 71 (CP 2000) or PC 92 (Stat), as appropriate.

    10. Using the IAT "xMend" or "REQ54" tool, input a TC 290.00 and include Hold Code 4.

    If a notice was issued and there is no credit, close the case no change using PC 52, 71, or 92 as appropriate.

  15. ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡" ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  16. A Freeze Code "-R" on Tax Account screen may reflect IVO or Taxpayer Protection program (TPP) involvement when TC 971 AC 052, AC 134, AC 617 or TC 570 with TC 971 AC 199 is present which indicates a frozen refund. Take the following actions when there is IVO or TPP involvement to close the case:

    If Then
    During screening Close the case no change with PC 28.
    A notice was issued and there is a credit on the account
    1. Access the MFT 30 Assessment window.

    2. Input/verify TC 290 .00.

    3. Input Hold Code 4.

    4. Remove all other transaction/reference codes.

    5. Input "N" in the SOURCE DOCUMENT ATTACHED field.

    6. Input remarks: No change.

    7. Change the AUTO/MANUAL IND field to "M" .

    8. Commit the Assessment window.

    9. Input PC 52 (CP 2501), PC 71 (CP 2000) or PC 92 (Stat), as appropriate.

    10. Using the IAT "xMend" or "REQ54" tool, input a TC 290.00 and include Hold Code 4.

    A notice was issued and there is no credit on the account Close the case no change using PC 52, 71 or 92, as appropriate.

  17. A Freeze Code "-S" replaces the assignment of computer condition codes to identify tax returns filed within a declared disaster area and is set with a TC 971 AC 688. The -S freeze does not suppress notices. Continue normal case processing. See IRM 4.19.3.5.6, Declared Disaster Areas, for more information.

  18. If a Freeze Code "-T" is present on Tax Account screen, there is a ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ entity freeze on the account, used for monitoring purposes only. Continue normal case processing.

  19. If there is a Freeze Code "-U" , see IRM 4.19.3.5.13, Erroneous Refunds, for further information. Freeze Code "-U" indicates the Erroneous Refund area is monitoring a case for available credits and a closure may release needed credits.

  20. If there is a Freeze Code "-V" and/or TC 520, a Bankruptcy condition is present. If identified on the Tax Account screen;

    1. During Case Analysis (screening), close the case using PC 27.

      Note:

      If TC 520 is reversed by TC 521 or 522, continue normal processing.

    2. During Response phase (after the taxpayer has been issued an AUR Notice), see IRM 4.19.3.22.1.10, Bankruptcy Procedures - Responses.

  21. If there is a Freeze Code "-W" with closing code (cc) 81, or cc 84 and/or a TC 520 (not reversed by TC 521 or 522), a Bankruptcy condition is present. If identified on the Tax Account screen;

    1. During Case Analysis (screening), close the case using PC 27.

      Note:

      If TC 520 is reversed by TC 521 or 522, continue normal processing.

    2. During Response phase (after the taxpayer has been issued an AUR Notice), see IRM 4.19.3.22.1.10, Bankruptcy Procedures - Responses.

  22. A Freeze Code "Y " on the account indicates the taxpayer filed an Offer-in-Compromise with the Service. See IRM 4.19.3.4.3.4, Other Transaction Codes and Math Error Codes, for additional information.

  23. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡" ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡" ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

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

  24. If a Freeze Code other than those explained in (2) through (23) above, are indicated on the Tax Account screen, refer to Document 6209, IRS Processing Codes and Information.

Transaction Codes Reflecting Tax Liability
  1. A TC 150 indicates a return was filed and posted to the Master File. The TC 150 amount is the tax assessed when the original return was filed.

  2. TCs 290 and 300 indicate additional tax was assessed after the original return was filed. The system adds these amounts to the TC 150 amount to determine the total tax per return. If the TC 290/300 source document is present, determine if the adjustment source document (Form 5147, Form 5344, Examination Closing Record, Form 4700, Examination Workpapers, amended or duplicate return) resolves the U/R issue(s).

    • A TC 300-0 with a corresponding TC 764, TC 768, or TC 765 indicates Exam adjusted EIC with no change to AGI or TXI. See IRM 4.19.3.17.3, Earned Income Credit, for further instructions on EIC.

    • Certain modules where an overstatement of estimated tax payments or W/H credits resulted in a refund, offset, or a credit elect may show as assessed using TC 290, RC 051, for the amount of the overstatement. These accounts will generally not contain a TC 807.

  3. TCs 291 and 301 indicate a portion or all of a previously assessed tax was abated after the original return was filed. The system subtracts these amounts from the TC 150 amount to determine the total tax per return. If the TC 291/301 source document is present, determine if the adjustment source document (Form 5147, Form 5344, Examination Closing Record, amended or duplicate return) resolves the U/R issue(s). If the AGI/TXI on the Tax Account screen:

    1. Differs from the tax return, order the TC 291/301 document without screening for income discrepancies.

      Note:

      For TY 2020, Do not order the TC291/301 document if it can be clearly identified that the change to the AGI/TXI is due to the Unemployment Compensation Exclusion (UCE).

    2. Matches the tax return, screen for income discrepancies and see (5) below.

  4. Order the missing TC 290/291 or TC 300/301 adjustment source document

    1. Before issuance of a notice or

    2. Prior to taking a PC 20 action.

  5. Do not order the missing TC 290/291 or TC 300/301 source document for the following situations:

    1. The difference between the AGI/TXI on the return and the AGI/TXI shown on the Tax Account screen matches the total discrepant amount within ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡. Consider the amount in question reported and close the case if there are no other related issues (for example, Self-employment tax (SE tax), 10 percent tax).

      Note:

      To calculate reported self-employment income, divide the amount shown in the SE INCOME fields on the Tax Account screen by .9235 (92.35 percent).

    2. The adjustment changes the amount(s) or item(s) back to the original figures on the return (changes may have resulted from a math error code or unallowable code). The AGI, TXI and Tax (TC 150 minus TC 291) should equal the amounts on the original tax return.

    3. A TC 766/767 with credit reference (CRN) 338 or CRN 257 for TY 2020 and subsequent for Economic Rebate Payments (EIP).

    4. W/H, excess SSTAX, or additional MCTXW is the only issue (PC 20 criteria) and the adjustment does not have a TC 806/807 or TC 766/767 with credit reference number (CRN) 252 present.

    5. A TC 806/807 or a TC 766/767 with CRN 252 is the only change (there is no change to the AGI or TXI) and W/H or excess SSTAX is not an issue.

      Caution:

      Certain modules where an overstatement of estimated tax payments or W/H credits resulted in a refund, offset, or a credit elect may show as assessed using TC 290, RC 051, for the amount of the overstatement. These accounts will generally not contain a TC 807. Send a Special Paragraph using the following verbiage as an example "The other taxes as shown on this notice include the previous change made to your federal income tax withheld."

    6. The adjustment is a TC 291/301 when the AGI, TXI and the tax has been reduced to zero. Close case with PC 28 (these are generally filing status changes or incorrect SSN).

  6. Order the TC 290-0 adjustment source documents when one of the following corresponding TCs is present:

    • TC 976/977

    • TC 971 AC 010, 012 through 016 or 120

    • TC 806/807 with the TC 290-0

    • TC 764/765/768

      Exception:

      Do not order the TC 290-0 adjustment source document for changes to EIC and there is no change to AGI or TXI.

    • TC 766/767 with CRN 336

    • TC 766/767 with CRN 252

    • TC 766/767 with CRN 260

    • TC 766/767 with CRN 262

    • ELF return and the blocking series of the TC 290-0 is "05" - "07" or "15" - "17"

  7. Do not order TC 290-0 adjustment source documents for the following:

    1. TC 290-0 adjustment source document is for changes to EIC (TC 764/765/768) and there is no change to AGI or TXI.

    2. The TC 290-0 has a corresponding TC 971 AC 071. These are injured spouse claims for which the refund was released.

    3. The TC 290-0, the TC 150 and the TC 846 have the same DLN with blocking series 92X (example: 18221-046-92337-5). These are also injured spouse claims for which the refund was released.

    4. The TC 290-0 has Reason Code (RC) 202 indicates no Economic Impact Payments (EIP) due to TIN issues.

    5. The TC 290-0 has a corresponding TC 971 AC 270. These are cases where the amended return was sent back to the taxpayer.

    6. The TC 290-0 is in the 98 blocking series (adjustment made without the original return) and there is a RC 062 or 065. These are penalty abatement request disallowances and have no impact on our AUR case.

    7. The TC 290-0 has a corresponding TC 271 which fully reverses the previous TC 270 amount.

    8. The TC 290-0 has a corresponding TC 971 AC 142. This is a true duplicate return.

  8. The Tax Account screen indicates if the adjustment source document is a Correspondence Imaging Services (CIS) document. If it is determined the adjustment is:

    • A CIS document, view document on Account Management System (AMS).

    • Not a CIS document, follow the instructions in (9) below.

  9. Request an amended return to resolve the case, if necessary.

    1. To request an amended return, enter an "X" in the ORDER RTN field for the applicable DLN on the Tax Account screen. Input the appropriate IPC XA. See Exhibit 4.19.3-3, AUR Internal Process Codes for further information.

      Exception:

      The system will not accept an "X" for any DLN where the DLN indicates the return is Virtual or a CIS document.

    2. If the DLN of the amended return is the control DLN on the Tax Account screen, attach the original return behind the amended return and refile together under the control DLN. Otherwise, refile them separately.

  10. Review all adjustment documents to determine if the U/R amount has already been taken into consideration. If so, close the case using PC 21. If a document has been requested, refile it separately when the case is closed.

  11. Consider all previous changes to income, deductions, refundable/non-refundable credits, taxes, and penalties when a CP 2000 is to be issued.

  12. When a TC 300/301 is present on the Tax Account screen with a TC 421 and no -L freeze, a disposal code displays on the Tax Account screen. If pursuing U/R income, determine the disposal code. The disposal code is located under the column titled "DIS CD" in the transaction section of the Tax Account screen.

    1. If the disposal code is 01 - 13, review the attached audit papers to determine if the U/R amount has been addressed. If there is still a U/R amount after review, issue a notice. Consider all changes made by Exam per the TC 300/301.

    2. If the disposal code is 20 - 99, no audit was performed. Continue processing the case.

  13. If a TC 300/301 and a TC 577 with Julian Date 999 is displayed on the Tax Account screen (no -L Freeze present), the U/R income has not been addressed by the Examination Function. Review the papers to determine what changes were made and take those changes into consideration when calculating U/R income adjustments.

  14. When a TC 896 with the literal "OFF to IRA" is present, the taxpayer has paid additional tax on excess contributions on Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. This tax is posted to the taxpayer’s Master File Tax (MFT) 29 account and is not included in the TC 150 amount. The system adds this amount to the TC 150 amount to arrive at total tax per return.

    Note:

    TC 892 offsets a TC 896.

  15. If a duplicate/amended return is filed (TC 976/977 or TC 971 AC 010, 012 through 016 or 120), a CP 2000, CP 2501 or PC 20 is to be issued, a TC 290/291 is present, and the duplicate or amended return is not in the case file:

    1. Order the duplicate/amended return by requesting the TC 290/291 DLN unless the conditions in (7) above apply.

    2. Close the case using PC 29 if the duplicate/amended return is not available.

  16. If a duplicate/amended return is posted (TC 976/977 or TC 971 AC 010, 012 through 016 or 120), a CP 2000, CP 2501 or PC 20 is to be issued, a TC 290/291 is NOT present, and the duplicate/amended return is not in the case file:

    1. Transfer the case to the Unit Suspense batch.

      Exception:

      If 45 days or more from the TC 976/977 or the TC 971 pending/posted date have passed, continue processing the case.

    2. Monitor the case for 45 days from the TC 976/977 or the TC 971 date for the pending/posting of the TC 290/291.

    3. If the TC 290/291 posts, order the adjustment document.

    4. If the TC 290/291 does not post, continue processing.

      Note:

      Underreporter functions that work their own Accounts Maintenance Research (AMRH) Transcripts should forward these cases to the appropriate unit after the batch has been disassembled.

  17. TC 295 indicates a tentative allowance from Form 1045, Application for Tentative Refund, was input on the taxpayer's account by Adjustments. TC 299 indicates an abatement of the original tax. If there is a TC 295 or 299 unreversed, or only partially reversed by TC 294 or 298, and there is U/R income, issue a notice.

  18. TC 305 indicates a tentative allowance from Form 1045 was input on the taxpayer's account by Exam. TC 309 indicates an abatement of the original tax. If there is a TC 305 or 309 unreversed, or only partially reversed by TC 304 or 308, and there is U/R income, issue a notice.

  19. If TC 599, TC 720 and/or TC 570 are present, see IRM 4.19.3.4.3.2, Freeze Codes, for instructions on how to process.

Other Transaction Codes and Math Error Codes
  1. Other TCs shown on the Tax Account screen may require additional action.

  2. TC 160 or 166 indicates a Delinquency/Failure to File Penalty was assessed. TC 161 or 167 means a portion or all of the penalty has been abated. When a U/R issue exists, the system computes or recomputes the Delinquency/Failure to File Penalty when required. See IRM 4.19.3.18.1, Failure to File (FTF) Penalty, for additional information.

  3. TC 170 or 176 indicates an Estimated Tax (ES) Penalty was assessed. TC 171 or 177 means a portion or all of the penalty has been abated. When a U/R issue exists, a recomputation of the ES penalty may be required. See IRM 4.19.3.18.3, Estimated Tax (ES) Penalty, for additional information.

  4. TC 270 or 276 indicates a Failure to Pay Penalty (FTP) was assessed. TC 271 or 277 means a portion or all of the penalty is abated. See IRM 4.19.3.18.2, Failure to Pay Penalty (FTP), for additional information.

  5. TC 460 indicates a request for extension of time to file was approved. The extension date appears in the Remarks column.

  6. TC 480 (not reversed by TC 481 or 482) indicates the taxpayer has filed an "Offer in Compromise" (OIC) with the Service. Continue normal AUR processing. A TC 29X may be input on these types of cases. Send copies of the case data to Collection OIC function upon their request.

  7. TC 540 indicates the taxpayer is deceased. See IRM 4.19.3.5.5, Deceased Taxpayers, for further instructions.

  8. TC 604 indicates either bankruptcy has been discharged/revoked or close-out of the MFT 30 module in preparation of mirroring to MFT 31.

    1. During screening, close the case using PC 27.

    2. During responses (AFTER the taxpayer has been issued an AUR notice), see IRM 4.19.3.22.1.20, Innocent Spouse Relief Cases, (when TC 971 AC 065 is present) or the Bankruptcy Coordinator (all others).

  9. TC 764 or 768 indicates earned income credit (EIC) was allowed. TC 765 indicates the credit was fully or partially reversed. If TC 764, 765, or 768 is present, EIC may need to be computed or recomputed. See IRM 4.19.3.17.3, Earned Income Credit, for instructions.

  10. TC 766 with:

    Credit Reference Number (CRN) Indicates
    CRN 336 Additional Child Tax Credit was allowed. TC 767 (with CRN 336) indicates the credit was fully or partially reversed. If TC 766/767 (with CRN 336) is present, Additional Child Tax Credit may need to be computed or recomputed. See IRM 4.19.3.17.4, Additional Child Tax Credit (ACTC), for instructions.
    CRN 252 Excess SSTAX has been adjusted. TC 767 (with CRN 252 indicates the credit was fully or partially reversed. If TC 766/767 (with CRN 252) is present, excess SSTAX may need to be computed or recomputed.
    CRN 260 Previously allowed American Opportunity Credit (AOC).
    CRN 261 Previously allowed Refundable Adoption Credit.
    CRN 262 Previously allowed Premium Tax Credit (PTC).

  11. If a TC 780 has been fully reversed by a TC 781 or 782, continue normal AUR processing.

  12. If an unreversed TC 780 is present on the Tax Account screen, a warning message displays to close the case. Take the following action:

    1. Close case using the appropriate PC (28, 52, 71, or 96).

    2. Leave a case note stating this is an OIC closure.

    3. Issue a Letter 1802C, if closing the case with PC 52, 71 or 96.

  13. TC 806/800 credits the tax module for the amount of W/H claimed on a tax return. TC 807/802 reverses the TC 806/800 credit in whole or in part. W/H may need to be adjusted because of AUR processing. Before proposing a change to W/H, be certain the adjustment has not been previously allowed. See IRM 4.19.3.17.1, Withholding - General, for instructions.

    Note:

    Certain modules where an overstatement of estimated tax payments or W/H credits resulted in a refund, offset, or a credit elect will show as assessed using TC 290, RC 051, for the amount of the overstatement. These accounts will generally not contain a TC 807.

  14. TC 971AC 151 indicates duplicate filing by secondary taxpayer, close the case using PC 10.

  15. If a TC other than those explained in IRM 4.19.3.4.3.3, Transaction Codes Reflecting Tax Liability, or IRM 4.19.3.4.3.4, Other Transaction Codes and Math Error Codes, are indicated on the Tax Account screen, refer to Document 6209, IRS Processing Codes and Information.

    Note:

    If the transaction code does not impact the case, continue normal processing.

  16. Beginning in TY 2020, cases in Subfile P will be worked in all AUR Campuses. For cases in Subfile P, AUR will disregard the TC 971 ID Theft indicators(s) and continue normal AUR processing. If issuing a notice, Paragraph 45will automatically generate. See Exhibit 4.19.3-7, CP Paragraphs. Leave a case note with the following verbiage, "IDT Subfile P case. IDT marker not considered during screening" .

  17. TC 971 with certain Action Codes (AC), indicate the taxpayer may be a victim of identity theft. During response phase, see IRM 4.19.3.22.1.26, Identity Theft (IDT) Claims - Overview, and IRM 4.19.3.22.1.26.3, IDT Claims - Responses, for additional information. During screening phase if the case is NOT in Subfile P and:

    If there is a TC 971 AC Then
    501, 504, 505, 506, 522 or 525 Close case PC 23
    523
    Continue normal AUR processing.
    524
    Follow IRM 4.19.3.5.5, Deceased Taxpayers, and IRM 4.19.3.22.1.14, Decedents.

    Note:

    For a list of AC meanings see, Exhibit 4.19.3-16, Identity Theft Action Codes.

  18. If the taxpayers address on AUR or IDRS CC ENMOD/IMFOLE is a Service Center/Campus Address, there is no confirmed good address for the taxpayer, and the taxpayer is a victim of ID Theft, close the case PC 23. See IRM 4.19.3.5, Analysis Procedures, for additional information.

  19. If the tax return in question meets the criteria outlined in the Refund Scheme Listing, IRP data, see IRM 25.23.4-1, IRTPTR/IDRS Data Decision Tree, (i.e., the only UR income is social security benefits that do not indicate a filing requirement, etc.), it may be an indication that the return is bad (not filed by the SSN owner) and the address on the module may not be that of the actual taxpayer. It may be necessary to research the taxpayer’s address against prior year returns or IDRS CC ENMOD and reissue the notice/letter accordingly. Refer to Exhibit 4.19.3-19, Filing Requirements for Most People, for additional information. If the income is clearly not the taxpayer’s, close the case PC 23.

  20. TC 972 with a corresponding Action Code (AC) indicates identity theft has been reversed, continue normal AUR processing.

  21. If there is a math error code on a case, the math error code number displays in the MATH ERROR CODE field of the Tax Account screen. If there are multiple math error codes, they display up to a maximum of five (5) codes in this field.

    Note:

    The math error code verbiage displayed on the Tax Account screen is abbreviated and paraphrased from the actual verbiage in Document 6209, IRS Processing Codes and Information.

Correspondence Imaging Services (CIS) Documents
  1. CIS is used to manage scanned images of amended Individual Master File (IMF) returns, documents and electronic case files.

  2. When there is a duplicate/amended return on Tax Account (TC 976/977 or TC 971 AC 010, 012 through 016 or 120 and a posted TC 290/291) an indicator "1" is displayed in the Tax Account screen in the CIS column when a CIS document is available.

  3. If a CIS document is indicated, take the following actions:

    1. Access IDRS.

    2. Access AMS.

    3. From the AMS screen, click on "Cases by TIN" in the Case Management section.

    4. In the Taxpayer Lookup screen, enter the SSN in the "Request by TIN" field and then click on <Go> or press <Enter> on the keyboard. The account summary screen appears.

    5. In the Alert section, click on the "View Images" link.

    6. Select the tax year to review from the CIS image list and click on "Open Image" .

    7. Compare the amended return to the U/R issues to determine if any or all issues are addressed. Continue normal processing.

    8. After processing changes, input the IRS received date located on the amended return.

  4. To exit AMS:

    1. Click on the "Exit Account" link in the upper right hand corner.

    2. In the Taxpayer Lookup window, click on the "Logoff" link to exit the system.

Taxpayer Digital Communication (TDC) Overview
  1. Taxpayer Digital Communication (TDC) provides an alternative communication option for taxpayers under review in the Automated Underreporter (AUR) Program. One segment of TDC is Secure Messaging. The eGain system is used to communicate with the taxpayer via secure messaging. Access to eGain requires a Business Entitlement Access Request System (BEARS). The AUR system is used to process the cases.

  2. TDC leverages technology to improve communication with the taxpayer (referred to as Customer on eGain). Taxpayers often experience long gaps between communications with the IRS due to the inherent slowness of the standard mail process. Secure Messaging shortens the communication period and provides more real-time decisions which can decrease overall case time.

  3. Secure Messaging provides taxpayers the opportunity to interact with the TE without using the mail. Taxpayers can upload and submit documentation directly to the TE working their case. Communications between the taxpayer and the tax examiner are done through a secure email server. Authorized representatives are also allowed to participate.

  4. Secure Messaging does not change IRM procedures. The focus of TDC is the communication option and the opportunity to interact with the customer via digital means. Unless otherwise noted, all TDC cases are to be worked the same way non-TDC cases are worked (i.e., IRM process and procedures are followed).

  5. The unique feature of TDC is the use of digital communication technology. Many TDC procedures mirror those actions normally taken by AUR TEs in their non-TDC interactions.

  6. Correspondence should be viewed online, not printed.

Information Return Window

  1. The Information Return window displays the complete IR. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Information Return window.

  2. Payer address information, as shown on the Information Return window, displays on the CP 2000/CP 2501.

Income Comparison Screen

  1. The Income Comparison screen displays a comparison of amounts reported by payers on IRs and the amount the taxpayer reported on their tax return. Access this window when it is necessary to view RETURN and IRP amounts or to determine the discrepant income type. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Income Comparison Screen.

  2. The OFFSET field displays codes describing how matched return and IRP amounts were offset for identification of potential discrepancies.

  3. When attempting to offset income, make sure the income to which it is being offset has not already been used. However, if you can determine that offsets were applied incorrectly, analyze that issue as well.

Analysis Procedures

  1. The following instructions are for use by AUR tax examiners. They are to be used in conjunction with training materials and the IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures.

    1. An UNDERREPORTED (U/R) condition exists when income shown on the IR(s) that was not reported by the taxpayer on Form 1040, Form 1040-SR . Proposed tax adjustments are based on these U/R amounts, as well as on reported income amounts for which the taxpayer failed to include the required additional taxes (for example, SE tax).

    2. An OVER-DEDUCTED (O/D) condition exists when the taxpayer claims more of a deduction than is substantiated by IR(s) and/or allowed by law (for example, Mortgage Interest Deduction or Individual Retirement Account (IRA) Deduction).

    3. An UNDERCLAIMED (U/C) condition exists when the taxpayer fails to claim all the payments to which they are entitled (such as, W/H).

    4. An OVERCLAIMED (O/C) condition exists when the taxpayer reduces their tax liability by an amount that either exceeds the amount shown on the IR(s), and/or the amount cannot otherwise be substantiated (for example, Education Credits).

  2. If Exam issues are discovered during AUR processing, consult with the team leader. Then, if necessary, consult with an Exam representative to decide the appropriate action(s) to take.

  3. The system message will display when the taxpayer’s address contains; Internal Revenue Service, IRS, or Department of Treasury. If condition exist, close case PC 16 or PC 23 if the case has been identified as IDT, see IRM 4.19.3.4.3.4, Other Transaction Codes and Math Error Codes.

  4. Computer identified income/deduction discrepancies of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ are displayed in the LIST OF DISCREPANCIES field on the Tax Account screen. If the category is a combination type, all appropriate discrepancies are displayed.

  5. The IR(s) contributing to the discrepancies are listed first on the Case Analysis screen, and the specific income type is identified with an asterisk. The AUR system alerts the user a discrepancy exists where there are no IR(s) to mark.

    Exception:

    O/D and O/C deduction(s) in question will not have a system generated IR. See (7) below.

  6. Cases involving U/R and EIC are identified in Subfile E. An EIC discrepancy can occur when there is unreported: interest, dividends, capital gain net income (including securities), rents, royalties or income from certain passive activities and the taxpayer claims investment income less than the amounts shown in the table below. If the taxpayer’s total investment income exceeds the amount listed in the table below (regardless of overall AGI), the EIC is disallowed.

    TY 2019 TY 2020 TY 2021
    $3,600 $3,650 $10,000
    1. Due to the investment income limitation for EIC, cases have been created with small amounts of apparent U/R investment income. These investment income discrepancies are not asterisked (in either Case Analysis or the Income Comparison screens) to alert the tax examiner of where the discrepancy lies.

    2. When accessing cases in Subfile E, screen ALL IRs.

    3. If there is any U/R (regardless of amount), complete the Return Value screen.

  7. If the Case Analysis screen does not contain any asterisked items, go to the Income Comparison screen and/or Tax Account screen to determine the discrepancy and screen the case accordingly.

  8. Discrepant income types are identified with an asterisk on the Income Comparison screen and Information Return window.

    Note:

    Because of computerized offsets, some APPARENT W/H discrepancies are not asterisked. Follow procedures in IRM 4.19.3.17.1, Withholding - General, for these cases.

  9. The Case Analysis screen may contain IRs that HAVE NOT been identified as discrepant. These IRs were added after the case creation and must be analyzed. These IRs are listed along with the discrepant IRs and are identified with an indicator in the AMENDED INDICATOR field. IRs containing the same income types, MUST BE screened and an applicable IR Code assigned to each element of the IR. The indicators are shown as follows:

    • N - New

    • AN - Amended New

    • RN - Replace New

    • DN - Duplicate New

    • XN - Delete New

  10. Initially analyze the asterisked elements on the IR(s) related to the computer identified discrepancies. Also analyze other issues related to the income on the discrepant IR.

    Example:

    Consider adjustments to: Child Care Credit when the DCB element is asterisked; consider SE tax when NEC, MERCH, MED, FISH, etc., elements are asterisked (or when the system identifies a potential SE tax issue); consider the 10 percent tax when Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., element is asterisked and the IR contains a COD, "J" , "L" , "M" , "1" , or "5" .

    Note:

    The AUR system identifies potential SE tax discrepancies on reported income from Form 1040, Schedule 1, lines 12, 18 or 21 (TY 2018) or Form 1040/ Form 1040-SR, Schedule 1, lines 3, 6 or 8 (TY 2019 and subsequent) where no SE tax was paid. The system alerts the user a discrepancy exists when there are no IRs to mark. An asterisk displays in the SELF EMPLOYMENT TAX field on the Income Comparison window. Follow IRM procedures for specific income types and see IRM 4.19.3.16.1, Self-Employment Tax, and Exhibit 4.19.3-22, Examples of Self Employment Income, to determine when SE tax needs to be considered.

    1. If the asterisked IR is discrepant and it contains W/H, always screen W/H element(s).

    2. If there are no asterisked elements for cases in Subfile E, see (4) above.

    3. If the asterisked element(s) is/are fully reported on the line(s) designated for that income on the tax return (for example, discrepant wages are fully reported on Form 1040, line 1 (TY 2018 and subsequent) or Form 1040-SR, line 1 (TY 2019 and subsequent), then check the INCOME COMPARISON screen for a possible misplaced data entry. Screen the income type related to the misplaced data entry.

    4. If the asterisked element is identified as being included in another type of income, analyze all related IRs,(for example, Pensions are identified as discrepant but are found reported on the wage line - analyze both pensions and wages).

    5. If the asterisked element results in above tolerance U/R, screen the remaining non-asterisked items.

  11. Virtual currency may be used to pay for rent, royalties, or any type of goods or services and is to be treated as ordinary income by the recipient. An employer may use it as payment for wages, salaries and compensation. For TY 2019 and subsequent, if the taxpayer engaged in any transactions involving virtual currency, the virtual currency box at the top of Form 1040/1040-SR, Schedule 1 will be checked "Yes" . Follow appropriate analysis procedures, based on the document type the payer used to report the income.

    Caution:

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

  12. If the discrepant IR(s) element(s) is/are reported and/or the system identified SE tax discrepancy is resolved, close the case using PC 21.

  13. When there is U/R income or if related tax/credit adjustment issues are involved, proceed to Return Value.

    Note:

    It is not necessary to mark non-asterisked IR(s) to access the Return Value screen.

    1. AUR multiplies the CHANGE TO AGI field amount by the highest tax rate for the tax year. If this calculation does not result in either ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Note:

      Ignore the Case Analysis screen system prompt to close the case. If any of the following is an issue - Schedule A Mortgage Interest, MIP, SE tax, Federal Insurance Contributions Act (FICA), W/H, excess SSTAX, Dependent Care Benefit (DCB), Child Care Credit, Employer Provided Adoption Benefits (EPAB), Education Credits, EIC, and/or Premature Distribution Tax on retirement income, complete the Return Value screen before closing the case.

    2. Complete all applicable windows.

    3. If the dollar tolerance for issuing a notice is not met, the system displays a message to close the case. Use PC 22 to close below tolerance cases.

  14. Proposed adjustments on the CP 2000/CP 2501 require an explanation to the taxpayer. There is a single set of explanation paragraphs for both the CP 2000/CP 2501. Paragraphs are either manually selected or automatically generated based on the case condition. All applicable paragraphs display in the SELECTED PARAGRAPH field(s) on the Notice Summary screen. All automatic PARAGRAPHs are automatic toggle. If a CP 2501 Notice is selected (PC 30), the system prevents any non-CP 2501 paragraphs from printing on the notice. If issuing a CP 2501do not"toggle off" apparent inappropriate CP 2501 paragraphs. Non-automatic PARAGRAPHs may be viewed, selected, deleted, and/or added.

    • There is a single Notice Summary screen. This is to facilitate automatically generating a CP 2000 from a CP 2501 no-response.

    • The programming that automatically selects paragraphs occurs in different screens (Case Analysis, Return Value or Notice Summary) depending on the conditions needed to set the paragraph. To reduce the instances of paragraphs resetting, the tax examiner should only"toggle off" or "toggle on" paragraphs from the Select Notice Paragraph window accessed in the Notice Summary screen.

    • CP 2000/CP 2501 automatic and non-automatic paragraphs are notated in this IRM as "PARAGRAPH XX" .

    • Miscellaneous Letter paragraphs are notated as "Special Paragraph" . The verbiage provided in the Special Paragraphs is for example only and can be modified as needed.

    • There are various numbered paragraphs for use by AUR. In situations where the numbered paragraphs are not applicable, a Special Paragraph may be written in the Special Paragraph window.

    Note:

    Special Paragraphs MUST BE reviewed by a manager or lead tax examiner. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Selecting, Viewing and Deleting Notice Paragraphs.

  15. Twelve different income types can be marked as underreported. If there are more than twelve U/R income types, an error message displays. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  16. When issuing a notice for underreported issues, send the applicable element(s) of the IR. The entire IR will not be sent unless all elements (income types) on an IR are marked with a "S" . This includes modified and created IRs. When an IR is marked with a "U" , the system automatically enters the Send Indicator. If it is determined the IR should not be sent, remove the Send Indicator.

    Note:

    The Send Indicator must be manually entered on any created or modified IR the tax examiner wants to include on the Notice. In order for a created IR to be considered valid for inclusion on the notice, it must contain: a payer name, payer EIN, and an income amount greater than zero (in addition to other required entries).

    Exception:

    The system may determine an element of an IR should automatically be included on the notice. In this situation when a user marks an element of an IR to send, the system displays the message; "ELEMENT DOES NOT NEED TO BE SENT." Consider the element as a valid inclusion on the notice.

  17. Close short year returns with PC 28.

Information Returns - Review

  1. The initial review of IRs is accomplished from the Case Analysis screen. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures- Case Analysis Overview.

    • All IR(s) with the same document type are sorted in payer Employer Identification Number (EIN) sequence.

    • Be aware of Payer Agent/Fraud information.

  2. Delete EIN IRs as invalid if any of the following apply:

    1. The payer EIN or name on Form W-2 or Form 1099 matches the payee EIN or name on the IR in question.

    2. Schedule E contains a Partnership or Small Business Corporation with the same EIN or name as the payee EIN or name on the IR(s) in question, UNLESS the payer on the IR is the partnership or small business corporation shown on Schedule E.

  3. Delete the EIN IR when the payee name line(s) is obviously not the taxpayer. For example, the name line(s) contains any of the following groups:

    • Government agencies - federal, state, or local

    • School - private, public, colleges, universities, etc.

    • Charitable and tax-exempt organizations - hospitals, churches, medical centers, etc.

    • Pension Profit Sharing Plan name line(s) with the words "trustee for" , "trustee" , etc.

  4. Consider the EIN IR valid (as belonging to the taxpayer) when ANY of the following conditions are present:

    1. Primary or secondary taxpayer's name is the only payee name on the IR.

    2. Primary or secondary taxpayer's name appear in the first or the second name lines on the IR.

    3. The payee address on the EIN IR is the same address as shown on the tax return, Form W-2 or Form 1099 attached to the tax return, or other SSN IRs.

    4. The payee name on the IR implies a sole proprietorship type business, or the taxpayer's occupation as shown on Form 1040, or Schedule C or F is typically operated as a sole proprietorship or small business.

    5. The payee EIN on the IR matches the EIN on the Schedule C or F.

    Exception:

    If it appears the EIN listed on the Schedule C or F does not belong to the taxpayer (for example, the listed EIN matches a payer EIN on another IR), use IDRS CC INOLES to determine the validity of the EIN.

  5. Compare all valid EIN IRs to amounts on the tax return and related schedules. Use instructions for the particular type of income involved.

  6. Assert SE tax, as appropriate, only on the issues that are normally subject to SE tax. See IRM 4.19.3.16.1, Self-Employment Tax, for further instructions and Exhibit 4.19.3-22, Examples of Self Employment Income.

  7. EIN IRs do not display with an Income Identify Code in the INC CD field. If SE tax applies, enter the appropriate Income Identify Code. If it cannot be determined which Income Identify Code to enter, see Exhibit 4.19.3-9, Income Identify Codes, and enter the value from the "Displayed Codes" column. If the IR has a status code of "U" , it is necessary to remove the "U" before an Income Identify Code can be entered.

  8. Delete IRs when:

    1. Payer Agent Indicator "Y" is present and the Payer Agent window contains instructions to delete the IR. See IRM 4.19.3.6, Payer Agent.

      Note:

      If all U/R income is from identified Payer/Agents and the Payer Agent window contains instructions to accept or delete the IR, close the case with PC 24.

    2. The payee entity contains the words "Estate of" .

    3. The taxpayer's name is preceded by the word "by" .

    4. The payee(s) name is obviously different from the Tax Account names and does not contain obvious business words, even though the SSN matches.

    5. EIN 99-9999999, foreign income, is present and another EIN is present for the same payer. IR dollar amounts may vary due to currency exchange rates.

      Note:

      Delete the 99-9999999 IR ONLY when both are present. Foreign Source IRs are treated the same as domestic source IRs.

    6. The literal is "DELET" .

    7. The filing status is "3" or "6" and the SSN on the IR is for the spouse.

    8. The IR contains non-select term(s) and you determine the payee is NOT the taxpayer. See Exhibit 4.19.3-10, Non-Select Table.

    9. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  9. Consider IRs with the following conditions valid and pursue any U/R amounts:

    1. The payer's name is garbled, missing, or incomplete. See IRM 4.19.3.5.2, Comparison of IRP Information Returns With Return Information.

    2. The payee's first and last name are in a different order on the IR.

    3. The payee name is a foreign version of an English name (such as, Peter listed as Pedro or Pierre).

    4. The payee name line includes the taxpayer's title (for example, MD, DDS, CPA).

    5. Only a name control is showing as the payee name and it matches the taxpayer's name.

    6. The payee second name line includes "c/o" (or a variation) followed by the taxpayer's name.

    7. The payee name line contains obvious business words and you determine the payee is the taxpayer.

    8. The literal is "AMEND" and the document does not match the original documents. See (11) below for further instructions.

    9. The payee name is followed by "and" or "or" without other names.

    10. The IR payee name is a maiden name. If the payee's first name or initial on the IR are the same as the Tax Account name, pursue the IR.

    11. The word "rollover" is present on either the payee or payer side on a 1099R IR. See IRM 4.19.3.8.10.4, Rollovers, for further information.

  10. The payee entity name line of the IR may contain terms or variations of terms. See Exhibit 4.19.3-10, Non-Select Table.

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ for that document type unless you determine the payee is the taxpayer.

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ present of the same document type NOT containing a non-select term.

  11. Amended IRs are identified on the Case Analysis screen by Indicator "A" , "R" , "D" or "X" in the AMD IND field. Amended IRs are identified on the Information Return window by the literal "AMEND" , "REPLC" , "DUPLE" , or "DELET" . If the computer has pre-identified amended IRs that are used to replace the original IR, the amended IRs have the literal "REPLC" and the literal on the original is "DELET" . PARAGRAPH 47 automatically generates when Amended IRs are included on the notice. See Exhibit 4.19.3-7, CP PARAGRAPHS. Delete original IRs if amended IRs match an original. The amended and original IR must have:

    • The same payer name and/or EIN.

    • The same account number (if present).

    • The same type of income if the money amount changes or different income types when the money amount stays the same (for example, amending a Form 1099-MISC, Miscellaneous Income, from NEC to OTINC).

  12. Pursue all IRs if the amended IR(s) does not match an original, or if the amended IR matches more than one of the other IRs.

    1. Amended IRs may reflect incomplete information; neither amount literals nor $0 (zero dollar amounts) are displayed. If such an IR is present, assume the payer/employer attempted to zero out an incorrect income amount previously reported.

    2. A blank in the amount field of an amended IR represents $0 (zero). Amended IRs with $0 amounts appear on the Case Analysis screen only if there is another IR with at least one money amount or the IR is for a Form W-2.

  13. When there are two identical IRs (SSN/EIN, name, amount, account number, income type, etc.) take the following actions:

    If Then
    The source matches Delete one of the IRs.

    Exception:

    For Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, see IRM 4.19.3.8.23.1, Securities Sales - Analysis, and for Form 1099-S, Proceeds From Real Estate Transactions, see IRM 4.19.3.8.25.1, Real Estate Transactions - Analysis.

    The source is different delete the paper source IR.

    Exception:

    For Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, see IRM 4.19.3.8.23.1, Securities Sales - Analysis, and for Form 1099-S, Proceeds From Real Estate Transactions, see IRM 4.19.3.8.25.1, Real Estate Transactions - Analysis.

    One does not contain an account number ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    The account numbers of both IRs contain the same sequence of numbers or characters.

    Example:

    Account number 0003013826 and account number 3013826 are account numbers which contain the same sequence of numbers.

    Delete one of the IRs

  14. Do not consider IRs as duplicates when the account numbers are obviously different, even though all other elements are identical.

  15. If a 99MIS, PTK-1 or TRK-1 IR are present for the same taxpayer, from the same payer AND for an identical money amount, see IRM 4.19.3.8.12.1, Conduit Income - Analysis, for further information.

Comparison of IRP Information Returns With Return Information

  1. Different income types may be combined on one information document, (for example, Form W-2 may include ordinary wages, allocated tips, W/H). On the Case Analysis screen, each income type is displayed separately and can be assigned a status code.

    Note:

    If an IR with multiple income elements is U/R, input status code "U" ONLY for the income element that is actually U/R. If necessary, enter status code "R" or "N" for any remaining income elements that are not U/R.

  2. Beginning TY 2019, the information return will display a check box for IRA/SEP/SIMPLE IND on Form 1099-R, box 7 and PROP/SERVICES on Form 1099-S, box 4. When checked, refer to the table below for additional information:

    Document Box number Description
    1099-R 7 Taxpayer received a traditional IRA/SEP/SIMPLE distribution
    1099-S 4 Transferor received or will receive property or services as part of the consideration for the property transferred. The value of any services or property (other than cash or notes) is not included in the gross proceeds.

  3. An Income Identify Code in the INC CD field of the Case Analysis screen and the Information Return window identifies certain income types to the system so that U/R income is included in related calculations (such as, earned income qualifying for earned income credit (EIC), income subject to SE tax). See Exhibit 4.19.3-9, Income Identify Codes. The tax examiner may change or delete this code if information on the taxpayer's return indicates the displayed code for U/R income types is inaccurate.

  4. The following general rules apply to the analysis of all types of IRs:

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

    2. Consider an IR reported if the taxpayer reports the same amount of income but under a different payer name.

    3. Allow a tolerance of $1 (rounding) for each IR. In those processes which do automatic calculations and grouping (for example, SS/RR, IRA Deduction), the system considers the (rounding) tolerance.

      Note:

      The system does not consider a rounding tolerance during automatic calculations that apply to W/H, SE Tax, excess SSTAX, additional MCTXW, or the 10 percent tax. Follow the taxpayer's intent as to rounding, dropping cents, when working these issues.

    4. Consider Payer Agent criteria when evaluating IRs. See IRM 4.19.3.6, Payer Agent, for further instructions regarding Payer Agent data.

  5. Misplaced entries on the tax return are frequent causes of U/R discrepancies. Taxpayers report income on their returns in a variety of places. It is important to thoroughly review the ENTIRE return before identifying income as being underreported.

    1. If there is unearned income (for example, UNEMP, TX/A) reported as wages, complete the Return Value screen adjusting the TOTAL EARNED INCOME field of the EIC window if necessary.

    2. Be sure income identified on an attachment is carried forward and included in the adjusted gross income.

  6. When comparing IRs with entries on any line not specifically identified for that income type, the amount must match within $1 or be clearly identified as the income type in question.

    1. If the amount matches within $1, consider the IR reported.

    2. If the amount does not match within $1, but the income type has been clearly identified, consider the IR(s) reported if the entry is a larger amount, or consider the IR partially U/R if the entry is a lesser amount.

  7. When payer documents are attached (Form W-2, Form 1099-MISC, etc.) to a paper return, consider them more accurate than the IR UNLESS:

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

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ continue processing and consider the IR the most accurate.

    3. There is an amended IR that corresponds with the payer document. Consider the amended IR the most accurate.

    4. They appear to be for an incorrect tax year.

  8. Taxpayers recreate payer information (such as Form W-2, Form 1099-R, etc.) to include with their ELF return, increasing the potential for input errors of the payer information, such as transposed money amounts or missing information (for example, pension plan box on Form W-2, COD on Form 1099-R). Review ELF payer documents displayed in the TRDB window as follows:

    1. When the ELF payer document ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Caution:

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

    2. When the ELF payer document ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. When the taxpayer includes an ELF payer document(s) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Caution:

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

      Exception:

      If the information appears to be fraudulent or paper documents appear to be altered, see IRM 4.19.3.5.8.1, Identifying and Developing Fraud in AUR, for additional information.

  9. For ELF returns, consider the IR more accurate than the ELF payer document when the ELF payer document shows less income than the IR. All elements of the IR are considered more accurate than the ELF payer document elements.

  10. If the return is missing supporting forms or schedules, research IDRS. If the information is not available, take the following action(s):

    1. Allow credit against IRs for wages, W/H, interest, and dividends reported on the return unless there is an indication the return amounts are not from the same payer(s) on the IR(s).

    2. For all other types of income, do not allow credit against IRs unless the return amount matches an IR within $1.

    3. Do not make any changes in the calculation windows (for example, Child Care Credit, Schedule A, Alternative Minimum Tax), but allow the system to compute if the necessary supporting schedule or form is missing.

  11. The Create Information Return window is used to create a new IR. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Creating Information Returns.

  12. Create an IR if:

    1. The taxpayer reports income/deductions for which there is no corresponding IR, and the reported amount is needed by the system to perform related calculations. (The corresponding information document may or may not be attached to the return.)

    2. There is an attached information document with no corresponding IR, and the income is not reported. Send PARAGRAPH 139, see Exhibit 4.19.3-7, CP PARAGRAPHS.

    3. The payer's name is garbled, missing or incomplete. Use the EIN to research IDRS CC INOLES for the proper payer name. If the income is U/R, recreate the IR as shown on the Case Analysis screen, including the correct payer name. Include the created IR on the notice.

      Caution:

      In order for a created IR to be considered valid for inclusion on the notice, it must contain: a payer name, payer EIN, and an income amount greater than zero (in addition to other required entries). The Send Indicator must be manually entered on the IR by clicking in the SEND INDICATOR field on the Case Analysis screen.

    4. The tax examiner determines other conditions exist that require creation of an IR.

  13. The Modify Information Return window modifies an existing IR. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Modifying Information Returns.

  14. Modify an IR if:

    1. The COD/PGR Indicator is incorrect.

    2. The Payee Indicator is incorrect.

    3. One or more IR(s) belongs to both taxpayers and the income/deduction amount needs to be allocated (for example, the taxpayers divided nonemployee compensation from one IR between two Schedules C, and SE tax is an issue).

    4. One or more IR(s) is reported on more than one schedule or form (for example, mortgage interest on Schedule A and Schedule E), and the income must be allocated in order to reflect the correct Income Identify Code.

    5. It is determined other conditions require modification of an IR.

      Reminder:

      After an IR is modified the system marks the original amount with an "X" . To include the modified IR on the notice, click the SEND INDICATOR field next to the original amount.

  15. Use the SEARCH option to view only those IRs that fit specific criteria (for example, payer name, income type). See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Search Function.

  16. Use the SCROLL IR option to view multiple IRs on the Information Return window, without returning to the Case Analysis screen. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - CA Tools Menu.

  17. Use the GROUP option when a breakdown is not provided and it is necessary to compare a total money amount for related IRs with a single line entry on the return. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Grouping Information Returns.

    Note:

    The Group function is a tool to assist the TEs in computing the correct U/R amount. The Mixed IR Group menu has a drop-down menu to select an income type or combination of income types. It may not be necessary to use the Group function if the correct U/R can be determined without it.

    1. If the group total amount is larger than the single line entry on the return, assign status code "U" to the group.

    2. If the group total amount is smaller than the single line entry on the return, assign status code "R" to the group.

    Note:

    All IRs of the same income type are grouped together, regardless of the Income Identify Codes. After grouping, it may be necessary to remove an IR(s) from the group because of the Income Identify Code.

  18. If a 99MIS IR has two elements with identical money amounts (for example, NEC is $500 and MED is $500) and the taxpayer reports one of the amounts, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  19. A photocopy of a prior year CP 2000 response may be attached to the return. Consider the information in the previous year's response. This information may result in resolving the U/R issue(s).

  20. When a U/R issue for the same type of income from the same payer was resolved per a copy of a Letter 2625C response from a prior year attached to the return, delete any current year IR.

    Note:

    If a prior year AUR closure letter (such as, CP 2005, Letter 1802C) is attached to the return, research the prior year to see if the resolved issue(s) corresponds to the current AUR year discrepancy. If so, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  21. If all IRs are matched exactly, but there is still a U/R amount:

    1. Add the amounts reported on the return. (There has probably been a math error.)

    2. Pursue the U/R issue.

    3. Send an appropriate paragraph to advise the taxpayer of the error.

  22. If the discrepancy is resolved, close the case using PC 2X.

  23. Foreign source income IRs are identified by:

    • A payer TIN of "99-9999999" .

    • An unusual payer name (Bundesent fer Finazen, Banque de Quebec) or a payer name indicating a foreign country (French Dividends, German Securities, United Kingdom Royalties).

    • Foreign country abbreviation in the State field.

    • Account Code Type "T" .

      Note:

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

Service Center Recognition/Image Processing System (SCRIPS)
  1. The following procedures apply to the analysis of Service Center Recognition/Image Processing System (SCRIPS) IRs.

  2. The system displays a warning message when STATUS CODE "U" is assigned to a SCRIPS IR(s). When this message is received, the tax examiner should screen the related IR with EXTREME care.

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

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

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

      Example:

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

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

      Example:

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

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

  4. If a SCRIPS IR is asterisked and is deleted due to one of the conditions in (3) above and the other asterisked item(s) are reported or below tolerance, close the case. If the other asterisked item(s) are U/R, continue processing.

  5. If a SCRIPS IR is U/R and none of the conditions in (3) above are present, consider the IR correct and pursue the issue using normal procedures.

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

    2. Do not send SCRIPS IRs with erroneous information. Create an IR to reflect the correct information and include it on the notice.

  6. Do not send information regarding erroneous SCRIPS IRs to the AUR Payer Agent Coordinator, unless some other payer agent (P/A) condition exists.

Jointly Owned Income

  1. Joint ownership is indicated when there are two or more names on the IR, or one payee name is on the IR followed by "and" or "or" . This situation occurs primarily when working with interest, dividend and/or securities income.

  2. When the taxpayer reports the appropriate percentage of ownership from a jointly owned IR, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Exception:

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

  3. If the taxpayer resides in a Community Property state, see IRM 4.19.3.5.4, Community Property States, for further instructions.

  4. If the filing status is 3 (Married Filing Separately), the spouse's name appears on the IR, the taxpayer does not report ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ of the income in question or does not include a statement that ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡, research IDRS using CC INOLE, RTVUE, ENMOD, etc. for the spouse's return.

    Note:

    If the IR is solely for the spouse, delete the IR.

    1. If the spouse did not file a return, issue a CP 2000.

    2. If the spouse filed a return, it may be possible to determine if the spouse reported the jointly owned income. If the difference between the spouse’s IRPTR data and their reported per return amount (from CC RTVUE, or IMFOLR) for the related income type equals the U/R amount (within tolerance) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡. If not, issue a notice for the full U/R amount to the AUR taxpayer.

  5. If the filing status is 6 (taxpayer claiming an exemption for spouse not filing), issue a notice as appropriate to the primary taxpayer for the U/R issue.

    Reminder:

    If the filing status is 6 and the IR is for the spouse, delete the IR.

Community Property States

  1. Taxpayers who reside in a community property state and who are subject to the state’s community property laws must follow the state community property laws to report their community/separate income on a federal tax return.

  2. AUR may receive requests for filing status changes based on the June 26, 2013 Supreme Court ruling on a provision of the 1996 Defense of Marriage Act (DOMA). The effect of the Supreme Court’s opinion is that same-sex couples who are lawfully married under state law are treated as married for all federal tax purposes including income and gift and estate taxes. The ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA and claiming earned income tax credit (EITC) and child tax credit (CTC). If the taxpayer submits a Form 1040-X requesting a filing status change see IRM 4.19.3.22.7.4, Referrals.

  3. The Community Property states are:

    • Arizona

    • California

      Note:

      A Chief Counsel Advice Memorandum issued in May of 2010 provides that in computing federal income tax California’s community property laws apply to registered domestic partners (RDP) who reside in California in computing the partner’s federal income tax.

    • Idaho

    • Louisiana

    • Nevada

      Note:

      The states community property laws apply to RDP as of October 1, 2009.

    • New Mexico

    • Texas

    • Washington

      Note:

      The states community property laws apply to RDP as of June 12, 2008.

    • Wisconsin

  4. Married taxpayers can elect to file either a joint return or separate returns (to get a greater tax advantage). If the taxpayers meet certain conditions, they may be eligible to file a non-joint return using either FS 1 (single) or FS 4 (head of household), as opposed to FS 3 (married filing separate).

  5. RDPs are not married for federal tax purposes. They can use only the single filing status, or if they qualify, the head of household filing status. RDPs treat income as jointly owned. An RDP must report half of all community income and all of their separate income on their tax return. Taxpayers attach Form 8958, Allocation of Tax Amounts Between Certain Individuals in Community Property States, (or similar statement) to show how the income has been allocated.

  6. Community income is generally income from:

    • Community property (such as, a jointly owned savings account)

    • Salaries, wages or pay for services that either spouse performed during their marriage

    • Real estate that is treated as community property under the laws of the state where the property is located

  7. Separate income is generally income from separate property. Separate income belongs to the taxpayer who owns the property.

    Note:

    Contribution limits on IRAs are applied without regard to community property interests.

  8. When married taxpayers choose to file separate tax returns, they should use Form 8958 (or similar statement), to list their income, deductions and W/H. Each taxpayer is instructed to attach the Form 8958 (or similar statement) or a photocopy of the other spouse's payer documents (Form 8958, etc.) to each of their individual tax returns.

  9. On the Form 8958(or similar statement), community income is generally equally divided between both taxpayers and each taxpayer would report their separate income.

    1. Earned income (for example, wages, nonemployee compensation) is generally considered community income and the taxpayers would divide their combined income equally between them.

      Note:

      The amount of W/H would also be combined and divided between both taxpayers.

    2. Jointly held savings accounts are treated as community property. Individual savings accounts that earn either interest or dividends are generally considered separate property.

      Exception:

      The Community Property laws for those taxpayers who reside in Idaho, Louisiana, Texas or Wisconsin stipulates that income from separate property is generally treated as community income. For example, interest earned on an individual savings account would be considered community income.

  10. On an individually filed tax return, if there is partially reported income/deductions and the taxpayer resides in a community property state as listed in (3) above, determine if the AUR condition is the result of the income allocation.

    1. Consider the information return fully reported if attached statements/worksheets or Form 8958 identifies the income was allocated between both spouses (including RDPs).

    2. If the discrepant information return is not addressed in the attached statement/worksheet or Form 8958, pursue the full amount of the income.

Deceased Taxpayers

  1. On married filing joint (FS 2) returns if there is an indication the primary or secondary taxpayer is deceased, but the Tax Account screen (Entity section) does not reflect this, research IDRS CC INOLES to determine which taxpayer is deceased.

  2. Follow the procedures listed below to screen the case:

    Note:

    When one of the taxpayers is deceased, see IRM 4.19.3.8.17.1, SS/RR - Analysis, for procedures to resolve SS/RR discrepancies on jointly filed returns.

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

      Caution:

      If the decedent's income is reported on the return, consider the IR reported and enter status code "R" . This allows the system to correctly calculate any changes.

      Exception:

      If the surviving spouse's U/R income causes a change in the taxable portion of a decedent's reported SS/RR, Student Loan Interest Deduction, and/or IRA Contributions , ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

    3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡Send PARAGRAPH 129, see Exhibit 4.19.3-7, CP PARAGRAPHS.

    4. Issue a notice if the U/R IR(s) show ownership for the surviving spouse.

  3. If issuing a notice, input the current information in the Update Address window. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Updating Address Information.

    1. Update the first name line.

    2. For joint returns, enter DECD after the given name of the deceased taxpayer.

    3. For other than joint returns, enter DECD after the taxpayer's last name, including suffix.

      Note:

      The first name line is limited to 35 characters. If DECD will not fit on this, input the deceased taxpayer's name and DECD on the second name line.

    4. Enter the second name line, if present.

    5. Enter "D" in the Split Code field.

Declared Disaster Areas

  1. AUR HQ inputs zip codes for specific declared disaster area situations, as necessary, based on IRS Disaster Relief Memos. Follow system prompts to ensure proper handling of declared disaster area cases. Disaster types with case impact:

    Note:

    Use of IPC 0D, 3D, 6D or 8D and Batch Type 35, 43, 63 and 73 to process disaster cases should occur ONLY when the taxpayer self-identifies or as directed by AUR HQ and ONLY for impacted sites/cases.

    • Type 3 - prevents cases from defaulting (notices continue to be issued).

    • Type 4 - suppresses CP 2000/CP 2501 and Statutory Notices AND prevents all enforcement actions.

      Note:

      IRS Disaster Relief Memos provide guidance on how enforcement actions are impacted; for example, suspension of notice issuance and/or prevention of cases from defaulting. No change or adjustments resulting in a refund are permitted. See IRM 4.19.3.22.1.16, Disaster Cases, for additional information.

  2. Special rules apply on qualified retirement plans and for withdrawals and loans from IRAs ( which are taken into consideration on Form 8606, Nondeductible IRAs. See IRM 4.19.3.8.10.3, Retirement-Analysis, for additional information). reported on:

    • Form 8915-A, Qualified 2016 Disaster Retirement Plan Distributions and Repayments

    • Form 8915-B, Qualified 2017 Disaster Retirement Plan Distributions and Repayments.

    • Form 8915-C, Qualified 2018 Disaster Retirement Plan Distributions and Repayments.

    • Form 8915-D, Qualified 2019 Disaster Retirement Plan Distributions and Repayments.

    • Form 8915-E, Qualified 2020 Disaster Retirement Plan Distributions and Repayments.

    • Form 8915-F, Qualified 2021 Disaster Retirement Plan Distributions and Repayments.

Frivolous Return Program (FRP)

  1. A frivolous return is defined as noncompliance with filing and/or paying tax based on unfounded legal or constitutional arguments. A frivolous return is defined as noncompliance with filing and/or paying tax based on unfounded legal or constitutional arguments. Frivolous returns often contain the following:

    • Arguments about the obligation to file or pay tax on the face of the tax return or on attachments to the tax return.

    • Altered forms or jurats containing frivolous arguments.

    • Verbiage that attempts to impede or circumvent the administrative processing of the tax return.

    • Irregular entries such as the taxpayer name or other fields in all lower-case letters or addresses with "Territory of" instead of the state.

      Note:

      For a full list of recognized frivolous arguments, see Frivolous Tax Arguments for further information.

  2. If in doubt about whether the return is frivolous, consult with your lead or manager. If it is determined during screening the return is frivolous, close the case with PC 13, notate the folder/Form 4251/Campus cover sheet for clerical "FRP to Ogden" .

  3. If the return is determined NOT to be frivolous, continue normal processing.

  4. If FRP requests an AUR case after taxpayer contact, close the case with the appropriate PC (38, 64 or 85), notate the folder/Form 4251/Campus cover sheet for clerical "FRP to Ogden" .

Fraud Referral Program

  1. The primary objective of the fraud program is to foster voluntary compliance through the recommendation of a criminal investigation/prosecution and/or civil penalties against taxpayers who evade the assessment and/or payment of taxes known to be due and owing.

  2. Tax fraud is often defined as an intentional wrongdoing on the part of a taxpayer, with the specific purpose of evading a tax known or believed to be owing. Tax fraud requires both:

    1. a tax due and owing; and

    2. fraudulent intent

  3. The objective of the Campus Fraud Referral Program is to:

    1. Identify cases with potential fraud.

    2. Develop fraud guidance from the Campus Fraud Referral Specialist (FRS).

    3. Refer potential fraud cases to Field Exam for further development.

  4. Fraud Technical Advisor (FTA) - The FTA assists with the development of fraud in the Campus Examination environment.

  5. Functional Fraud Coordinator (FFC) - The FFC is a fraud liaison assigned to a specific function or operation within the Campus. The FFC is responsible for reviewing the Form 13549, Campus Fraud Lead Sheet, and conducting research used to establish a pattern of non-compliance. See IRM 4.19.10.4.3, Responsibilities of the Functional Fraud Coordinator (FFC), for additional information.

  6. Campus Fraud Coordinator (CFC) - The CFC is a fraud liaison assigned to each SB/SE Campus. The CFC is the main point of contact with the FTA assigned to that campus.

  7. Exam Fraud Coordinator (EFC) - The EFC is a fraud liaison assigned to each W&I Exam function. The EFC is the main point of contact with the FTA assigned to that campus.

Identifying and Developing Fraud in AUR
  1. During the course of AUR case work, situations may be encountered involving potential fraud, referred to as indicators of fraud. Although only a small percentage of cases are fraudulent, it is essential to detect and report any potential fraudulent activities. The following list has been developed for AUR and identifies examples of indicators of fraud that are most likely to be found in a campus environment (this list is not all inclusive and may involve a promoter/return preparer):

    • Altered Documents

    • False deductions/adjustments to income

    • False/overstated Form W-2 for EIC purposes (may be preparer/promoter)

    • False Schedule C for EIC purposes

    • Identity theft (sale or purchase)

    • False basis in assets

    • False transaction date for asset disposition

    • False statements made by taxpayer

    • False exemptions

    • Use of decedent’s SSN

    • False business, rental, or farm expenses

    • False or overstated refundable credits

    • False/overstated Form 1099- MISC

    • Amended returns with any of the above

  2. Fraud is developed by trained Fraud caseworkers until it is determined affirmative acts (deceit, subterfuge, camouflage, concealment or some attempt to color or obscure events or to make things seem other than they are) exist. The Service must prove the taxpayer acted deliberately and knowingly with the specific intent to violate the law. Once a suspicion or indicator of fraud is found, it is essential the case be transferred to the designated AUR Functional Fraud Coordinator (FFC) for further development.

Online Fraud and Other Scams (PHISHING)
  1. Cases where the taxpayer indicates receipt of an AUR notice/letter but there is no record on the AUR system of any notice/letter issuance for the tax year in question; in other words, a fake CP 2000, require special handling. Ask the taxpayer if the notice/letter was received vial mail or email; see the table below to determine the proper actions to take:

    If the taxpayer received the notice Then
    Via mail
    1. Advise the taxpayer to report the incident by accessing the information on https://www.irs.gov/uac/report-phishing and following the directions.

      Note:

      If the taxpayer does not have internet access, refer to (2), below.

    2. Request the taxpayer provide a copy of the notice/letter, including all enclosures and the packaging envelope, if available.

    3. Inform the taxpayer the AUR department has no compliance issue and no further action is necessary.

      Caution:

      It may be necessary to research the taxpayer’s account(s) to validate there are no other IRS issues; for example, balance due.

    4. If the taxpayer’s identity is compromised (their SSN is on the notice/letter), inform the taxpayer they may be a victim of ID Theft and advise them to complete Form 14039, IRS Identity Theft Affidavit. See IRM 4.19.3.22.1.26.1, IDT - General for additional information.

    5. Refer the matter to the AUR Coordinator and advise the Coordinator the notice/letter was received by mail. Provide a copy of the notice/letter, including enclosures and the packaging envelope, if available. Inform the Coordinator if no enclosures or packaging was provided, when requested from the taxpayer.

    Via email
    1. Inform the taxpayer not to reply to the email, open any attachments as they may contain malicious code, or click on any links.

    2. Advise the taxpayer to report the incident by accessing the information on https://www.irs.gov/uac/report-phishing and following the directions.

      Note:

      If the taxpayer does not have internet access, refer to (2), below.

    3. Request the taxpayer provide a copy of the email/fax, if available.

    4. Inform the taxpayer the AUR department has no compliance issue and no further action is necessary.

      Caution:

      It may be necessary to research the taxpayer’s account(s) to validate there are no other IRS issues; such as, balance due.

    5. If the taxpayer’s identity is compromised (their SSN is on the notice/letter), inform the taxpayer they may be a victim of ID Theft and advise him/her to complete Form 14039 , IRS Identity Theft Affidavit. See IRM 4.19.3.22.1.26.1, IDT - General. for additional information.

    6. Refer the matter to the AUR Coordinator and advise the Coordinator the notice/letter was received via email. Provide a copy of the email, if available.

  2. If the taxpayer does not have internet access advise him/her to contact TIGTA. TIGTA can be reached at 800-366-4484 or by faxing information to 202-927-7018. Information can also be mailed to Treasury Inspector General for Tax Administration Hotline, PO Box 589 Ben Franklin Station, Washington, DC 20044-0589.

AUR Tax Examiners Fraud Responsibilities
  1. Identify indications of fraud that are uncovered through regular case processing. Prior to researching for fraud indicators, use the IAT "aMend" tool, research portion, to determine Scrambled SSN or Mixed Entity. If yes, prepare Form 4442 for referral to AM. If no, refer to the following:

    1. Fraud Refund Scheme listing found in the Job Aids section on SERP: http://serp.enterprise.irs.gov/databases/irm-sup.dr/job_aid.dr/RICS-IVO/FraudRefundSchemeListing.htm

    2. IRM 4.19.3.5.8.1, Identifying and Developing Fraud in AUR.

    3. IRP data versus the filed return; for example, the only UR income is social security benefits that do not indicate a filing requirement. The posted return appears to have fraudulent income reported, such as Schedule C and wage income that cannot be verified on IRPTR. Refer to Exhibit 4.19.3-19, Filing Requirements for Most People, for additional information.

  2. Discuss the indicators of fraud with the group manager or lead. If the group manager or lead concurs:

    1. Complete Sections I, II and III of Form 13549, Campus Fraud Lead Sheet (information and indicators of fraud).

    2. Secure the group managers initials and date.

    3. Assign the appropriate Internal Process Code;

      IPC Description
      0F Screening Fraud Referral
      3F CP 2501 Fraud Referral
      6F CP 2000 Fraud Referral
      8F Statutory Fraud Referral

    4. Forward the case and the sheet to the AUR Functional Fraud Coordinator (FFC) for consideration.

  3. Documentation is critical in the development of fraud. Maintain complete and accurate case notes that include each of the following:

    1. All case actions.

    2. All documents received.

    3. All contacts must be adequately documented (for example, changes to entity information were recognized/updated).

    4. All conversations with the taxpayer, representative, return preparer, and third parties must be recorded (what was discussed and the responses).

  4. If Fraud refuses the case it will be returned to the tax examiner per IRM 4.19.3.5.8.3, AUR Functional Fraud Coordinator Responsibilities. See the table below for the appropriate action to take.

    If Then
    The case is in the screening phase Close the case PC 28, if instructed by the FFC to do so.
    The taxpayer's response indicates they did not file a tax return (regardless of agreement to the U/R income)
    1. Research and print ENMOD. If there is an indication of identity theft see IRM 4.19.3.22.1.26.3, IDT Claims - Responses.

    2. If not, issue a Letter 2626C, and advise the taxpayer to submit a completed return including the required signatures or a signed statement that they did not have a filing requirement with a copy of our notice. Refer to Exhibit 4.19.3-19, Filing Requirements for Most People, for additional information.

    3. Request Form 14039 or a police/law enforcement incident report.

    4. Leave a detailed case note outlining the taxpayer response and actions (such as, "TP resp didn’t file. 2626C for rtn or signed stmt" ).

AUR Functional Fraud Coordinator Responsibilities
  1. The AUR Functional Fraud Coordinator (FFC) is responsible for monitoring and managing the Fraud Program within the AUR Operation:

    1. Conduct preliminary screening of potential fraud case(s) referred from the AUR Operation (all cases in IPC 0F, 3F, 6F, and 8F).

    2. Perform thorough research and review of the potential fraud cases for a pattern of non-compliance and/or fraud scheme characteristics within the AUR Program.

    3. Input and maintain case action on the AUR HQ Policy Fraud SharePoint.

    4. Leave a case note detailing actions taken (for example, forwarded to AUR HQ Policy for Fraud, doesn't meet fraud criteria, etc.).

    5. Track all AUR fraud leads, including those declined/returned to AUR and those accepted for further fraud development on the AUR HQ Policy SharePoint.

    6. Submit information on fraud referral/accepted/declined cases to Exam Headquarters by Completing the Campus Fraud Monitoring report located at \\VPWSENTSHRCMN43\Common by the fifth day of each month.

    7. Maintain a copy of each Form 13549 , Campus Fraud Lead Sheet for 3 years.

    8. AUR will use a combination of the IPC listing and Form 13549, Campus Fraud Lead Sheet, to track fraud referrals.

  2. The AUR FFC is responsible for maintaining fraud referrals on the AUR HQ Policy SharePoint:

    1. Complete AUR HQ Policy Fraud SharePoint template for all potential fraud cases.

    2. Review and determine if referral from the AUR Operation meets fraud criteria:

      If Then
      Case(s) potentially meets criteria but is incomplete from initiator. Update AUR HQ Policy Fraud SharePoint with appropriate actions to return the case to the initiator.
      Case(s) does not meet fraud criteria.
      1. Update AUR HQ Policy Fraud SharePoint with the appropriate actions to decline the referral.

      2. Leave a detailed case note of the declination on the AUR System.

      3. Complete Form 13549, Campus Fraud Lead Sheet, Section VI with explanation of declination.

      4. Return copy of completed Form 13549, Campus Fraud Lead Sheet, to the initiator through their manager/lead within 5 business days.

      5. Reassign case to the initiators AUR User Identification Number (SEID).

      FFC has determined the case(s) is deemed valid for potential fraud.
      1. Update AUR HQ Policy Fraud SharePoint with the appropriate actions to accept the referral.

      2. AUR HQ Policy Fraud will provide the FFC with determination of necessary steps.

      Reminder:

      ALL potential fraud cases need to be documented on the AUR HQ Policy Fraud SharePoint.

  3. AUR HQ Policy Fraud will provide determination of next steps for potential fraud case(s):

    1. If Then
      AUR HQ Policy Fraud determines the referral is accepted.
      1. Leave a detailed case note on the AUR System.

      2. Scan all case contents and send securely to "*SBSE AUR HQ Policy Fraud " email.

      3. Complete Form 13549, Campus Fraud Lead Sheet, Section VI with explanation of acceptance.

      4. Return copy of completed Form 13549, Campus Fraud Lead Sheet, to the initiator through their manager/lead.

      5. Follow guidance provided from AUR HQ Policy Fraud.

      AUR HQ Policy Fraud determines the case needs to be sent to Campus Fraud Coordinator (CFC).
      1. Update AUR HQ Policy Fraud SharePoint with the appropriate actions to refer case to Campus Fraud Coordinator (CFC).

      2. Complete Form 13549, Campus Fraud Lead Sheet, , Section VI with explanation of acceptance.

      3. Scan all case contents and completed Form 13549, Campus Fraud Lead Sheet, to the CFC for final determination.

      4. Monitor case for determination from CFC.

        Note:

        CFC is required to provide a determination to accept or decline fraud lead within 21 business days of receipt.

      Caution:

      The normal Assessment Statute Expiration Date (ASED) expires three (3) years from the due date of the return or three years from the received date of the original return; whichever is later. There must be at least 13 months remaining on the ASED, from the date the case is referred to the CFC. If less than 13 months remain and the case has good fraud potential, the FFC can contact the CFC who can consider accepting the case on a case by case basis.

  4. If the CFC accepts the fraud lead for further development, they will request the case be reassigned and ensure the case is established on AIMS. The AUR FFC will:

    1. Leave a detailed case note on the AUR System.

    2. Update AUR HQ Policy Fraud SharePoint stating the case has been accepted by CFC.

    3. Close the case using Fraud Closing PC 14, 44, 72 or 84, as appropriate.

    4. Annotate the Form 13549, Campus Fraud Lead Sheet, and keep a copy for the AUR records.

    5. Send a copy of the Form 13549, Campus Fraud Lead Sheet to the initiator through the initiator's manager.

    6. Ensure the entire case contents are forwarded to CFC.

      Note:

      If the case contents are being trans-shipped to the CFC, recharge the return using IDRS CC ESTABDT or Form 2275, Records Request, Charge and Recharge.

  5. If the CFC declines the fraud lead, they will return the Form 13549 with a written explanation to AUR. The AUR FFC will:

    1. Leave a detailed case note on the AUR System.

    2. Update AUR HQ Policy Fraud SharePoint stating the case has been declined by CFC.

    3. Return the Form 13549 to the initiator through the initiator’s manager.

    4. Reassign the case to initiating tax examiner’s SEID.

Miscellaneous

  1. Initial processing errors, or additions to the AGI are corrected by entering the appropriate amount(s) in the MISCELLANEOUS ADJUSTMENT fields on the MISC ADJUSTMENT/SCHEDULE C EXPENSE window. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Miscellaneous Adjustment/Schedule C Expense. When any amount is entered in this window send a Special Paragraph explaining the adjustment. The amount computed in the changed amount field is included in the AGI by the system and is considered in all calculations. This amount is included in the U/R Amount on the Return Value screen and displays on the Notice Summary as Miscellaneous Adjustment.

    Caution:

    Do not use this window for situations where a specific income/deduction type has its own window for the required adjustment. Also, the entry for the return field can be a negative or a positive amount, depending on the line entry being changed.

  2. If Form 6781, Gains and Losses from IRC 1256 Contracts and Straddles, is attached to the return, or if Form 1040, Schedule 2, line 44 (TY 2018 and subsequent), indicates the tax is from Form 6781, continue normal processing. This is reported on Schedule D.

  3. A net operating loss (NOL) is identified by a negative entry on

    TY Form and line number
    2019 and 2020 Form 1040 / Form 1040-SR, Schedule 1, line 9 caused by negative amounts on Schedule 1, lines 3, 4, 5 (other than Schedule E Part I, line 18), line 6 or the indication of a carryover NOL on Schedule 1, line 8.

    Note:

    A NOL is indicated by a negative amount on Form 1040 / Form 1040-SR, Schedule 1, line 8. A NOL does not exist simply because there are negative entries on Schedule 1, lines 3, 4, 5, 6, 8.

    2021 Form 1040/1040-SR, Schedule 1, line 10 caused by negative amounts on Schedule 1, line 8a (other than Schedule E Part I, line 18).

    Note:

    A NOL is indicated by a negative amount on Form 1040/1040-SR, Schedule 1, line 8a.

    1. Verify the correct amount is displayed in the NET OPERATING LOSS AMT field of the Return Value screen.

    2. If a NOL is caused by negative entries on Form 1040, Schedule 1, lines 14 or 21, (TY 2018), Form 1040 / Form 1040-SR, Schedule 1, lines 4 or 8, (TY 2019 and subsequent) an amount does not display on the Return Value screen. Input the amount of the NOL in the NET OPERATING LOSS AMT field.

    3. The NET OPERATING LOSS AMT field displays an amount that is just a negative figure, not an actual NOL. If a displayed amount is not a NOL, delete the incorrect amount.

  4. If Form 1040, Schedule 1 (TY 2018 and subsequent) or Form 1040-SR (TY 2019 and subsequent) shows a net operating loss, continue normal processing.

  5. If IRC 6501(d), Request for Prompt Assessment, is noted on the tax return, or there is a statement requesting a prompt assessment, AND there is a U/R amount, the case MUST BE WORKED EXPEDITIOUSLY. Prompt Assessment cases have an 18 month statutory period for the assessment of additional tax. Refer to the table below for the proper action to take:

    If Then
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    1. Enter "Y" in the IRC 6501(d) field on the Tax Account screen.

    2. Enter the irregular statute of limitation date in the IRREG DATE field on the Tax Account screen.

    3. Control the case and continue processing.

  6. If an attachment indicates the income in question is nontaxable and the taxpayer cites an IRC section, determine the validity of the taxpayer's statement by researching the IRC. If the IRC submitted by the taxpayer is not valid, send a Special Paragraph to inform them the explanation is not acceptable.

  7. Erroneous refunds caused by IRS error require special processing, see IRM 4.19.3.5.13, Erroneous Refunds, for further information.

Limitation on Business Losses

  1. For tax years 2017 and before 2026, section 461(1) of the Internal Revenue Code disallows excess business losses of the noncorporate taxpayers if the amount of the loss is more than $250,000 ($500,000 for MFJ). The threshold amounts for the disallowance will be adjusted for inflation in future years. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) repealed the section 461(1) limitation for tax years 2018, 2019 and 2020. For tax years 2018 and 2019, and 2020, taxpayers may need to file an amended return if they filed TY 2018 , TY 2019 and/or TY 2020 return(s) applying the limitation.

  2. The taxpayer may need to adjust the business loss when there are changes to income reported and the loss is more than the limitation on any of the following:

    • Schedule C

    • Schedule D/Form 8949

    • Schedule E

    • Schedule F

    • Form 4835

    • Form 4797

  3. Taxpayers are instructed to report the excess business loss amount on Form 1040, Schedule 1, line 21 (TY 2018) or Form 1040 / Form 1040-SR, Schedule 1, line 8 (TY 2019 and subsequent) as a positive number and indicate "ELA" .

    Note:

    DO NOT assess SE tax on the excess business loss amount reported on Form 1040, Schedule 1, line 21 (TY 2018) or Form 1040/ Form 1040-SR, Schedule 1, line 8 (TY 2019 and subsequent).

  4. If Form 461, Limitation on Business Losses is attached, (TY 2018 and TY 2019) Send PARAGRAPH 205, see Exhibit 4.19.3-7, CP PARAGRAPHS.

Limitation on Business Losses Responses

  1. Taxpayer’s may submit Form 461, Limitation on Business Losses, with their response. If the taxpayer provides a new or revised Form 461, input the new loss amounts in the MISC ADJUSTMENT window as a positive amount. If issuing a notice, send PARAGRAPH 206 ( TY 2018 and TY 2019), see Exhibit 4.19.3-7, CP PARAGRAPHS.

AUR Bankruptcy Coordinator Procedures - Contact by Insolvency

  1. When contacted by an Insolvency Specialist on a case in AUR inventory that has not yet been screened:

    1. Inform the Insolvency Specialist there will not be an AUR issue for the year in question.

    2. Leave a detailed case note documenting the contact with the Insolvency Specialist.

    3. Take the following action to close the case with PC 27:

      If Then
      The case is currently in a batch (AB, AU, or BF status) Have the case assigned to yourself and input closing PC 27.
      The case is not currently in a batch (for example, the case is in a future run control) On a weekly basis, provide the clerical function with a listing of SSNs and request that they assign PC 27.

      Note:

      Follow the above procedures regardless of whether or not Bankruptcy indicators are present on the AUR system.

    4. Run the AUR Bankruptcy Status listing on a weekly basis and take appropriate steps to address the cases identified on the listing. Provide clerical with the SSNs of any "pre notice" cases identified from the listing to be closed with PC 27. See IRM 4.19.3.22.1.10.2, Bankruptcy Procedures - AUR Bankruptcy Coordinator Instructions, for additional information.

  2. When contacted by an Insolvency Specialist on a case that has been screened but the notice has not yet been issued:

    1. Inform the Insolvency Specialist there will not be an AUR issue for the year in question.

    2. Leave a detailed case note documenting the contact with the Insolvency Specialist.

    3. Stop the notice and input PC 27. See IRM 4.19.3.19.3, Stop Notice Functionality, for additional information on stopping notices.

      Note:

      Follow the above procedures regardless of whether or not Bankruptcy indicators are present on the AUR system and/or regardless of the proposed U/R amounts.

Erroneous Refunds

  1. An erroneous refund is any receipt of money from the Service to which the recipient is not entitled. It includes all erroneous payments to the taxpayer, even if the erroneous refund involves returning the taxpayer’s own money. An erroneous refund may occur when:

    • The statute of limitations has expired and a refund is issued.

    • There are misapplied payments.

    • The AUR adjustment erroneously releases a credit hold (for example, IVO involvement TC 971 AC 134 is present).

    • The AUR payment is posted with TC 670 or TC 610.

  2. When an erroneous refund is identified and the TC 846 has not posted, use the IAT "Stop Refund" tool to stop the refund. The action to stop the refund must be input by 10:00 a.m. on the Wednesday preceding the date of the refund.

    Caution:

    Do not stop a direct deposit refund; which is identified by the number "10" in the DDRC field on IDRS CC IMFOLT.

  3. When an erroneous refund is identified and is the only issue, assign PC 28, 53, 68, or 88. If the Erroneous Refund Statute Expiration Date (ERSED) has expired, close the case with PC 28, 52, 71, or 96. Take appropriate actions to resolve the erroneous refund issue. See IRM 4.19.3.5.13.1, Recovering Erroneous Refunds, for additional information.

Recovering Erroneous Refunds
  1. There are four categories of erroneous refunds that AUR will work; Category A1, A2, B and D. Each category has a specific method that must be used to recover the erroneous refund and different statutes of limitation apply.

  2. The Statute of Limitation used when recovering erroneous refunds are:

    1. ASED (assessment statute expiration date) which is generally three years from the date the return was filed,

    2. CSED (collection statute expiration date) which is generally ten years from the date of assessment, and

    3. ERSED (erroneous refund statute expiration date) which is generally two years from the date of the erroneous refund check or direct deposit. A five year statute applies when the IRS can show the erroneous refund was induced by fraud or a misrepresentation of a material fact. ERSED is used to recover Category D erroneous refunds.

  3. When a case is determined to be an erroneous refund, there are two steps to follow for recovering an erroneous refund:

    1. Identify the appropriate erroneous refund category.

    2. Complete the required actions within the applicable statutes to correct the error that caused the erroneous refund.

    Category IRM Reference
    A1 See IRM 4.19.3.5.13.1.1
    A2 See IRM 4.19.3.5.13.1.2
    B See IRM 4.19.3.5.13.1.3
    D See IRM 4.19.3.5.13.1.4

Recovering Erroneous Refunds - Category A1
  1. Category A1 Erroneous Refunds occur when the tax liability has been understated due to an error by the IRS on either a tax assessment or on an adjustment to the tax liability and the error results in a refund.

    Example:

    The IRS lowered the tax when processing the original return or an incorrect adjustment on an amended return was made.

  2. The Category A1 Erroneous Refund is generally recovered with a deficiency assessment by the Examination function. The notice of deficiency must be issued by the ASED.

    1. Prepare Form 4442, Inquiry Referral, and include any information pertinent to the erroneous refund. Forward the Form 4442 to the Examination function for the issuance of a deficiency notice.

      Exception:

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

      Note:

      When Exam is contacted for issuance of a deficiency notice, notify HQ. Provide the tax year, SSN and an erroneous refund chronology.

    2. Use the IAT "REQ77" tool to input TC 971 AC 663; regardless of erroneous refund amount.

    3. Leave a case note and assign appropriate PC/IPC.

      Note:

      The Letter 510C is not issued on Category A1 Erroneous Refunds. Do not input a TC 470 or a TC 844 on these accounts.

Recovering Erroneous Refunds - Category A2
  1. Category A2 Erroneous Refunds involve errors on non-refundable and/or refundable credits that are subject to deficiency procedures. Examples of refundable credits subject to deficiency procedures include Additional Child Tax Credit and Earned Income Tax Credit.

  2. Category A2 Erroneous Refunds are generally recovered with a deficiency assessment by the Examination function. The notice of deficiency must be issued by the ASED.

    1. Prepare Form 4442 and include any information pertinent to the erroneous refund. Forward to the Examination function for the issuance of a deficiency notice.

      Exception:

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

      Note:

      When Exam is contacted for issuance of a deficiency notice, notify HQ. Provide the tax year, SSN and an erroneous refund chronology.

    2. Use the IAT "REQ77" tool to input TC 971 AC 663; regardless of erroneous refund amount.

    3. Leave a case note and assign appropriate PC/IPC.

      Note:

      The Letter 510C is not issued on Category A2 Erroneous Refunds. Do not input a TC 470 or a TC 844 on these accounts.

Recovering Erroneous Refunds - Category B
  1. Category B Erroneous Refunds occur when the taxpayer overstates their W/H, additional MCTXW, excess SST, or estimated income tax payments on a return or a claim for refund.

    Note:

    If the IRS caused the overstatement of W/H, additional MCTXW, excess SST, or estimated tax payments, the erroneous refund becomes a Category D Erroneous Refund and can only be recovered through the Category D Erroneous Refund procedures. See IRM 4.19.3.5.13.1.4, Recovering Erroneous Refunds - Category D, for further information.

  2. Category B assessments are not subject to the deficiency procedures; however, the assessments must be made by the ASED.

  3. The Letter 510C is not issued on Category B Erroneous Refunds.

  4. Do not input a TC 470 or a TC 844 on these accounts.

  5. Do not use Hold Codes on the adjustment that will prevent the notice from being generated.

Recovering Erroneous Refunds - Category D
  1. Category D Erroneous Refunds include any erroneous refund not included in any other erroneous refund category. The Category D Erroneous Refunds can also include any other Category of Erroneous Refunds if the ASED has expired but the ERSED is still open.

  2. The Erroneous Refund Unit in Accounting inputs a false credit (TC 700) on Category D Erroneous Refunds to remove the erroneous refund amount from Masterfile and reestablish the account in Accounting.

    1. This action prevents notices and administrative collection action (liens or levies) from occurring on the erroneous refund liability.

    2. The TC 700 credit can be identified by a Document Code 58 and a blocking series 950-999 in the DLN.

    3. These accounts will have a -U Freeze (generated by a TC 844) and it informs other employees the account is being worked and monitored in Accounting.

    4. Do not release the TC 700 credit.

  3. The IAT "Erroneous Refund" tool may be used in the processing of Category D erroneous refunds.

  4. When a Category D Erroneous Refund is identified within the ERSED statute:

    1. Issue Letter 510C using the IAT "Letters" tool. The date of the letter is considered to be the Date of Demand. Two copies of the letter are needed; one to attach to Form 12356, Erroneous Refund Worksheet, and one for the AUR case file.

      Exception:

      Do not send Letter 510C when the ERSED is expired. Refer to (10) below.

    2. Input the adjustment using the IAT "REQ54" tool for the TC 807 (W/H) and/or TC 252 (EXSST) using blocking series 55 and Hold Code (HC) 3. Use source document "Y" if including the original return with the adjustment.

      Note:

      Failure to Pay Penalty (FTP) under IRC 6651(a)(2) and (a)(3), does not apply to Category D erroneous refunds. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. Input any necessary credit transfers using the IAT "Credit Transfer" tool. Use TC 570 on the debit side to suppress the CP 60 Notice. The IAT "Credit Transfer" tool contains a box for Debit Freeze and Credit Freeze and will input the TC 570 when checked.

    4. Input TC 470 using the IAT "REQ77" tool. If the ERSED has expired, do not input TC 470.

    5. Input TC 971 AC 663 using the IAT "REQ77" tool.

    6. Input a TC 844 using the IAT "REQ77" tool for taxpayer error or refunds of more than $50,000. If the ERSED has expired, do not input TC 844. Enter the date of the erroneous refund in the "TRANS-DT" field.

      Note:

      The TC 844 generates a "-U" freeze on the account and the TC 470 will stop all systemic notices and collection processes.

    7. Input a TC 844 using the IAT "REQ77" tool for IRS error and refunds of $50,000 or less. If the ERSED has expired, do not input TC 844. Enter the Date of Demand in the "EXTENSION-DT" field, the date of the erroneous refund in the "TRANS-DT" field and the erroneous refund amount in the "FREEZE-RELEASE-AMT" field.

      Note:

      The TC 844 generates a "-U" freeze on the account and the TC 470 will stop all systemic notices and collection processes.

  5. Once the adjustment posts on IDRS:

    1. Create a new IDRS control with Category ERRF.

    2. Assign the IDRS control base to the Erroneous Refund Unit in Accounting (A/ER). The first five digits of the Erroneous Refund Units IDRS numbers are as follows:

      Site IDRS
      Austin 06113
      Cincinnati 04117
      Fresno 09118
      Kansas City 09118
      Ogden 04117

    3. Change the status to "M" with activity code "ERRORREF" .

    4. Prepare Form 12356, Erroneous Refund Worksheet, and include a copy of all pertinent information (such as, Form 3465, Adjustment Request, case history sheet, case notes, etc.), including a copy of the Letter 510C which was sent.

    5. Refer the case to the A/ER. See IRM 3.17.80-4, Erroneous Refund Coordinators, for a list of A/ER functions and their corresponding Erroneous Refund Coordinators.

    6. Close the case by assigning PC 28, 53, 68, or 88, as appropriate, or appropriate IPC on Recon cases.

      Note:

      When assigning PC 53, 68, or 88, complete the assessment window and enter an "M" in the AUTO/MANUAL IND field to indicate a manual assessment, as the adjustment was input on IDRS.

  6. If the case involves a combination of Erroneous Refund (Cat D- W/H, additional MCTXW, and/or excess SSTAX) and other AUR issues, take the following actions:

    1. Use the IAT "REQ54" tool to input the adjustment using blocking series 05 and "N" source document since the original will be kept to work other AUR issues.

    2. Monitor for the adjustment to post on both IDRS and AUR Tax Account.

    3. After the adjustment for W/H, additional MCTXW, and/or excess SSTAX posts, issue a CP 2000 for the remaining AUR issues, following normal AUR processing procedures.

      Note:

      Do not create a new IDRS control with Category ERRF.

  7. If before a Statutory Notice of Deficiency was issued, a Category D erroneous refund was due to the AUR payment refunding in error, when the account was paid in full, take the following actions:

    1. Send Letter 510C using the IAT "Letters" Tool. Two copies of the letter are needed; one to attach to Form 12356 and one for the AUR case file.

      Exception:

      If the erroneous refund is discovered during phone contact with the taxpayer, a case history can be input on IDRS instead of issuing a Letter 510C. Advise the taxpayer to void and return the check if it has not been cashed. Enter history "PHTPERRF" on IDRS using IDRS CC ACTON or IAT "ACTON" tool. The date you request repayment on the phone is the Date of Demand. Leave a detailed case note on AUR.

    2. Use the IAT "REQ77" tool to input TC 844 and TC 470.

    3. Work the case as an AUR agreed response, assigning PC 53, 67, or 87. If partial payment see (8) below.

  8. Once the adjustment posts on IDRS:

    1. Use the IAT "REQ77" tool to input TC 971 AC 663.

    2. See (5) steps 1 - 3 above, to create a new IDRS control.

    3. Prepare Form 12356, Erroneous Refund Worksheet, and include a copy of all pertinent information (such as, Form 3465, Adjustment Request, case history sheet, case notes, etc.), including a copy of the Letter 510C which was sent.

    4. Leave a detailed case note.

  9. If after a Statutory Notice of Deficiency has been issued, a Category D erroneous refund was due to the AUR payment refunding when the account was paid in full, take the following actions:

    1. Send Letter 510C using the IAT "Letters" Tool. Two copies of the letter are needed; one to attach to Form 12356 and one for the AUR case file.

      Exception:

      If the erroneous refund is discovered during phone contact with the taxpayer, a case history can be input on IDRS instead of issuing a Letter 510C. Advise the taxpayer to void and return the check if it has not been cashed. Enter history "PHTPERRF" on IDRS using IDRS CC ACTON or IAT "ACTON" tool. The date you request repayment on the phone is the Date of Demand. Leave a detailed case note on AUR.

      Exception:

      If the case is controlled at a different site, check the action required box for the controlling site to complete the erroneous refund procedures.

    2. Use the IAT "REQ77" tool to input TC 844 and TC 470

    3. Request the case and hold in unit suspense until the taxpayer responds or the suspense period has expired. If no response is received, default the case using the appropriate PC.

  10. Once the adjustment posts on IDRS:

    1. Use the IAT "REQ77" tool to input TC 971 AC 663.

    2. See (5) steps 1 - 3 above, to create a new IDRS control.

    3. Prepare Form 12356, Erroneous Refund Worksheet, and include a copy of all pertinent information (such as, Form 3465, Adjustment Request, case history sheet, case notes, etc.), including a copy of the Letter 510C which was sent.

    4. Leave a detailed case note.

  11. If the Category D erroneous refund was due to the AUR payment refunding in error, when a partial payment was received, take the following actions:

    1. Send Letter 510C using the IAT "Letters" Tool. Two copies of the letter are needed; one to attach to Form 12356 and one for the AUR case file.

      Exception:

      If the erroneous refund is discovered during phone contact with the taxpayer, a case history can be input on IDRS instead of issuing a Letter 510C. Advise the taxpayer to void and return the check if it has not been cashed. Enter history "PHTPERRF" on IDRS using IDRS CC ACTON or the IAT "ACTON" tool. The date you request repayment on the phone is the Date of Demand. Leave a detailed case note on AUR.

      Exception:

      If the case is controlled at a different site, check the action required box for the controlling site to complete the erroneous refund procedures.

    2. Use the IAT "REQ77" tool to input TC 844 and TC 470.

    3. Assign PC 75 and release the case. Monitor the case for the PC 75 to post.

  12. After a Stat has been issued:

    1. Request the case and hold in unit suspense until the taxpayer responds or the suspense period has expired. If no response is received, default the case using the appropriate PC.

    2. Monitor IDRS for the adjustment to post. Once the adjustment posts on IDRS:

    3. Use the IAT "REQ77" tool to input TC 971 AC 663.

    4. See (5) steps 1 - 3 above, to create a new IDRS control.

    5. Prepare Form 12356, Erroneous Refund Worksheet, and include a copy of all pertinent information (such as, Form 3465, Adjustment Request, case history sheet, case notes, etc.), including a copy of the Letter 510C which was sent.

    6. Leave a detailed case note on AUR.

  13. If the case is in Reconsideration phase:

    1. Send Letter 510C using the IAT "Letters" Tool. Two copies of the letter are needed; one to attach to Form 12356 and one for the AUR case file.

      Exception:

      If the erroneous refund is discovered during phone contact with the taxpayer, a case history can be input on IDRS instead of issuing a Letter 510C. Advise the taxpayer to void and return the check if it has not been cashed. Enter history "PHTPERRF" on IDRS using IDRS CC ACTON or IAT "ACTON" tool. The date you request repayment on the phone is the Date of Demand. Leave a detailed case note on AUR.

    2. Use the IAT "REQ77" tool to input TC 844 and TC 470.

  14. Once the adjustment posts on IDRS:

    1. Use the IAT "REQ77" tool to input TC 971 AC 663.

    2. See (5) steps 1 - 3 above, to create a new IDRS control.

    3. Prepare Form 12356, Erroneous Refund Worksheet, and include a copy of all pertinent information (such as, Form 3465, Adjustment Request, case history sheet, case notes, etc.), including a copy of the Letter 510C which was sent.

    4. Leave a detailed case note.

  15. When the ERSED is expired, complete the following:

    1. Notate "ERSED Statute Expired" on the folder/Form 4251/Campus cover sheet.

    2. Complete Form 12356 and include a copy of all pertinent information.

    3. Use Form 12634, Correspondence Transmittal, or Form 3499, Informational Transmittal, to route case documentation to the appropriate Erroneous Refund Unit. See table in (5), step 2, above for routing information.

    4. Do not input TC 844 or TC 470.

    5. Do not send Letter 510C.

    6. Use the IAT "REQ77" tool to input a TC 971 AC 663.

    7. Leave a case note on AUR.

    8. Close case with PC 28, 52, 71, or 96, as appropriate.

Repaid Erroneous Refunds
  1. Erroneous refunds which have been repaid may be discovered during AUR processing. Per IRC 6404(e)(2), a taxpayer should not be charged interest from the date of the erroneous refund to the date repayment is demanded, if they did not cause the erroneous refund and the refund amount is $50,000 or less. Even though the refund was repaid, it is necessary to follow Category D erroneous refund procedures to protect the taxpayer from interest charges.

    Note:

    Interest is not charged when a treasury check is returned (not cashed).

    Note:

    Interest is charged from the date of the refund if the erroneous refund amount is over $50,000.

  2. If the erroneous refund has been repaid take the following actions:

    Exception:

    If the taxpayer returned the erroneous refund check (TC 841 on the account with "99999" in the DLN) see (3) below.

    1. Use the IAT "REQ77" tool to input TC 844, using the current date as the date of demand. This will reverse any systemically assessed interest.

    2. Complete Form 12356, Erroneous Refund Worksheet. In the details section include the following information, using the verbiage provided as an example: "Full paid erroneous refund. No Letter 510C sent. Please input TC 845 to reverse TC 844."

    3. Use the following table to determine the appropriate action:

      If Then
      The original payment was full payment received before a Stat was issued Work the case as an AUR agreed response, assigning PC 53, 67, or 87.
      The original payment was partial payment received before a Stat was issued
      1. Assign PC 75 and release the case.

      2. Monitor the case for the PC 75 to post and the Stat to be mailed.

      3. After the Stat has been issued, request the case and hold in unit suspense until the taxpayer responds or the suspense period has expired. If no response is received, default the case using the appropriate PC.

      Payment was received after a Stat was issued Request the case and hold in unit suspense until the taxpayer responds or the suspense period has expired. If no response is received, default the case using the appropriate PC.
      The case is in Reconsideration phase Use the IAT "xMend" or "REQ54" tool to post the appropriate adjustment.

  3. Once the adjustment posts:

    1. See IRM 4.19.3.5.13.1.4 to create a new IDRS control.

    2. Use the IAT "REQ77" tool to input a TC 971 AC 663.

    3. Refer the case to the A/ER using Form 3210, Document Transmittal. See IRM 3.17.80-4, Erroneous Refund Coordinators, for a list of A/ER functions and their corresponding Erroneous Refund Coordinators.

    4. Leave a detailed case note on AUR.

  4. If the taxpayer returned the erroneous refund check (TC 841 on the account with "99999" in the DLN) take the following actions:

    1. Use the IAT "REQ77" tool to input a TC 971 AC 663.

    2. Complete Form 12356, Erroneous Refund Worksheet. In the details section include the following information, using the verbiage provided as an example: "Check returned; TC 844 not needed. No Letter 510C sent."

    3. Use the following table to determine the appropriate action:

      If Then
      The original payment was full payment received before a Stat was issued Work the case as an AUR agreed response, assigning PC 53, 67, or 87.
      The original payment was partial payment received before a Stat was issued
      1. Assign PC 75 and release the case.

      2. Monitor the case for the PC 75 to post and the Stat to be mailed.

      3. After the Stat has been issued, request the case and hold in unit suspense until the taxpayer responds or the suspense period has expired. If no response is received, default the case using the appropriate PC.

      Payment was received after a Stat was issued Request the case and hold in unit suspense until the taxpayer responds or the suspense period has expired. If no response is received, default the case using the appropriate PC.
      The case is in Reconsideration phase Use the IAT "xMend" or "REQ54" tool to post the appropriate adjustment.

  5. Once the adjustment posts:

    1. Refer the case to the A/ER using Form 3210, Document Transmittal. See IRM 3.17.80-4, Erroneous Refund Coordinators, for a list of A/ER functions and their corresponding Erroneous Refund Coordinators.

    2. Leave a detailed case note on AUR.

Payer Agent/Fraud Information

  1. The Payer Agent/Fraud file is a compilation of Employer/Payer Information Return documents (such as, Form W-2, Form 1099, Form 1098) which have been verified as erroneously filed or processed or determined potentially fraudulent. The AUR Payer Agent/Fraud file is tax year specific.

  2. The PA field of the Case Analysis screen indicates the type of Payer Agent/Fraud file data for the IR in question. One of the following will be present:

    1. Indicator "Y" indicates Payer Agent.

    2. Indicator "F" indicates Fraud.

    3. Indicator "B" indicates both Payer Agent and Fraud indicators are present.

    See IRM 4.19.3.6.2, AUR Site Payer Agent/Fraud Coordinator - Instructions, for additional information about the Fraud Indicator.

  3. Taxpayers and/or Employers/Payers may contact/notify AUR that a discrepancy with documents or the filing of IRs for a tax year has occurred. Tax examiners are encouraged to request the taxpayers and/or Employers/Payers forward the information to the site AUR Payer Agent/Fraud Coordinator.

  4. The AUR FFC will refer potential fraud information to the AUR Payer Agent/Fraud Coordinator for consideration.

Tax Examiner - Instructions

  1. Access the Payer Agent window for all IRs showing Payer Agent Indicator "Y" or "B" . The Payer Agent window lists the payer's name, EIN, document type, source, and a synopsis of the reporting problem. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Viewing Payer Agent Information.

    Note:

    If all U/R income is from identified Payer/Agents and the Payer Agent window contains instructions to accept or delete the IR, close the case with PC 24. If U/R issues remain, continue normal processing (the P/A closing PC would NOT apply).

  2. During the screening phase, the tax examiner may identify questionable IRs, which appear to be erroneous but are not marked with a Payer Agent code "Y" . When IRs appear to be questionable and the tax examiner determines the IRs should be investigated, take the following steps:

    1. Print the Case Analysis screen and the Info Return screen.

    2. Forward both screen prints and any additional supporting information documents to the site AUR Payer Agent Coordinator.

    3. Continue normal processing.

  3. During the response phase, the tax examiner may receive information from the payer or the taxpayer indicating the proposed U/R is the result of a payer reporting error, or a payroll processing mistake. Take the following action to forward the information to the site Payer Agent Coordinator:

    1. Photocopy the taxpayer statement or payer letter and print the Case Analysis screen and the Info Return screen.

    2. Forward these photocopies and any additional supporting information documents to the site AUR Payer Agent Coordinator.

    3. Continue normal processing.

  4. Click Indicator "F" or "B" in the PA field of the Case Analysis screen to access the Potential Fraud window. It may list the payer’s name, EIN, document type, source and money amount; however, because some fraudulently filed information returns are submitted using different payer names and EINs, a fraud indicator may be applied using money amounts only. Follow the specific instructions in the Fraud Description Notes section of the window to determine the proper action to take on the IR.

  5. During the screening phase, the tax examiner may identify questionable IRs, which appear to be fraudulent but are not marked with a Payer Agent code "F" . When IRs appear to be potentially fraudulent see IRM 4.19.3.5.8.2, AUR Tax Examiners Fraud Responsibilities, for additional information.

  6. During the response phase, the examiner may receive information from the taxpayer which appears to involve potential fraud. When response information appears to indicate fraud, see IRM 4.19.3.5.8.2, AUR Tax Examiners Fraud Responsibilities, for additional information.

AUR Site Payer Agent/Fraud Coordinator - Instructions

  1. The AUR Site Payer Agent/Fraud Coordinator will perform the following tasks:

    1. Take action on all IRs referred by tax examiners or the AUR FFC as questionable/suspicious Payer Agent or Fraud data.

    2. Sort and review the screen prints received from tax examiners or the AUR FFC deemed questionable/suspicious. Begin research when four or more screen prints with the same EIN are identified. The Site P/A Coordinator should attempt to make a determination about the discrepant IRs. If payer contact is necessary to determine the impact, check IDRS for a telephone number or call XXX-555-1212 (XXX represents the area code of the city/state being called).

      Note:

      Revised Third-Party procedures allow for the administrative action of verifying information received from Employers/Payers. This verification is not considered a third-party contact if the purpose of the contact is to process information received from the source and/or to ensure its validity/correctness.

    3. Create a Payer Agent record when a Payer Agent record does not currently exist, and the information available leads to a determination that- the Payer Agent should be added to the Payer Agent File.

    4. Update payer name and text lines, when required. There may be more than one type of income or source code for each Payer Agent EIN entered. Verify by scrolling both type and source fields; P=Paper and T=Tape (magnetic media).

    5. Input the EIN to search/query the Payer Agent File.

    6. View and/or print Payer Agent reports from the Payer Agent Coordinator menu.

    Note:

    A Payer Agent cannot be created if a Payer Agent record already exists for the EIN, document type, source code or tax year. If this condition exists, the system displays a message.

  2. If the referral is from the AUR FFC, create a Fraud record when a Fraud record does not currently exist and the information from the AUR FFC indicates a Fraud message should be added to the Fraud File:

    Note:

    If no IR is present, create an IR for zero prior to creating a fraud record. Mark the IR with status code "N" .

    1. Search/query the existing Fraud records in the Potential Fraud window by inputting the EIN in the search field. If an EIN is not available, search using the Doc Type, Income Type or Money Amount.

    2. If no record exists, update input fields; for example, EIN, payer name, income type, money amount and Fraud Description Notes to add a record.

      Note:

      The EIN field may be left blank when one is not available.

    3. If a record exists, only the Fraud Description Notes can be modified. Modify the Notes by highlighting the EIN and pressing "enter" ; after revising the Notes press "save."

  3. At the end of the AUR program for the tax year, print a copy of the Payer Agent/Fraud Listing report and retain them for three years.

National Designated AUR Payer Agent/Fraud Coordinator - Instructions

  1. Employer/Payer identified IR filing discrepancies are submitted through the Enterprise Computing Center at Martinsburg (ECC-MTB) Management and Technology Information Returns Division. Documentation received from Employers/Payers is reviewed at ECC-MTB and copies are provided to the HQ (national) designated AUR Payer Agent/Fraud Coordinator (currently located in Ogden). The HQ (national) designated AUR Payer Agent/Fraud Coordinator has access to the national AUR Payer Agent File and Fraud File and is responsible for the input of all Employer/Agent Information Return documents received from ECC-MTB or the AUR FFC.

    Note:

    IR documents are identified as tape source or a combination paper/tape source.

  2. Query the Payer Agent File/Fraud File to determine if the Payer information received should be established or needs to be updated.

    Note:

    If the EIN is not available, query the Fraud records by using the Doc Type, Income Type or Money Amount.

  3. A Payer Agent cannot be created if a Payer Agent record already exists for the EIN, document type, source code or tax year. If this condition exists, the system displays a message. To Update/Create a Payer Agent record:

    1. Enter the EIN of the identified Payer Agent.

    2. Select the appropriate document type from the list displayed.

    3. Enter the appropriate Source Code: "P" for Paper or "T" for Tape (magnetic media).

    4. Enter the payer name.

    5. Select or enter new instructions for the tax examiners.

  4. The AUR Payer Agent Program is automatically invoked during the weekly run process. The program updates the Payer Agent File for all sites during the weekly process with the new and updated records.

  5. Revised Third-Party procedures allow for the administrative action of verifying information received from Employers/Payers. This verification is not considered a third-party contact if the purpose of the contact is to process information received from the source and/or to ensure its validity/correctness.

Determination of CP 2501 Issuance

  1. Issuance of a CP 2501 (assignment of PC 30) is required for the conditions listed below. In certain other situations, issuance of a CP 2501 may provide better customer service since it is an inquiry instead of a proposal of assessment. If in doubt, consult your lead or manager for guidance.

    Exception:

    The system parameters are set by HQ to stop issuing CP 2501 at a certain point in the AUR processing year.

    1. The U/R income is $100,000 or more.

    2. Cases involving partially reported K-1 IRs when the discrepant amount is $50,000 or more per income type, per payer.

      Exception:

      Partially reported INT, DIV, LTCG, STCG, and ROYAL discrepancies do not require a CP 2501.

    3. Cases involving questionable underclaimed W/H and/or additional MCTXW that result in an overall refund. See IRM 4.19.3.17.1.2, Withholding - Miscellaneous, and IRM 4.19.3.17.1.4, Additional Medicare Tax (Withholding Reconciliation), for further information.

      Exception:

      If the refund is due to U/C W/H from a Form 1099-SSA, and the income is reported correctly, do not issue a CP 2501.

    4. Cases resulting in an overall refund due to underreported income.

    5. Cases involving U/C excess SSTAX on ELF returns - see IRM 4.19.3.17.2, Social Security Tax/Tier I Railroad Retirement Tax.

    6. Cases involving Form 8615, Tax for Certain Children Who Have Unearned Income, and the parent or child used the Qualified Dividends and Capital Gains Worksheet, Schedule D or Schedule J tax methods. See IRM 4.19.3.14.1, 8615 Window.

    7. Cases where the On File Date is the same for multiple IRs and none of the IRs are reported. See IRM 4.19.3.8.12.1, Conduit Income - Analysis.

    8. Cases in Category 30 and EARN is being pursued.

      Note:

      If Earn is being pursued as a secondary issue (in category other than Category 30), issue a CP 2000.

Analysis of Each Income Type

  1. These instructions are used to process the various U/R income amounts by each income type and must be used in conjunction with the general instructions in IRM 4.19.3.5, Analysis Procedures.

Wages - General

  1. Wages are amounts received for performing services as an employee of an employer and are generally not subject to SE tax.

  2. Wages are identified on the Case Analysis screen by the literal "W-2" in the DOC TYPE field and the literal "WAGES" in the INCOME TYPE field.

Wages - Analysis
  1. Compare WAGES amount with entries on Form 1040 / Form 1040-SR (TY 2019 and subsequent), line 1.

    1. Note:

      If wages are U/R and the taxpayer enters "SNE" (Special Needs Exclusion) on the dotted line portion of wage line , compare the U/R amount with Form 8839, Qualified Adoption Expenses, line 29. If the amount on Form 8839, line 29 matches the U/R amount within $1, accept wages as reported. If the amount is not equal to the U/R wages, consider the difference U/R.

  2. Wage comparisons for the following entries must match within $1 or be CLEARLY IDENTIFIED as wages:

    TY 2019 TY 2020 and subsequent
    Form 1040/ Form 1040-SR, line 4d Form 1040/ Form 1040-SR, line 4b

    Note:

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

    1. Schedule C or Schedule F - If wages are reported here, see IRM 4.19.3.8.1.3, Wages Paid to Statutory Employees, for instructions regarding Statutory Employees.

    2. Attachments to the return.

    3. Form 2106, Employee Business Expenses, Part 1, line 7 - Give credit for these amounts if the payer name on the IR is related to the occupation box on Form 2106. If the occupation box on Form 2106 is blank, consider the IR(s) fully U/R unless amounts match within $1. If line 7 is greater than line 6, in column A of Form 2106, the excess reimbursements must be included as income on Form 1040.

  3. When comparing reported wages to IRs, do not allow partial credit for unidentified amounts UNLESS the return is missing supporting Form(s) W-2. Returns that were processed through OCR or ELF may not have Form(s) W-2 attached. DO NOT request the Form(s) W-2 from FRC. Allow the credit for amounts reported on lines shown in (1) above. Issue a CP 2000 for discrepancies.

  4. If the taxpayer reports the same amount of Form W-2 income as shown in the IR, but under a different payer name, consider the IR reported.

  5. Consider any two WAGE IRs, for the same taxpayer, that contain identical income information, as duplicates even if the payer names and EINs are different. Take the following action:

    1. If the taxpayer failed to report either WAGE IR, consider only one of the IRs U/R (mark all elements of the other IR with status code "D" or "N" ), and show both of the IRs on the notice.

    2. If the taxpayer reported one of the IRs, delete the IR the taxpayer did not report (mark all elements of the IR with status code "D" or "N" ). If there are no other U/R issues, enter PC 24.

  6. If there are two WAGE IRs for the same taxpayer, from the same payer (payer name and EIN match) take the following action:

    1. If the taxpayer fully reports one of the IRs, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ (mark all elements of the IR with status code "D" or "N" ).

      Exception:

      If the payer is IHSS (In Home Support Services) do not apply the 25 percent rule, continue normal processing.

    2. If the taxpayer does not fully report one of the WAGE IRs, group them together and consider the difference U/R.

  7. Allow taxpayers (such as, police officers, firefighters, etc.) who have sustained "IOD" (Injury on Duty) or "LODI" (Line of Duty Injury) injuries to reduce Form W-2, Box 1 Wages, by amounts indicated as line of duty injury payments when ALL of the following conditions are present:

    1. The taxpayer is under age 65.

    2. The payer statement is attached indicating the taxpayer was injured while on duty and provides a specific amount of excludable income. If the attached payer letter does not provide a specific amount, allow the exclusion if the taxpayer includes a worksheet providing a breakdown of excludable income.

      Note:

      When pursuing excluded amounts because the above condition is not met, send a Special Paragraph requesting payer documentation to support the taxpayer's claim.

    3. The amount has not been excluded from Box 1 Wages as shown on the attached Form W-2.

      Note:

      If the taxpayer has double excluded the amount (Social Security Wages are more than the Wages shown on Form W-2, Box 1), send PARAGRAPH 46. See Exhibit 4.19.3-7, CP PARAGRAPHS.

  8. Retired/non-active status members of the military employed as Junior ROTC (Reserve Officers Training Corps) instructors receive allowances for uniforms, housing, subsistence. However, unlike active duty military personnel, these taxpayers CANNOT exclude these allowances. Disallow any excluded amounts and send PARAGRAPH 154. See Exhibit 4.19.3-7, CP PARAGRAPHS.

  9. When wages or Social Security wages are U/R, and the taxpayer paid SE tax, or is now subject to SE tax, input/verify the appropriate entries in the SE Tax window.

  10. Use status code "R" in the SSWAG and SSTIP literal when screening valid Wage IRs. Do not use status code "N" or "D" . Status code "N" or "D" may result in an incorrect excess SSTAX calculation.

  11. The system automatically enters status code "R" on MCWGE. The status code can be changed to "D" if necessary.

    Note:

    The system no longer marks the MCTXW element with a status code "R" , this amount is used in the calculation of the Additional Medicare Tax withheld, see IRM 4.19.3.17.1.4, Additional Medicare Tax (Withholding Reconciliation).

  12. If there are two or more fully U/R WAGE IRs with an out-of-state payee address beyond the reasonable commuting area of the taxpayer (for example, taxpayer lives in Pennsylvania and U/R IRs are for Georgia), send PARAGRAPH 167. See Exhibit 4.19.3-7, CP PARAGRAPHS.

    Note:

    Many WAGE IRs involving the potential illegal use of SSNs are from agricultural, farming, food processing, or wholesale/retail employers.

  13. When taxpayers exercise statutory (qualified) employee stock options, the amount is generally excluded from ordinary income and the gain may be reported as a capital gain on Schedule D when the shares acquired upon exercise are sold.

    1. Taxparers may reduce Form W-2, Box 1, Wages by the amount shown in Box 14 (identified as: stock, incentive stock options (ISOs), employee stock purchase plan (ESPP), etc.) and report the difference as a gain on Schedule D/Form 8949, column (h).

      Note:

      If the stock received upon exercise was not held a minimum of 2 years from the date the option was granted or 1 year from the date the option was exercised, the employer may not identify the exercised amount on the Form W-2, Box 14. If the balance of the WAGE IR is found on Schedule D/Form 8949, column (h), consider the issue resolved.

    2. Review Form 1040, line 1 (TY 2018 and subsequent), Form 1040-SR, line 1 (TY 2019 and subsequent), and Schedule D before determining any U/R WAGE amount.

    3. If the taxpayer did not report the full WAGE amount, send PARAGRAPH164. See Exhibit 4.19.3-7, CP PARAGRAPHS.

      Note:

      When the option is exercised, Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, may also be issued to show the value of the stock. Since the STOCK IR relates to the exercise of the statutory employee stock option, allow credit for amounts reported on Schedule D/Form 8949, column (d) against STOCK IRs.

  14. When taxpayers exercise non-statutory (non-qualified) employee stock options, the gain upon exercise is reported as ordinary income. Employers include the exercised amount on Form W-2, Box 1 and identify the stock option amount in Box 12 using code "V" .

    Note:

    The "V" Code displays on WAGE IRs with the literal VCODE.

    Caution:

    taxpayers may reduce Form W-2, Box 1, wages by the amount shown in Box 12 (Code "V" ) and report the difference as a gain on Schedule D/Form 8949, Part 1, column (h).

    1. Review Form 1040/1040-SR, line 1 , and Schedule D, Part 1 before determining any U/R WAGE amount.

      Caution:

      If the taxpayer reports the non-statutory option gain as a long term capital gain (Schedule D/Part II) AND a notice is being sent for other U/R issues, remove the non-statutory option gain from the LONG TERM GAIN(LOSS) field in the Sch D window. Send PARAGRAPH 165, see Exhibit 4.19.3-7, CP PARAGRAPHS.

    2. If the taxpayer did not report the full WAGE amount, send PARAGRAPH 164. See Exhibit 4.19.3-7, CP PARAGRAPHS.

      Note:

      When the option is exercised, Form 1099-B may also be issued to show the value of the stock. Since the STOCK IR relates to the exercise of the non-statutory employee stock option, allow credit for amounts reported on Schedule D/Form 8949, column (d) against STOCK IRs.

  15. Whenever wages are U/R, compute W/H or consider W/H.

    1. If there is an U/R WAGE IR with no W/H amount, there are no other IRs with W/H, and there is a TC 806, 807, or TC 290 with Reason Code 51 and/or Reason Code 136 on the Tax Account screen, complete the Withholding window. See IRM 4.19.3.17.1.1, Withholding - Analysis, for additional information. Reason Code 136 is present when Additional Medicare Tax from Form 8959 was adjusted.

    2. If there is an U/R WAGE IR with no W/H amount, and there are no other IRs with W/H, the system automatically generates a W/H amount of zero (0) on the Summary screen.

  16. For a list of the codes found in Box 12 of Form W-2, see Exhibit 4.19.3-8, Form W-2 - Box 12 Codes.

Attached Forms W-2 - Analysis
  1. Consider wages U/R if wage amounts from attached Form W-2 are:

    • Omitted

    • Added incorrectly when there are multiple Form W-2 involved

    • Transposed

    • Taken from the wrong box(es) on Form(s) W-2. Send PARAGRAPH 2, see Exhibit 4.19.3-7, CP PARAGRAPHS.

  2. If it appears the taxpayer reduced Form W-2 box 1 Wages by the amount in box 11 (Nonqualified Plans), pursue the difference as U/R wages and send PARAGRAPH 50, see Exhibit 4.19.3-7, CP PARAGRAPHS.

    Note:

    Before considering the amount U/R, check to see if the taxpayer reported the amount as pension income.

  3. An O/R situation exists if the taxpayer's entry on Form 1040/1040-SR, line 1 is greater than the total WAGE IR(s).

  4. Consider wage income O/R if you determine the taxpayer:

    • Made a double entry (math error)

    • Transposed figures

    • Used Social Security Wages from Form W-2, Box 3. Send PARAGRAPH 2, see Exhibit 4.19.3-7, CP PARAGRAPHS.

  5. The taxpayer may exclude certain types of income. Wages reported on Form W-2, Box 1 are generally reduced by the amount of excluded income. Some of these exclusions are:

    1. Tax favored amounts.

    2. Elective deferrals to certain retirement plans, such as 401(K) or 403(B). These are generally tax-deferred annuities for teachers and employees of 501(c)(3) organizations and/or plans. See Exhibit 4.19.3-8, Form W-2 - Box 12 Codes, for a complete list of the elective deferral codes found in Box 12 of Form W-2.

    3. Dependent Care Assistance Benefits (DCB). See IRM 4.19.3.8.2.1, Dependent Care Benefits (DCB), for limitation of excludable income.

    4. "IOD" (Injury on Duty) or "LODI" (Line of Duty Injury) payments. See IRM 4.19.3.8.1.1, Wages - Analysis, for further information.

    5. Survivor annuity received by the spouse, former spouse, or child of a public safety officer killed in the line of duty or a chaplain killed in the line of duty after September 10, 2001 while responding to a fire, rescue, or emergency as a member or employee of a fire or police department will generally be excluded from the recipient's income regardless of the date of the officer's death.

    6. Cost of living allowances paid to federal employees working abroad.

    7. Ministers Housing Allowances Ensure excluded minister housing allowance is subjected to SE tax, unless: the taxpayer notates “Exempt Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners ” or “Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits” on Form 1040 (see table below IRM 4.19.3.8.1.5, Wages Miscellaneous for line numbers) or the housing allowance is for a retired minister. This amount may be the difference between net Schedule C income and income subject to SE tax on Schedule SE, see IRM 4.19.3.8.1.5(4), Wages Miscellaneous.

    8. Exercised statutory Employee Stock Options. See IRM 4.19.3.8.1.1, Wages - Analysis, for further instructions.

    Exception:

    Back pay settlements or awards under the ADEA (Age Discrimination in Employment Act) cannot be excluded from income and should be pursued as U/R if excluded. Liquidated damages recovered under the ADEA do not constitute wages and should be reflected as other income on Form 1099-MISC.

    Since the amount reported on Form W-2, Box 1 should reflect these exclusions from income, the taxpayer should not subtract the above items from the amount reported as wages.

  6. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • The Form W-2 attached to the return appears to be altered, AND

    • There is a W/H discrepancy, AND

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

      Note:

      Use the IR as the most correct information if the case does not meet referral criteria or if the referral is returned.

  7. If wages are U/R, check the attached Form W-2 and/or any attachments to determine if the taxpayer excluded the amount as sick pay.

    1. Accept the exclusion if there is an indication the taxpayer paid the premiums (an amount present on Form W-2, Box 12, with code "J" that matches the excluded amount) and per attached pay-stubs or other documentation, the payer incorrectly included employee paid sick pay on Form W-2, Box 1. Form W-2, Box 1 matches Box 3, SSWAG, or attached payer documentation.

    2. If there is no clear indication per a. above, consider the amount U/R and issue CP 2000. Send PARAGRAPH 25, see Exhibit 4.19.3-7, CP PARAGRAPHS.

      Note:

      Payers are instructed to indicate the amount of sick pay not included in income (and not shown in Boxes 1, 3, and 5) in Box 12 of Form W-2 with Code "J" when the employee contributed to the sick pay plan.

  8. If the taxpayer attaches a substitute Form W-2 and reports a lesser amount than shown on the IR from the same payer, consider the difference U/R.

  9. Consider W-2 IRs fully reported when Wage or W/H amounts on the IRs are ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡.

    Note:

    This also applies to Virtual cases.

  10. If the taxpayer participates in a nonqualified deferred compensation plan that does not meet all requirements as specified in IRC 409A, the employer must report the deferred compensation as income and the amount is subject to an additional tax.

    1. The employer identifies income under IRC 409A on Form W-2 in box 12 with Code Z.

      Note:

      The amount in Form W-2 box 12, Code Z is already included in box 1 (WAGES). If WAGES are U/R and the difference corresponds to the NQDC amount, pursue the discrepancy as WAGES. Send PARAGRAPH 127, see Exhibit 4.19.3-7, CP PARAGRAPHS.

    2. Income recognized under IRC 409A is identified on the Case Analysis screen by the literal "W-2" in the DOC TYPE field and the literal "NQDC" in the INCOME TYPE field.

      Note:

      Enter status code "R" on the "NQDC" element(s).

    3. The "NQDC" amount is subject to an additional tax. See IRM 4.19.3.16.7, Additional Taxes on Income from Nonqualified Deferred Compensation Plan (IRC Section 409A), for further instructions.

      Reminder:

      Mark the NQDC IR element(s) with Send Indicator "S" when adjusting the additional tax.

Wages Paid to Statutory Employees
  1. Statutory employees are independent contractors, for purposes of reporting income and expenses on their tax returns, who are treated as employees for FICA tax purposes.

  2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and consider him/her a statutory employee if their occupation is listed in IRM 4.19.3.22.3.1.1, Statutory Wages. Do not make any adjustments to the Schedule C, and/or SE tax.

  3. Statutory employees should receive a Form W-2 with the statutory employee box checked in Box 13. If the Statutory Employee box was checked, the SEI literal has a value of "1" displayed on the IR. If it was not checked, the SEI literal has a value of "0" (zero).

  4. Statutory employees report their Form W-2 Wages on Schedule C , line 1, along with business expenses on line 28 of Schedule C . This income is NOT subject to SE tax and business expenses are not subject to the 2 percent limitation for miscellaneous itemized deductions. This income is subject to social security and Medicare taxes that should be withheld at the source by the payer and shown on Form W-2 as SS/Medicare Tax Withheld, SS Wages, and Medicare Wages and Tips.

    Note:

    Follow the taxpayer's intent, do not refund SE tax computed on wages paid to statutory employees.

  5. Performing artists are not statutory employees, but, they may report Form W-2 income on Schedule C (instead of Form 2106), if during the tax year ALL of the following conditions apply:

    1. They perform services in the performing arts for at least two employers,

    2. They receive at least $200 each from any two of these employers,

    3. Their related performing arts expenses are more than 10 percent of their gross income from the performance of those services, AND

    4. Their adjusted gross income (AGI) is not more than $16,000 before deducting these business expenses.

  6. Cases involving wages of statutory employees are created when:

    1. Wages received by an individual other than a statutory employee were reported on the Schedule C, and the individual incorrectly deducts expenses on Schedule C .

      Note:

      Only statutory employees may deduct expenses on Schedule C .

    2. The statutory employee did not report the wages on Schedule C, line 1, or as wages on Form 1040, (TY 2018 and subsequent) or Form 1040-SR (TY 2019 and subsequent).

  7. There is a discrepancy if there is a difference between the total of all wages (but not allocated tips) on all Form W-2 when the statutory employee indicator in Box 13 of Form W-2 is checked and the wages per return, Schedule C, line 1.

  8. Input Income Identify Code"SW" in all U/R wages from Statutory Employee IRs if wages are U/R.

  9. Consider wages from Statutory Employees U/R and send PARAGRAPH 115, (see Exhibit 4.19.3-7, CP PARAGRAPHS) if the Wage amounts from attached Form(s) W-2 are:

    • Omitted

    • Added incorrectly when there are multiple Form(s) W-2 involved

    • Transposed

    • Taken from the wrong box(es) on Form(s) W-2, send PARAGRAPH 2. See Exhibit 4.19.3-7, CP PARAGRAPHS.

  10. If the taxpayer combines non-statutory wages with statutory wages or self-employment income (for example, NEC, MERCH, OTINC, MED) on the same Schedule C, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  11. If the taxpayer includes only non-statutory wages on Schedule C , disallow the expenses from Schedule C, line 28, and the amounts on Schedule C, lines 2, 4, and/or 30.

    1. Input the amount of disallowed expenses in the PRIM/SEC SCH C EXPENSE PER RETURN field(s).

    2. Enter a zero (0) in the PRIM/SEC SCH C EXPENSE NOW field(s) on the MISC ADJUSTMENT/SCHEDULE C EXPENSE window.

      Note:

      These amounts display on the CP 2000 Summary as a changed item (changes to the Primary and/or Secondary Schedule C expenses displays as a single item on the Summary screen).

    3. Send PARAGRAPH 116, see Exhibit 4.19.3-7, CP PARAGRAPHS.

    Note:

    When disallowing expenses on Schedule C due to the conditions above, do not adjust any SE tax claimed. Manually access the SETAX window to suppress the change. See IRM 4.19.3.16.1, Self-Employment Tax.

Fellowships, Grants, and Stipends
  1. If an explanation attached to the return indicates the fellowship, grant, or stipend was used for tuition, fees, books, supplies, and equipment required for the course, AND:

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

      Note:

      The taxpayer cannot deduct or exclude expenses that exceed the IR. (for example, enters a negative amount).

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

    3. The taxpayer excludes expenses not shown above, then pursue the unallowable expenses. Send PARAGRAPH 124, see Exhibit 4.19.3-7, CP PARAGRAPHS.

  2. If an explanation attached to the return indicates the ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡, consider the income reported.

  3. If the taxpayer enters "SCH" next to Form 1040/1040-SR, line 1, accept as fully reported.

  4. If no explanation is attached and the IR is not fully reported, pursue the amount not reported. Send PARAGRAPH 124, see Exhibit 4.19.3-7, CP PARAGRAPHS.

Wages Miscellaneous
  1. If Wages are U/R and the taxpayer has Form W-2 wages, determine if the taxpayer makes any reference to repayment of supplemental unemployment benefits. If the taxpayer correctly reported net wages after repayment of supplemental unemployment benefits, consider the wages reported.

  2. If wages are U/R and the taxpayer is claimed as a dependent on another person's return, see IRM 4.19.3.13(4), Standard Deduction, for further instructions.

  3. If wages are U/R, the system requires that you analyze W/H. See IRM 4.19.3.17.1, Withholding - General, for further instructions.

  4. If the taxpayer is a minister and has reported Form W-2 wages on a Schedule C:

    1. If the Form W-2 and/or WAGE IR shows SSTAX has NOT been withheld, allow the expenses. The net income is subject to SE tax UNLESS the taxpayer has a Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, or Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits, exemption annotated on line 4 of Form 1040/1040-SR, Schedule 2.

    2. If the Form W-2 and/or WAGE IR shows SSTAX has been withheld, disallow the expenses. Do not adjust any SE tax claimed. Manually access the SETAX window to suppress the change. See IRM 4.19.3.16.1, Self-Employment Tax.

    3. Ensure excluded minister housing allowance is subjected to SE tax, unless: the taxpayer notates “Exempt Form 4361” or “Form 4029” on 1040/1040-SR, Schedule 2, line 4 or the housing allowance is for a retired minister.

  5. If the taxpayer computes Social Security Tax on Tips on Form 4137, Social Security and Medicare Tax on Unreported Tip Income, but did not include the tip income in the AGI, consider the tip income U/R.

    1. If necessary, create a W-2 IR with an A-TIP element for the amount of allocated tips for which Social Security Tip Tax was reported but was not included in income. See IRM 4.19.3.16.2, Social Security Tax on Tip Income Unreported to the Payer.

    2. The system computes a 50 percent Social Security Tip Tax Penalty when the taxpayer uses Form 4137, PARAGRAPH 15 automatically generates. See IRM 4.19.3-7, CP PARAGRAPHS.

  6. If Wages are U/R, enter the return amount in the RETURN field on the Summary screen.

Other W-2 Income

  1. In addition to wage income, Form W-2 can contain information relating to Dependent Care Benefits (DCB), Employer Provided Adoption Benefits (EPAB).

Dependent Care Benefits (DCB)
  1. An employer can exclude (within certain limits) earnings from taxable wages designated to pay for childcare and/or care for a dependent(s) who is unable to care for themselves . The excluded amount is limited to the smaller of the taxpayer's earned income, the spouse's earned income, or $5,000 ($2,500 if MFS) (TY 2019 and TY 2020). The American Rescue Plan (ARP) Act of 2021 increased the maximum amount to $10,500 ($5,250 if MFS) (TY 2021).

    Note:

    The ARP allows employers to amend dependent care plans to allow the taxpayer unused amounts in a subsequent year. Unused amounts are added to the maximum amount of Dependent Care Benefits (DCB) allowed for 2021.

    Note:

    For each month, or part of a month, a spouse was a full-time student or was unable to care for themselves, they are considered to have worked and earned income. Their income for each month is considered to be at least $250 ($500 if more than one qualifying person was cared for).

  2. The Case Analysis screen displays this benefit with the literal "W-2" in the DOC TYPE field and the literal "DCB" in the INCOME TYPE field.

    Note:

    Screen ONLY system identified discrepant DCB amounts (those marked with an asterisk). If the case is open because of other income discrepancies, mark any non-asterisked DCB amounts on the WAGE IRs with status code "N" or "D" .

    Exception:

    If the system displays "Warning: Excluded Benefits, Verify DCB" input/verify the appropriate entries on the Dependent Care Benefits window. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Dependent Care Benefits.

  3. The gross benefit amount shows separately on Form W-2, Box 10. The wage amount on Form W-2, Box 1 SHOULD NOT INCLUDE the DCB for the tax year.

    Note:

    The employer includes any DCB over $5,000 (TY 2019 and TY 2020) or $10,500 (TY 2021) in the taxpayer's wages as shown on Form W-2, Box 1.

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

  5. Taxpayers MUST complete Form 2441, Child and Dependent Care Expenses, Parts I, II, and III in order to compute the correct amount of Child Care Credit and excludable DCB.

    1. Form 2441, line 15, contains the TOTAL BENEFIT AMOUNT less the amount forfeited.

    2. Form 2441, line 26 contains the TAXABLE BENEFIT AMOUNT. Taxpayers should include this taxable benefit amount on Form 1040/1040-SR line 1. Taxpayers are instructed to write DCB on the dotted line.

    3. See IRM 4.19.3.15.2, Credit for Child and Dependent Care Expenses, for further instructions regarding Child Care Credit.

  6. The system computes the correct taxable amount of DCB. Input/verify the appropriate entries on the Dependent Care Benefits window. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Dependent Care Benefits.

  7. If there is an indication the taxpayer participated in one of the following Cafeteria Plans: flex plan, flex credits, or flex dollars (pre-tax deduction) for Dependent Care Benefits and the taxpayer IS NOT claiming Child Care Credit, consider the DCB reported.

  8. If the taxpayer did not file Form 2441 and did not report DCB, the taxable portion is the DCB IR amount up to ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ per payer and per taxpayer. Take the following action to determine if DCB is U/R:

    1. Select the Dependent Care Benefits window.

    2. Enter zero (0) in the REPORTED DEP CARE BENEFITS field.

    3. Enter the total of all DCB reported by payer(s), but no more than ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡, on the IR(s). Input/verify all other fields per the IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Dependent Care Benefits.

    4. PARAGRAPH 156 automatically generates when DCB is U/R.

  9. If the taxpayer filed Form 2441 and Part III is blank or incorrectly completed, take the following action:

    1. Review the taxpayer's entries in Part III, lines 12 through 26 and prepare a mock Form 2441 to correct any errors and/or complete any omitted entries. Use the total expenses shown in Part II, line 2, column (c), to determine the line 16 (qualifying expenses) amount.

    2. Access the DCB window and use the information from the mock Form 2441 to input all appropriate entries.

    3. Send PARAGRAPH 66, see Exhibit 4.19.3-7, CP PARAGRAPHS. Toggle off PARAGRAPH 156 when sending PARAGRAPH 66.

  10. Taxpayers who receive DCB generally do not qualify for Child Care Credit. If Child Care Credit is claimed, take the following action:

    1. If the DCB IR(s) is reported, click on the Send Indicator to show these IRs on the notice.

    2. Complete screening of ALL remaining IRs in the Case Analysis screen, following normal procedures.

    3. Access the Return Value screen. Ignore any system prompt to close the case below tolerance.

    4. See IRM 4.19.3.15.2, Credit for Child and Dependent Care Expenses, to determine the correct entry in the QUALIFYING EXPENSES field in the Child Care Credit window.

  11. If the taxpayer reduced their wages by the DCB IR amount, pursue the issue as an U/R WAGES issue.

Employer-Provided Adoption Benefits (EPAB)
  1. Employer-provided adoption benefits (EPAB) are available for taxpayers who adopt a child(ren) who is a U.S. citizen or resident or who adopt a foreign child(ren) if the adoption becomes final in the AUR tax year.

  2. Taxpayers may be eligible to exclude qualified adoption expenses paid for or reimbursed by their employers under a qualified written EPAB, up to the amounts listed in the table below. The exclusion may be available for each child, whether the child is a foreign child, a child who is a U.S. citizen or resident, or a child with special needs. If the adopted child is a U.S. child with special needs, the taxpayer may be able to exclude up to the maximum dollar limit for the year, even if the taxpayer or employer did not pay any qualified expenses, provided the employer has a written qualified adoption assistance plan.

    TY Amount
    2019 $14,080
    2020 $14,300
    2021 $14,440

  3. Employer-provided adoption assistance payments are shown on Form W-2, Box 12 and are identified with a code "T" .

  4. The wage amount on Form(s) W-2, Box 1 does not include the EPAB payments for the tax year.

  5. Taxpayers must complete Form 8839, Qualified Adoption Expenses, Part I, II and III in order to compute the correct amount of taxable or excludable EPAB. If no Form 8839 is filed, consider the EPAB fully U/R.

  6. Taxpayers should include this taxable benefit amount on Form 1040/1040-SR line 1. Taxpayers are instructed to write "AB" on the dotted line .

  7. The Case Analysis screen displays this benefit with the literal "W-2" in the DOC TYPE field and the literal "EPAB" in the INCOME TYPE field.

  8. If the amount from the Taxable Benefits line of Form 8839, is not reported on Form 1040/1040-SR, line 1, create a WAGE IR for that amount. Send PARAGRAPH 191, see Exhibit 4.19.3-7, CP PARAGRAPHS.

  9. Access the EPAB window by entering a "U" in the IR CODE field.

    Note:

    Screen EPAB IR(s) after analyzing all other potentially discrepant income types. After any subsequent analysis that changes the TOTAL AGI CHANGE field, reselect the EPAB window. Recompute all changes to adjustments to income before selecting this window.

    Exception:

    Compute taxable EPAB amount BEFORE Student Loan Interest Deduction (SLID), Tuition and Fees (TY 20 and prior) and/or Domestic Production Activities Deduction (DPAD) (TY 2019 and prior). See IRM 4.19.3.4.2, Case Analysis Screen, for the proper sequence when these issues are present on the same case.

  10. Input/verify the appropriate entries on the EPAB window. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Employer-Provided Adoption Benefits.

  11. If it can be determined the taxpayer reduced their wages by the EPAB payment, pursue the issue as U/R wages. Also pursue EPAB as a separate issue. Send PARAGRAPH 195, see Exhibit 4.19.3-7, CP PARAGRAPHS.

    Reminder:

    If "SNE" is noted on Form 1040/1040-SR, line 1, see IRM 4.19.3.8.1.1(1) Note, Wages - Analysis.

  12. PARAGRAPH 190 automatically generates when EPAB is U/R. See Exhibit 4.19.3-7, CP PARAGRAPHS.

Interest - General

  1. Interest is reported by payers on Form 1099-INT, Form 1099-OID, Form 1099-B and on Schedules K-1 from Form 1065, Form 1041, and Form 1120-S.

  2. Interest income is identified on the Case Analysis screen by the literal "99INT" in the DOC TYPE field and the literal "INT" in the INCOME TYPE field and "99INT" in the DOC TYPE field and the literal "MKTDS" in the INCOME TYPE field.

Interest - Analysis
  1. ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • Municipal Bonds

    • Tax Sheltered Annuities (403(b)) accounts

    • Simplified Employee Pensions (SEP) or Individual Retirement Accounts (IRA)

    • A Pension Plan or Profit Sharing Plan (including a 401(k) plan)

    • A Capital Construction Fund (CCF) account

    Note:

    If W/H is claimed, allow; ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡.

  2. Compare INT amounts with entries on Form 1040/1040-SR, line 2a or 2b, Schedule B, Part I, line 1.

    Note:

    Form 1040/1040-SR, line 2a, is used to report tax exempt interest. If the amount on line 2a matches the interest amount(s) on a 99INT IR, consider the 99INT IR U/R unless the payer is a state or political subdivision of a state, the District of Columbia, or a U.S. possession.

  3. Interest comparisons for the following entries must match within $1 or be CLEARLY IDENTIFIED as interest:

    1. Form 1040/1040-SR, Schedule 1, line 8z

    2. Schedule C, line 6

    3. Schedule E, Parts II, III, or IV

    4. Schedule F, lines 8 or 43

  4. If Schedule B (or an attachment in lieu of Schedule B) is attached, compare IRs with individual items. If you cannot match individual IRs:

    1. Group all INT amounts from the same payer.

    2. Compare to the total interest reported for that payer.

    3. If the group total amount is smaller, assign status code "R" to the group.

    4. If the group total is larger, assign status code "U" to the group.

  5. If a breakdown of interest by payer is not shown on the return or on an attachment and there is only one IR:

    1. Compare the amount reported on Form 1040/1040-SR, line 2b.

    2. If the taxpayer reports a larger amount, consider the IR fully reported.

    3. If the taxpayer reports a lesser amount, allow credit for the amount reported.

  6. If a breakdown of interest by payer is not shown on the return or on an attachment and there is more than one IR:

    1. Group by income type INT.

      Note:

      The Group function is a tool to assist the TEs in computing the correct U/R amount. It may not be necessary to use the Group function if the correct U/R can be determined without it.

      Note:

      If BOND, MKTDS and/or AMD IRs are present it may be necessary to add BOND, MKTDS and/or AMD IRs to the group.

    2. Compare the group total amount to the total interest amount reported on the return.

    3. If the group total amount is smaller, assign status code "R" to the group.

    4. If the group total amount is larger, consider the difference U/R and assign status code "U" to the group.

    5. If interest amounts are U/R, send PARAGRAPH 64. See Exhibit 4.19.3-7, CP PARAGRAPHS.

      Exception:

      If the specific U/R amount matches an IR - PARAGRAPH 64 may not be appropriate.

  7. Taxpayers often interchange interest and dividend income. Check any dividend income areas when comparing INT amounts. Offset interest income against dividend income ONLY if one of the following applies:

    1. The same amount (within $1) AND the same payer are reported; OR

    2. An unidentified amount matches the U/R interest amount within $1.

  8. If interest income is listed on Schedule B but is not added into the AGI:

    1. Consider the interest income U/R. If necessary create an IR for any income the taxpayer included on Schedule B for which we do not have a corresponding IR.

    2. If interest and/or dividend amounts are U/R, send PARAGRAPH 57. See Exhibit 4.19.3-7, CP PARAGRAPHS.

  9. If you notice a math error on Schedule B:

    1. Create an IR for any reported interest amount(s) for which we do not have a corresponding IR.

    2. Group by income type INT.

    3. Compare the group total amount to the total interest reported.

    4. If the group total is larger, assign status code "U" .

    5. Send PARAGRAPH 79, see Exhibit 4.19.3-7, CP PARAGRAPHS.

    6. If the group total amount is smaller, assign status code "R" to the group.

Original Issue Discount (OID)
  1. A 99OID IR reflects the original issue discount allocable to the tax year and may show the qualified stated interest paid or credited on the obligation during the tax year.

    Caution:

    If there is an IR where the OID amount and the W/H amount are identical, refer these cases to the FRP. See IRM 4.19.3.22.9, Disagreed Responses.

  2. Original issue discount is identified on the Case Analysis screen by the literals "99 OID" in the DOC TYPE field and the following literal(s) in the INCOME TYPE field:

    • "S-INT" is the qualified stated interest paid or credited on the obligation during the tax year

    • "OID" is the original issue discount allocable to the tax year, and/or

    • "OIDTO" is the original issue discount on Treasury Obligations.

    • "MKTDS" is the market discount if the taxpayer made the election under section 1278(b) to include in income as it accrues.

      Note:

      OID on Treasury Inflation-Indexed Securities is reported in Box 8 on Form 1099-OID.

  3. Original issue discount, which is treated as interest income, is the difference between the issue price and stated redemption price of a debt instrument (bond). ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ issued by a brokerage firm or by financial institutions (banks, credit unions, and savings and loans).

  4. Original issue discount (other than original issue discount on an obligation with a term of 1 year or less) is reported on Form 1099-OID.

  5. If the taxpayer reports a partial amount or no amount from a 99OID IR, consider whether the taxpayer has made an adjustment for acquisition premium, or some other offset. Original issue discount may be reduced by these offsets provided the taxpayer first included the gross amount of original issue discount on Form 1040, Schedule B, line 1. The line 2 amount should then reflect the taxable amount of original issue discount as adjusted for these offsets.

    Note:

    Pursue the OID issue if the taxpayer reports an incorrect amount of taxable original issue discount due to an improper offset of the gross amount of OID.

  6. If the taxpayer reports a partial amount or no amount from a 99OID IR and the Schedule B does not reflect any adjustments, consider the OID, S-INT and OIDTO amounts in determining the U/R amount.

  7. If 99OID and 99INT IR(s) are present from the same payer, and you cannot determine which amount is reported:

    1. Group the OID, S-INT, OIDTO and INT amounts by PAYER EIN.

    2. Compare the group total amount to the total amount reported by the taxpayer for that payer.

    3. If the group total amount is smaller, assign status code "R" to the group.

    4. If the group total amount is larger, consider the difference U/R and assign status code "U" to the group.

Savings Bonds, Treasury Bills, Treasury Bonds, and Treasury Notes
  1. Interest from U.S. Savings Bonds, Treasury Bills, Treasury Bonds, and Treasury Notes appear on 99INT IRs with the literal "BOND" . OID on Treasury Inflation-Indexed Securities is reported in Box 8 on Form 1099-OID.

  2. Bond interest is identified on the Case Analysis screen by the literal "99INT" in the DOC TYPE field and the literals "BOND" or "TEBND" (Tax Exempt Bond) in the INCOME TYPE field. TEBND amounts are system deleted.

  3. If the taxpayer reports an amount of savings bond interest equal to or greater than the IR(s) amount, consider the IR(s) reported unless the return amount is identified as being from a different payer.

  4. Accept bond interest if the taxpayer indicates the following:

    1. The bond interest is reported each year as it accrues. Accept only if the taxpayer reports an interest amount.

    2. Interest on inherited savings bonds was reported on the decedent's final individual income tax return.

  5. If the taxpayer included Bond income as Capital Gains on Schedule D, Part II, consider the Bond reported. Subtract the Bond Income from the LONG TERM GAIN/(LOSS) field in the Sch D/8814/ECR Tax window and send the IR(s). Include a Special Paragraph ( TY 2019) using the following verbiage as an example,The Bond income you reported on Form 1040/ Form 1040-SR, line 6 or Schedule D, Capital Gains and Losses, does not qualify for capital gains treatment. Your payers reported this income to us as bond interest, so you must report the income as ordinary income on your tax return.. For TY 2020 and subsequent, send PARAGRAPH 145, see Exhibit 4.19.3-7, CP PARAGRAPHS.

  6. If a breakdown of bond interest by payer is not shown on the return or on an attachment and there is only one IR:

    1. Compare the amount reported on Form 1040/1040-SR, line 2b .

    2. If the taxpayer reports a larger amount, consider the IR fully reported.

    3. If the taxpayer reports a lesser amount, allow credit for the amount reported.

  7. If the taxpayer reports bond interest but does not identify the payer and there is more than one BOND IR:

    1. Group by income type BOND.

      Note:

      If INT IRs are present it may be necessary to add INT IRs to the group.

    2. Compare the group total to the amount of reported bond interest.

    3. If the group total amount is smaller, assign status code "R" to the group.

    4. If the group total amount is larger, consider the difference U/R and assign status code "U" to the group.

    5. If bond amounts are U/R, send PARAGRAPH 64. See Exhibit 4.19.3-7, CP PARAGRAPHS.

      Exception:

      If the specific U/R amount matches an IR - PARAGRAPH 64 may not be appropriate.

  8. If the taxpayer reports an amount as savings bond, T-Bill bond, or note interest, and the 99INT IR shows only regular interest, consider the IR reported if the amounts match within $1 ONLY if the taxpayer has not excluded interest on Schedule B, line 3, for college tuition. PARAGRAPH 108 automatically generates when the exclusion is fully disallowed.

  9. 99INT IRs should not show EWPEN amounts if only bond interest is present. Treat such IRs as potential Payer Agent data or questionable.

Savings Bond Exclusion
  1. Form 8815, Exclusion of Interest from Series EE and I U.S. Savings Bonds Issued After 1989, is allowed on Schedule B, line 3.

  2. Bond Interest must be reported on the return before being claimed as a Savings Bond Exclusion on Form 1040/1040-SR.

  3. When the taxpayer excludes a savings bond interest amount and the AGI is changed, the Adjusted Gross Income and Savings Bond Exclusion windows may display when the Return Value window is selected. If the windows do not display, they must be accessed before continuing to the Return Value screen.

  4. The AUR system computes the new excludable savings bond interest amount based on the entries in the Adjusted Gross Income and Savings Bond windows and displays it in the RECOMPUTED SAVINGS BOND EXCLUSION field.

  5. If the Adjusted Gross Income (AGI) window appears, see IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Adjusted gross Income (AGI) window.

    Reminder:

    Input/verify the amount in the Excluded Savings Bond field of the AGI window.

  6. The savings bond exclusion claimed on Schedule B, line 3 is disallowed when:

    1. The taxpayer is married filing a separate return

    2. The new Modified Adjusted Gross Income (MAGI) is:

    Filing Status TY 2019 TY 2020 TY 2021
    Single, Head of Household and Qualifying Widow(er) $96,100 or more $97,350 or more $98,200 or more
    Married Filing Joint $151,600 or more $153,550 $154,800

    Note:

    The new MAGI is the amount claimed on Form 8815, line 9, plus U/R income.

  7. The savings bond exclusion claimed on Schedule B, line 3 is adjusted when the new MAGI is greater than:

    Filing Status TY 2019 TY 2020 TY 2021
    Single, Head of Household and Qualifying Widow(er) $81,100 $82,350 $83,200
    Married Filing Joint $121,600 $123,550 $124,800

  8. If the system determines the exclusion claimed should be disallowed in whole or part, an IR is created by the system for the amount of the disallowance and coded with status code "U" .

  9. PARAGRAPH 105 automatically generates when the exclusion is adjusted or eliminated. PARAGRAPH 107 automatically generates when the exclusion is eliminated based on the filing status.

  10. If you adjust the Savings Bond Exclusion, enter the amount from Schedule B in the RETURN field of the Summary screen.

Accrued Market Discount (AMD)
  1. Accrued Market Discount is identified on the Case Analysis screen with the literal "1099B" in the DOC TYPE field and the literal "AMD" in the INCOME TYPE field. Accrued Market Discount is reported on Form 1099-B, box 1f.

  2. ONLY screen AMD IRs in Category 31, 39, 61 and 79.≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡" ≡ ≡ ≡ ≡"≡ ≡" ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. Compare AMD amounts with entries on Form 1040/1040-SR, line 2b and/or Schedule B, Part 1, line 1.

  4. Accrued Market Discount comparisons for the following entries must match within $1 or be CLEARLY IDENTIFIED as AMD:

    1. Form 8949 Part I or II, column (g).

    2. Schedule D, Part I, line 1b, column (g) or Part II, line 8B, column (g).

  5. If Schedule B (or an attachment in lieu of Schedule B) is attached, compare AMD IR(s) with individual items. If you cannot match individual IRs:

    1. Group all INT and AMD amounts from the same payer in the same group.

    2. Compare group total to the total amount reported on the return from that payer.

    3. If the group total is smaller, assign status code "R" to the group.

    4. If the group total is larger, assign status code "U" to the group.

      Note:

      If BOND IRs are present it may be necessary to add BOND IRs to the group.

      Caution:

      When grouping AMD and INT together the summary screen will show the income type as interest income.

    5. If interest amounts are U/R, send PARAGRAPH 64. See Exhibit 4.19.3-7, CP PARAGRAPHS.

      Exception:

      If the specific U/R amount matches an IR - PARAGRAPH 64 may not be appropriate.

Interest Miscellaneous
  1. Interest income may be reduced by any of the following, provided the taxpayer first included this income on Schedule B, line 1. The line 2 amount should then reflect the taxable amount of interest minus these adjustments:

    1. Nominee Distributions - Interest received by the taxpayer that actually belongs to another person, such as a child.

    2. Accrued Interest - Interest on securities transferred between interest payment dates.

    3. Tax-Exempt Interest - (for example, Municipal Bonds).

      Note:

      When SS/RR is also present, see IRM 4.19.3.8.17.1, SS/RR - Analysis.

    4. Amortizable Bond Premium - Premium offsets interest on taxable bonds acquired after December 31, 1987.

    5. Frozen Deposits - An account from which the taxpayer is unable to withdraw funds because the financial institution or others in the area are bankrupt, insolvent, or in receivership.

  2. Pursue the issue if it appears the taxpayer reports an incorrect taxable interest due to improper deduction of these amounts.

  3. PARAGRAPH 85 automatically generates to inform the taxpayer they may be subject to Backup Withholding (BWH) when the total of U/R interest, dividends, and patronage dividends is greater than $500.

  4. 99INT and 99OID IRs may reflect an Early Withdrawal Penalty (EWPEN). See IRM 4.19.3.9.5, Early Withdrawal Penalty (EWPEN) - General, for further instructions.

    Caution:

    Taxpayers may net the EWPEN against the interest. See IRM 4.19.3.9.5.1, Early Withdrawal Penalty (EWPEN) - Analysis.

  5. If a 99INT IR, from the U.S. Treasury, with EIN 38-1798424 is shown on the Case Analysis screen, it is credit interest paid to the taxpayer by IRS for refund cases and is fully taxable.

  6. 99INT IRs may reflect W/H. If there is an indication the interest account is jointly owned with someone other than the taxpayer's spouse or the filing status is 3:

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

    2. Send PARAGRAPH 6, see Exhibit 4.19.3-7, CP PARAGRAPHS.

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

      Note:

      See IRM 4.19.3.5.3, Jointly Owned Income, for additional instructions on jointly owned income.

    4. See IRM 4.19.3.17.1, Withholding - General, for further instructions on W/H.

  7. A fully U/R 99INT IR with a payee EIN is considered self-employment income. Input an Income Identify Code to assess SE tax. See IRM 4.19.3.16.1, Self-Employment Tax and Exhibit 4.19.3-9, Income Identify Codes.

  8. If interest is U/R, enter the amount from Form 1040/1040-SR, line 2b in the RETURN field on the Summary screen.

Dividends and Capital Gain Distributions

  1. Dividends are distributions paid by corporations, partnerships, and/or estates and trusts. They are reported on Form 1099-DIV and on Schedules K-1 from Form 1065, U.S. Return of Partnership Income, Form 1041, U.S. Income Tax Return for Estates and Trusts, and Form 1120-S, U.S. Income Tax Return for an S Corporation.

  2. Capital gain distributions are normally paid by regulated investment companies, mutual funds, and real estate investment trusts from their net long-term capital gains.

Dividends - General
  1. The types of dividends compared are:

    • Ordinary Dividends - Entire amount is taxable

    • Capital Gain Distributions - Are considered taxable

  2. Dividends are identified on the Case Analysis screen by the literal "99DIV" in the DOC TYPE field and one of the following literals in the INCOME TYPE field:

    • "ORDIV" - Ordinary dividends

    • "QDIV" - Qualified Dividends may be eligible for the Capital Gains rate of 20 percent.

    • "NDDIS" - Non-Dividend distributions (non-taxable)

    • "INEXP" - Investment Expenses (information only/system deleted)

  3. The AUR system considers each of the following amounts separately:

    • Ordinary Dividends

    • Capital Gain Distributions (including 28 percent rate, 5 year gain, 1250 gain and 1202 gain)

  4. If a 99DIV IR with multiple income types is U/R, and the tolerance for issuing a notice is met, screen all elements of the IR.

Dividends - Analysis
  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • 403(b) accounts

    • SEP or IRA accounts

    • Municipal Bond funds

    • Pension Plan or Profit Sharing Plan (including a 401(k) plan)

    • Capital Construction Fund (CCF) account

    Note:

    If W/H is reported, allow; if not reported ≡ ≡ ≡ ≡

  2. Compare ORDIV amounts with entries on Form 1040/1040-SR, line 3b.

    Note:

    Qualified dividends reported on line 3a must be included in total dividends reported on line 3b. If the taxpayer reduces the dividends amount by the qualified dividend amount, the difference is U/R. Send PARAGRAPH 65, see Exhibit 4.19.3-7, CP PARAGRAPHS.

    1. Schedule B, Part II.

    2. Schedule E, Parts II, III, and/or IV. The amounts must match within $1 or be clearly identified as Dividend Income.

  3. Compare IR(s) on the Case Analysis screen with individual items listed on Schedule B, if attached. The taxpayer may use an attachment in lieu of Schedule B.

  4. Dividend IRs display Ordinary Dividends (ORDIV), Qualified Dividends (QDIV), Capital Gain Distributions (CG), and non-dividend distributions (non-taxable) as separate amounts.

    1. The QDIV are included in the ORDIV.

    2. If the sum of the ORDIV and the CG amounts matches the sum of dividends reported on Schedule B, line 5, consider the IR(s) fully reported.

  5. If individual IR(s) do not match the amount claimed on the return:

    1. Group ordinary dividend amounts from the same payer.

    2. Compare the group total amount to the total ordinary dividends reported for that payer.

    3. If the group total amount is smaller, assign status code "R" to the group.

    4. If the group total amount is larger, assign status code "U" to the group.

  6. If a breakdown of dividends by payer is not shown on the return or on an attachment and there is only one IR:

    1. Compare the amount reported on Form 1040/1040-SR, line 3b .

    2. If the taxpayer reports a larger amount, consider the IR fully reported.

    3. If the taxpayer reports a lesser amount, allow credit for the amount reported.

  7. If a breakdown of dividends by payer is not shown on the return and there is more than one dividend IR:

    1. Group all ORDIV together.

      Note:

      The Group function is a tool to assist the TEs in computing the correct U/R amount. It may not be necessary to use the Group function if the correct U/R can be determined without it.

    2. Compare the group total amount to the total reported dividends.

    3. If the group total amount is smaller, assign status code "R" to the group.

    4. If the group total amount is larger, consider the difference U/R and assign status code "U" to the group.

    5. If dividend amounts are U/R send PARAGRAPH 64. See Exhibit 4.19.3-7, CP PARAGRAPHS.

      Exception:

      If the specific U/R amount matches an IR - PARAGRAPH 64 may not be appropriate.

  8. Dividends and interest income are often interchanged by the taxpayer. Check any interest income areas when comparing IRs (for example, credit union dividends). Check any dividend income areas when comparing INT amounts. Offset dividend income against interest income ONLY if one of the following applies:

    1. The same amount (within $1) AND the same payer are reported; OR

    2. An unidentified amount matches the U/R dividend amount within $1.

  9. If dividend income is listed on Schedule B but is not added into the AGI:

    1. Consider the income U/R. Create an IR for any income the taxpayer reported on Schedule B for which we do not have a corresponding IR.

    2. If interest and/or dividend amounts are U/R, send PARAGRAPH 57. See Exhibit 4.19.3-7, CP PARAGRAPHS.

  10. If the taxpayer reports ordinary dividends on Schedule D/Form 8949, lines 1a, 1b, 2, or 3 column (d) or lines 8a, 8b, 9 or 10 column (d).

    1. Consider the amount(s) in columns (e) and (g), (cost or other basis) U/R.

    2. To arrive at the amount to input in the REPORTED AMOUNT field, subtract the columns (e) and (g) amounts from the information return.

      Caution:

      Delete the dividend income from the LONG TERM GAIN (LOSS) field in the Sch D/8814/ECR Tax window.

    3. Send PARAGRAPH 52, see Exhibit 4.19.3-7, CP PARAGRAPHS.

  11. If you notice a math error on Schedule B:

    1. Create an IR for any reported dividend amount(s) for which we do not have a corresponding IR.

    2. Group by income type ORDIV.

    3. Compare the group total amount to the total dividends reported.

    4. If the group total is smaller, consider reported and assign status code "R" to the group.

    5. If the group total is larger, consider the difference U/R and assign status code "U" to the group.

    6. Send PARAGRAPH 79, see Exhibit 4.19.3-7, CP PARAGRAPHS.

  12. During Case Analysis, screen the QDIV element of the IRs. If the ORDIV element of the IR is fully UR enter status code "U" and the reported amount as zero in the QDIV element of the IR. This will ensure that the appropriate Schedule D tax rate is determined.

  13. The QDIV element(s) is systemically included on the notice when the ORDIV element is marked with a "U" . Send Indicator "S" will not be reflected on the QDIV element of the IR on the Case Analysis screen and QDIV(s) will not be displayed on the Summary screen; however, QDIV(s) will be included on the notice.

    Note:

    Any changes to reported QDIV are used in determining the proper Schedule D tax rate and will not impact the AGI.

Dividends Miscellaneous
  1. The taxpayer may report a net dividend amount based on the payer's estimated percentage of taxability (especially utility companies). ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. Dividends from money market funds may be reported under a different name. If a dividend amount on a 99DIV IR matches an amount on Schedule B, consider the IR reported unless there is an IR(s) for that individual payer.

  3. Restricted stock transferred to an employee as compensation for services may accrue dividends. Even though these dividends are reported on Form 1099-DIV, they should be treated as wages. Consider the income reported if the amount was included with wages.

  4. Reinvestment dividends are not allowable as an exclusion.

  5. 99DIV IRs may reflect W/H. If there is an indication the dividend account is jointly owned with someone other than the taxpayer's spouse or the filing status is 3:

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡Send PARAGRAPH 6, see Exhibit 4.19.3-7, CP PARAGRAPHS.

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

      Note:

      See IRM 4.19.3.5.3, Jointly Owned Income, for further instructions on joint ownership.

    3. See IRM 4.19.3.17.1, Withholding - General, for further instructions on W/H.

  6. A fully U/R 99DIV IR with a payee EIN is considered self-employment income. Input an Income Identify Code to assess SE tax. See IRM 4.19.3.16.1, Self-Employment Tax and Exhibit 4.19.3-9, Income Identify Codes.

  7. Nominee dividends may be deducted provided the taxpayer first included this income on Schedule B, line 5.

  8. PARAGRAPH 85 automatically generates to inform the taxpayer they may be subject to BWH when the total of U/R interest, dividends, and patronage dividends is greater than $500.

  9. If dividends are U/R, enter the return amount in the RETURN field on the Summary screen.

Capital Gain Distributions - General
  1. Capital Gain Distributions are identified in the Case Analysis screen by the literal "99DIV" in the DOC TYPE field and "CG" - Capital Gain Distributions - Income Identify Code "SD" displays for Capital Gain Distributions in the INCOME TYPE field.

  2. The AUR system considers Capital Gain Distributions separately from Ordinary Dividends.

  3. If Capital Gains are U/R and the tolerance for issuing a notice is met, screen all elements of the IR.

Capital Gain Distributions - Analysis
  1. Compare capital gain distributions amounts with entries on:

    TY 2019 TY 2020 and subsequent
    Form 1040 / Form 1040-SR, line 6 Form 1040 / Form 1040-SR, line 7
    1. Schedule D, line 13, column (h).

    2. Form 8949, Part II, line 1, column (h).

      Note:

      The taxpayer may use an attachment in lieu of Form 8949.

  2. Verify the taxpayer has reported capital gain distributions on Schedule D, line 13, and the proper amount was carried over to:

    TY 2019 TY 2020 and subsequent
    Form 1040 / Form 1040-SR, line 6 Form 1040 / Form 1040-SR, line 7

  3. If no Schedule D is present verify the taxpayer reported the capital gain distributions directly on:

    TY 2019 TY 2020 and subsequent
    Form 1040 / Form 1040-SR, line 6 Form 1040 / Form 1040-SR, line 7

  4. When the taxpayer reports Capital Gain Distributions directly on Form 1040/1040-SR, line 6 (TY 2019), , line 7 (TY 2020 and subsequent) the Schedule D window in Return Value MUST be accessed manually. See IRM 4.19.3.14.2, Sch D/8814/ECR Tax Window.

  5. If the taxpayer provides a breakdown of capital gains (for example on an attachment), be sure the amount was properly transferred to either Schedule D, line 13, column (h) Form 1040/1040-SR, line 6 (TY 2019) or 1040/1040-SR, line 7 (TY 2020 and subsequent) before considering them reported. If not, then consider the amount U/R and send PARAGRAPH 3. See Exhibit 4.19.3-7, CP PARAGRAPHS.

  6. If a breakdown of capital gain distributions is not shown on the return and there is more than one capital gain distribution IR:

    1. Group by income type CG.

      Note:

      The Group function is a tool to assist the TEs in computing the correct U/R amount. It may not be necessary to use the Group function if the correct U/R can be determined without it.

    2. Compare the group total amount to the amount reported on Schedule D, line 13, column (h) or if Schedule D is not attached, Form 1040/1040-SR, line 6 (TY 2019) or Form 1040/1040-SR, line 7 (TY 2020 and subsequent)

    3. If the group total amount is smaller, assign status code "R" to the group.

    4. If the group total amount is larger than the amount reported, consider the difference U/R and assign status code "U" to the group.

      Note:

      If the reported dividend amount matches the sum of the ORDIV and CG on the IR(s), consider the capital gain distributions fully reported.

    5. If capital gains amount are U/R, send PARAGRAPH 64. See Exhibit 4.19.3-7, CP PARAGRAPHS.

      Exception:

      If the specific U/R amount matches an IR - PARAGRAPH 64 may not be appropriate.

  7. Capital Gain Dividends reported on Form 1099-DIV with a "S" or "P" in the taxpayer field on the Case Analysis screen default with an Income Identify Code of "SD" for long term capital gain/loss belonging on Schedule D, Part II. If the taxpayer field contains an "E" for EIN, the user MUST ENTER an Income Identify Code of "SD" .

  8. Change the Income Identify Code on partially U/R CG elements when you can determine from the taxpayer's reported amount that:

    1. The CG distributions do not belong on Schedule D. Input the appropriate Income Identify Code (for example, "PB" for the income to be treated as primary business subject to SE tax). See Exhibit 4.19.3-9, Income Identify Codes.

      Note:

      Capital gain distributions which have an Income Identify Code of "PB" , "PF" , "SB" , "SF" , or "CG" IRs with a payee EIN display on the Summary screen as Nonemployee Compensation. Send the taxpayer a Special Paragraph explaining that the CG income is shown on the notice as Nonemployee Compensation and is subject to SE tax.

    2. The Capital Gain distributions are determined to be a short term capital gain/loss belonging on Schedule D, Part I. Input an Income Identify Code of "ST" .

  9. Capital Gain IRs with Income Identify Codes of "SD" or "ST" are screened using the following procedures:

    1. Enter a status code of "U" on the CG element containing Income Identify Code of "SD" or "ST" .

    2. The Adjusted Gross Income window displays. Input/verify the fields.

    3. The COMPUTE SCHEDULE D LOSS window displays. Refer to IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - SCHEDULE D LOSS, to determine the correct field entries.

      Note:

      If there are U/R CG and the taxpayer reports a capital loss on Form 1040/1040-SR, line 6 (TY 2019) or Form 1040/1040-SR, line 7 (TY 2020 and subsequent) enter a zero (0) in both fields on the COMPUTE SCHEDULE D LOSS window. It may be necessary to blank out both fields first. This will prevent the system from using losses in excess of $3,000 ($1,500 if MFS) to offset U/R Schedule D income.

    4. The cursor returns to the IR CD field of the IR where it was before the windows displayed. The field is blank.

      Note:

      The AGI and COMPUTE SCHEDULE D LOSS windows only display automatically when a status code of "U" is initially entered. It is not necessary to access these windows again unless the field entries need to be changed.

    5. Input a status code ("U" , "R" , or "N" ) and the reported amount, if applicable, for the CG elements containing Income Identify Code of "SD" or "ST" .

    6. The system uses the information on the COMPUTE SCHEDULE D LOSS window to determine the correct U/R amount of Schedule D income. The total U/R Schedule D income amount is included in the TOTAL AGI CHANGE field on the Case Analysis screen.

  10. PARAGRAPH 24 automatically generates when CG are treated as ordinary income due to loss limitations. If the loss per return is less than $3,000 ($1,500 if MFS) toggle off PARAGRAPH 24 from the Summary screen.

  11. If Capital Gain Distributions are U/R, enter the return amount from Schedule D, line 13, Form 1040/1040-SR, line 6 (TY 2019) or Form 1040/1040-SR, line 7 (TY 2020 and subsequent) in the RETURN field of the Summary screen.

State and Local Income Tax Refunds (SITR) - General

  1. State and local income tax refunds (SITR) are taxable in the year received if the taxpayer itemized deductions in the previous year and claimed a deduction for state and/or local income taxes that resulted in a tax benefit.

  2. The prior year filing status code is used in figuring the AUR year taxable SITR amount.

  3. SITR payments are reported on Form 1099-G, Certain Government Payments.

  4. State income tax refunds are identified on the Case Analysis screen by the literal "1099G" in the DOC TYPE field and the literal "SITR" in the INCOME TYPE field.

SITR - Analysis
  1. Taxpayers that pay Alternative Minimum Tax do not derive a benefit from SITR. The AUR program now identifies taxpayers who paid ALT MIN Tax in the prior year before considering SITR unreported. Therefore, only pursue system identified (asterisked) SITR discrepant IRs. If the case is open for other issues, mark the non-asterisked SITR IR(s) with status code "D" , "N" or "R" .

  2. State and local income tax refunds (SITR) are potentially U/R if there is no SITR amount reported or when there are multiple SITR IRs and not all are reported. Compare SITR IRs to Form 1040/1040-SR, Schedule 1, line 1.

  3. Input/verify the required amounts on the SITR window. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - State and Local Income Tax Refunds.

    Note:

    An entry in the STATE/LOCAL W/H field is required only when the taxpayer has netted. See (11) below for additional information.

  4. 1099G IRs with reported SITR amounts for other than the prior tax year are deleted by the system. The literal "X" displays in the IR CODE field of the Case Analysis screen.

  5. When any of the following conditions are present, mark all SITR IRs (including those system identified as discrepant) with status code "D" , "N" , or "R" :

    1. SITR worksheets are attached to the return.

    2. The taxpayer indicates there is no tax benefit due to Alternative Minimum Tax.

  6. The AUR system will compute the U/R SITR amount if Form 1040/1040-SR, Schedule 1, line 1, does not equal the total of the SITR IRs.

  7. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. The taxpayer claimed itemized deductions for the prior AUR tax year, AND

    2. The prior year total itemized deductions are greater than their standard deduction, AND

    3. The prior year state/local tax deduction is less than (including zero) the SITR IR(s).

    4. Form 1040/1040-SR, Schedule 1, line 1 does not equal the SITR IR(s).

      Note:

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

  8. If the system computed a SITR refund, the current year filing status code has changed from the prior year, and the PRIOR YEAR TOTAL ITEMIZED DED field on the SITR window is less than or equal to 0 (zero), the system displays the following message: "Warning: SITR refund. Prior Yr Sch A info needed, access RTVUE on IDRS."

    If And Then
    The current year filing status is "1" , "3" , or "4" and, the prior year filing status was equal to "2" or "5" It can be determined the taxpayer's SSN in the prior year was a secondary SSN Research the Primary and Secondary SSNs using IDRS CC RTVUE.
    The current year filing status is "2" or "5" The prior year filing status is "1" , "3" , or "4" Access IDRS CC RTVUE for each spouse that has a SITR IR.
    1. Mark the applicable SITR IR with status code "N" or "D" if the spouse did not claim state/local taxes on the prior year Schedule A.

    2. If the spouse reported SITR on the current year return and the prior year filing status was 1, 3, or 4 and the spouse did not itemize, enter the amount of SITR reported as a miscellaneous deduction in the SCH C EXP/MISC Adjustment window, to refund the amount. Send PARAGRAPH 192, see Exhibit 4.19.3-7, CP PARAGRAPHS.

    3. Verify the PRIOR YEAR fields on the SITR window match RTVUE and correct if necessary.

      Caution:

      If taxpayer chose to itemize (even when it is less than the standard deduction) and the taxpayer claimed state/local tax deduction on the previous year’s Schedule A, do not allow the SITR refund. Mark the SITR IR with status code "N" or "D" .

  9. If the system computed a SITR refund and the current year filing status code has not changed from the prior year, the system displays the following message: "Warning: SITR refund."

    1. Access IDRS CC RTVUE.

    2. Verify the PRIOR YEAR fields on the SITR window match RTVUE and correct if necessary.

      Caution:

      If taxpayer chose to itemize (even when it is less than the standard deduction) and the taxpayer claimed state/local tax deduction on the previous year’s Schedule A, do not allow the SITR refund. Mark the SITR IR with status code "N" or "D" .

  10. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  11. If the difference between the sum of state and local income tax withheld and the SITR IR(s) is equal to or greater than the taxpayer's current AUR tax year Schedule A, line 5a amount, this indicates the taxpayer netted.

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

    2. If the taxpayer netted SITR, the system alerts the tax examiner to send an appropriate paragraph. If a notice is sent for any other issue, send PARAGRAPH 141. See Exhibit 4.19.3-7, CP PARAGRAPHS.

  12. Do not refund apparent O/R SITR for taxpayers who are minors or who are claimed as a dependent on someone else's return. Delete the SITR IRs for minors and dependents claimed on someone else's return.

  13. If the taxpayer filed "married filing jointly" in the prior year, and filed "married filing separately" in the current AUR tax year and reported one-half of the SITR amount, consider the SITR fully reported.

  14. PARAGRAPH 69 automatically generates when SITR is U/R.

  15. PARAGRAPH 16 automatically generates when SITR is O/R because the taxpayer did not claim itemized deductions for the prior AUR tax year.

  16. If SITR is U/R, enter the return amount in the RETURN field of the Summary screen.

Nonemployee Compensation (NEC) - General

  1. Nonemployee compensation is fees, commissions, or any other compensation paid by a business to an individual who is not an employee.

  2. Nonemployee compensation is reported on Form 1099-MISC, (TY 2019 and prior), or Form 1099-NEC, (TY 2020 and subsequent).

  3. Nonemployee compensation is identified on the Case Analysis screen by the literal "99MIS" (TY 2019 and prior) or "99NEC" (TY 2020 and subsequent) in the DOC TYPE field and the literal "NEC" in the INCOME TYPE field.

NEC - Analysis
  1. Compare NEC amounts with entries on:

    1. Schedule C, Part I.

    2. Schedule E, Part II - see (3) below.

    3. Schedule F, Part I or III.

    4. Form 4835, Farm Rental Income and Expenses, Part I.

    Note:

    Consider NEC reported if it is included in a larger total for the applicable taxpayer on Schedule C, F or Form 4835, unless the IR is obviously not the same type of income.

  2. When comparing NEC IRs with entries on any line not specifically identified for NEC, the amount must match within $1 or be CLEARLY IDENTIFIED by payer name, activity or as NEC income:

    1. Form 1040/1040-SR, line 1.

      Note:

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

    2. Schedule D, Part I, lines 1a, 1b, 2, or 3 column (d) or Part II, lines 8a, 8b, 9 or 10, column (d).

      Caution:

      Virtual currency may be reported or partially reported on Schedule D. This income may be identified by payer name or may be referred to as bitcoin or similar language. If the income is partially reported and the taxpayer includes an explanation they reported the fair market value of the virtual currency, as of the date it was received, consider the income reported.

    3. Form 8949- Part I, line 1 column (d) or Part II, line 1, column (d).

      Caution:

      Virtual currency may be reported or partially reported on Form 8949. This income may be identified by payer name or may be referred to as bitcoin or similar language. If the income is partially reported and the taxpayer includes an explanation they reported the fair market value of the virtual currency, as of the date it was received, consider the income reported.

    4. Form 2106, Employee Business Expenses, line 7 - Give credit when the NEC IR is related to the occupation (or activity) shown on Form 2106. See (4) below.

    5. Schedule E, Part I.

    6. Form 4797, Sales of Business Property, Parts I, II, or III.

    7. Form 6252, Installment Sale Income, line 5 or line 21.

    8. Form 3903, Moving Expenses, line 4.

      Note:

      Only Members of the Armed Forces who meet certain requirements can deduct moving expenses.

    Note:

    The taxpayer may report the sale of timber, coal, easements, right-of-way (ROW), land damages, etc. on the designated lines for Schedule D, Form 8949 or Form 4797. Consider the NEC reported if the sales price matches the IR within $1.

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

    1. An amount on the return matches within $1. Also give credit for reported amounts identified as being from the same payer.

    2. The taxpayer is incorporated (payer name must include CORP, INC, LC, LLC, PA, SC, or PC) and pays wages to themselves (the name and/or address of the payer is similar to or matches the name and/or address of the taxpayer). ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. The taxpayer appears to be a partner or shareholder as shown on Schedule E, Part II. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    4. The taxpayer is in the medical profession and has reported wages from a medical professional corporation (payer name must include CORP, INC, LC, LLC, PA, SC, PC, clinic or group) but not a hospital or medical center. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    5. The taxpayer is an employee of an institution and has ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    6. The taxpayer is in the medical profession and there is an indication ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    7. The taxpayer nets the amount for reimbursed expenses reported on Form 1099-MISC, (TY 2019 and prior) or Form 1099-NEC, (TY 2020 and subsequent) and ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    8. Form 3115, Application for Change in Accounting Method, is attached and the taxpayer is an insurance agent, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡.

    9. The combined NEC for both taxpayers equals the Schedule C within $1 or there is a statement indicating the amounts are included in a larger total.

  4. If Form 2106, column A, line 7 is greater than line 6, the taxpayer ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ The U/R amount cannot exceed the amount on Form 2106, column A, line 8. To arrive at the amount to input in the RETURN field, subtract the amount that should have been included in income (Form 2106, column A, line 8) from the IR amount.

    Note:

    Only Armed Forces Reservists, qualified performing artists, fee basis state or local government officials and employees with impairment-related work expenses can use Form 2106. Form 2106 expenses are reported on Form 1040/ 1040-SR, Schedule 1, line 11 (TY 2019 and TY 2020), Schedule 1, line 12 (TY 2021).

  5. If the payer is an oil, gas, or petroleum company:

    1. Consider the IR(s) reported if it is included (identified by payer or activity) in a larger total on Schedule C, or Schedule E, Part I.

    2. Depletion should NOT be deducted on Schedule C, Part II, or Schedule E, Part I, unless the business activity is related to a natural resource (for example, oil, gas, mineral, timber).

    3. Consider the depletion amount U/R if that depletion was deducted from income that is clearly NEC (Schedule C, line 12, or Schedule E, line 20). To arrive at the amount to input in the SHOWN ON RETURN field, subtract the depletion amount from the IR amount(s).

    4. Consider the IR fully U/R if the depletion amount cannot be determined.

  6. Nonemployee Compensation may represent crop insurance proceeds, which are reported on Schedule F, line 6a or 6b, or Form 4835, line 5a or 5b. The taxpayer may elect to postpone the crop insurance proceeds to the year following the damage. If the NEC amount(s) appears to be this type of income, consider the amount reported if:

    1. The box on Schedule F, line 6c, or Form 4835, line 5c, is checked AND

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

  7. If an explanation is attached to the return indicating the fellowship, grant, or stipend was used for tuition, fees, books, supplies, and equipment required for the course, AND:

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ The taxpayer cannot deduct expenses that exceed the IR.

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

    3. The taxpayer excluded expenses not shown above, then pursue the unallowable expenses. Send PARAGRAPH 124, see Exhibit 4.19.3-7, CP PARAGRAPHS.

  8. If the NEC IR is identifiable as fellowship/grant/stipend income, no explanation of tuition expenses is attached, and the IR is not fully reported, pursue the amount not reported. Send PARAGRAPH 124, see Exhibit 4.19.3-7, CP PARAGRAPHS.

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡" ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. DO NOT ASSESS SE tax on scholarship/stipend income.

  9. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡≡ ≡

  10. If the taxpayer reports NEC income on Form 1040/1040-SR, line 1 and attaches a Form 8919, Uncollected Social Security and Medicare Tax on Wages, to assess the employee share of FICA, the taxpayer is indicating that they are NOT LIABLE for SE tax on NEC because they’re an employee. Unless an employment status determination has been rendered by the SS-8 group to identify if the taxpayer is an independent contractor or employee, SE tax must be assessed. To ensure that credit is given for the tax paid on Form 8919:

    Exception:

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

    1. Do not change the Income Identify Code.

    2. Remove any amount from the ADDITIONAL FICA TAX window that is subject to SE Tax in the PRIMARY/SECONDARY INCOME SUBJECT TO FICA field.

    3. Access the SE Tax window and enter the Primary/Secondary Form 8919 tax in the PRI/SEC TAX FROM FORM 8919 INCOME field.

    4. Input the amount of reported NEC in the PRIM/SEC 8919 INCOME SUBJECT TO SE TAX field.

      Note:

      DO NOT enter this amount in the "Reported SE Income not on Sch SE" field of the SE Tax window.

    5. If necessary, adjust the PRI/SEC SS/RR WAGES/TIPS field so it does not include the NEC amount from Form 8919.

    6. Send PARAGRAPH 12, see Exhibit 4.19.3-7, CP PARAGRAPHS.

    See IRM 4.19.3.22.3.23, Self-Employment Tax (SE Tax) vs. Employee Share of FICA.

  11. If Form 4137, Social Security and Medicare Tax on Unreported Tip Income, is attached to the return:

    1. Do not change the Income Identify Code.

    2. Access the SST on TIPS window and correct the entries in the PRI/SEC ALLOCATED TIPS, UNREPORTED SS TIPS and/or MEDICARE-ONLY TIPS fields to reflect the actual amount of tip income received (use zero (0) or blank if no tip income was received).

      Reminder:

      Do not adjust the PRI/SEC UNREPORTED TIP TAX field.

    3. Access the SE Tax window and input the reported NEC amount in the PRI/SEC REPRTED SE INC NOT ON SCH SE field.

    4. If necessary, adjust the PRI/SEC SS/RR WAGES/TIPS field so it does not include the NEC amount from Form 4137.

      Reminder:

      Do not assess a tip tax penalty.

    5. Send PARAGRAPH 12, see Exhibit 4.19.3-7, CP PARAGRAPHS.

    See IRM 4.19.3.22.3.23, Self-Employment Tax (SE Tax) vs. Employee Share of FICA.

  12. If taxpayers who are members of federally recognized Native American Tribes report Form 1099-MISC (TY 2019 and prior) or Form 1099-NEC, (TY 2020 and subsequent) tribal-related income on Form 1040/1040-SR, Schedule 1, line 8 (TY 2019 and TY 2020), Schedule 1, line 8z (TY 2021) do not assess SE tax if any of the following literals are provided:

    • INDIAN GAMING

    • INDIAN GAMING PROCEEDS

    • IGP

    • INDIAN TRIBAL DISTRIB

    • INDIAN TRIBAL INCOME

    • INDIAN TRIBAL FUND

    • INDIAN TRIBAL EARNINGS

    • NATIVE AMERICAN

    • NATIVE AMERICAN DISTRIB

    • IGE

    • ITI

    • ALASKA PERMANENT FUND

    • ALASKA PERMANENT FUND DIV

    • APF

    • APFD

  13. If the taxpayer reports NEC on Form 1040/1040-SR, Schedule 1, line 8 (TY 2019 and TY 2020), Schedule 1, line 8z (TY 2021) and ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡" ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡" ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

NEC - Miscellaneous
  1. If a NEC amount on a 99MIS (TY 2019 and prior) or 99NEC (TY 2020 and subsequent) IR is U/R, verify the Income Identify Code so the system computes SE tax correctly. See Exhibit 4.19.3-9, Income Identify Codes.

  2. Underreported NEC is considered self-employment income (Income Identify Code is "PB" , "PF" , "SB" , or "SF" , as applicable) even if there is Form W-2 wage income from the same payer, unless the following applies:

    1. The NEC is partially or fully reported on Form 2106, Form 3903, Form 4835, Form 6252, Form 4797, Schedule D, Form 8949 or Schedule E, Part I. NEC reported on these forms is not subject to SE tax or considered earned income (Income Identify Code is blank).

      Note:

      Excess reimbursements on Form 2106 must be reported on Form 1040/1040-SR, line 1 , and is considered earned income. Input Income Identify Code "PE" or "SE" .

      Note:

      Only employees in the following categories qualify to use Form 2106: Armed Forces Reservists, qualified performing artists, fee basis state or local government officials and employees with impairment-related work expenses.

    2. The taxpayer is a newspaper carrier or magazine seller and is under the age of 18, DO NOT assess SE tax.

    3. The taxpayer is exempt from SE tax on the net earnings covered by an approvedForm 4361 or Form 4029. If the taxpayer writes “Exempt Form 4361” or “Form 4029” on Form 1040/1040-SR, Schedule 2, line 4, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Note:

      Although taxpayers may exclude Ministers Housing Allowance from NEC, it generally is subject to self-employment (SE) tax. Thus, there may be a difference between net Schedule C income and income subject to SE tax due to the Ministers Housing Allowance.

    4. If the taxpayer indicates that an NEC amount is compensation for a "non-compete" agreement or they are a member of a federally recognized Native American Tribe, the NEC amount is not subject to SE tax. Leave the INCOME IDENTIFY CODE field blank.

    5. If the taxpayer indicates the compensation is for court awards/settlements. See IRM 4.19.3.8.18.2, Other Income Miscellaneous, for further information.

  3. If there is reported NEC on which the taxpayer should have paid SE tax but did not, SE tax must be computed or recomputed if NEC is asterisked or a CP 2000 is sent for another issue(s). Include the reported NEC amount in the PRIM REPRTD SE INC NOT ON SE and/or SEC REPRTD SE INC NOT ON SE field(s) on the SE Tax window. See IRM 4.19.3.16.1, Self-Employment Tax or Exhibit 4.19.3-22, Examples of Self Employment Income.

    1. Send reported NEC IR elements on the notice when adjusting SE tax.

    2. If the NEC amount is entered in the PRIMARY and/or SECONDARY REPORTED SE INCOME field in the SE Tax window in error, an unpostable condition will occur.

  4. If the taxpayer reports NEC income, but indicates they worked as an employeeand

    1. Paid the employee 7.65 percent of FICA , follow the instructions in IRM 4.19.3.8.6.1, NEC - Analysis.

    2. Did not pay the employee 7.65 percent of FICA, charge the appropriate amount of SE tax.

    3. The NEC IR is partially reported on Form 4137 or Form 8919 and SS/Medicare tax is paid on the reported amount instead of SE tax, unless the condition in IRM 4.19.3.8.6.1 is met, treat the U/R NEC from the partially reported IR as subject to SE tax and follow the instructions in IRM 4.19.3.8.6.1, NEC - Analysis.

    4. Send PARAGRAPH 12, see Exhibit 4.19.3-7, CP PARAGRAPHS.

  5. If the taxpayer reports NEC income AND attaches a Form 4137, follow the instructions in IRM 4.19.3.8.6.1, NEC - Analysis.

  6. If the taxpayer reports NEC income AND attaches a Form 8919, follow the instructions in IRM 4.19.3.8.6.1(9) or (10) as appropriate, NEC - Analysis.

  7. 99MIS (TY 2019 and prior), or 99NEC (TY 2020 and subsequent) IRs may reflect W/H. See IRM 4.19.3.17.1, Withholding - General, for further instructions.

  8. If there are two or more fully U/R NEC IRs with an out-of-state payee address beyond the reasonable commuting area for the taxpayer (for example, taxpayer lives in Pennsylvania and U/R IRs are for Georgia), send PARAGRAPH 167. See Exhibit 4.19.3-7, CP PARAGRAPHS.

  9. If the taxpayer participates in a nonqualified deferred compensation plan that does not meet all requirements as specified in IRC 409A, (appears with the literal 409AI on the IR) the payer must report the deferred compensation as income and the amount is subject to an additional tax.

    1. The payer identifies income under IRC 409A on Form 1099-MISC, box 15b (TY 2019 and prior) or Form 1099-MISC, box 12 (TY 2020 and subsequent).

      Note:

      TY 2019 if the amount in Form 1099-MISC box 15b is already included in box 7 (NEC). If NEC is U/R and the difference corresponds to the 409AI amount, pursue the discrepancy as NEC. Send PARAGRAPH 127, see Exhibit 4.19.3-7, CP PARAGRAPHS.

    2. Income subject to IRC 409A regulations is identified on the Case Analysis screen by the literal "99MIS" in the DOC TYPE field and the literal "409AI" in the INCOME TYPE field. Enter status code "R" on the "409AI" element(s).

    3. The 409AI amount is subject to an additional tax. See IRM 4.19.3.16.7, Additional Taxes on Income from Nonqualified Deferred Compensation Plan (IRC Section 409A), for further instructions.

      Reminder:

      Mark the 409AI IR element(s) with Send Indicator "S" when adjusting the additional tax.

  10. If NEC is U/R, enter the GROSS return amount in the RETURN field on the Summary screen.

Merchant Card and Third Party Network Payments (MERCH) - General

  1. Merchant Card and Third Party Network Payments are payments the taxpayer accepted from merchant cards (credit and debit cards), or received through a third party network (PayPal, Google checkout, etc).

  2. Merchant Card and Third Party Network Payments are reported on Form 1099-K, Payment Card and Third Party Network Transactions.

  3. Merchant Card and Third Party Network Payments are identified on the Case Analysis screen by the literal "1099K" in the DOC TYPE field and the literal "MERCH" in the INCOME TYPE field.

    Note:

    The IR may reflect the informational literal "NOCRD" , which is system deleted ("X" ). Do not pursue NOCRD amounts.

MERCH - Analysis
  1. Compare MERCH amounts with entries on:

    1. Schedule C, Part I.

    2. Schedule E, Part II - see (5) below.

    3. Schedule F, Part I or III.

  2. Consider MERCH reported if it is included in a larger total for the applicable taxpayer on Schedule C, or F, unless the IR is obviously not the same type of income.

  3. When comparing MERCH IRs with entries on any line not specifically identified for MERCH, the amount must match within $1 or be CLEARLY IDENTIFIED by payer name, activity or as MERCH income:

    1. Form 1040/1040-SR, line 1.

      Note:

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

    2. Schedule D, Part I, lines 1a, 1b, 2, or 3 column (d) or Part II, lines 8a, 8b, 9 or 10, column (d).

      Caution:

      Virtual currency may be reported or partially reported on Schedule D. This income may be identified by payer name or may be referred to as bitcoin or similar language. If the income is partially reported and the taxpayer includes an explanation they reported the fair market value of the virtual currency, as of the date and time it was received, consider the income reported.

    3. Form 8949, Sales and Other Dispositions of Assets,Part I, line 1 column (d) or Part II, line 1, column (d).

      Caution:

      Virtual currency may be reported or partially reported on Form 8949. This income may be identified by payer name or may be referred to as bitcoin or similar language. If the income is partially reported and the taxpayer includes an explanation they reported the fair market value of the virtual currency, as of the date and time it was received, consider the income reported.

    4. Schedule E, Part I.

    5. Form 4797, Sales of Business Property, Parts I, II, or III.

  4. The taxpayer may report the sale of timber, coal, easements, right-of-way (ROW), land damages, etc. on the designated lines for Schedule D, Form 8949 or Form 4797. Consider the MERCH reported if the sales price matches the IR within $1.

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

    1. The taxpayer is incorporated (payer name must include CORP, INC, LC, LLC, PA, SC, or PC) and pays wages to themselves (the name and address of the payer is similar to or matches the name and/or address of the taxpayer). ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. The taxpayer appears to be a partner or shareholder as shown on Schedule E, Part II. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. The taxpayer is in the medical profession and has reported wages from a medical professional corporation (payer name must include CORP, INC, LC, LLC, PA, SC, PC, clinic or group) but not a hospital or medical center. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    4. The MERCH IR is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

MERCH - Miscellaneous
  1. If MERCH is U/R, verify the Income Identify Code so the system computes SE tax correctly. See Exhibit 4.19.3-9, Income Identify Codes.

  2. Underreported MERCH can be considered self-employment income (Income Identify Code is "PB" , "PF" , "SB" , or "SF" , as applicable) even if there is Form W-2 wage income from the same payer.

  3. If MERCH is not subject to SE tax (for example, MERCH reported on Schedule E, Part I, or Schedule D/Form 8949) remove the income identify code and leave the field blank.

  4. If there is reported MERCH on which the taxpayer should have paid SE tax but did not, SE tax must be computed or recomputed if MERCH is asterisked or a CP 2000 is sent for another issue(s). Include the reported MERCH amount in the PRIM REPRTD SE INC NOT ON SE and/or SEC REPRTD SE INC NOT ON SE field(s) on the SE Tax window. See IRM 4.19.3.16.1, Self-Employment Tax and Exhibit 4.19.3-22, Examples of Self Employment Income.

    1. Send reported MERCH IR elements on the notice when adjusting SE tax.

    2. If the MERCH amount is entered in the PRIMARY and/or SECONDARY REPORTED SE INCOME field in the SE Tax window in error, an unpostable condition will occur.

  5. PARAGRAPH 109 automatically generates when the MERCH IR is identified as U/R or used to create a group. If MERCH is not used to create a group, send PARAGRAPH 109, see Exhibit 4.19.3-7, CP PARAGRAPHS.

  6. If MERCH is U/R, enter the GROSS return amount in the RETURN field on the Summary screen.

Medical Payments - General

  1. Medical payments are compensation paid to doctors, dentists, and others in the medical profession (for example, Nurse Practitioner, Midwife, Chiropractor, Doctor of Osteopathy, Veterinarian, Podiatrist).

  2. Medical payments are reported on Form 1099-MISC.

  3. Medical payments are identified on the Case Analysis screen by the literal "99MIS" in the DOC TYPE field and the literal "MED" in the INCOME TYPE field.

Medical Payments - Analysis
  1. Compare MED amounts with entries on:

    1. Schedule C, Part I, if it appears to be for a medical practice.

    2. Schedule E, Part II, if it appears to be related to the medical profession.

  2. MED comparisons for the following entries must match within $1 or be CLEARLY IDENTIFIED as MED payments:

    TY 2019 and TY 2020 TY 2021
    Form 1040 / Form 1040-SR, line 1 Form 1040 / Form 1040-SR, line 1
    Form 1040 / Form 1040-SR, Schedule 1, line 8 Form 1040 / Form 1040-SR, Schedule 1, line 8z

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

    1. Reported wages from a medical professional corporation (payer name must include CORP, INC, LC, LLC, PA, SC, PC, clinic, or group), but not a hospital or medical center or

    2. Is incorporated (payer name must include CORP, INC, LC, LLC, PA, SC or PC) and pays wages to themselves (the name and/or address of the payer is similar to or matches the name and/or address of the taxpayer).

      Note:

      If there are no WAGES IRs displayed on the Case Analysis screen, review the Form W-2 attached to the return.

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

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

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

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

Medical Payments Miscellaneous
  1. If MED payments are U/R and the taxpayer's occupation and/or the payer name on the MED IR(s) is NOT related to the medical field, the income may be sick pay or disability payments. Form 1099-MISC are sometimes incorrectly used to report sick pay or disability payments.

    1. Do not consider the U/R MED amount(s) as self-employment income.

    2. Delete the Income Identify Code(s).

  2. If MED payments are U/R and the taxpayer is in the medical profession, treat U/R MED payments as self-employment income. See IRM 4.19.3.16.1, Self-Employment Tax.

  3. If there is reported MED on which the taxpayer should have paid SE tax but did not, SE tax must be computed or recomputed, if MED or SE tax is asterisked or a CP 2000 is sent for another issue(s). Include the reported MED amount in the PRIM REPRTD SE INC NOT ON SE and/or SEC REPRTD SE INC NOT ON SE field(s) on the SE Tax window. See IRM 4.19.3.16.1, Self-Employment Tax, and Exhibit 4.19.3-22, Examples of Self Employment Income.

    1. Send reported MED IR elements on the notice when adjusting SE tax.

    2. If the MED amount is entered in the PRIMARY and/or SECONDARY REPORTED SE INCOME field in the SE Tax window in error, an unpostable condition will occur.

  4. IRs with MED amounts may reflect W/H. See IRM 4.19.3.17.1, Withholding - General, for further instructions.

  5. If MED payments are U/R, enter the GROSS return amount in the RETURN field on the Summary screen.

Fishing Income - General

  1. Fishing income is earned by fishing boat crew members, or the cash amounts paid for the purchase of fish for resale from any person engaged in the trade or business of catching fish.

  2. Fishing income is reported on Form 1099-MISC.

  3. Fishing income is identified on the Case Analysis screen by the literal "99MIS" in the DOC TYPE field and the literal "FISH" in the INCOME TYPE field or 99MIS in the DOC TYPE field and the literal FRSL in the INCOME TYPE field.

Fishing Income - Analysis
  1. When comparing FISH or FRSL amounts with the following entries, the amount must match within $1 or be CLEARLY identified by payer name, activity or as fish income:

    1. Schedule C, Part I .

    2. Schedule E, Part I.

    3. Schedule E, Part II.

    4. Form 1040/1040-SR, Schedule 1, line 8 (TY 2019 and TY 2020), Schedule 1, line 8z (TY 2021).

Fishing Income Miscellaneous
  1. If a FISH or FRSL amount on a 99MIS IR is U/R, verify the Income Identify Code so the system computes SE tax correctly. Valid Income Identify Codes are "PB" , "PF" , "SB" , or "SF" , as applicable. See Exhibit 4.19.3-9, Income Identify Codes.

  2. If there is fishing income reported on which the taxpayer should have paid SE tax but did not, SE tax must be computed or recomputed if FISH, FRSL, or SE tax is asterisked or a CP 2000 is sent for another issue(s). Include the reported FISH amount in the PRIM REPRTD SE INC NOT ON SE and/or SEC REPRTD SE INC NOT ON SE field(s) on the SE Tax window. See IRM 4.19.3.16.1, Self-Employment Tax, and Exhibit 4.19.3-22, Examples of Self Employment Income.

    1. Send reported FISH or FRSL IR elements on the notice when adjusting SE tax.

    2. If the FISH amount is entered in the PRIMARY and/or SECONDARY REPORTED SE INCOME field in the SE Tax window in error, an unpostable condition will occur.

  3. 99MIS IRs with FISH or FRSL amounts may reflect W/H. See IRM 4.19.3.17.1, Withholding - General, for further instructions.

  4. If fishing income is U/R, enter the GROSS return amount in the RETURN field on the Summary screen.

Retirement Plans

  1. Form 1099-R, Distributions from Pensions, Annuities, Retirement, or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., is used to report distributions from retirement plans.

  2. Retirement plans include pensions and annuities, profit-sharing and stock bonus plans, individual retirement accounts (IRAs), employee savings plans. Distributions from retirement plans are not always fully taxable.

  3. Other pension and annuity payments (including non-IRA distributions that are periodic payments or lump-sum distributions not entitled to special tax treatment on Form 4972, Tax on Lump-Sum Distributions) are reported on the specific line numbers below for pensions.

    TY Form IRA line number Pension Line number
    2019 1040 / 1040-SR 4a and/or 4b 4c and/or 4d
    2020 and subsequent 1040/1040-SR 4a and/or 4b 5a and/or 5b
  4. When distributions from Traditional or Roth IRAs, 401(k), 403(b), governmental 457, 501(c)(18)(D), SEP or SIMPLE plans, or qualified retirement plans as defined in section 4974(c) (including Federal Thrift Savings Plan) are determined to be U/R, check for Form 8880, Credit for Qualified Retirement Savings Contributions, and adjust as appropriate. See IRM 4.19.3.15.6, Qualified Retirement Savings Contributions Credit, (QRSC), for more information.

Form 1099-R Information Returns
  1. Form 1099-Rs may display the following literals:

    • "GR/A" - Gross amount

    • "TX/A" - Taxable amount

    • "ECG" - Eligible Capital Gains

      Note:

      Payers must include the capital gain distribution amount in the gross and taxable distribution amount boxes on Form 1099-R.

    • "UNRAP" - Unrealized Appreciation

    • "EMCON" - Employee Contributions from Box 5 of Form 1099-R

      Note:

      "UNRAP" and "EMCON" amounts are system deleted.

  2. A Category of Distribution (COD) code displays in the IND field on the Case Analysis screen and on the Information Return window for 1099R IR(s). The COD contains up to two indicators. For the meaning of each individual indicator, see Exhibit 4.19.3-6, Category of Distribution (COD) Chart - Form 1099-R.

    Note:

    There should be one indicator present in the COD field; however, two indicators may display. Generally two indicators display as an alpha/numeric combination. Consider each indicator individually.

    Example:

    COD "7A" is read as COD 7 (normal distribution) and COD A (qualifies for 10 year tax option on Form 4972). Zero (0) has no meaning and is considered a blank space. The only valid numeric/numeric COD combinations are: 8 and 1, 8 and 2, or 8 and 4. If the 1099R IR contains any other numeric/numeric combination (for example, 14) disregard the second indicator.

  3. Consider the indicators on any attached Form 1099-R, Box 7 the most accurate information available. If attached documents indicate that the displayed COD is incorrect and the COD code is "J" , "L" , "M" , "S" , "1" , or "5" , modify the IR to show the correct COD code.

  4. Use COD codes to compare 1099R IR amounts with the proper placement on the tax return.

  5. The following hint text displays on all 1099R IRs:

    • TOTAL DIST IND

    • TAX AMT NOT DET

    Note:

    A "1" indicates the applicable box(es) was checked on the IR. A "blank" indicates the applicable box was not checked.

  6. Payers report lump-sum credit distributions to Civil Service annuitants on Form 1099-R. The gross credit amount is included with the total of any periodic payments made. The taxpayer must compute and report the taxable credit amount on:

    TY 2019 TY 2020 and subsequent
    Form 1040/ Form 1040-SR, line 4d Form 1040/ Form 1040-SR, line 5b

  7. The taxpayer may erroneously treat Form 1099-R income as Social Security/Railroad Retirement Benefits, reporting the amount on Form 1040/1040-SR, lines 5a and 5b ( TY 2019) or lines 6a and 6b (TY 2020 and subsequent). See IRM 4.19.3.8.10.5, Railroad Retirement Board (RRB) IRs, for more information.

  8. Taxpayers make donations of cash and/or other assets (generally stocks) to nonprofit organizations and receive an annuity from the nonprofit organizations from their donations. These annuities are partly capital gains from the taxpayer's donated assets as well as annuities. Nonprofit organizations report these capital gains and annuities on Form 1099-R; COD "F" in Box 7 indicates charitable gift annuities and may contain ECG amounts. See IRM 4.19.3.8.10.8, Lump-Sum Distributions, for further instructions.

Identifying Retirement Types
  1. The following references are for specific retirement types and MUST be used in conjunction with the general instructions in IRM 4.19.3.8.10.3, Retirement-Analysis, and IRM 4.19.3.8.10.4, Rollovers.

  2. See IRM 4.19.3.8.10.5, Railroad Retirement Board (RRB) IRs, when:

    1. Form 1099-R is attached or the IR indicates the payment is from the Railroad Retirement Board.

    2. Form 1099-R shows Taxable Contributory Amount, Taxable Vested Dual Benefit, and/or Taxable Supplemental Annuity.

  3. See IRM 4.19.3.8.10.6, Pensions and Annuities, when

    1. Form 1099-R is attached and indicates pension/annuity or

    2. The taxpayer attached a written statement which identifies the income as pension or annuity or:

    TY 2019 TY 2020 and subsequent
    The taxpayer reported the distribution on Form 1040/ Form 1040-SR, line 4c and/or 4d. The taxpayer reported the distribution on Form 1040/ Form 1040-SR, line 5a and/or 5b.
    The taxpayer indicates "PSO" next to Form 1040/ Form 1040-SR, line 4c/d. The taxpayer indicates "PSO" next to Form 1040/ Form 1040-SR, line 5a/b.

  4. See IRM 4.19.3.8.10.7, IRA Distributions, when:

    1. Form 1099-R is attached and an IRA/SEP distribution is indicated in Box 7.

    2. Form 1099-R or the IR shows "IRA" in the payer or payee name lines.

    3. The taxpayer attached a written statement identifying the income as an IRA distribution.

    4. PGR Indicator of "1" is displayed.

    5. The GR/A and TX/A amounts are the same and the payer indicates the taxable amount has not been determined.

    6. COD J is present or

    7. The IRA/SEP/Simple box is checked on the IR.

      TY 2019 and subsequent
      The taxpayer reported the distribution on Form 1040/ Form 1040-SR, line 4a and/or 4b
      The taxpayer indicates "QCD" next to Form 1040/ Form 1040-SR, line 4a and/or 4b
      The taxpayer indicates "HFD" next to Form 1040/ Form 1040-SR, line 4a and/or 4b

  5. See IRM 4.19.3.8.10.8, Lump-Sum Distributions, when:

    1. Form 1099-R or IR shows COD code "A" .

    2. The IR contains ECG amounts.

Retirement - Analysis
  1. These are general instructions and MUST be used in conjunction with the instructions for specific retirement types.

  2. Compare retirement plan IRs with entries on:

    Caution:

    If Form 8606 is attached, see IRM 4.19.3.8.10.7, IRA Distributions, before determining the U/R amount.

    TY 2019 TY 2020 TY 2021
    Form 1040/ Form 1040-SR, line 1, 4a, 4b, 4c, or 4d Form 1040/ Form 1040-SR, line 1, 4a, 4b, 5a or 5b Form 1040/ Form 1040-SR, line 1, 4a, 4b, 5a or 5b
    Form 1040/ Form 1040-SR, Schedule 1, line 8 Form 1040/ Form 1040-SR, Schedule 1, line 8 Form 1040/ Form 1040-SR, Schedule 1, line 8z
    1. Form 4972 (if the taxpayer was a teacher, see IRM 4.19.3.8.10.8, Lump-Sum Distributions

    2. Schedule D, see (4) below.

    3. Attachments to Form 1040.

    4. Schedule B - If reported here, also analyze INT or DIV, as applicable.

    Note:

    If there is an indication the distribution is a life insurance policy surrendered for cash, see IRM 4.19.3.22.3.6, Retirement Distributions - Form 1099-R.

  3. For IRM 4.19.3.8.10.3 through IRM 4.19.3.8.10.9 when reference is made to gross pensions and annuities line or taxable pensions and annuities line, use the table below to determine the correct line numbers.

    TY Gross pensions and annuities Taxable pensions and annuities
    2019 Form 1040/ Form 1040-SR, line 4a or 4c Form 1040/ Form 1040-SR, line 4b or 4d
    2020 and subsequent Form 1040, line 4a or 5a Form 1040, line 4b or 5b

  4. If the taxpayer included ordinary retirement income as Capital Gains on Schedule D, compare the amount reported, if identified as the same payer, with the IR and take the following action:

    1. If the amount reported, column (h), is equal or greater than the IR amount, consider the income reported.

    2. If the amount reported, column (h), is less than the IR amount, consider the difference U/R.

      Exception:

      If after removing retirement income from Schedule D, the Schedule D remains a loss, consider retirement income fully U/R.

  5. If the taxpayer included ordinary retirement income as Capital Gains on Schedule D and claimed a loss, consider the retirement income fully U/R and consider the loss as overclaimed up to $3,000 ($1,500 if MFS).

    1. Only recapture the losses related to the retirement income.

    2. If reported on Schedule D, Part II, subtract the retirement income from the LONG TERM GAIN/(LOSS) field in the Sch D/8814/ECR Tax window, if necessary and send PARAGRAPH 134. See Exhibit 4.19.3-7, CP PARAGRAPHS.

    Note:

    If there is U/R retirement reported on Schedule D and the taxpayer reports a capital loss on Form 1040/1040-SR, line 6 (TY 2019), , line 7 (TY 2020 and subsequent) enter a zero (0) in both fields on the COMPUTE SCHEDULE D LOSS window. It may be necessary to blank out both fields first. This will prevent the system from using losses in excess of $3,000 ($1,500 if MFS) to offset U/R Schedule D income.

  6. Accurate analysis of retirement plan IRs depends on whether the payer of reported Form 1099-R income is identifiable. The payer is identified if the taxpayer has:

    • Attached Form 1099-R

    • Written a statement

    • Annotated the return

    • Claimed the W/H on a 1099R IR

    • Reported an amount within $1

  7. Do not pursue 1099R IRs with COD codes of:

    Note:

    The system will delete (mark with "X" ) all elements of the 1099R IR:

    • 6

    • G

    • H

    • N

    • P

    • Q

    • R

    • T

    • W

  8. When a 5498 ROLVR IR matches the amount on a deleted 1099R IR ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡, do not use that ROLVR amount for any other IR. See IRM 4.19.3.8.10.4, Rollovers.

  9. If the Form 1099-R is from Railroad Retirement, and has a COD "N" , pursue the IR if not reported.

  10. Delete 1099R IRs with COD code of "F" .

  11. The Office of Personnel Management (OPM) is the payer of a Civil Service Annuity.

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡, unless the taxable pensions and annuities line of the return is zero or blank.

    2. If the taxable pensions and annuities line of the return is blank or zero, pursue the GR/A.

      Note:

      If the case is an ELF, the zero literal may not appear.

  12. If there is an indication the Form 1099-R income is a military retirement distribution, see IRM 4.19.3.8.10.6.1, Military Pensions.

  13. If there is an indication that a pension from a 1099R IR is a disability pension, input an Income Identify Code of "PE" or "SE" , as applicable. Disability pensions (COD "3" ) are considered earned income.

    Exception:

    Disability payments for injuries incurred as a result of a terrorist attack directed against the United States or its allies are not taxable and should not be included in income. See IRM 4.19.3.22.1.27, Victims of Terrorist Attacks, for acceptable indications.

  14. If there is an indication that the distribution is a Qualified Charitable Distribution (QCD), see IRM 4.19.3.8.10.7, IRA Distributions.

  15. When both "GR/A" and "TX/A" amounts are present on the same 1099R IR, the system automatically assigns status code "X" to the "GR/A" amount. Change the status code if necessary.

  16. If the COD on the IR or Form 1099-R attached is other than one listed in (7) above and displays only the "GR/A" literal, pursue the GROSS distribution amount when the taxpayer does not include the distribution on the return.

    Exception:

    If COD J is present, see IRM 4.19.3.8.10.7, IRA Distributions.

  17. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡" ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡" ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ if the taxpayer discloses an amount, including zero (0) or reports a lesser amount as calculated on Form 8606, Nondeductible IRAs, or similar worksheet.

    Note:

    If the taxpayer reports an amount less than "GR/A" amount and the distribution code indicates the 10 percent premature distribution tax should be assessed, modify the IR to calculate the correct amount of the additional tax. See IRM 4.19.3.16.3(8), 10 Percent Tax on Early Distributions from Qualified Retirement Plans/25 Percent Tax on Early Distributions from SIMPLE IRAs, for additional information.

    1. If COD J is present, see IRM 4.19.3.8.10.7, IRA Distributions.

    2. If the payer is OPM, see IRM 4.19.3.8.10.3, Retirement - Analysis.

    3. If payer is Railroad Retirement Board, see IRM 4.19.3.8.10.5, Railroad Retirement Board (RRB) IRs.

  18. If the IR or Form 1099-R attached displays only the "TX/A" literal, pursue the TAXABLE distribution amount ONLY.

  19. If a "TX/A" amount is present and the payer indicates the "taxable amount has not been determined" , accept what the taxpayer reports if the taxpayer reports a lesser taxable amount, as calculated on an attached Form 8606 or similar worksheet.

    Note:

    If the IR contains both taxable amount not determined and total distribution or the taxpayer writes "rollover" or provides another statement that the distribution was rolled over, see IRM 4.19.3.8.10.4, Rollovers.

  20. If there are multiple 1099R IRs from the same payer, compare the total gross IR amount to the total amount reported by the taxpayer. If the gross amount is not present, use the taxable amount.

  21. Compare the IR amount(s) to the return amount:

    • Form 1040 / Form 1040-SR, lines 4a, 4b, 4c or 4d (TY 2019)

    • Form 1040 / Form 1040-SR, lines 4a and 4b, 5a and 5b (TY 2020 and subsequent).

    If the return amount is Then
    Equal or greater than the IR amount(s) Consider the income reported unless identified as a different payer.
    Less than the IR amount(s)

    Note:

    If the taxpayer indicates that the simplified method or general rule was used, consider the IR(s) reported.

    Consider the difference U/R if the reported income is identified as the same payer.
    Less than the IR amount(s) AND the reported income is unidentified or identified as a different payer

    Note:

    See IRM 4.19.3.8.10.2, Identifying Retirement Types, for additional information regarding identification of retirement plan IRs.

    Consider the income fully U/R.

  22. Consider 1099R IRs reported when the return indicates that the U/R amount is due to employee contributions AND:

    1. Form 1099-R or similar documentation is attached, and the Box 5 amount matches the U/R amount within $1 or

    2. The 1099R IR contains INCOME TYPE "EMCON" and the amount matches the U/R amount within $1.

Qualified Disaster Retirement Plan Distributions and Repayments
  1. The Disaster Tax Relief and Airport and Airway Extension Act of 2017, the Tax Cuts and Jobs Act, the Bipartisan Budget Act of 2018, and the Taxpayer Certainty and Disaster Tax Relief Act of 2019, Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 provided special rules apply for using distributions from IRAs and employer retirement plans by victims of 2017 California Wildfires, Hurricanes Harvey, Irma and Maria, the Coronavirus, and major disasters occurring in 2019 and 2020. The legislative provisions provide for:

    • Disaster distributions of up to $100,000 from IRAs and certain employer retirement plans for taxpayers who suffered an economic loss because of the disaster.

    • Exemption for disaster distributions from the 10 percent tax (or 25 percent tax for distributions from SIMPLE IRAs) on early withdrawals.

    • Inclusion of disaster distributions in taxpayer’s income over three years.

    • Recontribution of all or part of a disaster distribution within three years of receipt.

    • Recontribution of distributions taken to purchase or construct a home in a disaster area if the home was not purchased or constructed because of the disaster (does not apply to coronavirus disaster or qualified 2016 disasters); and

    • Increasing the amount and postponing repayments of loans from qualified plans for victims of a disaster (does not apply to qualified 2016 disasters).

    • Taxpayers adversely affected by the Coronavirus have special qualifying rules.

    Note:

    The $100,000 limit applies to each disaster for 2019, 2020 and 2021 disasters.

  2. Taxpayers may include amounts from other retirement distributions not qualified to be included with Qualified Disaster Retirement Plans and Repayments, see IRM 4.19.3.8.10.3, Retirement – Analysis, for additional information.

  3. Compare amounts reported on Form 1040/1040-SR; TY 2019, line 4b or 4d, TY 2020 and TY 2021, line 4b or 5b with the applicable lines below:

    Form Definition Tax Year / Reporting lines
    8915-A, Qualified 2016 Disaster Retirement Plan Distribution and Repayments
    • A qualified 2016 disaster distribution repayment made in 2019.

    2019, lines 7 and 14
    8915-B, Qualified 2017 Disaster Retirement Plan Distribution and Repayments for tax years 2017 and 2018
    • A qualified 2017 disaster distribution received in 2017 or 2018 is included as income in equal amounts over 3 years

    • A qualified 2017 disaster distribution repayment made in 2019, 2020, and 2021.

    2019, lines 9 and 18
    2020, lines 7 and 14
    8915-C, Qualified 2018 Disaster Retirement Plan Distributions and Repayments
    • A qualified 2018 disaster distribution from an eligible retirement plan, was made in 2019 or before June 17, 2020.

    • A qualified distribution in 2019 for the purchase or construction of a main home in 2018 disaster areas is repaid, in whole or in part, no later than June 17, 2020.

    • A qualified 2018 disaster distribution in 2019 is included in income in equal amounts over 3 years.

    • A qualified 2018 disaster distribution repayment made in 2019, 2020, and 2021.

    2019, lines 19, 34, and 35
    2020, lines 20 and 36
    2021, lines 9 and 18
    8915-D, Qualified 2019 Disaster Retirement Plan Distributions and Repayments
    • A qualified 2019 disaster distribution from an eligible retirement plan, and the distribution was made in 2019 or 2020.

    • A qualified distribution in 2019 for the purchase or construction of a main home in 2018 disaster areas is repaid, in whole or in part, no later than June 17, 2020.

    • A qualified 2019 disaster distribution received in 2019 or 2020 is included in income in equal amounts over 3 years.

    • A qualified 2019 disaster distribution for the Puerto Rico Earthquake’s disaster (DR-4473-PR) from an eligible retirement plan was received in 2021.

    • A qualified 2019 disaster distribution repayment in 2020 or 2021.

    2019, lines 11, 19, and 25
    2020, lines 19, 34 and, 35
    2021, lines 20 and 36
    8915-E, Qualified 2020 Disaster Retirement Plan Distributions and Repayments
    • A coronavirus-related distribution was received.

    • A qualified 2020 disaster distribution other than a coronavirus-related distribution was received.

    • A qualified distribution received in 2020 for the purchase or construction of a main home in qualified 2020 disaster areas was repaid, in whole or in part, no earlier than the first day of the disaster and no later than June 25, 2021.

    2020, lines 5, 11, 19, and 25
    8915-F, Qualified Disaster Retirement Plan Distributions and Repayments
    • A qualified disaster distribution was made from an eligible retirement plan.

    • A qualified distribution was received.

    • A qualified disaster distribution was received in a prior year and is being including in income in equal amounts over 3 years and the 3-year period has not yet lapsed.

    • A repayment of a qualified disaster distribution was made.

    2021 and subsequent, lines 7, 15, 26 and 32

    Note:

    Taxpayers filing Married Filing Joint (MFJ) are required to file a separate Form 8915-A if each spouse received a distribution.

  4. For TY21 Form 8915-F, compare amounts reported on the return with the applicable lines below:

    Form 8915-F Definition If Then
    Part 1 Used to figure the distribution amount of all retirement plans that qualify for disaster treatment for 2021.
    1. Lines 2, 3, or 4 column (a) for total distributions.

    2. Lines 2, 3, or 4 column (b), for qualified disaster distributions made in 2021.


    Consider the IR reported when the line 7 amount is included in the reported amount on Form 1040/Form 1040-SR, line 4b or 5b.
    Part II Used to figure the taxable amount from retirement plans (other than IRA's) The IR is included in Part II, line 11 Consider the IR reported when the line 15 amount is reported on Form 1040/Form 1040-SR, line 5b.
    Part III Used to figure the taxable amount from Traditional, SEP or SIMPLE, and Roth IRA distributions The IR is included in Part III, line 21 Consider the IR reported when the line 26 amount is reported on Form 1040/Form 1040-SR, line 4b .
    Part IV Used to figure the taxable amount of qualified distributions for the purchase or construction of a main home in Qualified 2020 Disaster Areas (non-Covid related) The IR is included on line 28 Consider the IR reported when the line 32 amount is reported on Form 1040/Form 1040-SR, line 4b or 5b.
    1. Retirement income in excess of $100,000 is reported on Form 8915-F, Part I, lines 2a, 3a, or 4a. Consider the IR reported if Part I, line 7 and lines 15, 26, and/or 32 match what is reported on Form 1040/1040-SR, lines 4b or 5b. If the amount reported on Form 1040/1040-SR, lines 4b or 5b is less than amounts shown on Form 8915-F, Part I, line 7 and/or lines 15, 26, or 32, pursue the difference.

      Note:

      IRS provided alternatives for this form to be included with an e-filed return. Some software providers allow the forms to be attached as a PDF file and others as a statement attached to the return. Accept attached statements in lieu of Form 8915-F if they include reporting information similar to the actual form.

      Caution:

      If a taxpayer received a qualified 2021 disaster distribution and dies, the distribution may no longer be spread over 3 years. The remainder of the distribution must be reported on the return of the deceased taxpayer.

    2. If the difference between Form’s 8915-A, 8915-B, 8915-C, 8915-D, 8915-E and 8915-F and the amounts reported on the return match the Form 1099R IR(s), consider the IR(s) reported.

    3. If you cannot determine whether the Form 1099R IR is reported on page 1 of the return, see IRM 4.19.3.8.10.3, Retirement – Analysis, for additional information.

  5. Qualified disaster distributions are not subject to the 10 percent or 25 percent tax; see IRM 4.19.3.16.3, 10 Percent Tax on Early Distributions from Qualified Retirement Plans/25 Percent Tax on Early Distributions from SIMPLE IRAs.

    Note:

    Distributions in excess of the $100,000 qualified disaster distribution limit may be subject to the additional tax on early distributions.

Rollovers
  1. The Payee/Payer name line on a 1099R IR may contain the word "rollover" with the date the taxpayer transferred funds into the new plan. Consider the 1099R IR valid and pursue any U/R income.

  2. Inherited distributions (usually COD "4" ) may be rolled over by a non-spouse beneficiary, in a direct trustee to trustee transfer to an account that was set up to receive the distribution.

  3. Qualified plan loan offset distributions (COD "M" ) are excepted from the 60-day rollover period. The rollover timeframe is extended until the due date, including extensions, for filing the federal income tax return for the taxable year in which the offset occurred. Do not pursue the loan offset distribution amount when Form 5498 or similar documentation indicating the rollover was made by the due date, including extensions, of the return is present.

    Note:

    Only the qualified loan offset distribution amount qualifies for the excepted 60-day rollover timeframe. The remaining distribution, if any, is not excepted from the 60-day rollover timeframe.

  4. A 1099R IR with COD "3" , "5" , "8" , "E" "L" or "U" cannot be rolled over. If a 5498 IR with either ROLV or FMV is present that matches the 1099R IR ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ with COD "3" , "5" , "8" , "E" , "L" or "U" , consider the IR reported (payer used the incorrect code) and allow the rollover. When pursuing the issue, PARAGRAPH 34 generates for COD "L" .

  5. Payers may erroneously report rollover contributions in Box 5 (FMV) of Form 5498 instead of Box 2 (ROLVR).

    Note:

    The instructions in the table below do not apply when the IR containing the FMV amount also contains an RCONV amount.

    If Then
    A Form 5498 IR is present with the literal ROLVR ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Consider the income to be rolled over.
    A Form 5498 IR is present with the literal FMV ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ AND FMV is the only element on the IR, Consider the income to be rolled over.
    A Form 5498 IR is present with the literal FMV ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ AND the IR contains other elements, Consider the 1099-R distribution U/R.
    No Form 5498 IR is present with the literals ROLVR or FMV ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Consider the 1099-R distribution U/R.
    A Form 5498 IR is present with the literal RCONV ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ See IRM 4.19.3.8.10.7, IRA Distributions.

    Note:

    It is not necessary to verify Form(s) 5498 attached to the return. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. When a distribution contains a TX/A amount and W/H, the taxpayer receives a net amount (GR/A minus W/H). In order for a distribution to be considered fully rolled over (tax free), the taxpayer MUST rollover the entire TX/A amount by supplementing the amount withheld with additional monies from another source. Adjust the W/H, if necessary. See IRM 4.19.3.17.1, Withholding - General, for further instructions.

    If And Then
    The net amount (GR/A minus W/H) is greater than or equal to the TX/A amount on the IR There is an indication of a rollover (per (5) above) Consider the issue resolved
    The GR/A and the TX/A amount on the IR are the same The GR/A is reported on the gross pension line of the return (see IRM 4.19.3.8.10, and the difference between the IR and the Form 5498 equals the W/H amount and there is no indication that the taxpayer supplemented the rollover amount to account for the W/H and the amount reported on the taxable pension and annuities line of the return (see IRM 4.19.3.8.10, does not match the W/H on the IR Consider the difference between the W/H on the IR and the TX/A amount reported as U/R. Send PARAGRAPH 49, (see Exhibit 4.19.3-7, CP PARAGRAPHS) when pursuing the W/H as U/R TX/A from the same IR.
    The GR/A and the TX/A amount on the IR are the same The GR/A is reported gross pension and annuities line of the return and the difference between the IR and the 5498 does not equal the W/H amount Consider IR fully U/R.
    The GR/A and the TX/A amount on the IR are different The GR/A is reported gross pension and annuities line of the return and the amount on taxable pension and annuities line of the return does not equal the 5498 ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Consider IR fully U/R.
    1. For the conditions listed in the table above, adjust the W/H, as necessary. See IRM 4.19.3.17.1, Withholding - General, for further instructions.

    2. It may be necessary to modify partially rolled over IRs. See IRM 4.19.3.16.3, 10 Percent Tax on Early Distributions from Qualified Retirement Plans/25 Percent Tax on Early Distributions from SIMPLE IRAs, for additional instruction.

  7. Taxpayers may partially rollover retirement plans reported on Form 1099-R. Consider a distribution to be partially rolled over when all the following apply:

    1. the taxpayer enters the "GR/A" amount on the gross return lines,

    2. a lesser amount on the corresponding taxable line,

    3. a 5498 IR is present with the literal "ROLVR" or "FMV" in the INCOME TYPE field AND

    4. has an amount that ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    It may be necessary to modify partially rolled over IRs. See IRM 4.19.3.16.3, 10 Percent Tax on Early Distributions from Qualified Retirement Plans/25 Percent Tax on Early Distributions from SIMPLE IRAs, for additional instruction.

  8. If a 5498 IR with either "ROLVR" or "FMV" is not present to substantiate the rollover (see (6) above), consider the Form 1099-R distribution partially U/R when the taxpayer enters the GR/A amount on the gross return lines, reports a lesser amount on the corresponding taxable return lines.

Railroad Retirement Board (RRB) IRs
  1. Pensions and annuities are reported from the RRB on Form RRB-1099-R.

  2. The RRB files a separate Form RRB-1099-R for each of the following amounts and each of these amounts displays as separate IRs for each taxpayer:

    • Employee Contributions (Box 3)

    • Contributory Amount Paid (Box 4)

    • Vested Dual Benefit (Box 5)

    • Supplemental Annuity (Box 6)

    • Total Gross Paid (Box 7)

    • Prior Year Repayments (Box 8)

  3. The following list contains the symbols and definitions for CODs, positions 1 and 2, for RRB-1099-R documents:

    • "V" - RRB-Vested Dual Benefit - Box 5 - Windfall, fully taxable

    • "X" - RRB-Tier 1

    • "Z" - RRB-Supplemental - Box 6 - Gross amount of supplemental benefits paid

    • "Y" - RRB-Tier 2

  4. Railroad Retirement Board pension income is reported as GR/A on a separate Form RRB-1099-R IR showing COD "X" , "V" , "Z" or "Y" . Group these RRB-1099-R IRs together to determine the total taxable amount. Unless the taxpayer indicates that the simplified method or general rule was used, the GR/A is considered fully taxable. Compare the total to the amount reported on

    TY If amount reported on Then
    2019 Form 1040/ Form 1040-SR, line 4d is less than the IR amount Consider the difference U/R
    2020 and subsequent Form 1040/ Form 1040-SR, line 5b is less than the IR amount Consider the difference U/R

    Note:

    If the taxpayer indicates that the simplified method or general rule was used to reduce the "GR/A" amount(s), consider the IR(s) reported.

  5. If the taxpayer erroneously treats the RRB-1099-R income as Social Security/Railroad Retirement Benefits, consider the IR(s) fully underreported. To determine this, compare the RRB-1099-R IR to the following lines:

    1. TY Form and line numbers
      2019 Form 1040/ Form 1040-SR, lines 5a and 5b
      2020 and subsequent Form 1040/ Form 1040-SR, lines 6a and 6b

      Note:

      The SSA/RRB window needs to be recalculated, see (6) below.

  6. To calculate the new/correct taxable SS/RR amount take the following actions:

    1. Reduce the gross benefits reported on the return by the RRB-1099-R amount (create an SS/RR IR for zero, if appropriate).

    2. Enter the amount indicated on the taxable line of the return in the TAXABLE BENEFITS field. This results in a recalculation of taxable SS/RR (often resulting in an overall decrease).

    3. Send PARAGRAPH 131, see Exhibit 4.19.3-7, CP PARAGRAPHS.

Pensions and Annuities
  1. A pension is generally a series of payments made after retirement for past services with an employer. An annuity is a series of payments under a contract purchased by the taxpayer alone or with the help of an employer. Annuity payments are made regularly for more than one full year.

  2. Total distributions are indicated on either the IR, Form 1099-R with the appropriate box checked, or an attachment to the return.

  3. If the 1099R IR or an attachment shows the income is for support of a minor child:

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ when the attached Form 1099-R does not provide a breakdown.

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ when the attached Form 1099-R provides a breakdown and the taxpayer reports their designated portion.

    3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ when the attached Form 1099-R provides a breakdown and the taxpayer reports none of the income or less than their portion.

  4. If a U/R 1099R IR shows a city, county, or state as the payer and the taxpayer indicated "disabled Firefighter" or "disabled Public Service/Law Enforcement Officer" on the return ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ if the taxpayer is under age 65.

    Note:

    If the taxpayer attaches a copy of a Private Letter Ruling from the IRS to a pension plan administrator indicating that the payments are non-taxable for life, accept the statement and do not pursue regardless of age.

  5. Generally taxpayers must include as income amounts received from personal injury or sickness through an accident or health plan that is paid for by the employer. Pursue any 1099R IRs unless the taxpayer provides a statement and/or documentation that the income is excludable. The taxpayer may provide any of the following (this list is not all inclusive):

    1. Statement that the distribution is excludable under IRC 104 (line of duty injury).

    2. The disability pension was never converted to a normal pension based on age or length of service.

    3. A Private Letter Ruling from the IRS to a pension plan administrator that the payments are non-taxable for life.

    4. Statement/Documentation from the payer that the income is nontaxable.

    5. Distribution is payment(s) for disability due to injuries received from a terrorist attack, see IRM 4.19.3.22.1.27, Victims of Terrorist Attacks, or military action, see IRM 4.19.3.8.10.6.1, Military Pensions, for further information.

    6. Eligible retired public safety officers (PSO) can elect to exclude a maximum of $3,000 from distributions made directly from a governmental retirement plan to providers of accidental, health, or long-term care insurance. See (6) below.

  6. An eligible retired public safety officer, such as, safety/law enforcement officer, firefighter, chaplain or member of a rescue squad or ambulance crew, can elect to exclude a maximum of $3,000 from income distributions made from an eligible governmental retirement plan that are used to pay the premiums for accident, health or long-term care insurance. Allow the exclusion if PSO is next to line 4d (TY 2019), line 5b,(TY 2020 and subsequent) of Form 1040/1040-SR, or reporting the disability pension on line 1 of Form 1040/1040-SR.

    Note:

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

    .

  7. Retired ministers are allowed to reduce taxable pension amounts by their housing allowance. Accept the amount reported by the taxpayer if there is an indication that part of the pension is a housing allowance.

Military Pensions
  1. Military retirement is funded solely by the United States Government and is administrated by the Defense Finance and Accounting Service Center (DFAS).

    1. Form 1099-R distributions from the DFAS are generally fully taxable.

    2. DFAS retiree payments are distributed on a periodic (monthly) basis and therefore cannot be rolled over.

    3. If the taxpayer reports less than the TX/A amount, pursue the difference and send PARAGRAPH 155. See Exhibit 4.19.3-7, CP PARAGRAPHS.

    Exception:

    If the taxpayer reports a lesser amount and provides a statement from the Veteran’s Administration (VA) awarding disability compensation, confirm that the taxpayer took the correct reduction. Pursue any inconsistencies and send a Special Paragraph to the taxpayer.

  2. Taxpayers who receive favorable disability determinations from the Veteran’s Administration (VA) may be able to reduce the TX/A amount by the amount withheld as determined by the VA. The VA notifies the taxpayer of the percentage awarded and provides a breakdown, including:

    • total amount awarded

    • amount withheld

    • monthly entitlement and

    • payment start date(s)

  3. When a military member has a combat-related disability (e.g., Agent Orange presumptive), they may qualify for Combat Related Special Compensation (CRSC). According to Defense Finance and Accounting Services (DFAS), many Vietnam veterans have been issued retroactive CRSC awards based on the Veteran Affairs (VA) determination. Each Branch of the military will make a determination and issue the veteran an award letter. The veteran will also have documentation from VA regarding their disability. If the taxpayer indicates they are a disabled veteran and the VA benefits are non-taxable, qualifies for a reduction of the taxable amount, or reported the correct reduced taxable amount, see the procedures below:

    If the taxpayer indicates the income is: And Then
    Nontaxable due to IRC 1.122-1 or Nontaxable Pursuant to 26 CFR N/A Send the appropriate letter/notice and disallow the explanation.

    Note:

    These two provisions are part of the Family Protection (FPA) Act of 1966 and are not applicable to VA disability income.

    Non-disability severance pay N/A Send appropriate letter/notice explaining the income is fully taxable in the year it is received.
    Paid under the Department of Veterans Affairs (VA) Compensated Work Therapy (CWT) program (Revenue Ruling 2007- 69) N/A ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    VA benefits and not fully taxable A copy of an official VA Determination letter granting the retroactive benefit, with the table showing amount withheld and effective date, is provided.
    1. Math verify to determine the allowable reduction. See (4) below for additional information.

    2. Determine if the correct amount is reported. If yes ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡If no, follow step 3 below.

    3. Issue appropriate letter/notice to explain why the explanation is not acceptable and continue normal processing.

    Combat Related Special Compensation (CRSC) or Concurrent Receipt of Disability Pay (CRDP) and non-taxable A copy of the DFAS Letter indicating the type of payment is provided.

    Note:

    The taxpayer could be eligible for Combat Related Special Compensation (CRSC) and (Concurrent Receipt of Disability Pay (CRDP) payments but only one payment is prohibited by law. The taxpayer will elect which payment they want.

    1. If the income is CRSC, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ If the income is CRDP, follow step 2 below.

    2. Issue appropriate letter/notice to explain CRDP is fully taxable and continue normal processing.

    Individual Unemployability (IU) payment award A copy of documentation from the VA to substantiate the amount reported is provided.

    Note:

    The VA Determination Letter for these claims will NOT have a table for the Amount Withheld. The letter will provide the effective date of the award and tax reduction amounts.

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ if the reduced amount is fully reported. If the reduced amount is not fully reported, follow step 2 below.

    2. Issue recomputed notice, as applicable, and continue normal processing.

    Rolled over N/A Send appropriate letter/notice explaining Military distributions can’t be rolled over and continue normal processing.
  4. In order to determine the allowable reduction in the Form 1099-R DFAS retirement distribution (based on the VA disability determination), apply the following formula: multiply the "amount withheld" by the number of months from the "payment start date" to the next "payment start date" .

    Note:

    You must add one month to the date listed under the heading of "Payment Start Date" or "Effective Date" because the amount is not actually withheld until the following month.

    Example:

    The year shown in the payment start date column "202X" should be the AUR year of the case you are working.

    Total Award Amount Amount Withheld Monthly Entitlement Amount Payment Start Date
    $1,000 $450 $550 March 1, 202X
    $1,000 $0 $1,000 Nov. 1, 202X
    Payment start date of April 1, 202X (March 1, 202X plus one month) to next payment start date of December 1, 202X (November 1, 202X plus one month) is 8 months x $450 (amount withheld) = $3,600. The taxpayer would be allowed to reduce the Form 1099-R TX/A amount by $3,600.

    Occasionally, the amount withheld and monthly award changes over a period of months. When a retroactive award crosses over from a previous year, only consider the AUR tax year in the calculation.

    Example:

    The year shown in the payment start date column"202X" should be the AUR year of the case you are working, unless otherwise indicated.

    Total Award Amount Amount Withheld Monthly Entitlement Amount Payment Start Date
    $800 $250 $550 Sept. 1, 202X (prior year)
    $840 $260 $580 Apr. 1, 202X
    $840 $0 $840 Oct. 1, 202X
    Since the first payment start date is in a prior year, use January 1, 202X as the first payment start date. Payment start date of February 1, 202X (January 1, 202X plus one month) to next payment start date of May 1, 202X (April 1, 202X plus one month) is 4 months x $250 (amount withheld) = $1,000. From the June 1, 202X (May 1, 202X plus one month) payment start date to the next payment start date of November 1, 202X (October 1, 202X plus one month) is 6 months x $260 = $1,560. The taxpayer would be allowed to reduce the Form 1099-R TX/A amount by $2,560 ($1,000 + $1,560).

IRA Distributions
  1. Traditional Individual Retirement Arrangements (IRA), Simplified Employee Pensions (SEP), Roth IRAs, and SIMPLE IRAs are tax-favored means of saving for retirement.

  2. The following literals may display:

    1. RCONV (Roth Conversions)

    2. RCONT (Roth IRA contribution). If this amount matches the IRA deduction on the return, pursue the issue since Roth IRA contributions are not deductible. PARAGRAPH 30 automatically generates when the UR IRA deduction amount is equal to the RCONT, RCONV or ESA element amount.

  3. Beginning TY 2019, information returns will display a check box if the payer checked Form 1099-R, box 7, to indicate an IRA/SEP/SIMPLE.

  4. If a Form 5498 IR is present with literal RCONV ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. Certain taxpayers can make a nontaxable qualified charitable distribution (QCD) from their IRA (traditional or ROTH). taxpayers indicate that a distribution is a Qualified Charitable Distribution by entering "QCD" next to Form 1040/1040-SR, line 4a/4b.Consider the 1099R IR(s) resolved when "QCD" is shown next to the lines in the table above AND:

    1. The taxpayer’s age, as shown on the AUR system, is at least 71.

      Note:

      If the AUR system displays an age younger than 71, research IDRS CC INOLES to verify the taxpayer’s age. If the IDRS research shows that the taxpayer did not meet the minimum age of 70 1/2, the distribution is taxable. Pursue any underreported amounts (based on the TX/A element) and send PARAGRAPH 225, see Exhibit 4.19.3-7, CP PARAGRAPHS.

    2. The excluded amount of QCD does not exceed $100,000. On a jointly filed return (MFJ), each spouse is allowed to exclude up to a $100,000 of QCD if the minimum age requirement is met. Pursue any apparent underreporting of taxable distribution in excess of $100,000 (per spouse) and include a Special Paragraph explaining that nontaxable qualified charitable distributions are limited to $100,000 per spouse.

  6. Taxpayers, who are eligible, can elect to exclude a non-taxable health savings account funding distribution (HFD) amount once in their lifetime. The exclusion cannot exceed the full amount of the distribution(s) or the limit on the HSA contribution. taxpayers indicate that a distribution was transferred to their health savings account funding distribution by entering "HFD" next to the pensions and annuities line of the return see IRM 4.19.3.8.10.

    1. If the taxpayer has reported the full amount of the distribution(s) on Form 8889, Health Savings Accounts, Part I, line 10, consider the 1099R IR(s) resolved.

    2. If the taxpayer has reported the full amount of the distribution(s) on Form 8889, Part III, line 20, this is taxable. taxpayers are instructed to report the taxable portion on 1040/1040-SR, Schedule 1, line 8 (TY 2019 and TY 2020), Schedule 1, line 8e (TY 2021) and indicate "HSA" .

      Note:

      The 10 percent premature distribution tax may apply. See IRM 4.19.3.16.4, 20 Percent Tax on Archer Medical Savings Account (AMSA) and Health Savings Account (HSA) Distributions, for further information.

      Reminder:

      Send reported 1099R IR elements when the 10 percent tax is adjusted.

    3. If the taxpayer indicates the distribution is an HFD and did not complete a Form 8889 consider the distribution fully taxable. Send a Special Paragraph using the following verbiage as an example: "We need more information to determine the taxable amount of your health savings account funding distribution shown on this notice. Please complete and return Form 8889, Health Savings Accounts" .

  7. Form 8606 is used to figure the taxable portion of:

    1. Distributions from Traditional (including inherited), SEP and SIMPLE IRAs (Part I).

    2. Conversions from Traditional, SEP and SIMPLE IRAs to Roth IRAs (Part II).

    3. Distributions from Roth IRAs (Part III).

  8. Form 8606, Part I, is used to figure the taxable portion of nondeductible contributions to Traditional IRAs as well as figure the taxable portion of distributions from Traditional, SEP and SIMPLE IRAs, that have received nondeductible contributions. The total amount is reported on Form 1040/1040-SR, line 4a and the taxable amount from Form 8606, is reported on line 4b.

  9. If the total of the Traditional, SEP or SIMPLE IRA distribution IR(s) matches the Form 8606, line 7 amount, subtract the Form 8606, line 12 amount from the Form 8606, line 7 amount.

    Caution:

    If, the taxpayer listed on Form 8606, there are any 5498 IRs that reflect a FMV, those amounts may need to be included on Form 8606, line 6. If the result matches the amount on Form 1040/1040-SR, line 4b, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡. If the result doesn’t match line 4b, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡.

  10. If the FMV amounts are not included on Form 8606, line 6,

    Note:

    If there is an indication that the 5498 IR is from a Roth account (for example, contains the literals RCONV or RCONT) the FMV should not be included on Form 8606, line 6.

    1. Do not accept the Form 8606, consider the IR(s) partially or fully U/R.

    2. Send PARAGRAPH 54, see Exhibit 4.19.3-7, CP PARAGRAPHS.

    3. Send 5498 IRs that contain the FMV element for the taxpayer listed on Form 8606.

    Note:

    Do not include 5498 IRs when it can be clearly determined that the IR is for a ROTH account.

  11. Form 8606, Part II, is used to figure the taxable portion of conversions from Traditional, SEP, or SIMPLE IRAs to Roth IRAs. The total amount is reported on Form 1040/1040-SR, line 4a and the taxable amount from Form 8606, line 18 is included on line 4b:

    1. Consider the 1099R IR reported when the taxpayer reports the total amount of the distribution on Form 8606, line 8 or 16 and the taxable amount from Form 8606, line 18, Part II on the taxable pensions and annuities line of the return.

      Note:

      If line 18 is zero or blank, only consider the IR reported if the amount on line 17 is equal to the IR amount.

    2. The 10 percent premature distribution tax may also apply. see IRM 4.19.3.16.3, 10 Percent Tax on Early Distributions from Qualified Retirement Plans/25 Percent Tax on Early Distributions from SIMPLE IRAs, for further information.

    3. A 1099R IR with COD "N" or COD "R" represent recharacterizations. These are corrections of amounts converted from Traditional, SEP or SIMPLE IRAs to Roth IRAs. Delete any 1099R IRs containing COD "N" or COD "R" .

      Note:

      A conversion of a traditional IRA to a ROTH IRA, and a rollover from any other eligible retirement plan to a ROTH IRA cannot be recharacterized as having been made to a traditional IRA.

  12. Form 8606, Part III, is used to figure the taxable portion of non-qualified distributions (COD "J" ) from Roth IRAs. The total amount is reported on Form 1040/1040-SR, line 4a and the taxable amount from Form 8606, line 25c is included on line 4b:

    1. Consider the 1099R IR reported when the taxpayer completes Form 8606, Part III and reports the amount from Form 8606, line 25c on Form 1040/1040-SR, line 4b (whether or not a matching Form 5498 RCONT is present) OR

    2. Consider the Roth distribution on a 1099R IR to be a return of regular contributions from a Roth IRA when the amount of the distribution matches the Form 5498 RCONT amount or a statement is attached identifying the amount as a return of regular contribution.

    3. If the taxpayer does not complete Form 8606, Part III, and/or there is no corresponding 5498 RCONT IR, consider the Form 1099-R distribution amount fully taxable. PARAGRAPH 83 automatically generates.

      Note:

      If there is no indication that the distribution is a qualified Roth IRA distribution (Form 1099-R COD "Q" or "T" ) or a return of regular contributions from a Roth IRA, pursue the U/R taxable amount.

    4. The 10 percent premature distribution tax penalty may also apply. See IRM 4.19.3.16.3, 10 Percent Tax on Early Distributions from Qualified Retirement Plans/25 Percent Tax on Early Distributions from SIMPLE IRAs, for further information.

  13. If the taxpayer reports a lesser taxable amount and Form 8606 is not completed, pursue the difference. Send PARAGRAPH 83 unless the IR contains a COD "J" . An IR with COD "J" automatically generates PARAGRAPH 83, see Exhibit 4.19.3-7, CP PARAGRAPHS.

  14. A return of regular contributions from a Roth IRA or qualified distributions from a Roth IRA are considered non-taxable. To be considered a qualified Roth IRA distribution, the Roth IRA must have been maintained for a minimum of 5 years and meet one of the following conditions:

    Caution:

    Roth IRA distributions made within the 5-taxable-year period are not a qualified distribution. Payers may identify Roth distributions within the first 5 years with COD "J" .

    1. Was made on or after the date the taxpayer reaches age 59 1/2,

    2. Was made because the taxpayer was disabled,

    3. Was made to a beneficiary or to the taxpayer's estate after their death, or

    4. The distribution (up to $10,000) was used for a qualified first-time home purchase.

    Note:

    Qualified distributions from a Roth IRA may be identified by COD "Q" or "T" . Do not pursue 1099R IRs with COD "Q" or "T" . See IRM 4.19.3.8.10.3, Retirement - Analysis, for further instructions.

  15. Distributions from a SIMPLE (Savings Incentive Match Plan for Employees) plan are fully taxable as ordinary income. Premature distributions from a SIMPLE plan may be subject to the additional tax on early distributions. Distributions made within the first 2 years are subject to a 25 percent tax on early distributions and are identified by a COD "S" . See IRM 4.19.3.16.3, 10 Percent Tax on Early Distributions from Qualified Retirement Plans/25 Percent Tax on Early Distributions from SIMPLE IRAs, for further information.

    1. During the 2-year period, to qualify for a tax-free rollover/transfer, amounts in a SIMPLE IRA must be rolled over/transferred into another SIMPLE IRA.

    2. After the 2-year period, amounts in a SIMPLE IRA can be rolled over/transferred tax-free to either another SIMPLE IRA plan or any qualified IRA/deferred compensation plan.

  16. IRA distributions do not qualify for special tax treatment on Form 4972, Tax on Lump Sum Distributions. See IRM 4.19.3.8.10.8, Lump-Sum Distributions. Send PARAGRAPH 152, see Exhibit 4.19.3-7, CP PARAGRAPHS.

  17. COD 5 is used for prohibited transactions such as borrowing from an IRA or using an IRA as security on a loan. If either of these transactions occur, treat the entire value of the account as a distribution to the taxpayer. These distributions are subject to the 10 percent tax on early distributions from qualified plans and cannot be rolled over. See IRM 4.19.3.16.3, 10 Percent Tax on Early Distributions from Qualified Retirement Plans/25 Percent Tax on Early Distributions from SIMPLE IRAs.

Lump-Sum Distributions
  1. A lump sum distribution is the distribution or payment in one tax year of a plan participant's entire balance from all of the employer's qualified plans of one kind (for example, pension, profit-sharing, stock ownership plan (ESOP), qualified annuity plan, stock bonus plans).

  2. A lump sum distribution may qualify for special tax treatment on Form 4972. The system assigns Income Identify Code of "LS" when the COD is "A" . When the taxpayer reports their lump sum distributions on Form 4972, determine if they reported the total amount.

    Note:

    AUR does not math verify or screen Form 4972 qualification errors.

  3. If the taxpayer reports the total amount of the lump sum distribution on Form 4972, consider the income reported.

  4. If Form 4972 was used to report the lump sum income AND there are U/R issues other than Lump Sum:

    1. Select the Lump Sum window. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Lump Sum Tax.

    2. Enter the amount from Form 4972, line 30, in the 4972 TAX field, as applicable.

    3. Verify the amount in the FORM 1040 ADDITIONAL TAX field on the Other Taxes window when it displays on the Return Value screen.

  5. If there is only one 1099R IR present, and it is only partially reported (for example, the taxpayer claimed W/H from a 1099R IR):

    1. Select the Lump Sum Tax window. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Lump Sum Tax.

    2. Enter the entire TX/A amount in the ORDINARY INCOME field(s) for the primary and/or secondary taxpayer, as applicable. (Use GR/A amount if the TX/A is not present.)

  6. If an ECG amount is shown on the 1099R IR, the taxpayer may elect not to receive capital gains treatment. The taxpayer should then report the taxable amount of the distribution.

  7. Consider the IR (with ECG amounts) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ if any one of the following situations apply:

    • The gross or taxable amounts are on Form 4972, Part III, line 10 AND the taxpayer includes the lump sum tax on Form 1040 OR

    • An amount on the return matches the gross or taxable amount from the 1099R IR within $1 OR

    • The gross amount is on Form 1040/1040-SR, line 4c (TY 2019), or line 5a (TY 2020 and subsequent). The taxable amount is on line 4d (TY 2019), or line 5b (TY 2020 and subsequent)

    • The TX/A amount less the ECG amount in on Form 1040/1040-SR, and the ECG amount is reported on, Schedule D, Part II, column (h) lines 8a, 8b, 9, 10 or 13, or Form 8949, Part II, line 1, column (h).

  8. The taxpayer may elect to receive capital gains treatment and report the ordinary income and capital gains separately on Form 4972. The entire distribution must be included on the Form 4972, and cannot be allocated between different forms.

    Example:

    The taxpayer cannot report ordinary income from the distribution on Form 4972, line 10, and the ECG income from that particular IR on Schedule D/Form 8949.

  9. Capital gains from a lump sum distribution should not be reported on Schedule D if the taxpayer has elected to report the lump sum income on Form 4972. If the taxpayer has erroneously included a Lump Sum CG on Schedule D, exclude the CG from the Schedule D and include the CG amount on Form 4972. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Lump Sum Tax.

    Note:

    Make appropriate changes to the COMPUTE SCHEDULE D LOSS window and the Sch D/8814/ECR Tax window on Return Value when necessary.

  10. The taxpayer may elect to treat the entire distribution (ECG and Ordinary Income) as ordinary income on Form 4972. The amount from Box 2a (Taxable Amount) minus the amount from Box 3 of Form 1099-R should be reported on Form 4972, Part III, line 8. If the taxpayer did not complete Part II of the Form 4972, enter the Taxable Amount from Box 2a of Form 1099-R.

  11. Lump sum distributions do not qualify for the special tax treatment onForm 4972 when:

    1. There is an indication of a partial rollover of a lump sum.

    2. The distribution is an IRA distribution.

    3. The distribution is from a tax-sheltered annuity plan (a 403(b) plan, such as, Teachers Retirement).

    4. The distribution is a Civil Service annuity.

  12. If any of the conditions in (11) above apply and the income matches either the gross or taxable amount on a 1099R IR, consider the taxable amount U/R.

    1. Select the Lump Sum Tax window.

    2. If the entire amount shown on Form 4972 is considered U/R, input a zero (0) in the PRIMARY/SECONDARY LUMP SUM TAX field, as applicable.

    3. If there is income other than the U/R amount that qualifies for special tax treatment on Form 4972, enter the qualifying amount ONLY in the ORDINARY INCOME field(s) for the primary and/or secondary taxpayers, as applicable, and leave the PRIMARY/SECONDARY LUMP SUM TAX field blank.

    4. Send PARAGRAPH 63, see Exhibit 4.19.3-7, CP PARAGRAPHS.

    5. When the Total Other Tax window displays in Return Value, input/verify the ADDITIONAL TAX PER RETURN field.

  13. Lump sum distributions do not qualify for the special tax treatment on Form 4972 when a portion of the lump sum distribution is from U.S. Retirement Bonds. Disallow the special tax treatment for the bond portion ONLY.

    1. Select the Lump Sum Tax window. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Lump Sum Tax.

    2. Enter the qualifying amount of the lump sum distribution in the ORDINARY INCOME or CAPITAL GAIN field for the primary or secondary taxpayer, as applicable.

  14. Consider Lump sum distributions reported ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡

  15. Enter Income Identify Code "LS" if applicable.

Employee Savings Plans
  1. Distributions from employee savings plans are reported on Form 1099-R.

  2. Consider employee savings plan IRs reported if:

    1. There is an unidentified income amount on Form 1040 or any of its schedules that matches the IR within $1.

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

    3. The taxpayer reports the gross amount on Form 1040/1040-SR, line 4c (TY 2019), , line 4a (TY 2020 and subsequent) and has reported ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡on , line 4d (TY 2019), , line 4b (TY 2020 subsequent).

    4. The taxpayer identifies the taxable portion on Form 1040/1040-SR, Schedule 1, line 8 (TY 2019 and TY 2020), Schedule 1, line 8z (TY 2021) or on an attachment.

    5. The taxpayer reports a taxable amount identified as being from a savings plan (must be the same payer as the IR), ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. If a taxpayer is younger than 55, the 10 percent tax on early distributions from qualified plans is assessed by the system if the COD is "L" , "1" , or "5" .

    1. If the taxpayer is between 55 and 59 years old and the distribution is paid by an employee savings plan, change the COD indicator to blank so the system does not assert the 10 percent tax. If the taxpayer reported the 10 percent tax on their employee savings plan, do not modify the employee savings plan IR. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. See IRM 4.19.3.16.3, 10 Percent Tax on Early Distributions from Qualified Retirement Plans/25 Percent Tax on Early Distributions from SIMPLE IRAs, for further information regarding the 10 percent premature distribution tax.

    3. Mark the 1099R IR element(s) with Send Indicator "S" when adjusting the 10 percent tax.

Retirement Miscellaneous
  1. 1099R IRs may be subject to an additional 10 percent or 25 percent tax. See IRM 4.19.3.16.3, 10 Percent Tax on Early Distributions from Qualified Retirement Plans/25 Percent Tax on Early Distributions from SIMPLE IRAs, for further information.

  2. If it appears the taxpayer has completed Form 5329, but failed to include the taxable distribution on page 1 of the Form 1040 or Form 1040-SR, send PARAGRAPH 51. See Exhibit 4.19.3-7, CP PARAGRAPHS.

  3. 1099R IRs may reflect W/H. Follow instructions in IRM 4.19.3.17.1, Withholding - General.

  4. PARAGRAPH 34 automatically generates when the U/R retirement distribution has COD "L" .

  5. PARAGRAPH 11 automatically generates to inform the taxpayer whenever the proposed tax increase shown on the CP 2000 includes the additional 10 percent tax on early distributions from qualified plans. See IRM 4.19.3.16.3, 10 Percent Tax on Early Distributions from Qualified Retirement Plans/25 Percent Tax on Early Distributions from SIMPLE IRAs.

  6. PARAGRAPH 96 automatically generates when retirement income is U/R regardless of Income Identify Code.

  7. When 1099R IRs are U/R, enter the return amount in the RETURN field on the Summary screen.

Rents and Royalties - General

  1. Rent and royalty income is compensation for the use of property or rights by someone other than the owner.

  2. Rents and royalties are reported on Form 1099-MISC or PTK-1 and SBK-1.

  3. Rents and royalties are identified on the Case Analysis screen by the literal "99MIS" or "PTK-1" , or "SBK-1" in the DOC TYPE field and the literal "RENT" , "ROYAL" , or "OTREN" in the INCOME TYPE field.

Rents and Royalties - Analysis
  1. Compare RENT or ROYAL amounts with entries on:

    1. Schedule E, Part I, lines 3, 4, 23a and 23b. If payer names are listed, match specific amounts. If payer names are not listed, group by income type RENT or ROYALTY, as applicable and compare the group total amount to the total reported rents or royalties.

      Note:

      The Group function is a tool to assist the TEs in computing the correct U/R amount. It may not be necessary to use the Group function if the correct U/R can be determined without it.

    2. Schedule E, Part II. Amounts must match within $1 or be identified as rents and royalties.

    3. Schedule C, Part 1, line 1.. If the taxpayer is in the business of rental property, or it can be determined from the payer name or business activity that the income is from the same source, compare the group total to the amount on line 1.

      Note:

      When screening for Rents/Royalties income on Schedule C, also consider any additional IR(s) for NEC, MERCH, MED and/or FISH income to determine the U/R amount.

    4. Schedule C, Part 1, line 6 (if specifically identified as rent/royalty income). ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    5. Schedule F, Part I or Part III. Do not pursue IRs when the amount matches Schedule F, lines 8, or 43 within $1, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and is identified as rent or royalty.

    6. Form 4835, Farm Rental Income and Expenses. Consider the IRs ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ are accounted for first. Otherwise, issue a CP 2000 for the full amount of the IR(s).

    7. Form 2106, line 7, columns A and/or B. The amount must match within $1 ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ See IRM 4.19.3.8.6.1, Nonemployee Compensation (NEC) - Analysis.

      Note:

      Employees only in the following categories qualify to use Form 2106: Armed Forces Reservists, qualified performing artists, fee basis state or local government officials and employees with impairment-related work expenses.

    8. Schedule D, or Form 8949 if income is identified as Coal and Timber royalties, patents, rights of way or easements.

    9. Form 1040/ Form 1040-SR, Schedule 1, line 8 (TY 2019 and TY 2020), Schedule 1, line 8z (TY 2021). The amount must match within $1 ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

    1. Is a member of a federally recognized Native American tribe and there is an indication that the rental income was directly derived from land allotted to the taxpayer that is held in trust by the U.S. government. The taxpayer may cite the court decision Squire v. Capoeman (351 US 1), or the following Revenue Rulings: 67-284 1967-2 CB 55, 62-16 1962-1 CB 7, or 74-13 1974-1 CB 14, 94-65 1994-2 CB 14.

      Note:

      Only income derived from the direct exploitation of the land is considered tax-exempt. Examples include: sale of crops and/or livestock raised on the land, sales of natural resources, and rental of land for grazing purposes. Income derived from capital improvements made to the land (for example, the establishment of a Gambling Casino) is not directly derived from the land and is fully taxable.

    2. Identifies the rental amount and cites it is excludable under IRC 280(A) or indicates that the rental was for less than fifteen (15) days.

Rents and Royalties Miscellaneous
  1. When the rent or royalty income is partially reported as self-employment income by the taxpayer, identify the RENT or ROYAL amount as Self-Employment income by entering the appropriate Income Identify Code in the INC CD field on the Case Analysis screen. See Exhibit 4.19.3-9, Income Identify Codes.

  2. If there is reported rent or royalty income reported on which the taxpayer should have paid SE tax but did not, SE tax must be computed or recomputed if the Rent/Royalty or SE tax is asterisked or a CP 2000 is sent for another issue(s). Include the reported rent or royalty amount in the PRIM REPRTD SE INC NOT ON SE and/or SEC REPRTD SE INC NOT ON SE field(s) on the SE Tax window. See IRM 4.19.3.16.1, Self-Employment Tax.

    1. Send reported rent or royalty IR elements on the notice when adjusting SE tax.

    2. If the rent or royalty amount is entered in the PRIMARY and/or SECONDARY REPORTED SE INCOME field in the SE Tax window in error, an unpostable condition will occur.

  3. If U/R rent or royalty can be identified as coal/timber royalties, patents, rights of way or easements, it should be reported on Schedule D/Form 8949:

    1. Input Income Identify Code "SD" if the U/R RENT or ROYAL amount(s) is a long term capital gain/loss (Schedule D/Form 8949, Part II).

    2. Input Income Identify Code "ST" if the U/R RENT or ROYAL amount(s) is a short term capital gain/loss (Schedule D/Form 8949, Part I).

      Note:

      Income Identify Code "SD" and "ST" allow the system to compute the Schedule D tax if applicable. See IRM 4.19.3.14.2, Sch D/8814/ECR Tax Window, for further instructions.

    3. See IRM 4.19.3.8.4.5, Capital Gain Distributions - Analysis, to access the Schedule D window.

  4. If there is U/R Schedule D RENT or ROYAL and the taxpayer reported a capital loss on Form 1040 / Form 1040-SR, line 6 (TY 2019) or line 7 (TY 2020 and subsequent) see IRM 4.19.3.8.4.5, Capital Gain Distributions - Analysis, to access the Schedule D window.

  5. 99MIS IR(s) may reflect W/H. See IRM 4.19.3.17.1, Withholding - General, for further instructions.

  6. When rent or royalty income is U/R, enter the gross reported amount in the RETURN field of the Summary screen.

Conduit Income - General

  1. Conduit income is the taxpayer's allocable share from a partnership (Form 1065), Small Business Corporation (Form 1120-S), or Estates and Trusts (Form 1041).

  2. Conduit income is reported on Schedules K-1 filed with Form 1065, Form 1120-S, and Form 1041.

  3. Conduit income is identified on the Case Analysis screen by the literal "SBK-1" , "PTK-1" , or "TRK-1" in the DOC TYPE field and one or more of the following literals in the INCOME TYPE field:

    • "ORINC" - Ordinary Income

    • "REAL" - Real Estate

      Note:

      If REAL is system deleted with a status code "X" , remove the status code and work the REAL issue.

    • "OTREN" - Other Rental

    • "ROYAL" - Royalties

    • "INT" - Interest Income

    • "DIV" - Dividend Income

    • "BNINC" - Ordinary Business Income

    • "OTPOR" - Other Portfolio Income

    • "STCG" - Short Term Capital Gains

    • "LTCG" - Long Term Capital Gains

    • "179EX" - Section 179 Expense amounts

    • "G-PAY" - Guaranteed Payment Amounts

    Note:

    The literal "179EX" (Section 179 Expense amount) is shown for information only. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

Conduit Income - Analysis
  1. Delete K-1 IRs if the payee or payer area identifies the income as being from:

    • 403(b) accounts

    • SEP or IRA accounts

    • Pension Plan or Profit Sharing Plan, including 401(k) plan

    • Municipal Bond funds

  2. When screening conduit IRs, keep the positive and negative amounts separate, but be aware that the taxpayer may have netted the negative IRs against positive IRs and/or the totals on the tax return. Review all forms, schedules and attached explanations to identify gross income amounts.

    Note:

    Ensure that any amounts reported on attachments are properly included on Schedule E and in the AGI on the tax return.

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

  4. The taxpayer may combine negative share amounts with Section 179 Expenses and report the total loss on Schedule E, Part II, column (i) (TY 2018 and subsequent). If the taxpayer did not claim the Section 179 Expense on Schedule E, Part II, column (j), consider the issue resolved. See (18) below if the taxpayer also claimed the 179EX on column (j) .

  5. Schedules K-1 are not required to be attached to the return. If attached, use them as part of the screening process.

  6. Schedules K-1 should not include W/H. Only backup withholding (BWH) can be reported on a Schedule K-1. W/H amounts shown on a PTK-1 (Form 1065), SBK-1 (Form 1120-S) or TRK-1 (Form 1041) IRs may be the result of erroneously identified/transcribed Schedule K-1 data. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ See IRM 4.19.3.17.1.1, Withholding - Analysis, for further instructions.

  7. Do not pursue elements of system deleted TRK-1 IRs (marked with X), even if asterisked. Only screen TRK-1 IRs which are not system deleted, following normal procedures.

    Exception:

    If REAL is system deleted with the status code "X" , remove the status code and work the REAL issue.

  8. Conduit income may be found elsewhere on the return and/or attachments. Thoroughly review the entire return, schedules and attachments before pursuing discrepant K-1 amounts.

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

    2. Consider each element of a K-1 IR separately. For example, if the taxpayer only reports the INT/DIV portion of the IR on Schedule B but fails to report the remaining K-1 income types included on the IR (for example, ORINC, G-PAY, etc.), pursue the remaining income types based on the applicable IRM procedures.

    3. Use the Income Comparison screen to assist in determining if the discrepant K-1 income amount is included in a larger total on the return.

  9. Accept conduit income as reported if the amounts match ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Example:

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

  10. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡" ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡" ≡ ≡

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

    4. ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡" ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

    6. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  11. If a 99MIS, PTK-1, SBK-1 or TRK-1 IR is present for the same taxpayer, from the same payer AND for an identical money amount, take the following action:

    1. If one of the IRs is considered fully reported ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡.

    2. If either IR is only partially reported or both are fully underreported, pursue both issues.

  12. If multiple conduit IRs are present from the same payer for the same taxpayer take the following action:

    1. Research IDRS CC IRPTRL for each IR to determine the On File Date.

    2. Consider the IR with the latest On File Date as valid ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡.

    3. If the On File Date is the same for multiple IRs and one is reported, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡.

    4. If the On File Date is the same for multiple IRs and none of the IRs are reported, issue a CP 2501 to pursue all IRs.

  13. INT is included on Schedule B, Part I, line 1. Pursue any U/R amounts. See IRM 4.19.3.8.3.1, Interest - Analysis, for further instructions.

    Note:

    When reporting INT income from TRK-1 (Trusts) IRs, the payer name on the IR may not match the payer name on the return. Use the dollar match criteria to determine if the income is properly reported.

  14. DIV is included on Schedule B, Part II, line 5. Pursue any U/R amounts. See IRM 4.19.3.8.4.2, Dividends - Analysis, for further instructions.

    Note:

    On DIV income from TRK-1 (Trusts) IRs, the payer name on the IR may not match the payer name on the return. Use the dollar match criteria to determine if the income is properly reported.

  15. STCG is reported on Schedule D, line 5. Pursue any U/R amounts including O/D losses. See IRM 4.19.3.8.4.5, Capital Gain Distributions - Analysis, for further instructions.

    Note:

    If there is U/R STCG and the taxpayer reports a capital loss on Form 1040, Schedule 1, line 6 (TY 2019) or line 7 (TY 2020 and subsequent), enter a zero (0) in both fields on the COMPUTE SCHEDULE D LOSS window. It may be necessary to blank out both fields first. This prevents the system from using losses in excess of $3,000 ($1,500 if MFS) to offset U/R Schedule D income.

    Example:

    If STCG IR(s) is a negative (-) $500 and Schedule D line 5 is negative (-) $750, pursue $250 as U/R (O/D).

  16. LTCG is reported on Schedule D, line 12, column (h). Pursue any U/R amounts including O/D losses. See IRM 4.19.3.8.4.5, Capital Gain Distributions - Analysis, for further instructions.

    Note:

    If there is U/R LTCG and the taxpayer reports a capital loss on Form 1040/ Form 1040-SR, line 6 (TY 2019) or line 7 (TY 2020 and subsequent) enter a zero (0) in both fields on the COMPUTE SCHEDULE D LOSS window. It may be necessary to blank out both fields first. This prevents the system from using losses in excess of $3,000 ($1,500 if MFS) to offset U/R Schedule D income.

    Note:

    If the taxpayer did not file a Schedule D, determine if the LTCG is reported directly on Form 1040/ Form 1040-SR, line 6 (TY 2019) or line 7 (TY 2020 and subsequent).

  17. ROYAL is reported on Schedule E, Part I, line 4.

  18. Section 179 Expenses are generally reported on Schedule E, Part II, column (j). taxpayers may reduce the ORINC, REAL, OTREN or G-PAY amount by the 179EX and report the net income on column (k) . If the ORINC, REAL, OTREN or G-PAY U/R amount matches the 179EX amount on the SBK-1 or PTK-1 IR AND column (j) is blank, consider the IR reported. If the taxpayer also included the 179EX on column (j) this represents a double deduction. Disallow the double deduction and send PARAGRAPH 142. See Exhibit 4.19.3-7, CP PARAGRAPHS.

  19. ORINC, G-PAY and REAL/OTREN (from PTK-1 or SBK-1 IRs) are reported on Schedule E, Part II, columns (h) and (k) for TY 2018 and subsequent.

    Note:

    If REAL is system deleted with a status code "X" , remove the status code and work the REAL issue.

    1. If the taxpayer reports passive income on column (h) or passive loss on column (g) AND attaches Form 8582, Passive Activity Loss Limitations, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. If the taxpayer does not report the payer name/EIN on the Schedule E (or Schedule E is not completed/present) AND attaches Form 8582≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡.

    3. If the taxpayer attaches a completed Form 6198, At Risk Limitation, that matches the payer name and/or EIN ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡.

    4. See (18) above when the PTK-1 and/or SBK-1 IR(s) contain Section 179 Expenses (179EX).

  20. BNINC, OTPOR and REAL/OTREN (from TRK-1 IRs) are reported on Schedule E, Part III, column (d) and/or (f),

    Note:

    If REAL is system deleted with a status code "X" , remove the status code and work the REAL issue.

    1. If the taxpayer reports passive income on column (d) or passive loss on column (c) AND attaches Form 8582, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. If the taxpayer does not report the payer name/EIN on the Schedule E (or Schedule E is not completed/present) AND attaches Form 8582, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡.

    3. If the taxpayer attaches a completed Form 6198 that matches the payer name and/or EIN ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  21. Pursue all fully U/R SBK-1, PTK-1 and TRK-1 IRs and/or their elements, regardless of the income type or dollar amount.

  22. Always attempt to match ORINC, REAL, OTREN, G-PAY, BNINC and/or OTPOR income element(s) to the amounts reported on the return. The taxpayer must disclose an amount (including zero) in order to consider the income element(s) partially reported. When the return amount, per payer, does not correspond to a specific income element(s), group the element(s) and give credit for reported amounts.

  23. PARAGRAPH 24 automatically generates when STCG and/or LTCG is treated as ordinary income due to loss limitations. If the loss per return is less than $3,000 ($1,500 if MFS), toggle off PARAGRAPH 24 from the Summary screen.

Conduit Income Miscellaneous
  1. Conduit amounts (ORINC, REAL, G-PAY, and OTREN) from PTK-1 IRs may be subject to SE tax. If any of the following conditions apply, enter Income Identify Code "PB" , "PF" , "SB" , or "SF" as applicable.

    Note:

    When determining income subject to SE tax and the taxpayer did not complete Schedule SE, do not include any PTK-1 losses reported on Schedule E from a different partnership name.

    1. The PTK-1 IR is fully U/R and the payer name/EIN is not reported on the tax return.

      Exception:

      Do not assess SE tax on ORINC, REAL, and OTREN if the payer is a LTD, LLC, LC, LLP, or LP. See IRM 4.19.3.16.1, Self-Employment Tax, for further instructions and see Exhibit 4.19.3-9, Income Identify Codes, for applicable Income Identify Codes.

    2. The PTK-1 IR is partially reported as self-employment income by the taxpayer. If pursuing the issue because taxpayer reports a loss and the income element is a gain, do not pursue SE tax unless the loss amount was considered on an existing Schedule SE.

  2. When conduit income is U/R, enter the appropriate return amount in the RETURN field on the Summary screen. For conduit income types reportable on Schedule E Part II and Part III, use the sum of Schedule E, lines 32 and 37 as the "per return" amount. If the resulting "per return" amount is negative, enter the actual loss amount in the RETURN field.

  3. If STCG Distributions are U/R or O/D, enter the return amount from Schedule D, line 5, in the RETURN field of the Summary screen. If LTCG Distributions are U/R or O/D, enter the return amount from Schedule D, line 12 (Form 1040, line 6 (TY 2019) or line 7 (TY 2020 and subsequent) if no Schedule D is attached), in the RETURN field of the Summary screen. If STCG and LTCG distributions are U/R or O/D, enter the return amount from Schedule D, lines 5 and 12 combined in the RETURN field of the Summary Screen.

Agricultural Subsidies/Market Gain on CCC Loans/Commodity Credit Corporation (CCC) Loans Forfeited

  1. Agricultural subsidies are government payments to farmers or businesses to assist in a policy deemed advantageous to the public. There are many types of Agricultural subsidy payments, including Conservation Reserve Program (CRP) payments, counter-cyclical payments, and market gain. Agricultural subsidies may be a payment in cash or a payment in kind (PIK), including Commodity Credit Corporation (CCC) certificates.

    Note:

    The taxpayer may refer to Agricultural Subsidy payments (Ag Sub) as CRP.

  2. All government payments reported to the IRS must be included in income in the year they are actually or constructively received.

    1. Income is constructively received when it is credited to the taxpayer's account or set apart in any way that makes it available to the taxpayer. It is not necessary that the taxpayer have physical possession of it.

    2. See IRM 4.19.3.8.13.3, Commodity Credit Corporation (CCC) Loans Forfeited, with regarding a farmer's election for reporting CCC loan proceeds as income in the year of the loan rather than reporting income when the commodity is sold.

Agricultural Subsidies/Market Gain on CCC Loans - General
  1. Agricultural subsidies (including CCC certificates) are reported to IRS on Form 1099-G.

  2. Agricultural subsidies (including CCC certificates) are identified on the Case Analysis screen by the literal "1099G" in the DOC TYPE field and the literal "AGSUB" in the INCOME TYPE field.

  3. Market gains on CCC Loans are reported to the IRS on Form 1099-G and are identified on the Case Analysis screen by the literal "1099G" in the DOC TYPE field and the literal "MRKGN" in the INCOME TYPE field.

Agricultural Subsidies/Market Gain on CCC Loans - Analysis
  1. Compare the total of AGSUB and MRKGN amounts with entries on:

    1. Schedule F, lines 4a, 4b, 39a, or 39b. If the AGSUB IR(s) is less than or equal to the amount reported on any of these lines, consider the IR(s) reported.

      Note:

      If the total of AGSUB and MRKGN IR(s) is greater than line 4a or 39a, use the line 4b or 39b amount to determine any U/R.

    2. Schedule E, Part II. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. Form 4835, Farm Rental Income and Expenses, lines 3a or 3b. If the total of AGSUB and MRKGN IR(s) is less than or equal to the amounts reported on either line, consider the IR(s) reported.

      Note:

      If the total of AGSUB and MRKGN IR(s) is greater than line 3a, use the line 3b amount to determine any U/R.

  2. AGSUB and MRKGN comparisons for the following entries must match within $1 or be CLEARLY IDENTIFIED as AGSUB and/or MRKGN:

    1. Schedule F, lines 8 or 43.

    2. Schedule F, lines 2 or 37 (agricultural subsidies reported as commodities).

    3. Schedule E, Part I. Check property names on Schedule E, line 1 to clearly identify farm rental.

    4. Form 4835, line 6.

    5. Form 1040/ Form 1040-SR, Schedule 1, line 8 (TY 2019 and TY 2020), Schedule 1, line 8z (TY 2021).

  3. Consider AGSUB and MRKGN amounts ≡ ≡ ≡ ≡ ≡ ≡ ≡ if a Form W-2 or a WAGE IR shows that the taxpayer is incorporated (payer name must include CORP, INC, LC, LLC, PA, PC, or SC) in a farming business and paid wages to themselves (the payer name and/or address is similar to or matches the taxpayer name and/or address). Do not consider AGSUB or MRKGN reported if the W-2 and 1099G IR are from the same payer.

  4. Agricultural subsidy payments made to members of federally recognized Native American Tribes under programs administered by the Department of Agricultures Stabilization and Conservation Service are exempt from federal income taxes when the subsidy is received as a result of activity occurring on the individual's allotted land. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. Underreported AGSUBs and MRKGNs are considered self-employment income unless the conditions defined below apply; delete the Income Identify Code if:

    1. The agricultural subsidy is fully or partially reported on Form 4835, Form 4797, Form 6252, Schedule D, or Schedule E, Part I.

    2. The agricultural subsidy is fully U/R and the only farm income on the return is on Form 4835 or Schedule E, Part I.

  6. The system computes SE tax when Income Identify Code "PF" or "SF" , is entered for AGSUB and/or MRKGN income.

  7. If there are reported AGSUB and/or MRKGN on which the taxpayer should have paid SE tax but did not, the SE tax must be computed or recomputed if the AGSUB and/or MRKGN is asterisked or a notice is sent for other issue(s). Include the reported AGSUB and/or MRKGN amount in the PRIM REPRTD SE INC NOT ON SCH SE and/or SEC REPRTD SE INC NOT ON SCH SE field(s) on the SE Tax window. See IRM 4.19.3.16.1, Self-Employment Tax.

    1. Send reported AGSUB and/or MRKGN IR elements on the notice when adjusting SE tax.

    2. If the AGSUB and/or MRKGN amount is entered in the PRIMARY and/or SECONDARY REPORTED SE INCOME field in the SE Tax window in error, an unpostable condition will occur.

  8. 1099G IRs may reflect W/H. See IRM 4.19.3.17.1, Withholding - General, for further instructions.

  9. PARAGRAPH 104 automatically generates when MRKGN is U/R, see Exhibit 4.19.3-7, CP PARAGRAPHS.

  10. If AGSUB and/or MRKGN is U/R, enter the return amount in the RETURN field on the Summary screen.

Commodity Credit Corporation (CCC) Loans Forfeited
  1. Generally, CCC loan proceeds are not reported as income. However, if a taxpayer pledges part or all of their production to secure a CCC loan, they may elect to report the CCC loan proceeds as income in the year the proceeds are received, instead of the year the crop is sold.

  2. Taxpayers may make the election to report CCC loans on Schedule F, lines 5a, 40a or Form 4835, line 4a.

  3. CCC loans forfeited are reported on Form 1099-A, Acquisition or Abandonment of Secured Property.

  4. Commodity Credit Certificates received under some government programs are sold or used to pay the CCC loans. These certificates are includable as income and are reported on Form 1099-G.

    1. Compare 1099G IR(s) to amounts identified on the return by the terms "CCC" , "PIK" , or "Storage" .

    2. If income reported under these categories matches the IR(s) within $1, consider the IR(s) reported. If no amount is reported, consider the IR(s) fully U/R.

  5. A farmer may pledge grain or other commodities to secure a loan from the CCC. They may also include the proceeds of the loan as income in the year actually received. If, however, they use the commodity credit certificates to repay the loan, for an amount less than the original amount of the loan, that market gain is reported on Schedule F, lines 5b, 5c, 40b, or 40c or Form 4835, lines 4b or 4c. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. CCC loans forfeited are identified on the Case Analysis screen by the literal "1099A" in the DOC TYPE field and one of the following literals in the INCOME TYPE field:

    1. "DEBTS" - Debt satisfied.

    2. "FMV" - Fair market value. Disregard the literal "FMV" and the amount on a 1099A IR. (The system automatically assigns status code "X" to FMV amounts.)

    3. "AV" - Appraisal value. Disregard the literal "AV" and the amount on a 1099A IR. (The system automatically assigns status code "X" to AV amounts.)

  7. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. A Form W-2 or WAGE IR shows that the taxpayer is incorporated (payer name must include CORP, INC, LC, LLC, PA, PC or SC) in a farming business and paid wages to themselves (the payer name and/or address is similar to or matches the taxpayer's name and/or address). Do not consider CCC reported if the W-2 and 1099A IR are from the same payer.

    2. Income from a farming business is reported on Schedule E, Part II.

  8. Compare DEBTS (debt satisfied amounts on 1099A IRs) with entries on Schedule F or Form 4835.

    1. Consider CCC loans fully reported when the amount(s) reported on Schedule F, lines 5b, 40b, or Form 4835, line 4b, equals or exceeds the CCC (DEBTS) IR(s).

    2. If there are amounts reported on Schedule F, lines 5c or 40c, or Form 4835, line 4c ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. Consider CCC loans partially U/R when there is an amount reported on Schedule F, lines 5b or 40b, or Form 4835, line 4b that is less than the DEBTS IR(s).

    4. Consider CCC loans fully U/R when Schedule F, lines 5b or 40b, or Form 4835, line 4b is zero or blank AND there are no entries on Schedule F, lines 5c or 40c, or Form 4835, line 4c.

  9. If a DEBTS amount is U/R, verify the Income Identify Code so the system computes SE tax correctly. The Income Identify Code should be "PF" or "SF" , as applicable. See Exhibit 4.19.3-9, Income Identify Codes. Delete the Income Identify Code for U/R DEBTS amounts if the:

    1. CCC loan forfeited is fully or partially reported on Form 4835 or Schedule E, Part I, or

    2. CCC loan forfeited is fully U/R and the only farm income on the return is on Form 4835 or Schedule E, Part I.

  10. PARAGRAPH 102 automatically generates.

  11. If CCC income is U/R, enter the return amount in the RETURN field on the Summary screen.

Patronage Dividends - General

  1. Patronage dividends (PTDIV) are paid by cooperatives. They are considered income unless they are attributable to personal or family items, capital assets, or depreciable assets used in the taxpayer's business.

  2. PTDIVs are reported to IRS on Form 1099-PATR, Taxable Distributions Received From Cooperatives.

  3. Section 199A(g) provides a domestic production activity deduction for only specified agricultural or horticultural cooperatives. Patrons of specified agricultural or horticultural cooperatives report any section 199A(g) DPAD that is passed through from a specified agricultural or horticultural cooperative on Form 8995-A, Qualified Business Income Deduction, Part IV, line 38 (TY 2019).

  4. Patronage dividends are identified on the Case Analysis screen by the literal "99PAT" in DOC TYPE field and one of the following literals in the INCOME TYPE field.

    • "PTDIV" - Patronage Dividends

    • "NPAT" - Non-Patronage Distributions

    • "PURA" - Per Unit Retain Allocations

    • "REDEM" - Redemption

    • "DPAD" - Domestic Production Activities Deduction. Reported on the appropriate of Form 8995-A, Qualified Business Income Deduction (TY 2019 and subsequent).

PTDIV - Analysis
  1. Group the 99PAT income elements (PTDIV, NPAT, REDEM and PURA) from all 99PAT IRs and compare the group total with entries on:

    1. Schedule F, lines 3a, 3b, 38a or 38b. If the 99PAT group amount is less than or equal to the amount reported on any of these lines, consider the IRs reported and mark the group with status code "R" .

      Note:

      If the 99PAT group amount is greater than line 3a or 38a, mark the group with status code "U" and use the amount on line 3b or 38b to determine the U/R.

    2. Form 4835, line 2a or 2b. If the 99PAT group amount is less than or equal to the amount reported on either line, consider the IRs reported and mark the group with status code "R" .

      Note:

      If the 99PAT group amount is greater than line 2a, mark the group with status code "U" and use the amount on line 2b to determine the U/R.

    3. Schedule E, Part I. If an amount is identified as farm rental AND matches within $1, consider the 99PAT IRs reported and mark the group with status code "R" .

      Note:

      Check property names on Schedule E, line 1a and 1b. If the income reported on this line matches the IR group amount(s) within $1, consider the 99PAT IRs reported and mark the group with status code "R" .

    4. Schedule E, Part II. If the income is from a farming business,≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡" ≡

      Note:

      If it cannot be determined from Schedule E, Part II that the ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    5. Schedule B, Part II. The amount must match within $1 or be identified by payer name.

    6. Schedule C, line 6, if the business activity is fishing related or the distribution received is from a cooperative. The amount must match within $1, must be clearly identified as patronage dividends, or must be identified by payer name.

  2. If Form 8995-A is present, see IRM 4.19.3.9.10, Domestic Production Activity Deduction.

  3. Consider PTDIVs ≡ ≡ ≡ ≡ ≡ ≡ ≡ if there is a Form W-2 or WAGE IR present that shows the taxpayer is incorporated (payer name must include CORP, INC, LC, LLC, PA, PC or SC) in a farming business, and paid wages to themselves (payer name and/or address is similar to or matches the taxpayer's name and/or address). Do not consider PTDIV reported if W-2 and 99PAT IR are from the same payer.

PTDIV - Miscellaneous
  1. If a 99PAT IR amount is U/R, verify the Income Identify Code, so the system computes SE tax correctly (Income Identify Code "PF" , "SF" , "PB" , or "SB" as applicable). See Exhibit 4.19.3-9, Income Identify Codes. Delete the Income Identify Code if:

    1. The PTDIV is fully or partially reported on Form 4835, Schedule B, or Schedule E, Part I, or

    2. The PTDIV is fully U/R AND the only farm income on the return is on Form 4835 or Schedule E, Part I.

  2. If there are reported PTDIVs on which the taxpayer should pay SE tax but did not, SE tax must be computed or recomputed if the 99PAT is asterisked or a notice is sent for another issue(s). See IRM 4.19.3.16.1, Self-Employment Tax.

  3. PARAGRAPH 85 automatically generates when the total of U/R interest, dividends, and patronage dividends is greater than $500.

  4. If PTDIV income element(s) is U/R, enter the return amount in the RETURN field on the Summary screen.

Crop Insurance - General

  1. Crop insurance proceeds are amounts received by farmers as a result of destruction or damage to crops.

  2. Crop insurance proceeds are reported on Form 1099-MISC, Box 10.

  3. Crop insurance proceeds are identified on the Case Analysis screen by the literal "99MIS" in the DOC TYPE field and the literal "CROP" in the INCOME TYPE field.

Crop Insurance - Analysis
  1. Compare CROP amounts with entries on:

    1. Schedule F, line 6a, 6b, or 41. If the CROP IR(s) is equal to or less than the amounts reported on any of these lines, consider the IR(s) reported.

    2. Form 4835, line 5a or 5b. If the CROP IR(s) is equal to or less than the amounts reported on either of these lines, consider the IR(s) reported.

      Note:

      If the CROP IR(s) is greater than line 5a and the box on line 5c is blank, use the amount on line 5b to determine the U/R.

    3. Schedule F, lines 8 or Form 4835, line 6. The amount must match within $1.

    4. Form 1040/ Form 1040-SR, Schedule 1, line 8 (TY 2019 and TY 2020), Schedule 1, line 8z (TY 2021) the amount must match within $1 or be clearly identified as CROP income.

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

    1. Form W-2 or WAGE IR is present that shows the taxpayer is incorporated (payer name must include CORP, INC, LC, LLC, PA, PC or SC) in a farming business, and paid wages to themselves (payer name and/or address is similar to or matches the taxpayer's name and/or address). Do not consider CROP reported if Form W-2 and Form 1099-MISC are from the same payer.

    2. Income from a farming business is reported on Schedule E, Part II.

      Note:

      If it cannot be determined from Schedule E, Part II ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. The taxpayer elects to postpone CROP income to the next year by checking the box on Schedule F, line 6c, or Form 4835, line 5c, and attaches a statement.

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

Crop Insurance Miscellaneous
  1. If a CROP amount is U/R, verify the Income Identify Code so the system computes SE tax correctly (Income Identify Codes are "PF" or "SF" , as applicable). See Exhibit 4.19.3-9, Income Identify Codes. Delete the Income Identify Code if the crop insurance proceeds are:

    1. Fully or partially reported on Form 4835 or Schedule E, Part I, or

    2. Fully U/R and the only farm income on the return is on Form 4835 or Schedule E, Part 1.

  2. If there is reported CROP on which the taxpayer should have paid SE tax but did not, the SE tax must be computed or recomputed if CROP is asterisked or a notice is sent for another issue(s). Include the reported CROP amount in the PRIM REPRTD SE INC NOT ON SCH SE and/or SEC REPRTD SE INC NOT ON SCH SE field(s) on the SE Tax window. See IRM 4.19.3.16.1, Self-Employment Tax.

    1. Send reported CROP IR elements on the notice when adjusting SE tax.

    2. If the CROP amount is entered in the PRIMARY and/or SECONDARY REPORTED SE INCOME field in the SE Tax window in error, an unpostable condition will occur.

  3. PARAGRAPH 103 automatically generates when CROP is U/R.

  4. If CROP is U/R, enter the return amount in the RETURN field on the Summary screen.

Unemployment Compensation - General

  1. Unemployment compensation is a benefit paid to qualified individuals during periods of unemployment.

  2. Unemployment compensation is reported on Form 1099-G.

  3. Unemployment compensation displays on the Case Analysis screen by the literal "1099G" in the DOC TYPE field and the literal "UNEMP" in the INCOME TYPE field.

Unemployment Compensation - Analysis
  1. For TY 2021 and subsequent, The American Rescue Plan (ARP) provision which allowed taxpayers to exclude specific amounts of their unemployment compensation from their TY 2020 tax return is no longer in effect. Refer to (9) below.

  2. For TY 2020, The American Rescue Plan enacted on March 11, 2021, allows for taxpayers with a Modified Adjusted Gross Income (MAGI) of less than $150,000, to exclude up to $10,200 of unemployment compensation paid in TY 2020 from their income. If MAGI is $150,000 or more, the taxpayer cannot exclude any unemployment compensation.

  3. For TY 2020, taxpayers are entitled the following Unemployment Compensation Exclusion (UCE): For S, HOH, MFS taxpayers, up to the lesser of Schedule 1, line 7 or $10,200 can be excluded. For MFJ taxpayers not in a community property state, each spouse receiving unemployment is eligible for the exclusion which is calculated separately on the amount each taxpayer received. For example: If the primary taxpayer received $15,500 and the secondary taxpayer received $8,900, the total exclusion amount would be $19,100 ($10,200 + $8,900). Amounts over $10,200 per taxpayer are taxable.

  4. For TY 2020, MFJ taxpayers in a community property state, up to the lesser of Schedule 1, line 7 or $20,400 can be excluded. To determine if the taxpayer lives in a community property state see IRM 4.19.3.5.4, Community Property States.

  5. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡" .

  6. For TY 2020, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡" ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡≡ ≡ ≡≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

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


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

    Note:

    For TY 2020, IRS made systemic adjustments for each taxpayer’s Unemployment Compensation Exclusion (UCE) based on Form 1099-G unemployment compensation information. Validate the UCE amount when the MAGI is $150,000 or more, UNEMP is fully taxable.

  7. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"

  8. For TY 2020, if during screening it is identified the UCE amount is double excluded in error, use the MISC ADJ/SCH C EXP window, see IRM 4.19.7.10.11.16, Miscellaneous Adjustment/Schedule C Expense window to recapture the incorrect UCE amount. For example: the taxpayer reported unemployment, deducted the exclusion AND there is a recovery TC 291 adjustment with DLN (17254-JJJ-0504X-Y) on the account and the change to the AGI matches the deducted exclusion amount. Send a Special Paragraph explaining the double exclusion using the following verbiage as an example: The maximum allowable amount of unemployment compensation that can be excluded is $10,200 per taxpayer ($20,400 for married filing joint filers) or the amount received if less than $10,200 per taxpayer. We have adjusted the unemployment compensation exclusion to reflect the maximum amount allowable.

  9. Compare UNEMP amounts with entries on Form 1040/1040-SR, Schedule 1, line 7.

  10. UNEMP comparisons for the following entries must match within $1 or be CLEARLY IDENTIFIED as UNEMP payments:

    TY 2019 and TY 2020 TY 2021 and subsequent
    Form 1040/ Form 1040-SR, line 1 Form 1040/ Form 1040-SR, line 1
    Form 1040/ Form 1040-SR, Schedule 1, line 8 Form 1040/ Form 1040-SR, Schedule 1, line 8z

    Caution:

    If taxpayer includes UNEMP as wages on Form 1040/1040-SR, line 1 (TY 2019 and subsequent), see IRM 4.19.3.17.3, Earned Income Credit.

  11. If the tax return indicates the UNEMP income was repaid and includes an amount, accept as reported. The repaid amount plus reported amount must equal the IR, otherwise pursue the difference.

    Caution:

    If the taxpayer indicated a portion of the UNEMP was repaid in a year other than the current AUR tax year, do not consider that repayment amount. Send a Special Paragraph to advise the taxpayer that repayments made in a subsequent year(s) may be deducted on Schedule A, as a miscellaneous deduction, in the year they were repaid.

  12. If the EIN begins with "66" and the payer information is in Spanish, this income is not subject to U.S. income tax, delete the IR(s).

  13. If supplemental unemployment benefits are received from a company financed fund, and the taxpayer did not contribute to the fund, they are not considered UNEMP. They are reported on Form W-2 and are fully taxable wages, subject to W/H, and should be reported on the wage lines. See IRM 4.19.3.8.1, Wages - General, for further instructions.

UNEMP - Miscellaneous
  1. UNEMP (Form 1099-G) may reflect W/H. See IRM 4.19.3.17.1, Withholding - General, for further instructions.

    Note:

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

  2. PARAGRAPH 67 automatically generates when UNEMP is U/R.

    Exception:

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

  3. If UNEMP is U/R, enter the return amount in the RETURN field on the Summary screen.

Social Security/Railroad Retirement Benefits (SS/RR) - General

  1. Social Security and Railroad Retirement Benefits may be partially taxable (by up to 85 percent) if the modified AGI plus fifty percent of the benefits is greater than the following adjusted base amounts:

    • $25,000 for FS 1, 4 or 5

    • $32,000 for FS 2

    • $25,000 for FS 3 or 6 (and the taxpayer did NOT live with spouse any time during the AUR year)

    • $0 for FS 3 or 6 (and the taxpayer lived with the spouse during the AUR year)

  2. These payments are reported by payers on either Form SSA-1099 (benefits received under Title II of the Social Security Act), or Form RRB-1099 (Tier 1 railroad retirement benefits treated as social security).

    Note:

    See IRM 4.19.3.8.10.5, Railroad Retirement Board (RRB) IRs, for information regarding the amounts reported by the Railroad Retirement Board on Form RRB-1099-R.

  3. Social Security and Railroad Retirement Benefits display on the Case Analysis screen by the literal "SS/RR" in the DOC TYPE field and one of the following literals in the INCOME TYPE field.

    1. "SS/RR" - taxable Social Security and Railroad Retirement Benefits.

    2. "WCOMP" - Workers' Compensation. Disregard WCOMP amounts. (The system automatically assigns status code "X" to WCOMP amounts.)

    3. "REPAY" - benefits that the taxpayer repaid in the current AUR tax year. The system uses this amount to reduce the recomputed SS/RR amount as appropriate.

    4. "20PAY" - portion of SS/RR received in the AUR year for 2020 (for information only).

    5. "19PAY" - portion of SS/RR received in the AUR year for 2019 (for information only).

    6. "18PAY" - portion of SS/RR received in the AUR year for 2018 (for information only).

    7. "17PAY" - portion of SS/RR received in the AUR year for 2017 (for information only).

  4. Workers' Compensation payments made in place of Social Security and Railroad Retirement Benefits are considered as SS/RR when computing taxable benefits. If it appears that the taxpayer reduced the gross SSA benefits (SS/RR element) by the amount of the WCOMP element:

    1. Pursue the discrepancy.

    2. Mark the WCOMP element with Send Indicator "S" .

    3. PARAGRAPH 100 automatically generates.

SS/RR - Analysis
  1. When screening SS/RR IRs, check the name line area of the IR(s) to ensure that the benefits are properly credited to the appropriate taxpayer. Delete SS/RR amounts if the payee name line(s) indicates they are payments to a former spouse or dependent children, unless there is an indication the taxpayer in question is one of the actual recipients.

  2. Compare the total of SS/RR amounts with entries on:

    TY 2019 TY 2020 TY 2021
    Form 1040/ Form 1040-SR, line 5a (total benefits) and line 5b (taxable benefits). Form 1040/ Form 1040-SR, line 6a (total benefits) and line 6b (taxable benefits). Form 1040/ Form 1040-SR, line 6a (total benefits) and line 6b (taxable benefits).
    Form 1040/ Form 1040-SR, Schedule 1, line 8. The amount must match the taxable SS/RR payments within $1 or be identified as Social Security/Railroad Retirement payments. Form 1040/ Form 1040-SR, Schedule 1, line 8. The amount must match the taxable SS/RR payments within $1 or be identified as Social Security/Railroad Retirement payments. Form 1040/ Form 1040-SR, Schedule 1, line 8z. The amount must match the taxable SS/RR payments within $1 or be identified as Social Security/Railroad Retirement payments.

  3. When the taxpayer is married filing separately (FS 3 or 6) and lived apart from their spouse for the entire year, they are instructed to enter a "D" on the dotted line next to Form 1040 / Form 1040-SR, line 5a (TY 2019) or line 6a (TY 2020 and subsequent). If a "D" is present (or a "Y" on an ELF return), enter an "N" in the taxpayer LIVED WITH SPOUSE? field in the SSA RRB Changes window. If a "D" is not present:

    1. Assume the taxpayer lived with their spouse and zero is the applicable base amount for FS 3 or 6.

    2. Ensure that the taxpayer LIVED WITH SPOUSE? field is blank.

    3. PARAGRAPH 162 automatically generates.

      Note:

      If there are no SS/RR IR(s) present on the Case Analysis screen, and it appears that the taxpayer did not report the proper taxable amount, because the "D" is not present, and there are no other U/R issues, close the case.

  4. On jointly filed returns, when one of the taxpayers is deceased, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡" when:

    If the TY is And Or
    2019 Form 1040/1040-SR, line 5a or 5b is zero or blank Form 1040/ Form 1040-SR, line 5a is equal to or less than the surviving spouse's SS/RR IR amount(s).
    2020 and subsequent Form 1040/1040-SR, line 6a or 6b is zero or blank Form 1040/ Form 1040-SR, line 6a is equal to or less than the surviving spouse's SS/RR IR amount(s).

    Caution:

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

  5. The taxable amount of SS/RR payments is computed by the system based on the appropriate entries on the Adjusted Gross Income window and the SSA/RRB window. If the taxpayer files a Schedule R, Credit for the Elderly or Disabled, the system requires you to access the SSA/RRB window. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - SSA/RRB window.

    1. Screen SS/RR IR(s) after you analyze all other potentially discrepant income types. After any subsequent analysis that changes the TOTAL AGI CHANGE field, reselect the SSA/RRB window. (After computing the IRA deduction the system automatically recomputes SS/RR). Recompute all changes to adjustments (SLID, Tuition and Fees (TY 20 and prior), and/or DPAD (TY 19 and prior) to income before selecting this window. See IRM 4.19.3.4.2, Case Analysis Screen, for the proper sequence when these issues are present on the same case.

    2. Be alert for changes made during or after original processing when entering/verifying information in the SSA/RRB window. Send PARAGRAPH 97, (see Exhibit 4.19.3-7, CP PARAGRAPHS), for erroneous changes made during original processing.

  6. Form 1040/ Form 1040-SR, line 5a (TY 2019) or line 6a (TY 2020 and subsequent) is greater than the IR amount(s) and an adjustment to SS/RR is necessary, do not send the SS/RR IR(s) to the taxpayer.

    Note:

    After computing the SS/RR, the GROUP TOTAL field on the Case Analysis screen displays the total SS/RR IR amount. Compare this amount to the amount on the appropriate line of Form 1040/1040-SR.

  7. Verify that the amount in the TAX EXEMPT INTEREST field of the SSA/RRB window is correct. See IRM 4.19.3.8.3.6, Interest Miscellaneous, if the taxpayer improperly excluded tax-exempt interest on Schedule B.

  8. If the repayment amounts exceed the SS/RR amounts, and the taxpayer reports a taxable SS/RR amount, but fails to subtract any or all of their payments from the SS/RR amount, the system reduces the recomputed SS/RR amount as appropriate. This results in either a refund to the taxpayer or a reduction to their tax.

  9. If there are no SS/RR IRs on the Case Analysis screen, the taxpayer reports a gross amount on Form 1040/ Form 1040-SR, line 5a (TY 2019) or line 6a (TY 2020 and subsequent) and the amount on Form 1040/ Form 1040-SR, line 5b (TY 2019) or line 6b (TY 2020 and subsequent) is blank, zero or less than 85 percent of the gross amount, and there are other U/R issue(s):

    1. Create an IR for the gross amount reported on Form 1040/ Form 1040-SR, line 5a (TY 2019) or line 6a (TY 2020 and subsequent).

    2. Access the SSA/RRB window and input/verify the fields.

  10. If the taxpayer reported SS/RR (larger than the IR amount(s)), and the IR shows a REPAY amount, the REPAY IR must be coded with IR Code "D" . Otherwise, the system uses 85 percent of the REPAY amount as an offset and recomputes the tax.

  11. When the system computes taxable SS/RR, it uses the amount the taxpayer reported as benefits or the total of the IRs (less any REPAY amounts), whichever is greater. If the taxpayer attached documentation stating the SS/RR amounts were repaid in the current AUR tax year and no corresponding IR is present showing the REPAY amount, you must create an IR so the system correctly computes the taxable portion.

    Caution:

    If the taxpayer attached documentation stating the SS/RR amounts were repaid in a year other than the current AUR tax year, advise the taxpayer the repayment amount may be deducted ONLY in the year it was repaid.

  12. Do not pursue SS/RR amounts if the taxpayer provides a statement and/or documentation that the income is excludable because the payments are for disability due to injuries received from a terrorist attack or military action.

SS/RR Miscellaneous
  1. Taxpayers can compute taxable SS/RR benefits following the Lump-Sum Election (LSE) method. There is an LSE method indication if LSE is written next to Form 1040, line 5a (TY 2018 and TY 2019) or Form 1040-SR, line 5a (TY 2019) or Form 1040/ Form 1040-SR, line 6a (TY 2020 and subsequent), the box next to LSE ind is checked on the TRDB window, or an LSE worksheet is attached. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡" ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. The SS/RR IR amount(s) is reported on Form 1040/ Form 1040-SR, line 5a (TY 2019) or line 6a (TY 2020 and subsequent) AND

    2. The SS/RR IR displays one or more of the following; 20PAY, 19PAY, 18PAY, OR 17PAY.

    Note:

    If either of the conditions above are not met, pursue discrepant SS/RR. Send PARAGRAPH 71, see Exhibit 4.19.3-7, CP PARAGRAPHS.

  2. Do not pursue potential U/R SS/RR benefits if there is an indication the taxpayer is a resident of one of the following countries:

    • Canada

    • Egypt

    • Germany

    • Ireland

    • Israel

    • Italy

    • Japan

    • Romania

    • The United Kingdom

  3. Form SSA-1099 or Form RRB-1099 may reflect W/H. See IRM 4.19.3.17.1, Withholding - General, and/or see IRM 4.19.3.17.1.2, Withholding, SSTAX and Additional Medicare Tax Withheld - Miscellaneous, for further instructions.

  4. PARAGRAPH 99 automatically generates when a change to modified AGI impacts the taxable amount of SS/RR.

  5. If SS/RR is adjusted, enter the taxable return amount in the RETURN field on the Summary screen.

Other Income (OTINC)- General

  1. Other income is reported on Form 1099-MISC.

  2. Other income is identified on the Case Analysis screen by the literal "99MIS" in the DOC TYPE field and the literal "OTINC" in the INCOME TYPE field.

OTINC - Analysis
  1. Compare OTINC amounts with entries on:

    1. Schedule C, line 6.

    2. Schedule F, lines 8 or 43.

    3. Form 4835, line 6.

  2. If it can be determined from the payer name or business activity that it is the same income, consider OTINC reported if it is included in larger total for the applicable taxpayer on the following Schedules:

    1. Schedule C

    2. Schedule F, lines 1a or 2

    Note:

    When determining the U/R amount consider NEC IR(s) as well as OTINC IR(s).

  3. Comparisons for the following entries must match within $1 or be CLEARLY IDENTIFIED as OTINC:

    1. Form 1040/1040-SR, line 1.

      Note:

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

    2. Schedule D, see table below for line numbers - The taxpayer may report the sale of timber, coal, easements, right-of-way (ROW), land damages on these lines. Consider the OTINC reported if the sales price matches the IR within $1.

      Form/Schedule TY 2018 and subsequent
      Schedule D Part I, lines 1a, 1b, 2, or 3, column (d)
      Schedule D Part II, line 8a, 8b, 9 or 10, column (d)
      Form 8949 Part I, line 1, column (d) or Part II, line 1 column (d)

    3. Form 8949, see table above for line numbers.

      Caution:

      Virtual currency may be reported or partially reported on Form 8949. This income may be identified by payer name or may be referred to as bitcoin or similar language. If the income is partially reported and the TP includes an explanation they reported the fair market value of the virtual currency, as of the date it was received, consider the income reported.

    4. Schedule E, Part I.

    5. Form 2106, line 7.

      Note:

      Beginning with TY 2018 only employees in the following categories qualify to use Form 2106: Armed Forces Reservists, qualified performing artists, fee basis state or local government officials and employees with impairment-related work expenses

  4. The OTINC amount on a 99MIS IR represents the full value of Other Income. If the taxpayer reports a lesser amount, consider the difference U/R, unless documentation is attached to the return.

  5. Accept OTINC as reported if:

    1. The taxpayer is incorporated (payer name must include CORP, INC, LC, LLC, PA, SC or PC) and pays wages to themselves (the name and/or address of the payer is similar to or matches the name and/or address of the taxpayer).

      Exception:

      Do not consider OTINC reported if Form W-2 and 99MIS IR are from the same payer, the income is from the Alaska Permanent Fund Dividend, or identified as National Mortgage Settlement (NMS) and/or Independent Foreclosure Review (IFR).

    2. The taxpayer appears to be a partner or shareholder as shown on Schedule E, Part II.

      Exception:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ or the income is from the Alaska Permanent Fund Dividend, or identified as National Mortgage Settlement (NMS) and/or Independent Foreclosure Review (IFR).

    3. The taxpayer has identified the payments as disaster or FEMA mitigation, made under any of the following; the Hazard Mitigation Grant Program (HMGP), the pre-Disaster Mitigation Program (PDM) or the Flood Mitigation Assistance Program (FMA).

    4. The taxpayer nets the amount for reimbursed expenses reported on Form 1099-MISC and ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. The value of medals and/or prizes and awards paid by the U.S Olympic Committee (USOC) to competitors after December 31, 2015 are tax exempt when the taxpayer’s AGI is $1 million or less ($500,000 for married filing separately). Taxpayers are instructed to include these amounts on Form 1040/ Form 1040-SR, Schedule 1, line 8 (TY 2019 and TY 2020), Schedule 1, line 8l (TY 2021) and subtract the amount on the dotted line portion of Form 1040/ Form 1040-SR, Schedule 1, line 22 (TY 2019 and TY 2020), Schedule 1, line 24c (TY 2021). If the IR is not reported and it can be determined the taxpayer is an Olympian/ Paralympian who meets the exclusion criteria, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡.

  7. If an explanation is attached to the return indicating the fellowship, grant, or stipend was used for tuition, fees, books, supplies, and equipment required for the course, AND:

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ The taxpayer cannot deduct expenses that exceed the IR.

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

    3. The taxpayer excluded expenses not shown above, then pursue the unallowable expenses. Send PARAGRAPH 124, see Exhibit 4.19.3-7, CP PARAGRAPHS.

  8. If the OTINC IR is identifiable as fellowship/grant/stipend income, no explanation of tuition expenses is attached, and the IR is not fully reported, pursue the amount not reported. Send PARAGRAPH 124, see Exhibit 4.19.3-7, CP PARAGRAPHS.

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡" ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. DO NOT ASSESS SE tax on scholarship/stipend income.

OTINC - Miscellaneous
  1. The OTINC amount may represent a court award/settlement amount, as indicated on the taxpayer's attachment. The full amount is to be reported on Form 1040/ Form 1040-SR, Schedule 1, line 8 (TY 2019 and TY 2020), Schedule 1, line 8z (TY 2021). The following items are to be included as Ordinary Income:

    1. Interest on any award.

    2. Compensation for lost wages or lost profits unless awarded due to personal physical injury or sickness.

    3. Punitive damages. It does not matter if they relate to a physical injury or physical sickness.

    4. Amounts received in settlement of pension rights (if the taxpayer did not contribute to the plan).

    5. Damages for patent or copyright infringement, breach of contract or interference with business operations that replace ordinary income.

    6. Damages for emotional distress received to satisfy a claim under antidiscrimination statutes, for example, Title VII of the Civil Rights Act of 1964, and comparable state statutes.

    7. Damages received for emotional distress due to a personal injury that is unrelated to a physical injury or sickness (for example, employment discrimination or injury to reputation) but does not include damages not in excess of amount paid for medical care to treat emotional distress.

  2. The Judgment Fund Branch of the United States Department of Agriculture (USDA) paid cash settlements and granted loan cancellations as a result of a 1999 class action discrimination suit filed by farmers. See IRM 21.6.4.4.9.3, USDA Discrimination Settlement Payments, for additional information.

  3. The National Mortgage Settlement (NMS) and/or Independent Foreclosure Review (IFR) paid cash settlements to certain borrowers whose principal residence was involved in the foreclosure process.

  4. Consider the IR reported if the taxpayer reports the payment(s) on the return AND indicates any of the following:

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

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

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

    Example:

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

    Note:

    Beneficiaries of National Mortgage Settlement and Independent Foreclosure Review payments may treat the distribution(s) in the same manner as the decedent would have had the decedent lived and received the income.

  5. Gains from reimbursements for damages, casualty and theft, etc., are reported on Form 4684 and Form 4797.

    1. Taxpayers are only allowed to deduct legal expenses incurred in attempting to produce or collect taxable income. For business related legal expenses, Schedules C, E, part I, and/or F may be used.

    2. If the taxpayer nets the amount for legal fees, pursue the deducted amount as U/R.

      Exception:

      If the settlement involves: unlawful discrimination as defined in IRC 62(e), a claim against the U.S. Government or a claim made under section 1862(b)(3)(A) of the Social Security Act, see (7) below.

  6. Any legal expenses, up to the settlement included in gross income, from: an unlawful discrimination suit, a claim against the U.S. Government or a claim made under section 1862(b)(3)(A) of the Social Security Act, may be deducted as an adjustment to income on the dotted portion of Schedule 1, line 22 (TY 2019 and TY 2020), Schedule 1, line 24i (TY2021) on Form 1040/1040-SR. Consider any deducted amount over the reported settlement as U/R income.

  7. OTINC paid by an auto manufacturer to a motor vehicle salesperson is not subject to SE tax and CANNOT be reported on Schedule C. If it is the only income reported on Schedule C :

    1. Disallow the expenses.

    2. Adjust SE tax as appropriate.

    3. Send PARAGRAPH 205(TY 2020 and subsequent), see Exhibit 4.19.3-7, CP PARAGRAPHS

  8. If OTINC is partially reported on Schedule C, or F, treat as self-employment income. Enter Income Identify Code "PB" , "PF" , "SB" , or "SF" as applicable in the INC CD field on the Case Analysis screen. See Exhibit 4.19.3-9, Income Identify Codes.

  9. If OTINC is reported on Schedule C, or F and the taxpayer should have paid SE tax but did not, the SE tax must be computed or recomputed if OTINC is asterisked or a notice is sent for another issue(s). Include the reported OTINC amount in the PRIM REPRTD SE INC NOT ON SE and/or SEC REPRTD SE INC NOT ON SE field(s) on the SE Tax window. See IRM 4.19.3.16.1, Self-Employment Tax.

    1. Send reported OTINC IR elements on the notice when adjusting SE tax.

    2. If the OTINC amount is entered in the PRIMARY and/or SECONDARY REPORTED SE INCOME field in the SE Tax window in error, an unpostable condition will occur.

  10. 99MIS IRs with OTINC amounts may reflect W/H. See IRM 4.19.3.17.1, Withholding - General, for further instructions.

  11. If Other Income is U/R, enter the return amount in the RETURN field on the Summary screen.

Gambling Income - General

  1. Gambling income represents reportable winnings from a gambling activity.

  2. Gambling income is reported on Form W-2 G, Certain Gambling Winnings.

  3. Gambling income is identified on the Case Analysis screen by the literal "W-2G" in the DOC TYPE field and the literal "GAMBL" in the INCOME TYPE field.

Gambling Income - Analysis
  1. Comparisons for the following must match within $1 or be CLEARLY IDENTIFIED as GAMBL:

    TY 2019 and TY 2020 TY 2021
    Form 1040 / Form 1040-SR, line 1 Form 1040 / Form 1040-SR, line 1
    Form 1040 / Form 1040-SR, Schedule 1, line 8 Form 1040 / Form 1040-SR, Schedule 1, line 8b
    1. Schedule C, Part I, lines 1 or 6, if payer or business activity indicates that it is the same income. See IRM 4.19.3.8.19.2, Gambling Losses, for additional information.

    2. Schedule F, lines 8 or 43.

  2. If the taxpayer reports gambling income on Schedule D, Part II, compare the amount reported, with the IR and take the following action:

    1. If the amount reported, column (h), is equal to or greater than the IR amount, consider the income reported.

    2. If the amount reported, column (h), is less than the IR amount, consider the difference U/R.

      Note:

      If reported on Schedule D, Part II, subtract the gambling income from the LONG TERM GAIN/LOSS field in the SCHD/8814/ECR Tax window and send a Special Paragraph using the following verbiage as an example: "Gambling winnings are ordinary income and do not qualify for capital gains treatment."

  3. Gambling income may erroneously display as discrepant if an amount is present on Form W-2 G, Box 7 (winnings from identical wagers). This amount displays on the IR by the literal "IDWAG" . Disregard IDWAG amounts. The system automatically assigns status code "X" to IDWAG amounts. Consider gambling income reported if the amount the taxpayer reports matches the GAMBL IR within $1.

  4. If neither gambling income nor gambling losses are reported, consider the entire IR(s) U/R.

  5. If the taxpayer did not itemize their deductions, send PARAGRAPH 42. See Exhibit 4.19.3-7, CP PARAGRAPHS.

Gambling Losses
  1. If the taxpayer itemizes deductions on Schedule A, they may deduct gambling losses equal to gambling winnings. If the taxpayer deducts gambling losses on Schedule A but reports no winnings, disallow gambling losses on Schedule A.

    Exception:

    If there are U/R Gambling IRs, pursue the Gambling IRs and allow the reported Gambling Losses up to the amount of the U/R Gambling IRs.

  2. If the taxpayer did not file Schedule A, they may deduct gambling losses in excess of the applicable standard deduction amount for their filing status. Send PARAGRAPH 42, see Exhibit 4.19.3-7, CP PARAGRAPHS.

  3. The taxpayer is eligible to itemize deductions when deductions on Schedule A exceed the applicable standard deduction amounts for their filing status. See IRM 4.19.3.13, Standard Deduction, for further information.

  4. Gambling losses are O/D if:

    1. They exceed gambling winnings.

    2. They are deducted twice. (The taxpayer reports net gambling winnings and also deducts gambling losses on Schedule A.)

    3. They are directly deducted from gambling winnings, and the taxpayer is not eligible to itemize deductions. (Gambling losses offset against gambling winnings are less than the standard deduction amount.)

    Exception:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡" ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ do not consider the gambling losses O/D. See (7) below.

  5. When the taxpayer is claiming gambling losses on Schedule A and, is not claiming any gambling winnings on Form 1040/ Form 1040-SR, Schedule 1, line 8 (TY 2019 and TY 2020), Schedule 1, line 8b (TY 2021), AND there are no GAMBL IR(s):

    1. Select the Schedule A window and disallow the amount of losses the taxpayer claimed by entering zero (0) in the GAMBLING LOSS OF OTHER MISC RECOMPUTED field.

    2. DO NOT adjust the GAMBLING LOSS OF OTHER MISC PER RETURN, TOTAL DEDUCTIONS fields.

    3. Send PARAGRAPH 144, see Exhibit 4.19.3-7, CP PARAGRAPHS.

  6. When the taxpayer claims more losses on Schedule A than winnings on Form 1040/ Form 1040-SR, Schedule 1, line 8 (TY 2019 and TY 2020), Schedule 1, line 8b, take the following action:

    1. Select the Schedule A window and enter the allowable reported losses (up to the reported winnings PLUS any U/R gambling) in the GAMBLING LOSS OF OTHER MISC RECOMPUTED field.

    2. DO NOT adjust the GAMBLING LOSS OF OTHER MISC PER RETURN, TOTAL DEDUCTIONS fields.

    3. Send PARAGRAPH 42, see Exhibit 4.19.3-7, CP PARAGRAPHS.

  7. When the taxpayer nets gambling losses against gambling winnings and either filed or did not file a Schedule A (or an attached Schedule A was not used because it was less than the standard deduction):

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡" ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ consider the IR reported.

    1. Mark the GAMBL IR(s) U/R for the amount of loss claimed.

    2. Select the Schedule A window.

    3. If no Schedule A filed and the allowable gambling losses now exceed the standard deduction amount, enter a zero (0) in the GAMBLING LOSS OF OTHER MISC PER RETURN, TOTAL DEDUCTIONS fields. Include the gambling losses (up to the gambling winnings amount) in the GAMBLING LOSS OF OTHER MISC RECOMPUTED field. If appropriate, update any other fields in the Schedule A window.

    4. If Schedule A filed, DO NOT adjust the GAMBLING LOSS OF OTHER MISC PER RETURN, TOTAL DEDUCTIONS fields. Update the GAMBLING LOSS OF OTHER MISC RECOMPUTED field with the amount of the allowable losses.

    5. Send PARAGRAPH 42, (see Exhibit 4.19.3-7, CP PARAGRAPHS.

      Caution:

      If the filing status is 3 and/or the taxpayer checks the box on Schedule A, line 18 or writes "IE" (Itemized Elected) on the left dotted portion of Form 1040/ Form 1040-SR, line 12 (TY 2019 and TY 2020), line 12a (TY 2021), DO NOT adjust the Schedule A window. Consider the gambling U/R and send PARAGRAPH 42.

  8. If the taxpayer filed a Schedule A, verify the GAMBLING LOSS OF OTHER MISC PER RETURN and GAMBLING LOSS OF OTHER MISC RECOMPUTED fields contain the correct amounts.

  9. Verify the TOTAL DEDUCTIONS fields include the allowable amount of gambling losses. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Schedule A window, for further instructions.

  10. If the taxpayer did not file a Schedule A and gambling losses are less than the standard deduction amount, no entry is necessary on the Schedule A window. Send PARAGRAPH 42, see Exhibit 4.19.3-7, CP PARAGRAPHS.

  11. Only taxpayers who conduct gambling as a business (in other words, "professional gamblers" ) are permitted to report gambling income and losses on a Schedule C. The taxpayer may claim gambling losses only up to the amount of gambling income. If the taxpayer claims gambling losses in excess of gambling income, disallow the portion of gambling losses in excess of income.

    1. Enter the total gambling losses claimed in the PRIM/SEC SCH C EXPENSE PER RETURN field of the MISC ADJUSTMENT/SCHEDULE C EXPENSE window.

    2. Enter the allowable gambling losses in the PRIM/SEC SCH C EXPENSE NOW field of the MISC ADJUSTMENT/SCHEDULE C EXPENSE window.

    3. Adjust SE tax as appropriate.

    4. Send PARAGRAPH 14, see Exhibit 4.19.3-7, CP PARAGRAPHS.

  12. If it appears that gambling is not the primary source of income for the taxpayer (example: the taxpayer lists their occupation as other than "professional gambler" and/or reports significant earned income from non-gambling sources), use the MISC ADJUSTMENT/SCHEDULE C EXPENSE window to disallow the expenses and income claimed on Schedule C. Take the following action:

    1. Enter a zero (0) in the MISC ADJUSTMENT PER RETURN field.

    2. Enter the gambling income reported on Schedule C in the MISC ADJUSTMENT NOW field.

    3. Enter the disallowed expenses amount as a positive amount in the PRIM/SEC SCH C EXPENSE PER RETURN field.

      Note:

      Expenses include total expenses and cost of goods sold.

    4. Enter the gambling income reported on Schedule C in the PRIM/SEC SCH C EXPENSE NOW field.

    5. Recalculate the SET window.

    6. Send PARAGRAPH 14, see Exhibit 4.19.3-7, CP PARAGRAPHS.

    7. Include a Special Paragraph on the notice using the following verbiage as an example: "The Miscellaneous Adjustment included in this notice reflects the changes made to your Schedule C."

  13. GAMBL IRs may reflect W/H. See IRM 4.19.3.17.1.1, Withholding - Analysis, for further instructions.

  14. If gambling winnings are U/R, enter the return amount in the RETURN field on the Summary screen.

Cancellation of Debt (DBTCN) - General

  1. Cancellation of Debt is generally considered income to the taxpayer if a debt owed to the Federal Government, financial institution, credit union or other creditor was discharged and is not otherwise excluded from gross income.

  2. Cancellation of Debt is reported on Form 1099-C, Cancellation of Debt.

  3. Cancellation of Debt is identified on the Case Analysis screen by the literal "1099C" in the DOC TYPE field and the literal "DBTCN" , "INTFG" , or "FMV" in the INCOME TYPE field. Only pursue DBTCN amounts.

Cancellation of Debt (DBTCN) - Analysis
  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡SEND PARAGRAPH 160, see Exhibit 4.19.3-7, CP PARAGRAPHS.

  2. An IR with a literal of DBTCN may also have an identifiable event code "A" , indicating Bankruptcy or "D" , indicating foreclosure in the IND field under the PAYER section of the IR. These IRs are system deleted.

    Caution:

    If the IRs are not system deleted mark with Status Code "D" or "N" .

  3. If a DBTCN IR is system deleted ("X" ) and you can determine based on a dollar match or as identified by payer that the IR is reported, DO NOT allow credit for the reported amount(s) against other DBTCN IRs.

  4. Comparisons for the following entries must match within $1 or be CLEARLY IDENTIFIED as DBTCN:

    1. Form 1040/ Form 1040-SR, Schedule 1, line 8 (TY 2019 and subsequent).

    2. Schedule C, Part I, line 6 .

    3. Schedule E, Part I, lines 3 and 4.

    4. Schedule F, Part I, lines 3a, 4a, 5b, 6a, and 8; or, Part III, lines 39a - 43.

    5. Give credit for amounts computed or explained on an attachment that are identified as being from the same payer.

    Exception:

    If the taxpayer reports the full amount of the IR and then zeroes it out, request the taxpayer either get a corrected statement from the payer or submit a completed Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (And Section 1082 Basis Adjustment).

    Exception:

    If Form 982 is attached with an entry on line 2, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. If there are two DBTCN IRs with identical payer names and money amounts and one IR is for the primary taxpayer and the other is for the spouse, delete one IR.

  6. If the taxpayer reduces the reported DBTCN amount by the INTFG (interest forgiven) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  7. If the taxpayer indicates the DBTCN is not taxable under "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡" ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡" ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ delete the issue.

  8. Consider the DBTCN reported when, DBTCN is from a Student Loan, and the taxpayer has indicated ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  9. The Federal Emergency Management Agency (FEMA), operating as a division of the U. S. Department of Homeland Security, has a national program to forgive amounts paid to taxpayers (incorrectly or due to fraud) who are unable to repay these amounts. These IRs are valid. Pursue any U/R amounts.

  10. The Mortgage Forgiveness Debt Relief Act of 2007 (Pub. Law 110-142) created an exclusion under sections 108(a)(1)(E) and 108(h) for discharged qualified principal residence indebtedness. For TY 2018 and prior, this exclusion applies to qualified principal residence indebtedness that is discharged on or after January 1, 2007 and before January 1, 2018. This exclusion also applies to discharges on or after January 1, 2018, if pursuant to a written agreement entered before January 1, 2018. The maximum amount that can be treated as qualified principal residence indebtedness is $2 million ($1 million if MFS). taxpayers must file Form 982 to claim this exclusion.

  11. If the taxpayer has received DBTCN from a Foreclosure or Repossession and the taxpayer is personally liable (recourse debt), the amount by which the canceled debt exceeds the FMV of the property must generally be reported as ordinary income on Form 1040/ Form 1040-SR, Schedule 1, line 8 (TY 2019 and TY 2020), Schedule 1, line 8c (TY 2021).

  12. If the taxpayer has received DBTCN from a Foreclosure or Repossession and the taxpayer is not personally liable (non-recourse debt), the gain or loss is computed by comparing the balance of the loan amount with the adjusted basis.

    1. Losses are non-deductible, unless the property was used in trade or business or held for investment. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡. Send a Special Paragraph to inform the taxpayer these losses are not deductible.

    2. Losses in excess of gains from sales of property used in trade or business are deductible as ordinary losses.

    3. Losses in excess of gains from sales of capital assets held for investment are deductible up to $3,000 ($1,500 if married filing separately).

  13. If the taxpayer indicates that the income is not taxable because they’re insolvent, (for example, Form 982, Box 1b, is checked or on an attached statement), the taxpayer MUST provide a statement showing the amount of their insolvency. If the taxpayer does not provide a breakdown of their assets and liabilities, DO NOT consider them to be insolvent. If no statement is attached send PARAGRAPH 223, see Exhibit 4.19.3-7, CP PARAGRAPHS.

    Reminder:

    If sending PARAGRAPH 223 because the taxpayer indicates income is not taxable because they’re insolvent, but does not provide a breakdown of their assets and liabilities, "toggle off" PARAGRAPH 72.

  14. The taxpayer is considered insolvent if the net liability amount(s) shown on the attached statement is GREATER than the total fair market value of assets immediately prior to the debt cancellation.

    1. If the DBTCN IR amount(s) is less than or equal to the insolvency amount, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡.

    2. If the DBTCN IR amount(s) is more than the insolvency amount, the amount of the taxpayer's insolvency must be considered. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Example:

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

  15. If the taxpayer indicates they did not report the DBTCN income because they filed for Chapter 7 or 11 Bankruptcy, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  16. If the taxpayer states that they filed for either Chapter 12 or 13 of the Bankruptcy Code or does not indicate the Chapter, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ send a Special Paragraph to the taxpayer requesting the bankruptcy paperwork.

  17. If the taxpayer indicates that the cancellation or discharge of debt was due to ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡.

DBTCN - Miscellaneous
  1. PARAGRAPH 72 automatically generates when DBTCN is U/R.

  2. If DBTCN is U/R, enter the return amount in the RETURN field on the Summary screen.

Taxable Grants - General

  1. A grant is subsidized financing paid by a federal, state, or local programs for energy conservation or production projects, and is income to the recipient.

    Exception:

    If there is an indication ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. Taxable grants are reported on Form 1099-G.

  3. Taxable grants are identified in the Case Analysis screen by the literal "1099G" in the DOC TYPE field and the literal "GRANT" in the INCOME TYPE field.

Taxable Grants - Analysis
  1. Compare GRANT amounts with entries on Form 1040/ Form 1040-SR, Schedule 1, line 8 (TY 2019 and TY 2020), Schedule 1, line 8z (TY 2021), or an attachment to the return.

    • The amount must match within $1, or

    • Must be identified as grant income

  2. If there is an indication ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. If the payer is the US Department of Agriculture (USDA), compare grant amount(s) with entries on:

    1. Schedule F, lines 4a, 4b, 39a, or 39b.

    2. Schedule F, lines 8 or 43. The amount must match within $1 or be clearly identified as grants.

      Note:

      If a GRANT amount is partially reported on Schedule F, treat as self-employment income. Enter Income Identify Code "PF" or "SF" as applicable in the INC CD field on the Case Analysis screen.

    3. Form 4835, lines 3a or 3b.

Taxable Grants Miscellaneous
  1. 1099G IR(s) with GRANT amounts may reflect W/H. See IRM 4.19.3.17.1, Withholding - General, for further instructions.

  2. Send PARAGRAPH 124, (see Exhibit 4.19.3-7, CP PARAGRAPHS), only if the GRANT is related to education.

  3. When taxable grants are U/R, enter the return amount in the RETURN field of the Summary screen.

Substitute Payments in Lieu of Dividends or Interest (PLDIV)

  1. Substitute payments in lieu of dividends or tax exempt interest are made by a broker who transfers a taxpayer's securities for use in a short sale and receives certain substitute dividend or interest payments on the taxpayer's behalf while the short sale is open.

  2. Substitute payments in lieu of dividends or interest are reported on Form 1099-MISC and are identified on the Case Analysis screen by the literal "99MIS" in the DOC TYPE field and the literal "PLDIV" in the INCOME TYPE field.

  3. Compare PLDIV amounts with entries on Form 1040/ Form 1040-SR, Schedule 1, line 8 (TY 2019 and TY 2020), Schedule 1, line 8z (TY 2021).

    • The amount must match within $1, or

    • Must be clearly identified as substitute payments in lieu of dividends income

  4. Send PARAGRAPH 41 when PLDIV are reported as interest or dividends. See Exhibit 4.19.3-7, CP PARAGRAPHS.

  5. If PLDIV are U/R, enter the return amount in the RETURN field on the Summary screen.

Securities Sales - General

  1. Securities sales are the proceeds from transactions involving stocks, bonds, other debt obligations, commodities, or forward contracts.

  2. Securities sales income is reported on Form 1099-B and taxpayers are instructed to include these amounts on Schedule D/Form 8949, Sales and Other Dispositions of Capital Assets.

  3. Securities sales is identified on the Case Analysis screen by:

    DOC TYPE field literal INCOME TYPE field literal Reference
    "1099B" "STOCK" NA
    "1099B" "BASIS" IRM 4.19.3.8.23.1.1, Cost Basis - Analysis for additional information.
    "1099B" "AMD" IRM 4.19.3.8.3.5, Accrued Market Discount (AMD) TY 2019 and subsequent.

  4. There are four Category Codes for STOCK:

    • Category 31 contains 100 or fewer IRs with Schedule D filed.

    • Category 39 contains more than 100 IRs with Schedule D filed.

    • Category 61 contains 100 or fewer IRs with no Schedule D filed.

    • Category 79 contains more than 100 IRs with no Schedule D filed.

Securities Sales - Analysis
  1. ONLY screen STOCK IRs and other elements of the IR in Category 31, 39, 61 and 79. If the securities are asterisked in categories other than 31, 39, 61 and 79, the system marks the IRs with status code "X" . If appropriate, close the case with PC 2X.

    Note:

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

    1. If the case is open in any other category, do not screen STOCK IRs.

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

  2. A CP 2501 must be the first notice sent if the net U/R from STOCK and BASIS IRs is $100,000 or more; otherwise, issue a CP 2000 Notice.

  3. Do not pursue negative STOCK amounts on 1099B IR(s).

  4. Generally, 1099B STOCK IRs contain a CUSIP (Committee on Uniform Security Identification Procedures) number. This number can be up to nine characters long, consisting of alpha and/or numeric characters. The first six digits of the CUSIP represent the issuer number and the 4th and 5th and/or 6th positions may contain alpha character(s). The CUSIP number identifies the issuer of the security and the type of security. Alpha characters in the 6th and/or 7th position(s) of the CUSIP number denote fixed income obligation securities. Do not pursue unreported STOCK IRs that contain alpha characters in the 7th and/or 8th positions of the CUSIP number AND the STOCK IR amount is divisible by 50 (for example, the last two digits of the STOCK transaction amount ends in either "00" or "50" ). When the taxpayer has reported these amounts, the IRs must be taken into consideration when determining the U/R amount.

  5. Pursue STOCK IRs whose entity includes nontaxable Municipal Bond, tax free exchange or tax free unless the CUSIP number meets the conditions provided in (1) above.

  6. Some securities sales IR(s) appear to be duplicates because the account numbers, the amounts, AND the source (paper or tape) are identical. DO NOT consider these IR(s) as duplicates if the transaction (sales) dates, CUSIP number or item description shown on the IR(s) are different.

  7. Virtual currency, for example, bitcoin, may be used to pay for goods and/or services and can be held for investment. It can be reported by the payer on Form 1099-MISC, Form 1099-NEC, Form W-2Form 1099-B, or Form 1099-K. Virtual currency received as payment for goods or services is treated as ordinary income and is generally subject to SE tax. See IRM 4.19.3.22.3.13, NEC and MERCH, for further instructions. Virtual currency held for the investment is reported as a capital asset and may result in a gain or loss upon the sale or exchange, similar to stocks, bonds and other investment property.

    Note:

    For TY 2019 , if the taxpayer engaged in any transactions involving virtual currency, the virtual currency check box at the top of Form 1040/1040-SR, Schedule 1, or Form 1040/1040-SR (TY 2020 and subsequent) will be checked "Yes" .

  8. If the U/R is from the sale of virtual currency held for the investment, Form 1099-B, and the income is not reported on the return, send Paragraph 224, see Exhibit 4.19.3-7, CP PARAGRAPHS to advise the taxpayer the income is considered a capital asset. The sale or trade should be reported on Schedule D as a capital gain or loss.

  9. Virtual currency may be reported or partially reported on:

    • Schedule D, Part I, lines 1a, 1b, 2, or 3 column (d) or

    • Schedule D, Part II, lines 8a, 8b, 9 or 10

    • Form 8949, Part I, line 1 column (d) or

    • Form 8949, Part II, line 1, column (d)

  10. The Tax Cuts and Jobs Acts of 2017 (TCJA) enacted December 2017, allows taxpayers to elect to defer capital gains invested in a Qualified Opportunity Fund (QO Fund). Depending on how long the investment is held, in addition to temporary deferral, taxpayers may exclude some of the capital gain as follows:

    • Temporary Deferral - Generally investors may elect to defer the recognition of capital gains invested into a QO Fund within 180 days of the date of the sale or exchange. An investor must include the remaining deferred gain on the earlier of an inclusion event or by December 31, 2026.

    • Basis Increase - The investors basis is zero at the time of the investment into the QO Fund. If the investor holds the QO Fund for at least 5 years, then the basis of the investment increased by 10 percent of the amount of the deferred gain. If the investor holds the QO Fund for at least 7 years, then the basis of the investment is increased by 5 percent of the amount of the deferred gain.

    • Permanent Exclusion - If the QO Fund investment is a qualifying investment (an investment to which a proper deferral election was made) and the investor held the qualifying investment for at least 10 years, then the investor may adjust the basis in the investment to its fair market value on the date of the QO Fund investment is sold or exchanged. Thus, the appreciation on the investments in the QO Fund will not be subject to tax.

      The sale or exchange of an investment in a QO Fund is reported on Form 8949 or Schedule D.

  11. Compare STOCK (Short Term) amounts with entries on:

    • Schedule D, Part I, lines 1a, 1b, 2 or 3, column (d).

    • Form 8949, Part I, column (d).

  12. Compare STOCK (Long Term) amounts with entries on:

    • Schedule D, Part II, lines 8a, 8b, 9 or 10, column (d).

    • Form 8949, Part II, line 1, column (d).

  13. Comparisons with the following entries must match within $1 or be CLEARLY IDENTIFIED as STOCK:

    1. Form 4797, Part II, line 10 and the taxpayer has made a mark-to-market election.

    2. Schedule C, Part I, line 1 and the taxpayer made a mark-to-market election. Send PARAGRAPH 117, see Exhibit 4.19.3-7, CP PARAGRAPHS.

    3. Form 6252, Part I, line 5.

  14. If the taxpayer reported STOCK on either Schedule C or Form 4797 and there is no indication that a mark-to-market election was made, see IRM 4.19.3.8.23.1.2, Day Trader Securities - Analysis.

  15. If Form 8949 (or a similar statement) is attached, use the following items when comparing the IRs to the return:

    • sales date

    • money amount

    • item description (brokerage name or actual stock name)

    • income identify code

  16. Accrued Market Discount (AMD) comparisons for the following entries must match within a $1 or be CLEARLY IDENTIFIED as AMD, see IRM 4.19.3.8.3.5, Accrued Market Discount (AMD) TY 2019 and subsequent for additional information:

    1. Schedule B, Part I, line 1.

    2. Form 8949, Part I or II, column (g).

    3. Schedule D, Part I, line 1b, column (g) or Part II, line 8b, column (g).

  17. Individual STOCK IR(s) are screened using the following procedures:

    1. Mark the STOCK element with status code "U" .

    2. The Adjusted Gross Income window displays. Input/verify the fields.

    3. The COMPUTE SCHEDULE D LOSS window displays. IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - SCHEDULE D LOSS, to determine the correct field entries.

      Note:

      If there is U/R STOCK and the taxpayer reports a capital loss on Form 1040/1040-SR,, line 6 (TY 2019), , line 7 (TY 2020 and subsequent) enter a zero (0) in both fields on the COMPUTE SCHEDULE D LOSS window. It may be necessary to blank out both fields first. This prevents the system from using losses in excess of $3,000 ($1,500 if MFS) to offset U/R Schedule D income.

    4. The cursor returns to the IR CD field of the IR where it was before the windows displayed. This field is blank.

      Note:

      The Adjusted Gross Income and COMPUTE SCHEDULE D LOSS windows automatically display when a status code "U" is entered the first time. It is not necessary to subsequently access these windows unless the field entries need to be changed.

    5. Input a status code "U" , "R" , or "N" and the reported amount, if applicable, for the STOCK elements.

    6. The system uses the information on the COMPUTE SCHEDULE D LOSS window to determine the correct amount of Schedule D income. The total U/R Schedule D income amount is included in the TOTAL AGI CHANGE field on the Case Analysis screen.

  18. If you cannot match the individual IRs, take the following action:

    1. Group the IRs by payer and compare the total to the gross amounts reported by payer on Form 8949, Part 1, line 1, column (d) for Short Term or Part II, line 1, column (d) for Long Term.

    2. Compare the group total to the total stock reported for that payer.

      Reminder:

      Use both short and long term stock sales amounts when making the comparison.

    3. If the group total amount is smaller, consider the stock reported.

    4. If the group total amount is larger, consider the difference underreported.

  19. If a breakdown of stock is not shown on the return or an attachment and there is more than one STOCK IR, take the following action:

    1. Group by income type or income identify code. Compare the total to the gross amounts reported on Schedule D,

      Income Identify Code TY 2018 and subsequent
      ST Part I, lines 1a, 1b, 2 or 3, column (d) (Short Term)
      SD Part II, lines 8a, 8b, 9 or 10, column (d) (Long Term)

      Note:

      The Group function is a tool to assist the TEs in computing the correct U/R amount. It may not be necessary to use the Group function if the correct U/R can be determined without it.

    2. Compare the group total to the total stock amount reported.

      Reminder:

      Use both short and long term stock sales amounts when making the comparison.

    3. If the group total amount is smaller, consider the stock reported.

    4. If the group total amount is larger, consider the difference underreported.

  20. If Stock Option Statements are attached to the return consider them during the screening process.

  21. When taxpayers exercise non-statutory (nonqualifying) employee stock options, the gain is reported as ordinary income. Employers include the exercised amount on Form W-2. Box 1 and identify the stock option amount in Box 12 using code "V" . The "V" Code displays on WAGES IRs with the literal VCODE. Delete fully U/R STOCK IR(s) when:

    1. There are 1-4 STOCK IR(s) (per taxpayer) containing the payer name/item description that corresponds with the payer name on a WAGES IR AND

    2. Form W-2 Box 12 contains an amount with code "V" that is less than or equal to the total of STOCK IR amount(s).

      Note:

      See IRM 4.19.3.8.1.1, Wages - Analysis, for additional information regarding exercising of employee stock options.

  22. PARAGRAPH 24 automatically generates when STOCK is treated as ordinary income due to loss limitations. If the loss per return is less than $3,000 ($1,500 if MFS), toggle off PARAGRAPH 24 from the Summary screen

Cost Basis - Analysis
  1. ONLY screen BASIS IRs in Category 31, 39, 61 and 79. If the cost basis element is asterisked in categories other than 31, 39, 61 and 79, the system marks the IRs with status code "X" . If appropriate, close the case with PC 2X. If the case is open in any other category, do not screen BASIS IRs.

  2. The BASIS element displays income identify code of "SC" for Short-term cost basis or "LC" for Long-term cost basis.

  3. A CP 2501 must be the first notice sent if the net U/R from STOCK and BASIS IR(s) is $100,000 or more; otherwise, issue a CP 2000 Notice.

  4. If the STOCK element on an IR containing BASIS is fully UR, use the BASIS amount as the reported amount for STOCK and enter status code "N" or "D" on the BASIS element.

  5. If the STOCK element on an IR containing BASIS ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡" ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡" ≡ ≡ ≡

  6. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  7. If issuing a notice for STOCK and the BASIS amount was considered in determining the UR amount, mark the BASIS element(s) with Send Indicator S.

    Note:

    The BASIS element(s) is systemically included on the notice when the STOCK element is marked with a "U" . Send Indicator "S" will not be reflected on the BASIS element of the IR on the Case Analysis screen and BASIS will not be displayed on the Summary screen; however, BASIS will be included on the notice.

Day Trader Securities - Analysis
  1. Transactions from trading activities are reported on Form 8949 (when the taxpayer has NOT made a mark-to-market election per IRC 475) or on Form 4797 (when the taxpayer has made a mark-to-market election).

  2. The gain or loss from the trading of securities is not subject to SE tax.

  3. Taxpayers who engage in the business of buying and selling securities (such as, a trader or day trader) are allowed to claim business related expenses on Schedule C.

  4. Transactions from day trading activities are subject to the $3,000 ($1,500 if married filing separately) limit on capital losses UNLESS the taxpayer made a mark-to-market election (IRC 475).

  5. If there is no indication that a mark-to-market election was made and the taxpayer reports securities gains on Schedule C (Part I, line 7 is positive) or Form 4797 (Part II, line 10 is positive) and the securities are equal to or greater than the STOCK IR(s), consider the STOCK reported, otherwise the difference is U/R.

  6. If there is no indication that a mark-to-market election was made and the taxpayer reports securities losses on Schedule C (Part I, line 7 is negative) or Form 4797 (Part II, line 10 is negative), take the following actions:

    1. If securities reported are equal to or greater than the STOCK IR(s), consider the STOCK reported, otherwise the difference is U/R.

    2. Disallow any losses in excess of $3,000 ($1,500 if married filing separately). Ensure that any capital losses reported on Schedule D are accounted for in determining the overall disallowed losses amount.

    3. Do not make any adjustments to expenses claimed on Schedule C, Part II, line 28.

    4. Do not make any adjustments to SE tax paid.

    5. Send PARAGRAPH 118, see Exhibit 4.19.3-7, CP PARAGRAPHS.

    6. Issue a CP 2501 if the U/R amount is $100,000 or more, otherwise issue a CP 2000.

Securities Sales Miscellaneous
  1. STOCK amounts may be taxed on Schedule D at the applicable capital gain tax rate. See IRM 4.19.3.14.2, Sch D/8814/ECR Tax Window, for further instructions.

  2. In order for the system to compute the correct tax, the U/R STOCK amount(s) must contain an Income Identify Code. The Income Identify Code for STOCK IRs is defaulted to the appropriate Income Identify Code. The IR displays either a "ST" (Short Term Gain/Loss) or "SD" (Long Term Gain/Loss). Do not change the Income Identify Code during screening. See Exhibit 4.19.3-9, Income Identify Codes

  3. 1099B IR(s) with STOCK amounts may reflect W/H. If there is an indication that the securities account is jointly owned with someone other than the taxpayer's spouse or the filing status is 3:

    Note:

    See IRM 4.19.3.5.3, Jointly Owned Income, for additional instructions on jointly owned income.

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

    2. Send PARAGRAPH 6, see Exhibit 4.19.3-7, CP PARAGRAPHS.

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

    4. See IRM 4.19.3.17.1, Withholding - General, for further instructions on W/H.

  4. PARAGRAPH 166 automatically generates when STOCK is U/R.

  5. If STOCKs are U/R enter, in the RETURN field of the Summary screen, the sum of Schedule D, Part 1, lines 1a, 1b, 2 and 3, column (d) and Part II, lines 8a, 8b, 9 and 10 column (d).

Bartering - General

  1. Bartering is an exchange of one taxpayer's property or services for another taxpayer's property or services. The fair market value of property or services received through barter is taxable income.

    Example:

    If a doctor agrees to give an accountant a medical exam in exchange for tax return preparation, the fair market value of the medical exam is taxable to the accountant, and the fair market value of the tax return preparation is taxable to the doctor

  2. If these exchanges occurred through a barter exchange, they are reported to IRS on Form 1099-B. Form 1099-B shows the value of cash, property, services, credits, or scrip received by the taxpayer.

  3. Bartering is identified on the Case Analysis screen by the literal "1099B" in the DOC TYPE field and the literal "BARTR" in the INCOME TYPE field. Bartering is reflected in the Gross Receipts amount on the Income Comparison screen.

Bartering - Analysis
  1. Bartering income is reported on:

    1. Schedule C, lines 1 or 6.

    2. Schedule F, lines 1a, 2, 3a, 3b, 7, 8, 9, 37, 42, 43, or 44. (Consider bartering reported here only if you can determine from the payer name or business activity that it is farm related income.)

  2. Comparisons for the following entries must match within $1 or be CLEARLY IDENTIFIED as BARTR:

    1. Form 1040/ Form 1040-SR, Schedule 1, line 8 (TY 2019 and TY 2020), Schedule 1, line 8z (TY 2021).

    2. Schedule D.

      Note:

      Payers may erroneously report securities transactions as bartering since both income types are reported on Form 1099-B.

    3. Form 8949.

    4. Schedule E, lines 3 or 4.

    5. Form 4835, lines 2a or 2b, 6 or 7.

  3. BARTR is generally considered self-employment income. If there is reported BARTR on which the taxpayer should have paid SE tax but did not, SE tax must be computed or recomputed if BARTR is asterisked or a notice is sent for another issue(s). Include the reported BARTR amount in the PRIM/SEC REPORTED SE INC NOT ON SE field(s) on the SE Tax window. See IRM 4.19.3.16.1, Self-Employment Tax.

    1. Send reported BARTR IR elements on the notice when adjusting SE tax.

    2. If the BARTR amount is entered in the PRIMARY and/or SECONDARY REPORTED SE INCOME field in the SE Tax window in error, an unpostable condition will occur.

    3. Do not assess SE tax when BARTR is fully or partially reported on Form 4835, Schedule D, Form 8949, or Schedule E, Part I.

  4. Change the Income Identify Code on U/R BARTR IR(s) to "PF" , "SF" , "PB" , or "SB" as applicable.

  5. PARAGRAPH 126 automatically generates when BARTR is U/R.

  6. If BARTR is U/R, enter the return amount in the RETURN field on the Summary screen.

Real Estate Transactions - General

  1. Real estate transactions are the proceeds from the transfer (sale or exchange) of real estate.

  2. Real estate transactions are reported on Form 1099-S.

  3. Taxpayers can exclude up to $250,000 ($500,000 if married filing jointly) on the sale of their main home. Any gain in excess of the exclusion amount is reportable income.

  4. Real estate transactions are identified on the Case Analysis screen by the literal "1099S" in the DOC TYPE field and the literal "REAL" in the INCOME TYPE field.

Real Estate Transactions - Analysis
  1. ONLY screen REAL IR(s) in Category 65. If REAL is asterisked in categories other than 65, the system marks the IRs with status code "X" . If appropriate, close the case with PC 2X. If the case is open because of other income discrepancies, do not screen the non-asterisked REAL IRs.

    Reminder:

    Issue a CP 2501 if the U/R amount is $100,000 or more.

  2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

  4. Beginning TY 2019, information returns will display a check box labeled PROP/SERVICES if the payer checked Form 1099-S, box 4, to indicate a transferor received or will receive property or services as part of the consideration.

  5. The Tax Cuts and Jobs Acts of 2017 (TCJA) enacted December 2017, allows taxpayers to elect to defer capital gains invested in a Qualified Opportunity Fund (QO Fund). Depending on how long the investment is held, they may be able to permanently defer tax on the eligible capital gain as follows:

    • Temporary Deferral - Generally, investors may elect to defer the recognition of capital gains invested into a QO Fund within 180 days of the date of the sale or exchange. An investor must include the remaining deferred gain on the earlier of an inclusion event or by December 31, 2026.

    • Basis Increase - The investors basis is zero at the time of the investment into the QO Fund. If the investor holds the QO Fund investment for at least 5 years, then the basis of the investment is increased by 10 percent of the deferred gain. If the investor holds the QO Fund investment for at least 7 years, then the basis of the investment is increased by an additional 5 percent of the deferred gain.

    • Permanent Exclusion - If the QO Fund investment is a qualifying investment (an investment to which a proper deferral election was made) and the investor held the qualifying investment for at least 10 years, then the investor may adjust the basis in the investment to its fair market value on the date the QO Fund investment is sold or exchanged. Thus, the appreciation on the investments in the QO Fund will not be subject to tax.

  6. Compare REAL amounts with entries on:

    1. Form 4797, Sale of Business Property, lines 1, 2(d), 10(d), 20 or attachments.

    2. Form 6252, Installment Sale Income, lines 5 or 21.

    3. Schedule D, see table below for line numbers, or attachments.

    4. The REAL transaction invested in a QO Fund is reported on Form 8949 or Schedule D, see table below for line numbers.

      Form/Schedule TY 2018 and subsequent
      Schedule D Part I lines 1a, 1b, 2, or 3, column (d), sales price, or line 4, column (h), gain
      Schedule D Part II lines 8a, 8b, 9,10 (column (d), sales price, or line 11, column (h), gain
      Form 8949 Part I, line 1, column (d)
      Form 8949 Part II, line 1, column (d)

    5. An attachment to the return that includes purchase and sales price.

  7. If the amount reported per (6) above is equal to or greater than the REAL IR(s) amounts and is properly carried forward to Form 1040/ Form 1040-SR ,Schedule 1, consider the issue resolved. If the amount reported is less, or is not properly carried forward to Form 1040/ Form 1040-SR, consider the difference U/R.

  8. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  9. If unable to identify REAL per (5) above, pursue the entire U/R real estate amount(s). Do not apply any exclusion amount.

Real Estate Transactions Miscellaneous
  1. If there is a Schedule C attached to the return and the principal business is listed as real estate broker, real estate sales, building, construction, or remodeling; or the principal business activity code indicates related business, for example, 233200, 238160, 238900, 531210, etc., consider REAL amount(s) fully reported when:

    1. Gross Receipts on Schedule C are larger than the REAL amount(s),

    2. The taxpayer reports the exact amount of the IR(s) on Schedule C, line 6, or

    3. The taxpayer includes the REAL on an attachment.

  2. If U/R REAL should be reported on Schedule D:

    1. Input Income Identify Code "SD" if the U/R REAL amount(s) is determined to be a long term capital gain/loss, (Schedule D, Part II) or,

    2. Input Income Identify Code "ST" if the U/R REAL amount(s) is determined to be a short term capital gain/loss, (Schedule D, Part I) or,

      Note:

      Income Identify Code "SD" and "ST" allow the system to compute the Schedule D tax if applicable. See IRM 4.19.3.14.2, Sch D/8814/ECR Tax Window, for further instructions.

    3. PARAGRAPH 24 automatically generates. If the loss per return is less than $3,000 ($1,500 if MFS), toggle off PARAGRAPH 24 from the Summary

    4. See IRM 4.19.3.8.4.5, Capital Gain Distributions - Analysis, for procedures to access the Schedule D window and U/R the capital gain income.

  3. If there is U/R Schedule D REAL income and the taxpayer reports a capital loss on Form 1040/1040-SR, line 6 (TY 2019) , line 7 (TY 2020 and subsequent):

    1. See IRM 4.19.3.8.4.5, Capital Gain Distributions - Analysis, for procedures to access the Schedule D window and underreporting all Schedule D income.

    2. Enter a zero (0) in both fields on the COMPUTE SCHEDULE D LOSS window. This prevents the system from using losses in excess of $3,000 ($1,500 if MFS).

  4. PARAGRAPH 5 automatically generates when REAL is U/R.

  5. If REAL is U/R, enter the return amount in the RETURN field on the Summary screen.

Refund of Overpaid Mortgage Interest (ROMID) - General

  1. Refund of Overpaid Mortgage Interest Deduction (ROMID) is a refund of interest the taxpayer paid to a lending institution. If the taxpayer receives a refund in the same year they paid it, they must either:

    1. Reduce the mortgage interest deduction claimed on Schedules A, C, E, F, Form 4835, Form 8829, or

    2. Claim the refund amount on Form 1040/1040-SR, Schedule 1, line 8 (TY 2019 and TY 2020), Schedule 1, line 8z (TY 2021).

  2. ROMID amounts are reported to IRS on Form(s) 1098, Box 4 and are displayed on the Information Return window and the Case Analysis screen with the DOC TYPE of "1098" and the INCOME TYPE of "ROMID" .

ROMID - Analysis
  1. Compare ROMID amount(s) with entries on:

    1. Form 1040/1040-SR, Schedule 1, line 8 (TY 2019 and TY 2020), Schedule 1, line 8z (TY 2021). The amount must match within $1 or must be clearly identified as ROMID.

    2. Schedules A, C, E, F, Form 4835, or Form 8829 where it appears the taxpayer netted (subtracted ROMID amount) the mortgage interest amount reported.

      Note:

      Use MORT IR amounts for reference even if they are system deleted.

  2. If the taxpayer did not itemize deductions in the prior year, the ROMID may still be taxable if the taxpayer claimed a mortgage interest deduction on Schedule(s) C, E, F or Form 4835 or Form 8829. Research may be done on IDRS using CC RTVUE to determine if these Schedules or Forms were filed by the taxpayer and if a mortgage interest deduction was claimed. If the taxpayer did not claim the mortgage deduction on their prior year return, do not pursue the ROMID issue.

  3. Consider the difference U/R if the ROMID cannot be identified, see (1) above.

  4. See IRM 4.19.3.11.2, Mortgage Interest Deduction and Points Paid, for instructions on screening mortgage interest (MORT) amounts.

  5. PARAGRAPH 123 automatically generates.

  6. If ROMID is U/R, enter the return amount in the RETURN field on the Summary screen.

Qualified Education Program Payments - General

  1. Qualified Education Program Payments consist of Qualified Tuition Program (QTP) or Coverdell Education Savings Accounts (CESA) and are reported to IRS on Form 1099-Q, Payments From Qualified Education Programs (Under Section 529 and 530). Amount indicators on the Form 1099-Q reflect Gross Distribution (Box 1); Earnings (Box 2); and QTB (Basis Box 3).

  2. Contributions to a CESA are identified by a Form 5498-ESA, Coverdell ESA Contribution Information, and are non-deductible. If the taxpayer claims an IRA deduction and the amount matches a Form 5498-ESA contribution, disallow the deduction. PARAGRAPH 30 automatically generates when the UR IRA deduction amount is equal to the RCONT, RCONV or ESA element amount.

  3. Qualified Education Program Payments are identified on the Case Analysis screen by the literal "1099Q" in the DOC TYPE field and the literals:

    • GRDIS - Gross Distribution

    • EARN - Gross Earnings

    • QTB - Qualified Tuition Basis

  4. Only EARN is pursued as U/R. GRDIS and QTB is for information only and is system deleted. Underreported EARN is treated as ordinary income and NOT as earned income for purposes of computing EIC, Child Care Credit, etc.

Qualified Education Program Payments - Analysis
  1. If there is an indication of a Trustee to Trustee transfer (Form 1099-Q, Box 4 is checked), the distribution is nontaxable. Do not pursue the issue.

  2. If a 5498E IR is present with the literal "EROLV" in the INCOME TYPE field, and has an amount that matches 1099Q GRDIS IR ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ consider the distribution rolled over.

  3. If case is in Category 30 and EARN is being pursued, issue a CP 2501.

  4. If EARN is being pursued as a secondary issue (in category other than Category 30), issue a CP 2000.

  5. Only pursue net positive EARN amounts. When there are multiple 1099Q IR(s), combine positive EARN amounts with any negative EARN amounts. If the combined net EARN is negative, do not pursue the EARN issue. Input income status code "N" or "D" .

  6. 1099-Q IRs display a Distribution Type Indicator on the Case Analysis screen based on the information in Form 1099-Q Box 5:

    • IND "1" - Qualified Tuition Program (QTP) from a private educational institution

    • IND "2" - QTP from a State (or state agent/instrumentality)

    • IND "3" - Coverdell ESA

      Note:

      If the indicator is blank, the payer did not specify the type of distribution. Consider the IR valid and continue processing.

  7. Generally, QTP or CESA distributions are non-taxable if they are less than the designated beneficiary's qualified education expenses. The taxable amount is reported on Form 1040/ Form 1040-SR, Schedule 1, line 8 (TY 2019 and TY 2020), Schedule 1, line 8z (TY 2021). Consider the Form 1099-Q distribution(s) reported when:

    1. The taxpayer indicates the designated beneficiary's qualified education expenses ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ OR

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

      Note:

      A 10 percent additional tax may also apply. See IRM 4.19.3.16.5, 10 Percent Tax on Qualified Education Program Payments, for further instructions.

  8. If an EARN IR is marked U/R, the GRDIS element(s) is systemically included on the notice.. The gross distribution amount is used by the taxpayer to calculate the taxable portion of the earnings. The distribution is not taxable if the paid expenses minus the expenses claimed for credits or tuition and fees deduction (TY 2020 and prior) exceeds the gross distribution amount.

    Note:

    The Send Indicator "S" will not be reflected on the GRDIS element of the IR on the Case Analysis screen and will not be displayed on the Summary screen.

Qualified Education Program Payments - Miscellaneous
  1. PARAGRAPH 31 automatically generates when EARN is U/R.

  2. If EARN is U/R, enter the return amount in the RETURN field on the Summary screen. The CP 2000 displays the discrepancy as "Education Program Payments" .

Health Saving Accounts (HSA), Archer Medical Savings Account (AMSA) and Medicare Advantage MSA (MAMSA) Distributions - General

  1. Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA, is used to report the following distributions:

    1. Health Savings Account (HSA).

    2. Archer Medical Savings Accounts (AMSA).

    3. Medicare Advantage Medical Savings Account (MAMSA).

  2. HSA, AMSA and MAMSA distributions are identified on the Case Analysis screen by the literal "99-SA" in the DOC TYPE field and the following literals in the INCOME TYPE field:

    • "SAGD" - Gross distribution

    • "SAEEC" - Earnings on excess contributions

      Note:

      The amount of SAEEC is already included in the SAGD amount. Do not pursue the SAEEC amount.

  3. Taxpayers must complete Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, Section A to compute the correct amount of taxable "AMSA" distributions and Section B to compute the correct amount of taxable "MAMSA" distributions.

    Note:

    Taxpayers are required to file Form 8853 when they receive an "AMSA" or "MAMSA" distribution, even if they have no other filing requirement.

  4. Taxpayers must complete Form 8889, Health Savings Accounts, Part II, to compute the correct amount of "HSA" taxable distribution.

    Note:

    Taxpayers are required to file Form 8889 when they receive an "HSA" distribution, even if they have no other filing requirement.

HSA, AMSA and MAMSA Distributions - Analysis
  1. 99-SA IRs display an Account Type Indicator on the Case Analysis screen based on the information in Form 1099-SA box 5. This indicator displays in the IND field on the Case Analysis screen and Information Return window(s):

    1. IND "1" - Health Savings Account (HSA)

    2. IND "2" - Archer Medical Savings Account (AMSA)

    3. IND "3" - Medicare Advantage MSA (MAMSA)

  2. If a 5498S (HSA, AMSA, or MAMSA) IR is present with either the literal SARLV or SAFMV only in the Income Type field, and it has an amount ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡, consider the distribution to be rolled over. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. The system displays the Form 1099-SA distribution code at the bottom of the Case Analysis screen as DISTRIBUTION CD and in the DIST CD field of the Information Return window.

  4. Compare 99-SA SAGD amounts with:

    Indicator With entry on
    "1" (HSA) Form 8889, line 14a
    "2" (AMSA) Form 8853, line 6a
    "3" (MAMSA) Form 8853, line 10
    1. If the amount is less than the IR, pursue the difference.

    2. If the amount matches within $1 or is greater, consider the IR reported and see (9) and (10) below.

  5. Do not allow credit for amounts identified as HSA, AMSA or MAMSA on Schedule 1, line 8 (TY 2019 and TY 2020), Schedule 1, line 8e (TY 2021) if there are no entries on Form 8889, line 14a or Form 8853 lines 6a or 10 or there is no Form 8889 or Form 8853 attached.

  6. Taxable HSA or AMSA distributions received prior to age 65, with a distribution code of 1 or 5 from Form 1099-SA are subject to an additional 20 percent tax. See IRM 4.19.3.16.4, 20 Percent Tax on Archer Medical Savings Account (AMSA) and Health Savings Account (HSA) Distributions, for more information regarding the additional tax. If the distribution code on the IR is "0" , delete IR and create an IR to show the distribution code "1" to propose the additional 20 percent tax for AMSA or HSA.

    Exception:

    Do not pursue the additional 20 percent tax on HSA when the box on Form 8889, line 17 a is checked, or on AMSA when the box on Form 8853, line 9a is checked, or 50 percent tax on MAMSA when the box on Form 8853, line 13a, is checked. See IRM 4.19.3.16.4, 20 Percent Tax on Archer Medical Savings Account (AMSA) Health Savings Account (HSA) Distributions.

  7. Taxable MAMSA distributions from Form 1099-SA are subject to an additional 50 percent tax.

    Note:

    If the taxpayer did not address the additional 50 percent tax on MAMSA, manually determine the additional 50 percent tax and enter the amounts in the OTHER MISCELLANEOUS TAXES field of the Total Other Taxes window. Send PARAGRAPH 212, see Exhibit 4.19.3-7, CP PARAGRAPHS.

  8. The taxpayer includes the additional taxes on: ,

    TY 2019 and TY 2020 TY 2021
    Schedule 2, line 8 Schedule 2, line 17c, 17e, 17f
    See IRM 4.19.3.16.11, Miscellaneous Other Taxes, for further information.

  9. If the taxable HSA distributions are listed on Form 8889, line 16, but are not added to the taxpayer's AGI, consider the Form 8889, line 16, amount as U/R and send PARAGRAPH80. See Exhibit 4.19.3-7, CP PARAGRAPHS.

    Note:

    If necessary create an IR for the taxable HSA distribution amount.

  10. If the taxable AMSA or MAMSA distributions are listed on Form 8853, line 8 or line 12, but are not added to the taxpayer's AGI, consider the Form 8853, line 8 or line 12, amount as U/R and send PARAGRAPH 197. See Exhibit 4.19.3-7, CP PARAGRAPHS.

    1. If necessary create an IR for the taxable MSA distribution amount.

    2. See (7) above when pursuing taxable MAMSA and/or the additional 50 percent tax.

  11. If the taxpayer reduces their gross medical expenses on Schedule A by the amount of the 99-SA IR instead of using Form 8853 or Form 8889, consider the 99-SA IR reported.

  12. PARAGRAPH 82 automatically generates when HSA is U/R and Form 8889 is not attached to the tax return.

  13. PARAGRAPH 55 automatically generates when AMSA or MAMSA is U/R and a Form 8853 is not attached to the tax return.

  14. PARAGRAPH 186 automatically generates when AMSA and/or MAMSA distributions are adjusted.

  15. PARAGRAPH 136 automatically generates when HSA distributions are adjusted.

Long Term Care Benefits (LTC) - General

  1. Long Term Care Benefits are reported on Form 1099-LTC, Long-Term Care and Accelerated Death Benefits.

  2. LTC is identified on the Case Analysis screen by the literal "99LTC" and the literal "LTCGB" (long term care gross benefits) or "LTCAB" (accelerated death benefits) in the INCOME TYPE field.

  3. Taxpayers must complete Form 8853, Archer MSAs Section C to compute the correct amount for LTC. The taxpayer may write "LTC" on the dotted portion of Schedule 1, line 8 (TY 2019 and TY 2020), Schedule 1, line 8z (TY 2021) to identify the income.

Long Term Care Benefits (LTC) - Analysis
  1. Form 1099-LTC contains the following information:

    • Box 1 - Gross long term care benefits paid

    • Box 2 - Accelerated death benefits paid

    • Box 3 - Payment Type

    • Box 4 - Qualified Contract

    • Box 5 - Illness Type

  2. 99LTC IRs display a Payment Type indicator on the Case Analysis screen, based on the information from Form 1099-LTC, Box 3:

    • "0" if the Per Diem and Reimbursement boxes are blank

    • "1" if the Per Diem box is checked

    • "2" if the Reimbursement box is checked

    • "3" if both boxes are checked

  3. 99LTC IRs display an Illness Type indicator on the Case Analysis screen, based on the information from Form 1099-LTC, Box 5:

    • "0" if the Chronically Ill and Terminally Ill boxes are blank

    • "1" if the Chronically Ill box is checked

    • "2" if the Terminally Ill box is checked

    • "3" if both boxes are checked

  4. 99LTC IRs displays the Payment Type and Illness Type as a two digit indicator:

    • The 1st digit indicator represents the Payment Type

    • The 2nd digit indicator represents the Illness Type

    Example:

    The 99LTC IR contains an indicator "21" . The "2" in the first position represents a Payment Type of "Reimbursement" and the "1" in the second position represents an Illness Type of "Chronically" .

  5. Taxpayers use Form 8853 to determine the taxable portion of either LTCGB or LTCAB paid on a per diem basis.

    Note:

    Taxpayers are instructed not to include per diem accelerated death benefits paid because the insured was terminally ill.

    1. Do not pursue unreported LTCGB or LTCAB when the payment indicator is "2" (reimbursement).

    2. Do not pursue unreported LTCAB when the illness indicator is "2" (terminally ill).

  6. Compare the LTCGB amount with the entry on Form 8853, line 17 and the LTCAB amount with the entry on Form 8853, line 19.

    1. If the amount is less than the IR, pursue the difference.

    2. If the amount matches within $1, consider the LTC IR reported.

  7. If LTCGB or LTCAB are listed on Form 8853, line 26, but are not added into the taxpayer's AGI:

    1. Consider the Form 8853, line 26 amount U/R.

      Note:

      If necessary create an IR for the taxable LTCGB or LTCAB amount.

    2. Send PARAGRAPH 197 to explain the adjustment to the taxpayer. See Exhibit 4.19.3-7, CP PARAGRAPHS.

  8. If the taxpayer reduces their gross medical expenses on Schedule A by the amount of the LTCGB or LTCAB IR element(s) instead of using Form 8853, consider the LTCGB or LTCAB reported.

  9. PARAGRAPH 55 automatically generates when LTCGB is U/R and Form 8853 is not attached to the tax return. See Exhibit 4.19.3-7, CP PARAGRAPHS.

  10. PARAGRAPH 187 automatically generates when LTCGB or LTCAB are U/R. See Exhibit 4.19.3-7, CP PARAGRAPHS.

Reemployment Trade Adjustment Assistance (RTAA) Payments - General

  1. RTAA are payments received from a state agency under the Demonstration Project for Reemployment Trade Adjustments Assistance for older workers and must be included as income.

  2. RTAA payments are reported on Form 1099-G.

  3. RTAA payments are identified on the Case Analysis screen by the literal "1099G" in the DOC TYPE field and the literal "RTAA" in the INCOME TYPE field.

Reemployment Trade Adjustment Assistance (RTAA) Payments - Analysis
  1. Compare RTAA amounts with entries on Schedule 1, line 8 (TY 2019 and TY 2020), Schedule 1, line 8z (TY 2021) or an attachment to the return.

    • The amount must match within $1, or

    • Must be identified as RTAA payments

  2. PARAGRAPH 132 automatically generates when RTAA is U/R. See Exhibit 4.19.3-7, CP PARAGRAPHS.

Foreign Source Income

  1. Foreign source income is income derived from sources outside of the United States. Foreign source IRs are worked in AUR.

  2. U.S. taxpayers must report income from all sources, including those sources outside (foreign source) the U.S., unless the income is exempt from U.S. tax.

    1. This is true whether or not the taxpayer received a Form(s) W-2 or a Form(s) 1099 from the foreign payer(s).

    2. This applies to earned income (such as, wages and tips) and unearned income (such as, interest, dividends, capital gains, pensions, rents, royalties).

    3. Under certain tax treaties, foreign governments supply the IRS with information regarding income U.S. taxpayers received from sources in their countries.

    4. This information is converted into applicable IRs (Form W-2 and Form 1099) depending on the type(s) of income.

U.S. Citizens Living Abroad - General

  1. A U.S. citizen or resident alien's worldwide income is generally subject to U.S. income tax, regardless of where the taxpayer is living.

  2. U.S. citizens and resident aliens living outside of the United States are generally allowed the same exemptions, deductions, and credits as those living in the United States. However, if the taxpayer chooses to exclude their foreign earned income and/or housing cost amounts, no deduction, exclusion, or credit is allowed for any exclusion, deduction, or credit that is associated with the amounts excluded.

  3. If the taxpayer excludes their foreign earned income, the taxpayer cannot claim the additional child tax credit.

  4. If the taxpayer excludes their income on Form 2555, Foreign Earned Income, they cannot take a foreign tax credit (Form 1116, Foreign Tax Credit) for the foreign taxes paid on the same excluded income.

U. S. Citizens Living Abroad - Analysis
  1. When there is an apparent wage discrepancy, compare the amount on Form 2555, line 19 with the entry for wages on Form 1040/1040-SR. See IRM 4.19.3.8.1.1, Wages - Analysis.

    1. If the amount of reported wages shown on Form 1040 is equal to or larger than the amount shown on Form 2555, line 19, consider the wages reported.

    2. If the amount of reported wages shown on Form 1040/1040-SR is less than the amount shown on Form 2555, line 19 , consider the difference U/R. Send a Special Paragraph informing the taxpayer that all income excluded as Foreign Earned Income must be included in total income first.

      Caution:

      Taxpayers may receive non-cash income in addition to awards, bonuses, commissions, as allowances or reimbursements to cover expenses; all of these are considered earned income. This includes the fair market value of property or facilities provided for lodging, meals, use of car, cost of living, overseas differential. These items are reported on lines 21 a - d and lines 22 a - g of Form 2555. Any amounts shown here may account for the U/R income.

  2. Wages received by employees of the United States government, or any of its agencies, do not qualify for the foreign earned income exclusion under Section 911. If the taxpayer does not report their earned income or only reports their income partially, pursue the issue. These employees include:

    • Military personnel - including military personnel assigned to NATO or any other international organization

    • State Department employees

    • IRS employees

    • DEA employees, etc.

  3. Amounts paid by the U.S. government or its agencies to persons who are not their employees may qualify for foreign earned income exclusion or deduction. If unsure, correspond with the taxpayer for a clarification.

  4. When there is an apparent NEC discrepancy, compare the amount on lines 20a, 20b, and/or 23 of Form 2555 with the entry for NEC on the Form 1040/1040-SR. See IRM 4.19.3.8.6.1, NEC - Analysis.

    1. If the amount of NEC reported on Form 1040/1040-SR is equal to or larger than the amount(s) shown on lines 20a, 20b, and/or 23 of Form 2555, consider NEC reported.

    2. If the amount of NEC reported on Form 1040/1040-SR is less than the amount(s) shown on lines 20a, 20b and/or 23 of Form 2555, consider the difference U/R. Send a Special Paragraph as stated in (1) b above.

      Caution:

      If the taxpayer has received reimbursement for housing expenses compare any apparent U/R amount with the entry on line 34 of Form 2555. The amount shown here may account for the discrepancy.

  5. Taking the foreign earned income exclusion does not eliminate the requirement to pay SE tax on NEC type income. See IRM 4.19.3.16.1, Self-Employment Tax, for further instructions. As a general rule, self-employed persons who are subject to dual taxation will only be covered by the social security system of the country where they reside.

  6. The United States has entered into bilateral Social Security agreements with certain foreign countries to eliminate dual coverage and dual contributions to the social security system for the same work. A bilateral Social Security agreement generally makes sure that SS taxes (including SE tax) are only paid to one country. For a list of countries, see IRM 3.22.3.165.3, Correction Procedures - EC 209 .

  7. To establish exemption from U.S. SE tax, the taxpayer must obtain a statement from the authorized official or agency of the foreign country containing the following information:

    • Name and address of taxpayer

    • Taxpayer identification number

    • The fact that the self-employment earnings (or employment earnings in the case of employed clergymen) are covered by an agreement between that country and the United States and are subject to the taxes or contributions of that country's social security system and

    • The effective date of the agreement

    The taxpayer must attach a copy of the statement to the tax return for each year exemption from SE tax is claimed. The taxpayer must also enter "Exempt, see attached statement" on the line for SE tax on the return.

  8. ONLY foreign earned income may be excluded under Section 911. If the taxpayer has not reported all non-earned income (such as, interest, dividends, pensions), ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  9. In addition to the foreign earned income exclusion, taxpayers may take a foreign housing exclusion or foreign housing deduction. They cannot take both the foreign housing exclusion and foreign housing deduction unless they are self-employed.

    1. If the housing cost exclusion is claimed, the amount from Form 2555, line 36, is added to the foreign earned income exclusion claimed on Form 2555, line 42.

    2. When the housing cost deduction is claimed, the taxpayer will enter the amount from Form 2555, line 50, to Schedule 1, line 22 (TY 2019 and TY 2020), Schedule 1, line 24j (TY 2021). This amount should be used when entering an amount in the AGI window.

    3. If the taxpayer has claimed the foreign earned income exclusion, the foreign housing cost exclusion, and the foreign housing deduction, disallow the housing deduction amount if the taxpayer is not self-employed. See IRM 4.19.3.5.9, Miscellaneous, for further instructions on how to disallow the deduction. Send a Special Paragraph to inform the taxpayer of the disallowance.

  10. When both the foreign earned income exclusion and foreign housing exclusion are present, the amount claimed on Schedule 1, line 8 (TY 2019 and TY 2020), Schedule 1, line 8z (TY 2021) may exceed the amounts shown in the table below. Any amount identified on Schedule 1, line 8 (TY 2019 and TY 2020), Schedule 1, line 8z (TY 2021) as coming from Form 2555 MUST be considered when calculating the MAGI and base tax. Follow AUR system prompts to update the FOREIGN EARNED INCOME/HOUSING field of the Adjusted Gross Income window when the taxpayer excludes income on Form 2555.

    TY 2019 TY 2020 TY 2021
    $105,900, ($211,800 if married filing jointly) $107,600 ($215,200 if married filing jointly) $108,700 ($217,400 if married filing jointly)

  11. Income excluded cannot be taken into account when figuring non-refundable credits. When entering earned income on Form 2441, Child and Dependent Care Expenses, taxpayers should be entering total earned income minus the foreign earned income exclusion amount. If all earned income is excluded on Form 2555 , then the credit cannot be taken. See IRM 4.19.3.15.2