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4.19.3  IMF Automated Underreporter Program (Cont. 2)

4.19.3.7 
Analysis of Each Income Type

4.19.3.7.12 
Conduit Income - General

4.19.3.7.12.1  (02-12-2016)
Conduit Income - Analysis

  1. Delete K-1 IRs if the payee or payer area identifies the income as being from:

    • Keogh accounts or 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 TP 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 TP may combine negative distributive share amounts with Section 179 Expenses and report the total loss on Schedule E, Part II, column (h). If the TP did not claim the Section 179 Expense on Schedule E, Part II, column (i), consider the issue resolved. See (18) below if the TP also claimed the 179EX on column (i).

  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 4.19.3.15.1.1 (2), Withholding - Analysis, for further instructions.

  7. 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 TP 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 (e.g. 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.

  8. Accept conduit income as reported if the amounts match ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Example:

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

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

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

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡

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

    4. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

    6. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  10. If a 99MIS, PTK-1, SBK-1 or TRK-1 IR is present for the same TP, 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.

  11. If multiple conduit IRs are present from the same payer for the same TP 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.

  12. IDRS research is required to determine if fully U/R TRK-1 IRs (Trusts) are the result of a fiscal year filling requirement. Using the payer EIN, research IDRS CC BMFOLI to make the determination.

    1. If there is an MFT 05 for the AUR tax year with a Return Posted indicator of "Y" (this denotes that a Schedule K-1 (Form 1041) was filed), pursue the fully U/R TRK-1 IR(s).

    2. If there is no MFT 05 for the AUR tax year with a Return Posted indicator of "Y" , consider the issue resolved.

      Note:

      If the EIN(s) is not available on IDRS CC BMFOLI delete the IR(s).

  13. INT is included on Schedule B, Part I, line 1. Pursue any U/R amounts. See IRM 4.19.3.7.3.1, 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 4.19.3.7.4.2, 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 4.19.3.7.4.5 (7), Capital Gain Distributions - Analysis, for further instructions.

    Note:

    If there is U/R STCG and the TP reports a capital loss on Form 1040, line 13, 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 4.19.3.7.4.5 (7), Capital Gain Distributions - Analysis, for further instructions.

    Note:

    If there is U/R LTCG and the TP reports a capital loss on Form 1040, line 13, 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 TP did not file a Schedule D, determine if the LTCG is reported directly on the Form 1040, line 13.

  17. ROYAL is reported on Schedule E, Part I, line 4.

  18. Section 179 Expenses are generally reported on Schedule E, Part II, column (i). Taxpayers may reduce the ORINC, REAL, OTREN or G-PAY amount by the 179EX and report the net income on column (g) or (j). 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 (i) is blank, consider the IR reported. If the TP also included the 179EX on column (i) this represents a double deduction. Disallow the double deduction and send PARAGRAPH 142. See IRM 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 (g) and/or (j).

    Note:

    If REAL is system deleted with a status code "X" , remove the status code and work the REAL issue.

    1. If the TP reports passive income on column (g) or passive loss on column (f) AND attaches Form 8582, Passive Activity Loss Limitations, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. If the TP 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 TP 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 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 TP reports passive income on column (d) or passive loss on column (c) AND attaches Form 8582, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. If the TP 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 TP attaches a completed Form 6198 that matches the payer name and/or EIN ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  21. Pursue all fully U/R SBK-1 and PTK-1 IRs and/or their elements, regardless of the income type or dollar amount. See (12) above when there are fully U/R TRK-1 IRs.

  22. Always attempt to match ORINC, REAL, OTREN, G-PAY and/or BNINC income element(s) to the amounts reported on the return. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ The TP must disclose an amount (including zero) in order to consider the income element(s) partially reported.

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

    2. Issue a CP 2501 when pursing partially reported ORINC, REAL, OTREN, G-PAY and/or BNINC income element(s) and ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

  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.

4.19.3.7.12.2  (03-28-2011)
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 TP 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 4.19.3.14.1 (12), 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 TP. If pursuing the issue because TP 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 13, 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.

4.19.3.7.13  (09-01-2010)
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 TP 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 TP's account or set apart in any way that makes it available to the TP. It is not necessary that the TP have physical possession of it.

    2. See IRM 4.19.3.7.13.3, Commodity Credit Corporation (CCC) Loans Forfeited, regarding farmer's election for reporting CCC loan proceeds as income in the year of the sale of their commodity rather than the year they actually received the loan.

4.19.3.7.13.1  (09-01-2010)
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.

4.19.3.7.13.2  (09-01-2013)
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, line 21.

  3. Consider AGSUB and MRKGN amounts ≡ ≡ ≡ ≡ ≡ if a Form W-2 or a WAGE IR shows that the TP is incorporated (payer name must include CORP, INC, LC, LLC, PA, PC, or SC) in a farming business and paid wages to himself/herself (the payer name and/or address is similar to or matches the TP 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 TP 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 SE and/or SEC REPRTD SE INC NOT ON SE field(s) on the SE Tax window. See IRM 4.19.3.14.1, 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 4.19.3.15.1, Withholding - General, for further instructions.

  9. PARAGRAPH 104 automatically generates when MRKGN is U/R, see IRM 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.

4.19.3.7.13.3  (03-28-2011)
Commodity Credit Corporation (CCC) Loans Forfeited

  1. Generally, CCC loan proceeds are not reported as income. However, if a TP pledges part or all of his/her production to secure a CCC loan, he/she 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, 5b or 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. He/she may also have elected not to include the proceeds of the loan as income in the year it was actually received. If, however, he/she uses the commodity credit certificates to repay the loan, that income 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 TP is incorporated (payer name must include CORP, INC, LC, LLC, PA, PC or SC) in a farming business and paid wages to himself/herself (the payer name and/or address is similar to or matches the TP'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.

4.19.3.7.14  (09-01-2010)
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 TP's business.

  2. PTDIVs are reported to IRS on Form 1099-PATR, Taxable Distributions Received From Cooperatives.

  3. 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 Dividends

    • "PURA" - per Unit Retain Allocations

    • "REDEM" - Redemption

    • "DPAD" - Domestic Production Activities Deduction. Reported on the appropriate line of Form 8903, Domestic Production Activities Deduction

4.19.3.7.14.1  (09-30-2014)
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, (or Schedule C-EZ, line 1), 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. IfForm 8903 is present, see IRM 4.19.3.8.9, Domestic Production Activity Deduction.

  3. Consider PTDIVs ≡ ≡ ≡ ≡ ≡ ≡ if there is a Form W-2 or WAGE IR present that shows the TP is incorporated (payer name must include CORP, INC, LC, LLC, PA, PC or SC) in a farming business, and paid wages to himself/herself (payer name and/or address is similar to or matches the TP's name and/or address). Do not consider PTDIV reported if W-2 and 99PAT IR are from the same payer.

4.19.3.7.14.2  (09-30-2014)
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 TP 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 4.19.3.14.1, 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.

4.19.3.7.15  (09-01-2003)
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.

4.19.3.7.15.1  (09-01-2013)
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, line 21, 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 TP is incorporated (payer name must include CORP, INC, LC, LLC, PA, PC or SC) in a farming business, and paid wages to himself/herself (payer name and/or address is similar to or matches the TP'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 that the income is from a farming business, check Schedule SE, line 1 for an indication.

    3. The TP 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. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

4.19.3.7.15.2  (09-01-2013)
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 TP 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 SE and/or SEC REPRTD SE INC NOT ON SE field(s) on the SE Tax window. See IRM 4.19.3.14.1, 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.

4.19.3.7.16  (08-16-2011)
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.

4.19.3.7.16.1  (09-01-2012)
Unemployment Compensation - Analysis

  1. Compare UNEMP amounts with entries on:

    1. Form 1040, line 19.

    2. Form 1040A, line 13.

    3. Form 1040EZ, line 3.

  2. Form 1040A, line 13 and Form 1040EZ, line 3 are designated for the reporting of UNEMP as well as Alaska Permanent Fund dividends. Consider any Alaska Permanent Fund dividend IRs when determining the status of the UNEMP IRs income, and the TP filed a Form 1040A or Form 1040EZ. If necessary, group Alaska Permanent Fund dividend IRs with UNEMP IRs to arrive at the correct U/R amount.

  3. UNEMP comparisons for the following entries must match within $1 or be CLEARLY IDENTIFIED as UNEMP payments:

    1. Form 1040, line 7.

    2. Form 1040, line 21.

    3. Form 1040A, line 7.

    4. Form 1040EZ, line 1.

    Caution:

    If TP includes UNEMP as wages on line 7, Form 1040 or Form 1040A, see IRM 4.19.3.15.3 (5) and (14), Earned Income Credit.

  4. 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 TP 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 TP that repayments made in a subsequent year(s) may be deducted on Schedule A, as a miscellaneous deduction, in the year they were repaid.

  5. 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).

  6. If supplemental unemployment benefits are received from a company financed fund, and the TP 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 4.19.3.7.1, Wages - General, for further instructions.

4.19.3.7.16.2  (09-30-2014)
UNEMP - Miscellaneous

  1. UNEMP (Form 1099-G) may reflect W/H. See IRM 4.19.3.15.1, Withholding - General, for further instructions.

  2. PARAGRAPH 67 automatically generates when UNEMP is U/R.

  3. If UNEMP is U/R, enter the return amount in the RETURN field on the Summary screen.

4.19.3.7.17  (08-26-2016)
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 TP did NOT live with spouse any time during the AUR year)

    • $0 for FS 3 or 6 (and the TP 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 4.19.3.7.10.5, 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 TP repaid in the current AUR tax year. The system uses this amount to reduce the recomputed SS/RR amount as appropriate.

    4. "14PAY" - portion of SS/RR received in the AUR year for 2014 (for information only).

    5. "13PAY" - portion of SS/RR received in the AUR year for 2013 (for information only).

    6. "12PAY" - portion of SS/RR received in the AUR year for 2012 (for information only).

    7. "11PAY" - portion of SS/RR received in the AUR year for 2011 (for information only).

    8. "10PAY" - portion of SS/RR received in the AUR year for 2010 (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 TP 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.

4.19.3.7.17.1  (09-30-2014)
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 TP. 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 TP in question is one of the actual recipients.

  2. Compare the total of SS/RR amounts with entries on:

    1. Form 1040, line 20a (total benefits) and line 20b (taxable benefits).

    2. Form 1040A, line 14a (total benefits) and line 14b (taxable benefits).

    3. Form 1040, line 21. The amount must match the taxable SS/RR payments within $1 or be identified as Social Security/Railroad Retirement payments.

  3. When the TP 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, line 20a (Form 1040A, line 14a). If a "D" is present (or a "Y" on an ELF return) on Form 1040, line 20a (Form 1040A, line 14a), enter an "N" in the TP LIVED WITH SPOUSE? field in the SSA RRB Changes window. If a "D" is not present:

    1. Assume the TP lived with his/her spouse and zero is the applicable base amount for FS 3 or 6.

    2. Ensure that the TP 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 TP 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 TPs is deceased, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ " when:

    1. Form 1040, line 20a or 20b (Form 1040A, line 14a or 14b) is zero or blank, or

    2. Form 1040, line 20a (Form 1040A, line 14a) is equal to or less than the surviving spouse's SS/RR IR amount(s).

      Note:

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

  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 TP 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, and/or DPAD) to income before selecting this window. See IRM 4.19.3.3.2 (3), 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 IRM 4.19.3-7, CP PARAGRAPHS), for erroneous changes made during original processing.

  6. If Form 1040, line 20a or Form 1040A, line 14a 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 TP.

    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 Form 1040, line 20a or Form 1040A, line 14a.

  7. Verify that the amount in the TAX EXEMPT INTEREST field of the SSA/RRB window is correct. See IRM 4.19.3.7.3.5 (1), Interest Miscellaneous, if the TP improperly excluded tax-exempt interest on Schedule B.

  8. If the repayment amounts exceed the SS/RR amounts, and the TP reports a taxable SS/RR amount, but fails to subtract any or all of his/her payments from the SS/RR amount, the system reduces the recomputed SS/RR amount as appropriate. This results in either a refund to the TP or a reduction to his/her tax.

  9. If there are no SS/RR IRs on the Case Analysis screen, the TP reports a gross amount on Form 1040, line 20a or Form 1040A, line 14a and the amount on Form 1040, line 20b or Form 1040A, line 14b 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, line 20a or Form 1040A, line 14a.

    2. Access the SSA/RRB window and input/verify the fields.

  10. If the TP 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 TP reported as benefits or the total of the IRs (less any REPAY amounts), whichever is greater. If the TP 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 TP attached documentation stating the SS/RR amounts were repaid in a year other than the current AUR tax year, advise the TP the repayment amount may be deducted ONLY in the year it was repaid.

  12. Do not pursue SS/RR amounts if the TP 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.

4.19.3.7.17.2  (09-30-2014)
SS/RR Miscellaneous

  1. Taxpayers can compute taxable SS/RR benefits following the Lump-Sum Election (LSE) method. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ " ≡ ≡

    1. The SS/RR IR amount(s) is reported on Form 1040, line 20a, or Form 1040A, line 14a AND

    2. The SS/RR IR displays one or more of the following 13PAY, 12PAY, 11PAY, 10PAY, 09PAY, or 08PAY AND

    3. ≡ ≡ ≡ ≡ ≡ ≡ "≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    If any of the conditions above are not met, pursue discrepant SS/RR. Send PARAGRAPH 71, see IRM 4.19.3-7, CP PARAGRAPHS.

  2. Do not pursue potential U/R SS/RR benefits if there is an indication the TP 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 4.19.3.15.1, Withholding - General, and/or see IRM 4.19.3.15.1.2, 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.

4.19.3.7.18  (09-30-2014)
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.

4.19.3.7.18.1  (08-26-2016)
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.

    Note:

    If Alaska Permanent Fund Dividends, compare to Form 1040A, line 13 or Form 1040EZ, line 3.

  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 TP on the following Schedules:

    1. Schedule C or C-EZ, line 1

    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, line 7.

    2. Form 1040A, line 7.

    3. Form 1040EZ, line 1.

    4. Form 1040, line 21. The TP must provide enough information on line 21 or an attachment to isolate the amount he/she is reporting from the payer in question.

      Note:

      If there is UR OTINC and the TP enters zero (0) on line 21 and enters "Notice 2014 - 7" on the dotted line for line 21 or includes a statement that the OTINC is nontaxable Medicare waiver or difficulty of care payments or is excludable per "Notice 2014 - 7" , delete the issue.

    5. Schedule D, see table below for line numbers - The TP may report the sale of timber, coal, easements, right-of-way (ROW), land damages, etc. on these lines. Consider the OTINC reported if the sales price matches the IR within $1.

      Form/Schedule TY 2013 TY 2014 TY 2015
      Schedule D Part I, lines 1a, 1b, 2, or 3, column (d) Part I, lines 1a, 1b, 2, or 3, column (d) Part I, lines 1a, 1b, 2, or 3, column (d)
      Part II, line 8a, 8b, 9 or 10, column (d) Part II, line 8a, 8b, 9 or 10, column (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) Part I, line 1, column (d) or Part II, line 1 column (d) Part I, line 1, column (d) or Part II, line 1 column (d)
    6. Form 8949, see table above for line numbers.

    7. Schedule E, Part I.

    8. Form 2106, line 7.

  4. The OTINC amount on a 99MIS IR represents the full value of Other Income. If the TP reports a lesser amount, consider the difference U/R, unless documentation is attached to the return (i.e., TP claimed fair market value).

  5. Accept OTINC as reported if:

    1. The TP is incorporated (payer name must include CORP, INC, LC, LLC, PA, SC or PC) and pays wages to himself/herself (the name and/or address of the payer is similar to or matches the name and/or address of the TP).

      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 TP 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 TP 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 TP nets the amount for reimbursed expenses reported on Form 1099-MISC and ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

4.19.3.7.18.2  (09-04-2015)
OTINC - Miscellaneous

  1. The OTINC amount may represent a court award/settlement amount, as indicated on the TP's attachment. The full amount is to be reported on Form 1040, line 21. 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 TP 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 e.g., 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 (e.g., 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.
    Consider the IR reported if the TP 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.

  4. Gains from reimbursements for damages, casualty and theft, etc., are reported on Form 4684 and Form 4797.

  5. Any legal fees associated with the award/settlement are generally taken as a deduction on Schedule A.

    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 (6) below.

    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, C-EZ, E, part I, and/or F may be used.

    2. If the TP nets the amount for legal fees, pursue the deducted amount as U/R. If Schedule A is filed, include this amount in the GROSS JOB AND MISC EXPENSE field (line 24) of the Schedule A window in Return Value and send a Special Paragraph to inform the TP that legal fees are an itemized deduction that are reduced by 2 percent of AGI. If no Schedule A is filed, send a Special Paragraph to inform the TP they may now qualify for Itemized Deductions.

  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 line 36 on Form 1040. Any legal expenses over the amount of income are deductible as a miscellaneous itemized deduction subject to the 2 percent limit.

    1. Consider any deducted amount over the reported settlement as U/R income.

    2. If Schedule A is filed, include the over-deducted amount in the GROSS JOB AND MISC EXPENSE field of the Schedule A window in Return Value and send a Special Paragraph to inform the TP that legal fees over the amount of settlement income are an itemized deduction that are reduced by 2 percent of AGI.

    3. If no Schedule A is filed, send a Special Paragraph to inform the TP they may now qualify for Itemized Deductions.

  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 or Schedule C-EZ. If it is the only income reported on Schedule C or Schedule C-EZ:

    1. Disallow the expenses.

    2. Adjust SE tax as appropriate.

    3. Send a Special Paragraph to inform the TP of the adjustment using the following verbiage as an example: "Automotive manufacturer incentive payments made to a vehicle salesperson may not be offset by Schedule C or Schedule C-EZ expenses. We disallowed the expenses and refigured your tax."

  8. If OTINC is partially reported on Schedule C, C-EZ, 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 and the TP 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 4.19.3.14.1, 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 4.19.3.15.1, Withholding - General, for further instructions.

  11. If Other Income is U/R, enter the return amount in the RETURN field on the Summary screen.

4.19.3.7.19  (09-01-2003)
Gambling Income - General

  1. Gambling income represents gross 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.

4.19.3.7.19.1  (09-01-2013)
Gambling Income - Analysis

  1. Comparisons for the following must match within $1 or be CLEARLY IDENTIFIED as GAMBL:

    1. Form 1040, line 7.

    2. Form 1040, line 21.

    3. Form 1040A, line 7.

    4. Form 1040EZ, line 1.

    5. Schedule C, Part I, lines 1 or 6 (or Schedule C-EZ, line 1), if payer or business activity indicates that it is the same income. See IRM 4.19.3.7.19.2 (11) and (12), Gambling Losses, for additional information.

    6. Schedule F, lines 8 or 43.

  2. If the TP 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 TP 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 TP did not itemize his/her deductions, send PARAGRAPH 42. See IRM 4.19.3-7, CP PARAGRAPHS.

4.19.3.7.19.2  (11-20-2013)
Gambling Losses

  1. If the TP itemizes deductions on Schedule A, he/she may deduct gambling losses equal to gambling winnings. If the TP 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 TP did not file Schedule A, he/she may deduct gambling losses in excess of the applicable standard deduction amount for his/her filing status. Send PARAGRAPH 42, see IRM 4.19.3-7, CP PARAGRAPHS.

  3. The TP is eligible to itemize deductions when deductions on Schedule A exceed the applicable standard deduction amounts for their filing status. See IRM 4.19.3.11, Standard Deduction, for further information.

  4. Gambling losses are O/D if:

    1. They exceed gambling winnings.

    2. They are deducted twice. (The TP reports net gambling winnings and also deducts gambling losses on Schedule A.)

    3. They are directly deducted from gambling winnings, and the TP 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 TP is claiming gambling losses on Form 1040, Schedule A and, is not claiming any gambling winnings on Form 1040, line 21 AND there are no GAMBL IR(s):

    1. Select the Schedule A window and disallow the amount of losses the TP 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 IRM 4.19.3-7, CP PARAGRAPHS.

  6. When the TP claims more losses on Form 1040, Schedule A than winnings (on Form 1040, line 21), 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 TP 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 IRM 4.19.3-7, CP PARAGRAPHS.

      Caution:

      If the filing status is 3 and/or the TP checks the box on Schedule A, line 30 or writes "IE" (Itemized Elected) on the left dotted portion of Form 1040, line 40, DO NOT adjust the Schedule A window. Consider the gambling U/R and send PARAGRAPH 42.

  8. If the TP filed a Schedule A, verify that 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 TP 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 IRM 4.19.3-7, CP PARAGRAPHS.

  11. Only TPs who conduct gambling as a business (i.e., "professional gambler" ) are permitted to report gambling income and losses on a Schedule C. The TP may claim gambling losses only up to the amount of gambling income. If the TP 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 144, see IRM 4.19.3-7, CP PARAGRAPHS.

  12. If it appears that gambling is not the primary source of income for the TP (example: the TP lists their occupation as other than "professional gambler" and/or reports significant earned income from non-gambling sources), take the following action:

    1. Use the MISC ADJUSTMENT/SCHEDULE C EXPENSE window to disallow the expenses claimed on Schedule C.

    2. Enter the disallowed amount as a positive in the PRIM/SEC SCH C EXPENSE PER RETURN field.

    3. Enter a zero (0) in the PRIM/SEC SCH C EXPENSE NOW field.

    4. Adjust SE tax as appropriate.

    5. Enter the gambling losses (up to the gambling winnings) in the GAMBLING LOSS OF OTHER MISC RECOMPUTED field of the Schedule A window.

    6. See (7) through (9) above for other actions to take in the Schedule A window, depending on the situation.

    7. Send PARAGRAPH 14, see IRM 4.19.3-7, CP PARAGRAPHS.

    8. If the TP did not file a Schedule A and the gambling losses now qualify the TP to use Schedule A, send PARAGRAPH 42. See IRM 4.19.3-7, CP PARAGRAPHS.

  13. GAMBL IRs may reflect W/H. See IRM 4.19.3.15.1, Withholding - General, for further instructions.

  14. If gambling winnings are U/R, enter the return amount in the RETURN field on the Summary screen.

4.19.3.7.20  (09-30-2014)
Cancellation of Debt (DBTCN) - General

  1. Cancellation of Debt is generally considered income to the TP 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.

4.19.3.7.20.1  (08-26-2016)
Cancellation of Debt (DBTCN) - Analysis

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

  2. 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.

  3. Comparisons for the following entries must match within $1 or be CLEARLY IDENTIFIED as DBTCN:

    1. Form 1040, line 21.

    2. Schedule C, Part I, line 6 (or Schedule C-EZ, line 1).

    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 TP reports the full amount of the IR and then zeroes it out, request the TP 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, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. An IR with a literal of DBTCN may also have an event code "A" indicating Bankruptcy. Check these IRs for a BI: A located in the IND field under the PAYER section of the IR. If event code A is present, delete the IR.

  5. If there are two DBTCN IRs with identical payer names and money amounts and one IR is for the primary TP and the other is for the spouse, delete one IR.

  6. If the TP reduces the reported DBTCN amount by the INTFG (interest forgiven) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  7. Consider the DBTCN reported when, DBTCN is from a Student Loan, and the TP has indicated ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  8. 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 TPs (incorrectly or due to fraud) who are unable to repay these amounts. These IRs are valid. Pursue any U/R amounts.

  9. The Mortgage Forgiveness Debt Relief Act of 2007 (Pub. Law 110-142) created a new exclusion under sections 108(a)(1)(E) and 108(h) for discharged qualified principal residence indebtedness. This exclusion applies to qualified principal residence indebtedness that is discharged on or after January 1, 2007 and before January 1, 2017. This exclusion also applies to discharges on or after January 1, 2017, if pursuant to a written arrangement entered into before January 1, 2017. 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.

    Note:

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

  10. The Mortgage Forgiveness Debt Relief Act of 2007, generally allows a TP to exclude income from the discharge of debt on the TPs principal residence. Debt reduced through mortgage restructuring or loan modification programs qualify for the relief. The TP must file Form 982 to claim this exclusion.

  11. If the TP has received DBTCN from a Foreclosure or Repossession and the TP 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, line 21.

  12. If the TP has received DBTCN from a Foreclosure or Repossession and the TP 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 TP 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 TP indicates that the income is not taxable because he/she is insolvent, (e.g., Form 982, Box 1b, is checked or on an attached statement), the TP MUST provide a statement showing the amount of his/her insolvency. If the TP does not provide a breakdown of his/her assets and liabilities, DO NOT consider him/her to be insolvent. If no statement is attached send a Special Paragraph to request a statement of assets and liabilities using the following verbiage as an example: "The Form 982 you attached to your return indicates you were insolvent. In order to be considered insolvent, you must provide a statement of your assets and liabilities immediately before the debt was cancelled. You are considered insolvent only when your liabilities exceed your assets."

    Reminder:

    If sending the Special Paragraph because the TP indicates income is not taxable because he/she is insolvent, but does not provide a breakdown of his/her assets and liabilities, toggle off PARAGRAPH 72.

  14. The TP 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 TP's insolvency must be considered. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Example:

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

  15. If the TP indicates that he/she did not report the DBTCN income because he/she filed for Chapter 7 or 11 Bankruptcy, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  16. If the TP states that he/she filed for either Chapter 12 or 13 of the Bankruptcy Code or does not indicate the Chapter, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ send a Special Paragraph to the TP requesting the bankruptcy paperwork.

  17. If the TP indicates that the cancellation or discharge of debt was due to ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

4.19.3.7.20.2  (09-30-2014)
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.

4.19.3.7.21  (11-20-2013)
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.

4.19.3.7.21.1  (11-20-2013)
Taxable Grants - Analysis

  1. Compare GRANT amounts with entries on Form 1040, line 21, 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.

4.19.3.7.21.2  (09-01-2004)
Taxable Grants Miscellaneous

  1. 1099G IR(s) with GRANT amounts may reflect W/H. See IRM 4.19.3.15.1, Withholding - General, for further instructions.

  2. Send PARAGRAPH 124, (see IRM 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.

4.19.3.7.22  (09-30-2014)
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 TP's securities for use in a short sale and receives certain substitute dividend or interest payments on the TP'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, line 21.

    • 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 IRM 4.19.3-7, CP PARAGRAPHS.

  5. If PLDIV are U/R, enter the return amount in the RETURN field on the Summary screen.

4.19.3.7.23  (08-26-2016)
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 TPs 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 the literal "1099B" in the DOC TYPE field and the literal "STOCK" in the INCOME TYPE field. The 1099B IR also reflects the literal "BASIS" to reflect any cost basis reported by the payer, see IRM 4.19.3.7.23.1.1, Cost Basis - Analysis for additional information.

  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.

4.19.3.7.23.1  (08-26-2016)
Securities Sales - Analysis

  1. ONLY screen STOCK IRs 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.

    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 is usually nine characters long, consisting of alpha and/or numeric characters. The CUSIP number identifies the issuer of the security and the type of security. Alpha characters in the 7th and/or 8th 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 (i.e., the last two digits of the STOCK transaction amount ends in either "00" or "50" ). When the TP has reported these amounts, the IRs must be taken into consideration when determining the U/R amount.

    1. Be careful when determining the position of the CUSIP number containing the alpha characters. The first six digits represent the issuer number and the 4th and 5th and/or 6th positions may contain alpha character(s).

    2. Pursue STOCK IRs whose entity includes nontaxable Municipal Bond, tax free exchange or tax free unless the CUSIP number meets the conditions provided above.

  5. 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.

  6. Compare STOCK amounts with entries on:

    Form/Schedule TY 2013 TY 2014 TY 2015
    Form 8949 Part II, line 1, column (d) (Long Term) Part II, line 1, column (d) (Long Term) Part II, line 1, column (d) (Long Term)
    Form 8949 Part I, line 1, column (d) (Short Term) Part I, line 1, column (d) (Short Term) Part I, line 1, column (d) (Short Term)
    Schedule D Part I, lines 1a, 1b, 2 or 3, column (d) (Short Term) Part I, lines 1a, 1b, 2 or 3, column (d) (Short Term) Part I, lines 1a, 1b, 2 or 3, column (d) (Short Term)
    Schedule D Part II, lines 8a, 8b, 9 or 10, column (d) (Long Term) Part II, lines 8a, 8b, 9 or 10, column (d) (Long Term) Part II, lines 8a, 8b, 9 or 10, column (d) (Long Term)
  7. Comparisons with the following entries must match within $1 or be CLEARLY IDENTIFIED as STOCK:

    1. Form 4797, Part II, line 10 and the TP has made a mark-to-market election.

    2. Schedule C, Part I, line 1 and the TP made a mark-to-market election. Send PARAGRAPH 117, see IRM 4.19.3-7, CP PARAGRAPHS.

    3. Form 6252, Part I, line 5.

  8. If the TP reported STOCK on either Schedule C or Form 4797 and there is no indication that a mark-to-market election was made, see IRM 4.19.3.7.23.1.2, Day Trader Securities - Analysis.

  9. 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

  10. 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 TP reports a capital loss on Form 1040, line 13, 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.

  11. 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

      TY 2013 TY 2014 TY 2015
      Part I, line 1, column (d) (Short Term) Part I, line 1, column (d) (Short Term) Part I, line 1, column (d) (Short Term)
      Part II, line 1, column (d) (Long Term) Part II, line 1, column (d) (Long Term) Part II, line 1, column (d) (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 group total amount is smaller, consider the stock reported.

    4. If group total amount is larger, consider the difference underreported.

  12. 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 income identify code (ST or SD) and compare the total to the gross amounts reported on Schedule D,

      TY 2013 TY 2014 TY 2015
      Part I, lines 1a, 1b, 2 or 3, column (d) (Short Term) Part I, lines 1a, 1b, 2 or 3, column (d) (Short Term) Part I, lines 1a, 1b, 2 or 3, column (d) (Short Term)
      Part II, lines 8a, 8b, 9 or 10, column (d) (Long Term) Part II, lines 8a, 8b, 9 or 10, column (d) (Long Term) 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 group total amount is smaller, consider the stock reported.

    4. If group total amount is larger, consider the difference underreported.

  13. If Stock Option Statements are attached to the return consider them during the screening process.

  14. When TPs 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 TP) 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 4.19.3.7.1.1 (13) and (14), Wages - Analysis, for additional information regarding exercising of employee stock options.

  15. 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

4.19.3.7.23.1.1  (09-01-2013)
Cost Basis - Analysis

  1. ONLY screen BASIS IRs in Category 31 and Category 39. If the cost basis element is asterisked in categories other than 31 and 39, 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 IR element(s) with Send Indicator "S" .

4.19.3.7.23.1.2  (09-01-2012)
Day Trader Securities - Analysis

  1. Transactions from trading activities are reported on Form 8949 (when the TP has NOT made a mark-to-market election per IRC 475) or on Form 4797 (when the TP 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 (i.e., 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 TP made a mark-to-market election (IRC 475).

  5. If there is no indication that a mark-to-market election was made and the TP 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 TP 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 IRM 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.

4.19.3.7.23.2  (08-26-2016)
Securities Sales Miscellaneous

  1. STOCK amounts may be taxed on Schedule D at the applicable capital gain tax rate. See IRM 4.19.3.12.2, 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 TP's spouse or the filing status is 3:

    Note:

    See IRM 4.19.3.4.3, Jointly Owned Income, for additional instructions on jointly owned income.

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

    2. Send PARAGRAPH 6, see IRM 4.19.3-7, CP PARAGRAPHS.

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

    4. See IRM 4.19.3.15.1, 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,

    TY 2013 TY 2014 TY 2015
    Part I, lines 1a, 1b, 2 and 3, column (d) and Part II, lines 8a, 8b, 9 and 10, column (d) Part I, lines 1a, 1b, 2 and 3, column (d) and Part II, lines 8a, 8b, 9 and 10, column (d) Part I, lines 1a, 1b, 2 and 3, column (d) and Part II, lines 8a, 8b, 9 and 10, column (d)

4.19.3.7.24  (09-01-2004)
Bartering - General

  1. Bartering is an exchange of one TP's property or services for another TP'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 TP.

  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.

4.19.3.7.24.1  (09-01-2013)
Bartering - Analysis

  1. Bartering income is reported on:

    1. Schedule C, lines 1 or 6 or C-EZ, line 1.

    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, line 21.

    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 TP 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 4.19.3.14.1, 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.

4.19.3.7.25  (12-26-2007)
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.

4.19.3.7.25.1  (08-26-2016)
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.

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

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

  4. 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. Form 8949, see table below for line numbers.

      Form/Schedule TY 2013 TY 2014 TY 2015
      Schedule D Part I lines 1a, 1b, 2, or 3, column (d), sales price, or line 4, column (h), gain Part I lines 1a, 1b, 2, or 3, column (d), sales price, or line 4, column (h), gain 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 Part II lines 8a, 8b, 9,10 (column (d), sales price, or line 11, column (h), gain 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) Part I, line 1, column (d) Part I, line 1, column (d)
      Form 8949 Part II, line 1, column (d) Part II, line 1, column (d) Part II, line 1, column (d)
    5. Form 8824, Like-Kind Exchanges, line 15 or 16.

    6. An attachment to the return that includes purchase and sales price.

  5. If the amount reported per (4) above is equal to or greater than the REAL IR(s) amounts and is properly carried forward to page 1 of the Form 1040, consider the issue resolved. If the amount reported is less, or is not properly carried forward to page 1 of the Form 1040, consider the difference U/R.

  6. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  7. If unable to identify REAL per (4) above, pursue the entire U/R real estate amount(s). Do not apply any exclusion amount.

4.19.3.7.25.2  (09-30-2014)
Real Estate Transactions Miscellaneous

  1. If there is a Schedule C or C-EZ 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, i.e., 233200, 238160, 238900, 531210, etc., consider REAL amount(s) fully reported when:

    1. Gross Receipts on Schedule C or C-EZ are larger than the REAL amount(s),

    2. The TP reports the exact amount of the IR(s) on Schedule C, line 6, C-EZ, line 1, or

    3. The TP 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 4.19.3.12.2, 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 4.19.3.7.4.5 (9), 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 TP reports a capital loss on Form 1040, line 13:

    1. See IRM 4.19.3.7.4.5 (9), 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.

4.19.3.7.26  (09-01-2004)
Refund of Overpaid Mortgage Interest (ROMID) - General

  1. Refund of Overpaid Mortgage Interest Deduction (ROMID) is a refund of interest the TP paid to a lending institution. If the TP receives a refund in the same year he/she paid it, he/she 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, line 21.

  2. ROMID amounts are reported to IRS on Form(s) 1098, Box 3 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" .

4.19.3.7.26.1  (09-30-2014)
ROMID - Analysis

  1. Compare ROMID amount(s) with entries on:

    1. Form 1040, line 21. 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 TP 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 TP did not itemize deductions in the prior year, the ROMID may still be taxable if the TP 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 TP and if a mortgage interest deduction was claimed. If the TP did not claim the mortgage deduction on his/her 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 4.19.3.10.2, 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.

4.19.3.7.27  (09-01-2013)
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 TP claims an IRA deduction and the amount matches a Form 5498-ESA contribution, disallow the deduction. PARAGRAPH 30 automatically generates.

  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.

4.19.3.7.27.1  (11-04-2014)
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, line 21. Consider the Form 1099-Q distribution(s) reported when:

    1. The TP indicates the designated beneficiary's qualified education expenses ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ OR

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

      Note:

      A 10 percent additional tax may also apply. See IRM 4.19.3.14.5, 10 Percent Tax on Qualified Education Program Payments, for further instructions.

  8. If an EARN IR is marked U/R, also send the associated GRDIS IR element. 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 exceeds the gross distribution amount.

4.19.3.7.27.2  (09-30-2014)
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" .

4.19.3.7.28  (03-01-2007)
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.

  4. Taxpayers must complete Form 8889, Health Savings Accounts, Part II, to compute the correct amount of "HSA" taxable distribution.

4.19.3.7.28.1  (08-26-2016)
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 THE 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 (13) - (14) below.

  5. Do not allow credit for amounts identified as HSA, AMSA or MAMSA on Form 1040 line 21 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 4.19.3.14.4, 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 4.19.3.14.4 (5), 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 TP 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. Include a Special Paragraph using the following verbiage as an example: "The proposed increase to your tax includes an additional 50 percent tax on the distribution from your Medicare Advantage MSA account. The 50 percent tax does not apply to distributions made on or after the date that the account holder becomes deceased or disabled. If the distribution is exempt from the 50 percent tax, please provide us with a signed statement explaining why."

  8. The TP includes the additional taxes on Form 1040,

    TY 2013 TY 2014 TY 2015
    line 60 line 62 line 62

    See IRM 4.19.3.14.12, 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 TP's AGI, consider the Form 8889, line 16, amount as U/R and send PARAGRAPH80. See IRM 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 TP's AGI, consider the Form 8853, line 8 or line 12, amount as U/R and send PARAGRAPH 197. See IRM 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 TP reduces his/her 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.

4.19.3.7.29  (09-01-2003)
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 TP may write "LTC" on the dotted portion of Form 1040, line 21 to identify the income.

4.19.3.7.29.1  (09-30-2014)
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 TP'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 TP. See IRM 4.19.3-7, CP PARAGRAPHS.

  8. If the TP reduces his/her 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 IRM 4.19.3-7, CP PARAGRAPHS.

  10. PARAGRAPH 187 automatically generates when LTCGB or LTCAB are U/R. See IRM 4.19.3-7, CP PARAGRAPHS.

4.19.3.7.30  (09-30-2014)
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.

4.19.3.7.30.1  (09-30-2014)
Reemployment Trade Adjustment Assistance (RTAA) Payments - Analysis

  1. Compare RTAA amounts with entries on Form 1040, line 21 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 IRM 4.19.3-7, CP PARAGRAPHS.


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