IRS Logo

4.19.3  IMF Automated Underreporter Program (Cont. 6)

4.19.3.20 
Taxpayer Responses

4.19.3.20.3 
Instructions Specific to Income/Issue Types

4.19.3.20.3.1 
Wages

4.19.3.20.3.1.1  (09-01-2005)
Statutory Wages

  1. The TP explanation is acceptable when the TP provides ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

  2. Consider the TP a statutory employee if the explanation meets all three of the following criteria

    • The TP understood from the service contract with the employer that he/she was to perform the services personally.

    • The TP did not have a substantial investment in facilities (other than transportation) used to perform the services.

    • The service involved a continuing relationship (between the TP and the payer) with the person for whom the services were performed.

    and the TP engages in any of the activities listed in a - d below:

    1. Agent-driver or commission-driver who delivers food or beverages (other than milk) or laundry or dry cleaning for someone else.

    2. Full-time life insurance salesperson.

    3. "Home worker" who works by the guidelines of the person for whom the work is done with materials or goods furnished by and returned to that person or to someone that the person designates.

    4. Traveling or city salesperson (other than an agent-driver or commission-driver) who works full-time (except for sideline sales activities) for one firm or person getting orders from customers. The order must be for items for resale or used as supplies in the customer's business. The customers must be retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses dealing with food or lodging.

4.19.3.20.3.1.2  (09-01-2003)
Dependent Care Benefits

  1. The TP explanation is acceptable when he/she is participating in one of the following ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    Pursue any disallowed Child Care Credit.

4.19.3.20.3.2  (09-01-2012)
Interest

  1. 99INT IRs with EIN 38-1798424 is credit interest paid by the IRS to the TP(s) from a previously filed tax return(s). If the TP requests information or disclaims knowledge of this IR, DO NOT issue a Letter 2625C. Use IDRS CC IMFOLI or Control D for MFTRAC to request a complete Master File transcript. Interest appears as TC 770 or 776. A reversal appears as TC 771, 772 or 777.

    1. If interest posted to the TP's account and was subsequently reversed, or is not present, delete or adjust the IR(s) as necessary. Send the appropriate letter or a Recomputation Notice (CP 2000) or Supplemental Report (Statutory Notice) to the TP and apologize for the error. Send a Special Paragraph using the following verbiage as an example: "The interest from the United States Treasury shown on our CP 2000 was incorrect. We apologize for any inconvenience this may have caused you."

    2. If the interest was posted to the TP's account and not reversed, issue a Recomputation Notice or Supplemental Report. Include a Special Paragraph using the following verbiage as an example "On (date) you received a refund of ($ amount) for tax year ending (MMDDYYYY). It included additional interest of ($ amount)."

  2. If the TP replies that the Saving Bond Interest was inherited and/or was reported on the estate return, issue a Letter 2626C with a Special Paragraph using the following verbiage as an example: "Saving bond interest is taxable to the beneficiary, unless the entire amount of interest was reported on the decedent’s final individual (Form 1040) tax return. Please verify the decedent’s tax treatment and submit a signed statement of explanation."

  3. Accept the TP's explanation and delete the IR when:

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

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

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

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

      Note:

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

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

      Note:

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

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

    7. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    8. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Note:

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

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

    10. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    11. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    12. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    13. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

4.19.3.20.3.2.1  (09-01-2003)
Savings Bond Exclusion

  1. The TP may recompute a savings bond exclusion that differs from the system's as displayed in the RECOMPUTED SAVINGS BOND EXCLUSION field. When this happens:

    1. Enter the TP's figure in the RECOMPUTED SAVINGS BOND EXCLUSION field.

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

    3. If the TP's figure is within the tolerance range, as defined in Step 2 above, the entry is accepted.

    4. If the TP's figure is not within the tolerance range, the entry is not accepted, and a message displays showing the acceptable tolerance range.

4.19.3.20.3.3  (08-26-2016)
Dividends

  1. Accept the TP's explanation and delete the IR when:

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

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

    3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. If the TP responds that ordinary dividends are reported on Schedule D, see IRM 4.19.3.20.1.23, Schedule D Changes.

  3. The TP may respond that they are entitled to qualifying dividends or additional qualifying dividends (QDIV). The QDIV is the amount of ORDIV that is eligible for the 20 percent or lower capital gain rate. If the TP did not claim qualifying dividend on the original return and now states they want the capital gain rate take the following actions:

    If Then
    There are no QDIV IRs
    1. Create an IR with the Income Type literal of QDIV for the total amount of ORDIV that is eligible for the 20 percent or lower capital gain rate.

    2. Input status code "U" for the created QDIV IR(s).

    3. Enter zero (0) in the reported per return filed.

    There is more than 1 IR containing QDIVs and the IR amount is less than the TP is requesting
    1. Group the QDIV IRs.

      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. To determine the amount for step 4 below, compare the requested amount with the amount on the return.

    3. Input status code R for the group.

    4. Create an IR for the difference (from step 2 above) and DO NOT add to group.

    5. Input status code U on the created IR.

    6. Enter zero (0) as the reported per return.

    The QDIV IR(s) equal the amount of QDIVs the TP is requesting
    1. Input status code U on the IR.

      Note:

      If there are multiple IRs the Group function can be used to determine the U/R amount.

    2. Enter amount reported on return if no amount enter zero (0) in reported per return field.

    This allows the system to use the revised qualified dividends in calculating the Schedule D tax rate.

4.19.3.20.3.4  (09-01-2012)
SITR

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

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

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

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

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

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

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

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

    1. The total of the SITR IR amount(s) must match the Form 1040, line 10 amount. If they do not match, delete the existing IR(s) and create a new one equal to the amount of SITR that needs to be refunded.

    2. Enter the amount of SITR to be refunded in the REPORTED SITR field.

    3. Enter a zero (0) in the PRIOR YEAR TOTAL ITEMIZED DED field on the SITR window.

  2. Accept the TP explanation when:

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

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

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

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

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

    6. ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    7. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    8. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. Numerous states do not issue paper Form 1099-G documents. If the TP responds that they did not receive the Form 1099-G, advise them that failure to receive information documents is not an acceptable explanation.

4.19.3.20.3.5  (09-30-2014)
Fishing Income

  1. Accept the TP explanation that ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. If the income is NEC or FISH accept the response when it states the TP is a fisherman and one of the following:

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

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

4.19.3.20.3.6  (08-26-2016)
Retirement Distributions - Form 1099-R

  1. If the TP responds with a completed Form 4972 and the U/R income in question is from a 1099R, Lump-Sum Distribution IR, verify Form 4972, Part 1 to determine if the TP qualifies. If so, consider the TP entitled to the special tax treatment and input the appropriate entries on the Lump Sum Tax window. See IRM 4.19.3.7.10.8, Lump-Sum Distributions, and IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures -Lump Sum Tax, for further instructions. Include ALL qualifying income in the ORDINARY INCOME field. This includes any unreported income which also qualifies for the special tax treatment.

    1. If there was a math error on the TP's Form 4972, issue a Recomputation Notice (CP 2000) or Supplemental Report (Statutory Notice). Send PARAGRAPH 130, see IRM 4.19.3-7, CP PARAGRAPHS.

    2. If there is NO math error, accept the TP's Form 4972. Input status code "R" in the IR CD field on the Case Analysis screen for the 1099R IRs included on Form 4972.

      Note:

      If the TP indicates the Lump-Sum distribution was received by multiple recipients, enter a "Y" in the MULTIPLE RECIPIENT IND field. Enter the TP's percentage of the income in the MULTI RECIPIENT PERCENT field. (Use the information from TP's response, or the percentage from Form 1099-R, Box 8 or 9.)

  2. If the TP responds with a completed Form 4972and the U/R income in question is from a 1099R IRA distribution IR(s), issue a Letter 2626C advising the TP that IRA distributions do not qualify for Form 4972 treatment.

    Note:

    If issuing a Recomputed Notice, send PARAGRAPH 152. See IRM 4.19.3-7, CP PARAGRAPHS.

  3. When adjusting U/R Form 1099-R distributions, review the Retirement Savings Credit window to ensure the entries in the TOTAL DISTRIBUTIONS field have been correctly updated.

  4. The explanation is acceptable when the TP states or provides:

    Reminder:

    If accepting the TP explanation for an IRA Deduction or Form 1099-R Distribution, review the Retirement Saving Credit window to ensure entries are correct per the TP response.

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

    2. The retirement distribution was rolled over and provides Form 5498 or similar documentation. See (6) below if the response indicates rollover was not timely (within 60 days) and (7) below if response indicates rolled over to a Roth IRA.

      Note:

      Military retirement distributions and 1099R IRs with COD "E" , "L" , "3" , "5" , and "8" cannot be rolled over.

    3. Documentation reflects rollover fees and the amount of the fees match the U/R amount.

    4. The distribution was ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    5. The TP indicates ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    6. The TP indicates≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    7. The distribution is≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    8. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

      Note:

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

    10. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    11. The Simple IRA distribution (COD "S" was rolled over (provides Form 5498 or similar documentation),≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Note:

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

    12. The Roth IRA Distribution was rolled over (provides Form 5498 or similar documentation,≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    13. The Roth IRA Distribution≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Note:

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

    14. The Roth IRA Distribution≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    15. The Roth IRA Distribution≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    16. The IRA (traditional or ROTH) distribution≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    17. The IRA Distribution ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    18. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    19. The distribution is a life insurance policy surrendered for cash and ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    See IRM 4.19.3.7.10.7, IRA Distributions, for further information.

  5. If there is an indication of a non-spousal IRA with an IR containing a COD 4 and the TP reply does not indicate it is a trustee to trustee rollover, send a Special Paragraph using the following verbiage as an example. "When you inherit an IRA from someone other than your spouse, you cannot roll it over into another account unless you make a trustee to trustee transfer. Please provide documentation to verify the amounts were rolled over into an account maintained in the name of the deceased IRA owner for the benefit of you as the beneficiary."

  6. If the TP's reply indicates the rollover was NOT made within 60 days, issue a Letter 2626C and include a Special Paragraph using the following verbiage as an example: "Since you indicated the rollover was not timely (within 60 days), your distribution is taxable."

  7. If the TP states they rolled over their traditional IRA into a Roth IRA, a portion may be taxable. Advise the TP to complete Form 8606 to determine the taxable amount.

  8. If the FMV amounts are not included on Form 8606, line 6, do not accept the Form 8606, Part I. Consider the IR(s) partially or fully U/R. Include a Special Paragraph using the following verbiage as an example "The fair market value (FMV) of all your Traditional, SEP and SIMPLE IRAs must be included on Form 8606, line 6. Your IRA trustees have reported FMV amounts on Form 5498, box 5, that were not included on this line, Please send us a revised Form 8606 if applicable. Refer to Pub 590-B, Distributions From Individual Retirement Arrangements (IRAs)." Send the 5498 IRs that contain FMV element for the TP listed on Form 8606.

  9. If the TP's response indicates ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ advise the TP to submit a completed Form 8606 reflecting the taxable amount.

4.19.3.20.3.7  (09-01-2003)
Rent and Royalty Income

  1. Accept the TP explanation when:

    1. He/she is a member of a federally recognized Native American tribe ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Note:

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

    2. The rental was ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. The rental income was ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

4.19.3.20.3.8  (10-04-2010)
Conduit Income

  1. Accept the explanation when the TP:

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

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

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

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

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

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

    7. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "

    8. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

    10. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    11. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    12. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

4.19.3.20.3.9  (08-16-2011)
Agricultural Subsidies

  1. Accept the TP statement that his/her AGSUB payments are nontaxable ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

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

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

    7. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    8. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

    10. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    11. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    12. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    13. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    14. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

4.19.3.20.3.10  (09-01-2003)
Patronage Dividends

  1. Accept the TP explanation when:

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

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

4.19.3.20.3.11  (08-26-2016)
Unemployment Compensation

  1. Accept the TP explanation when ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Send the taxpayer a Special Paragraph using the following verbiage as an example: "Repayment of unemployment benefits made in a subsequent year may be deducted on Schedule A, as a miscellaneous deduction in the year it was repaid. If the repayment is $3,000 or more and was previously included as income under a claim of right, you may choose to take a tax credit for the year of the repayment under IRC 1341. Refer to Publication 525, Taxable and Nontaxable Income."

4.19.3.20.3.12  (09-04-2015)
Social Security/ Railroad Retirement (SS/RR)

  1. If the TP replies that the proposed taxable SS/RR benefits includes nontaxable Workers' Compensation, issue a Letter 2626C and inform the TP that Workers' Compensation that reduces SS/RR benefits is considered as SS/RR when computing taxable benefits.

    Note:

    The Workers' Compensation appears as WCOMP on the SS/RR IR. The WCOMP amount is included in the SS/RR amount.

  2. If the TP disagrees with the underreported SS/RR because a portion of the gross benefits includes payments for previous year(s), take the following action:

    1. If the TP amended his/her prior year tax return(s) to include the portion of SS/RR for that year(s), check IDRS CC IMFOL. If the adjustment(s) posted, then determine if the TP reported the proper amount of SS/RR for the AUR tax year. If necessary, create a SS/RR IR for the benefits received in the AUR tax year.

    2. If the prior year(s) accounts were not adjusted, issue a Letter 2626C. Advise the TP that he/she may benefit by using the Lump Sum Election method to calculate Social Security Benefits. Include instructions from Publication 915Social Security Benefits and Equivalent Railroad Retirement Benefits, and the appropriate worksheets.

  3. If the TP disclaims knowledge of a Form SSA-1099, do not generate a Letter 2625C to the Social Security Administration. Issue a Letter 2626C and inform the TP that they will need to contact their local SSA office to obtain a corrected statement.

  4. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ 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

  5. If the TP's response indicates that the SS/RR is not taxable because they are disability benefits, advise the TP that disability benefits received from the Social Security Administration are treated the same as regular SS/RR benefits.

  6. If there is an indication the payments were a result of a terrorist attack, see IRM 4.19.3.20.1.14.1, Killed in Terrorist Action/Killed in Action (KITA/KIA), and IRM 4.19.3.20.1.26, Victims of Terrorist Attacks, for additional information.

4.19.3.20.3.13  (08-26-2016)
NEC and MERCH

  1. MERCH and/or NEC can be reported on the following forms and/or schedules

    • Schedule C

    • Schedule D

    • Schedule E

    • Schedule F

    • Form 1040, line 21

  2. Taxpayers may reduce amounts by expenses. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ It is not necessary to request a Schedule C. Assess SE tax, as applicable.

  3. Accept the TP's explanation if he/she states:

    Note:

    This list is not all inclusive. If the conditions in a - f are not met see (4) below.

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡

    2. The income is from the sale of collectibles/items held for investment (i.e. gold, silver, stamps, coins, gems, etc.), and was reported on Schedule D. See IRM 4.19.3.20.1.23, Schedule D Changes, for additional information.

    3. The income is from sale of personal items (i.e. clothing, refrigerator, stove, sofa, car, electronics, etc.), and was reported on Schedule D with net gain (including zero), see (5) below for additional information.

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

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

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

    7. The TP responds that the NEC is nontaxable Medicare waiver or difficulty of care payments or is excludable per Notice 2014 - 7.

  4. If the TP's response indicates

    1. The unreported MERCH/NEC income is from a hobby, advise the taxpayer the income should be reported on line 21 of Form 1040 and expenses can only be claimed as an itemized deduction on Schedule A, line 23, and are subject to the 2 percent limitation. The income is not subject to SE tax.

    2. The unreported MERCH/NEC income is from sale of collectibles/items held for investment (i.e. gold, silver, stamps, coins, gems, etc.), advise the taxpayer these are capital assets except when held for sale by a dealer. Any gain or loss from the sale or trade is generally a capital gain or loss and should be reported on Schedule D.

    3. The unreported MERCH income is from sale of personal items (i.e. clothing, refrigerator, stove, sofa, car, electronics, etc.), advise the taxpayer the income can be reported on Schedule D, however losses cannot be claimed on the sale of personal items, see (5) below or additional information.

    4. The MERCH income is from a fund raiser/charity and does not provide the name of the recipient (individual or organization), correspond and request the name of the recipient. Do not adjust the SE tax until the taxpayer responds with the requested information.

    5. The MERCH/NEC income was reported on the partnership return or Schedule E, Part II, and Schedule E, Part II does not reflect income or loss, or the taxpayer does not provide the name and/or EIN of the business the income was reported on. Issue a Letter 2626C to request additional information.

  5. The TP cannot claim a loss on sale of personal items. The TP CANNOT reduce the amount in excess of the MERCH IR.

    If And Then
    The TP indicates the MERCH was reported on the original Schedule D The Schedule D reflects a loss for the MERCH IR
    1. Consider the IR reported.

    2. Recapture the loss in excess of the MERCH IR. See IRM 4.19.3.20.1.23, Schedule D Changes, for additional information.

    3. If necessary, issue a recomputed notice.

    The TP is responding with a new Schedule D The Schedule D reflects a loss for the MERCH IR
    1. Consider the IR reported.

    2. Advise the TP they cannot claim a net loss for the sale of personal items.

  6. NEC and MERCH may be subject to SE tax, if the net result is a profit of $400 or more see IRM 4.19.3.14.1, Self-Employment Tax.

4.19.3.20.3.14  (08-26-2016)
Other Income

  1. These payments may have been pursued as miscellaneous NEC or as OTINC. They may represent Disaster/FEMA payments, Court Award Settlements or Prizes and Awards.

  2. When the U/R NEC or OTINC is from the same payer as the TP’s employer and the TP’s response indicates that the U/R amount represents a reimbursement of business expenses:

    1. Accept the explanation if the TP does not attempt to claim excess expenses over the reimbursement amount.

      Note:

      If the TP indicates that the expenses were less than the reimbursement, the difference is taxable income

      .

    2. If the TP attempts to claim excess expenses over the reimbursement amount and does not provide a completed Form 2106, do not allow the excess deduction. Send PARAGRAPH 159, (see IRM 4.19.3-7, CP PARAGRAPHS) if issuing a recomputed notice, or use the content from PARAGRAPH 159 in the applicable Correspondex letter.

  3. Accept the taxpayer response/explanation if:

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

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

    3. The TP states the OTINC is nontaxable Medicare waiver or difficulty of care payments or is excludable per Notice 2014 - 7.

  4. When U/R income is from a NMS/IFR settlement payment(s)

    If Then
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Accept the taxpayer response/explanation.
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Accept the taxpayer response/explanation.
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Determine the taxable portion.
    1. Subtract the exclusion amount from the gain.

    2. If the sum of step 1 is less than the NMS/IFR amount, consider the IR partially reported and pursue the result from step 1.

      Example:

      TP is filing status 1, the NMS/IFR payment is $2,000, and the gain is $251,000. $251,000 (gain) - $250,000 (exclusion) =$1,000. The U/R amount would be $1,000 ($2,000 (IR) - $1,000 (result of step 1) =$1000).

    3. If the sum of step 1 is equal to or greater than the NMS/IFR payment(s), consider the IR fully U/R.

      Example:

      TP is filing status 1, the NMS/IFR payment is $2,000, and the gain is $255,000. $255,000 (gain) - $250,000 (exclusion) =$5,000. The U/R amount would be $2,000 (IR amount).

    Note:

    Beneficiaries of National Mortgage Settlement and Independent Foreclosure Review payments may treat the distribution(s) in the same manner as the decedent would have had the decedent lived and received the income.

  5. Settlements of $50,000/$12,500 issued on Form 1099-MISC (as OTINC) from the Judgment Fund Branch of the USDA as a result of a class action discrimination suit filed by farmers (known as Black Settlement or Pigford claims) is considered taxable income.

    1. If the TP disagrees that the $50,000 OTINC amount is taxable, advise the TP that the settlement is taxable income as described in the letter they received.

    2. If the TP disagrees with the $12,500 OTINC amount, research IDRS CC TXMOD for the prior year for the presence of a TC 660 (ES Tax Payment) for $12,500. Notate the date of ES Payment and advise the TP that the $12,500 credited to their account as an estimated tax payment to defray the tax due on the $50,000 portion of the settlement is considered taxable income in the year it was applied. Inform the TP of the date the amount was applied.

  6. If the TP's response indicates the income was from either credit card disability or unemployment insurance plan, advise the TP the income may be taxable. If the TP provides the amount of premiums they paid, follow the chart below:

    If the premium paid is Then
    Less than the IR amount The difference is U/R.
    Equal to or more than the IR amount Delete the issue.
  7. Accept the TP's response if it indicates the income is from a physical injury or sickness as part of wrongful incarceration suit or cites IRC 104a(2).

4.19.3.20.3.14.1  (09-01-2006)
Court Award/Settlement

  1. If the TP response does not provide a breakdown of the award and claims some portion is non-taxable, and a recomputed notice is being issued send PARAGRAPH 119. See IRM 4.19.3-7, CP PARAGRAPHS. If issuing a Letter 2626C, ensure the letter includes wording similar to PARAGRAPH 119.

  2. If the TP response includes a breakdown of the award, accept the following explanations:

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

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

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

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

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

  3. See IRM 4.19.3.7.18.2 (1), OTINC Miscellaneous, for more information.

4.19.3.20.3.14.2  (09-01-2013)
Prizes

  1. If the TP states that he/she reported the fair market value of a prize and the amount reported is:

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ issue a Letter 2626C, include a Special Paragraph using the following verbiage as an example: "Please submit verification of the fair market value of your prize at the time it was received."

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ accept the TP's explanation.

4.19.3.20.3.15  (09-01-2006)
Gambling

  1. If the TP attempts to change the reporting of lump sum payments from their lottery winnings from ordinary income to a capital gain (on Schedule D), disallow the claim. See IRM 4.19.3.7.19.1 (2), Gambling Income - Analysis, for further instructions.

  2. If the TP responds with losses (with or without a revised Schedule A), see IRM 4.19.3.7.19.2, Gambling Losses.

4.19.3.20.3.16  (02-12-2016)
Cancellation of Debt (DBTCN)

  1. When the TP responds that the DBTCN is excludable due to bankruptcy or insolvency, or because it was from a qualified farm indebtedness or qualified real property business indebtedness AND the TP has tax attributes, then a Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (And Section 1082 Basis Adjustment), must be completed to determine the required (not allowable) reduction of tax attributes. Tax attributes are the following:

    • Net Operating Loss (NOL)

    • General Business Credit Carryover (Form 3800, General Business Credit)

    • Minimum Tax Credit (Form 8801, Credit For Prior Year Minimum Tax -Individuals, Estates, and Trusts)

    • Capital Losses (from Form 1040, Schedule D)

    • Basis in real or rental property (from Form 1040, Schedule E, Part I or Form 4562, Depreciation and Amortization (Including Information on Listed Property), is attached)

    • Passive Activity Loss and credit carry-overs (from Form 1040, Schedule E, Part II)

    • Foreign and Possessions Tax Credit (from Form 1040, Form 1116)

      Note:

      Use a Letter 2626C to correspond for a completed Form 982.

  2. Accept the explanation when the TP states that ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . If the TP indicates that the Bankruptcy was Chapter 12, 13 or does not indicate the Chapter, then the TP must state or provide documentation that the DBTCN was included as one of the creditors in the Bankruptcy papers. If necessary, correspond with the TP using a Letter 2626C.

  3. If the TP claims insolvency, he/she MUST provide a statement listing assets and liabilities. The TP is considered insolvent when total liabilities exceed the fair market value (FMV) of assets before the debt was cancelled. The TP may only exclude DBTCN up to the insolvent amount.

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

    2. Issue a recomputed notice for the remaining taxable DBTCN amount when the DBTCN amount ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. Issue a Letter 2626C if Form 982 is submitted without a statement listing assets and liabilities include a Special Paragraph using the following verbiage as an example: "The Form 982 you submitted 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."

  4. If the TP response indicates that the DBTCN includes interest that accumulated on the debt, but was forgiven as part of the DBTCN and was:

    1. Non-deductible (e.g., interest on a personal loan, credit card, etc.) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. Deductible (e.g., mortgage interest, business loan, investment interest, etc.) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. There is no INTFG amount on the IR, issue a Letter 2626C to request the documentation.

  5. If the TP's response indicates that the DBTCN was for a foreclosure or repossession and:

    1. Provides a Fair Market Value (FMV) amount that is larger than the DBTCN amount, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Example:

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

    2. The DBTCN was due to a non-recourse debt, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ See IRM 4.19.3.7.20.1 (12), Cancellation of Debt (DBTCN) - Analysis.

      Note:

      If Form 982, Box 1(e) is checked, the TP is allowed to exclude up to two million dollars (one million dollars if married filing separately) of DBTCN resulting from a foreclosure of the principal residence. If Form 982 is incomplete or missing, issue a Letter 2626C to request the information.

    3. A worksheet for Foreclosures and Repossessions or a similar statement is attached, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    4. He/she is entitled to take any losses claimed, issue a Letter 2626C stating that losses are non-deductible, unless the property was held for use in a trade or business or for investment, in which case a portion of the loss may be deductible.

  6. Consider the DBTCN reported when, DBTCN is from a Student Loan, and the TP has indicated either of the following:

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

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

  7. If the TP states that the discharge of debt is from a Qualified Farm Debt or real property business indebtedness, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , see (1) above.

  8. If the TP responds that their financial institution offered a discount for early payment of a mortgage loan, issue a Letter 2626C to inform the TP that the amount of the discount is considered a cancelled debt and as such is fully taxable and must be reported on their tax return.

  9. Do not delete the issue if the TP provides a statement from the creditor/collection agency stating the settlement was paid in full. Issue a Letter 2626C to inform the TP the difference between the original debt and the settlement offer amount is considered taxable income.

  10. Accept the TP's explanation that they are a qualified individual whose principal residence was located in a Midwestern disaster area during the period beginning May 20, 2008, and ending on July 17, 2008.

4.19.3.20.3.17  (09-30-2014)
Securities Sales

  1. If the TP acknowledges the U/R STOCK (e.g. provides broker statements or cost basis), however, the response does not include a completed Schedule D and Form 8949, take either of the following actions:

    1. For single (or relatively few) STOCK IR discrepancies, adjust the U/R STOCK amount by the cost basis provided by the TP or in the broker statement(s) OR

    2. For multiple STOCK IR discrepancies, issue a Letter 2626C (or a recomputed notice, if appropriate) with a Special Paragraph using the following verbiage as an example: "Your response did not include the requested completed Schedule D and Form 8949, detailing each securities sales transaction listed on our previous notice. When the necessary information is received, we will adjust your account accordingly."

  2. If the TP responds with a revised Schedule D/Form 8949 or cost basis AND the original Schedule D/Form 8949 was a gain or loss, see IRM 4.19.3.20.1.23 (2), Schedule D Changes:

    Note:

    If issuing a recomputed notice send PARAGRAPH 44. See IRM 4.19.3-7, CP PARAGRAPHS, and toggle off PARAGRAPH 166 in the Summary screen.

  3. When the TP disagrees with the U/R STOCK, accept the statement when:

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

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

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

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

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

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

    7. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    8. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    9. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. If security transactions or STOCK income is related to day trading, see IRM 4.19.3.20.3.17.2, Day Trader - Securities.

4.19.3.20.3.17.1  (09-30-2014)
Cost Basis - Responses

  1. If the TP responds with a completed Schedule D and Form 8949 claiming adjusted cost basis (not shown on the 1099B IR), ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

4.19.3.20.3.17.2  (09-01-2004)
Day Trader - Securities

  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Advise the TP that in order to avoid future correspondence on this issue, securities transactions relating to trader activities should be reported on Form 4797. Refer the TP to Pub 550Investment Income and Expenses, for further instructions.

  2. If the TP responds with a statement that they wish to make a mark to market election now, take the following action:

    Note:

    The election must be filed by April 15th to be valid for the year the election was made. Any current statement of mark to market election will not be valid for the AUR tax year. The TP must also file Form 3115, Application for Change in Accounting Method.

    1. Review the statement for completeness. The statement should include the following information: The election is made under IRC 475(f), the first tax year for which the election is effective and the trade or business for which the election is being made.

    2. Advise the TP: The election is not valid for the current AUR tax year; the tax year that the election is valid; and that a Form 3115 must be filed.

    3. If Form 3115 is attached, forward it for processing.

    4. Continue normal AUR case processing.

  3. If the TP responds that the U/R STOCK is from their trader activities and the TP filed a Form 4797 or provided other evidence of a previously filed mark to market election, delete Income Identify Code "ST" from the affected IR(s) to ensure that the lower capital gain rates and the limitation on capital losses does not apply.

4.19.3.20.3.18  (11-04-2014)
Real Estate

  1. An adjustment is required when the TP agrees that an amount was U/R or omitted and provides the basis to compute the taxable gain or loss.

  2. If the TP does not provide the basis to compute the taxable gain or loss, contact the TP to obtain the information needed to make the adjustment using normal processing procedures.

  3. Accept the TP response when:

    • States ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • Submits a Form 1099-S, box 4 is checked and a Form 8824 is attached.

  4. The TP may exclude up to $250,000 ($500,000 if married filing jointly) on the principal residence, regardless of age. Any gain in excess of the exclusion is taxable. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

4.19.3.20.3.19  (11-04-2014)
Qualified Education Payment Program (QTP, EARN, GRDIS, or CESA) Distributions

  1. Accept the explanation when the TP states or there is an indication:

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

      Note:

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

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

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

  2. When adjusting the taxable amount of the distribution a manual calculation of the 10 percent tax is required. See IRM 4.19.3.14.5 (4), 10 Percent Tax on Qualified Education Program Payments, for exceptions to the 10 Percent additional tax.

4.19.3.20.3.20  (09-01-2003)
Long Term Care Benefits (LTC)

  1. Accept the following explanations:

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

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

4.19.3.20.3.21  (09-01-2004)
Foreign Income

  1. Accept the TP's explanation when ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. Accept the TP's explanation of U/R foreign income for:

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

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

4.19.3.20.3.22  (09-01-2013)
Mortgage Interest

  1. If the TP's response includes acceptable explanations for some of the amounts ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. If additional research is required to resolve the issue, see Pub 936 , Home Mortgage Interest Deduction.

  3. If the TP's response states the mortgage interest in question is related to a Schedule E property or makes reference to a passive loss limitation/restriction, determine if the passive loss rules affect the property for which mortgage interest deductions apply, by comparing Schedule E, line 22 (deductible rental loss) to line 21 (income or loss from rental/royalty property).

    1. If the deductible loss on line 22 is equal to or greater than the loss on line 21, work the issue as a normal O/D case.

    2. If the deductible loss on line 22 is less than the loss on line 21, the loss is subject to passive activity loss rules.

    When the passive loss activity rules apply, the adjustment to MORT may not affect the current tax year's AGI, but impacts the amount of loss that can be carried forward to the subsequent year. If the TP agrees to the U/R MORT, and claims no impact due to passive activity loss limitations, take the following action:

    1. Accept the TP's explanation regarding the U/R MORT issue for the property(ies) in question and ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. Include a Special Paragraph using the following verbiage as an example: "Although the adjustment to the mortgage interest deduction does not affect your current year's taxable income, the passive loss carry forward for the property must be corrected. We have recorded the adjustment. Please make the necessary corrections to your passive loss carry forward worksheets."

    3. Complete Form 5346, Examination Information Report. Include a narrative explaining the nature of the adjustment (to the passive loss carry forward), the amount of the adjustment, the related property that was affected, and all other return information required on the form.

    4. Forward the completed Form 5346 to either the Chief, Classification or to the Chief, Planning and Special Programs (PSP) for review (per local determination).

    5. Leave a case note documenting the actions taken.

    Note:

    If the passive activity rules apply, and the TP does not respond or does not agree with the proposed adjustment to the MORT, follow normal No Response or Disagreed response procedures for the O/D MORT.

  4. If the TP responds with Form 8829, see IRM 4.19.3.10.2.1, MORT - Analysis, for further instructions.

  5. Accept the TP explanation when:

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

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

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

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

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

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

    7. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    8. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Contact the TP and include a Special Paragraph using the following verbiage as an example: "In order to deduct home mortgage interest you must have ownership interest in the property. You cannot deduct payments made on someone else’s behalf if you are not legally liable to make them. Please provide us with any documentation showing that you have ownership interest in the property."

4.19.3.20.3.23  (08-26-2016)
Self-Employment Tax (SE Tax) vs. Employee Share of FICA

  1. If the TP responds he/she is NOT LIABLE for SE tax on NEC because he/she is an employee, take the following action:

    1. Issue a Letter 2626C.

    2. Include a Special Paragraph using the following verbiage as an example: "Our records show that you were paid as an independent contractor, subject to SE tax. Please complete, sign and return Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, and attach it to a copy of this letter. To expedite processing please write AUR along the top of Form SS-8."

      Reminder:

      During Statutory Notice phase, include a paragraph that alerts the TP that the 90-day period for petitioning U.S. Tax Court is still in effect.

    3. Ensure Form SS-8 is sent to the TP.

      Caution:

      This process is not for misclassification of wages (i.e., bonus income, supplemental wages, etc.). This process is to determine worker status.

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

  3. If the TP responds with a completed (all questions are answered and it contains an original signature) Form SS-8:

    Note:

    The SS-8 unit will reject any incomplete Form SS-8, see (4) below for incomplete forms.

    1. Print the IRs for the payer in question and attach to the Form SS-8.

      Exception:

      If the original payer documents (i.e. Form 1099-MISC, Form W-2, etc.) is attached to the return, make a photocopy of the document to attach.

    2. Forward the Form SS-8 to the SS-8 Group in Holtsville (using Form 4442Inquiry Referral).

      Note:

      When forwarding to the SS-8 group, write "AUR - Please Expedite" across the top of the Form 4442.

    3. Leave a case note.

    4. Manually issue a Letter 4314C to the TP.

    5. Provide the SS-8 Group Action 61/Policy Statement P-21-3 contact person/telephone number.

    6. Suspend the case in the unit for 60 days and monitor.

    7. If, after 60 days, the SS-8 group has not responded, contact SS-8 for determination status.

  4. The SS-8 unit will reject cases back to AUR in either of the following instances:

    1. An 218 agreement exists for the occupation. In this case, the worker has been determined to be an employee and is subject only to FICA tax. See (7) below to compute the employee share of FICA.

    2. There is a lawsuit/litigation between the two parties. In this case, inform the TP the payer reported the income as nonemployee compensation, which is subject to SE tax, and we cannot change the SE Tax determination without corrected payer information/documentation. Leave a detailed case note and continue processing.

  5. If the TP responds with an incomplete Form SS-8 or the Form SS-8 does not have an original signature, take the following actions:

    1. If the TP has provided contact information (telephone number), attempt to contact the TP by telephone to secure the information. Advise the TP that each line of Form SS-8 must have an entry or the form will be rejected. Request that the TP complete, sign and re-mail the form. See IRM 4.19.3.20.2.4.1, Out Calls - Calling the Taxpayer, for additional information. Hold the case in unit suspense to wait for the completed form; after 60 days continue normal processing.

    2. If the TP has not provided contact information, issue a Letter 2626C. Include a Special Paragraph using the following verbiage as an example: "The Form SS-8 you submitted was incomplete or did not contain an original signature. To be considered complete all questions must be answered and must contain an original signature. In order for a determination to be made you must complete, sign and mail Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, attached to a copy of this letter. To expedite processing please write AUR along the top of Form SS-8."

  6. When the SS-8 Group notifies AUR that the TP is subject to SE tax:

    1. Issue a Letter 2626C and include a Special Paragraph using the following verbiage as an example: "Our records indicate that a determination has been made that you are an independent contractor subject to self-employment tax."

    2. Leave a case note.

    3. Continue processing.

  7. When the SS-8 Group notifies AUR that the TP is an employee (subject only to FICA), take the following action:

    1. Use the Additional FICA Tax window to compute the employee share of FICA (see table below for percentages) on the gross NEC instead of the originally proposed SE tax amount.

      TY 2013 TY 2014 TY 2015
      7.65 percent 7.65 percent 7.65 percent
    2. Change the Income Identify Code on NEC IR(s) subject only to FICA tax to "PE" or "SE" as applicable.

    3. Select the SE Tax window and enter zeroes (0) in the primary and secondary SE TAX NOW fields. This prevents the system from assessing SE tax on the FICA income.

    4. Send PARAGRAPH 163, see IRM 4.19.3-7, CP PARAGRAPHS.

    Note:

    If the NEC is partially reported on Schedule C, verify the SSNs to be sure you adjust the correct Schedule C. Also, select the FICA Tax window in the proper sequence, see IRM 4.19.3.3.2 (3), Case Analysis Screen. If selected out of order, a message displays describing the proper sequence. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - FICA Tax.

  8. When the TP submits an AUR RECON request disagreeing with the assessment of SE tax:

    1. Send the appropriate C-Letter advising the TP to complete, sign and submit the Form SS-8 per the instructions on Form SS-8. Include a statement that the process can take up to 180 days to be completed before a determination is rendered. Include Form SS-8.

    2. Close the AUR control (assign IPC 9I for TY 2005 and subsequent).

  9. If the TP submits an AUR RECON request that includes a Form SS-8 take the following action:

    Caution:

    This process is not for misclassification of wages. (i.e., bonus income, supplemental wages, etc.). This process is to determine worker status.

    1. Print the IRs for the payer in question and attach to the Form SS-8.

      Exception:

      If the original payer documents (i.e. Form W-2) is attached to the return, make a photocopy of the document to attach.

    2. Forward the Form SS-8 to the applicable SS-8 team in Holtsville.

      Note:

      Do not include verbiage to "AUR - Please Expedite" .

    3. Send the TP the appropriate C-Letter advising the TP that the Form SS-8 has been forwarded for consideration and provide the TP with the SS-8 Action 61/Policy Statement P-21-3 contact. Include a statement that the process can take up to 180 days to be completed before a determination is rendered.

    4. Close the AUR control (assign IPC 9I for TY 2005 and subsequent).

    Note:

    Once the SS-8 group renders their determination, they will instruct the TP to file a Form 1040X, including a copy of the favorable determination letter to the Service Center where they filed their original tax return.

4.19.3.20.3.24  (09-01-2013)
O/C Withholding - Responses

  1. Schedules K-1 may contain BWH. Accept the TP's response if it includes a copy of the following:

    1. Form 1041 - Schedule K-1 and an amount in box 13 with a code "B" OR

    2. Form 1065 - Schedule K-1 and an amount in box 15 with a code "O" OR

    3. Form 1120S - Schedule K-1 and an amount in box 13 with code "O"

  2. If the TP responds to a notice issued solely for O/C questionable W/H and provides the necessary documentation, close the case No Change.

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

  4. If the TP responds to a notice issued for O/C questionable W/H and does not provide the necessary documentation, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ :

    1. If the O/C W/H was the only issue, assess the undocumented O/C W/H amount. Issue a letter to inform the TP that we have disallowed the additional W/H, he/she will receive an adjustment notice and that he/she may file an amended Form 1040X when the necessary documentation is obtained. Close the case with PC 53 (CP 2501) or PC 68 (CP 2000).

    2. If the notice contains other issues, ensure that the AGREE criteria (see IRM 4.19.3.20.5, Agreed Responses) is met before assessing the account.

      Caution:

      If the return is Virtual and there is no information (loose forms, schedules or correspondence), to be associated with the refile DLN, enter "N" in the SOURCE DOCUMENT ATTACHED? field of the Assessment window.

    3. If the tax increase is below tolerance, see IRM 4.19.3.19.1, No Response BT 84, before assessing the account.

      Note:

      A Statutory Notice of Deficiency cannot be issued when there is no tax increase (or the tax increase is below tolerance). The TP has no appeal rights concerning W/H.

  5. If the TP responds to a notice issued solely for O/C questionable W/H and indicates that Estimated Payments (ES) were included in the W/H amount, input the adjustment for the ES amount claimed:

    1. Ensure that the Return Value screen correctly reflects the needed changes.

    2. After committing Return Value screen, access the Assessment window.

    3. Confirm the presence of TC 290-0 and Reference Code 807 for the ES amount claimed erroneously.

    4. If the TP disputes the proposed adjustment, issue a letter to inform the TP of the pending adjustment.

    5. Close the case with PC 53 (CP 2501) or PC 68 (CP 2000).

      Note:

      If Tax Account does not contain any TC 660s, perform IDRS research to determine where the ES Payments could have posted (i.e., possible Spousal Dummy Account).

      Caution:

      If the return is Virtual and there is no information (loose forms, schedules or correspondence), to be associated with the refile DLN, enter "N" in the SOURCE DOCUMENT ATTACHED? field of the Assessment window.

4.19.3.20.3.25  (05-02-2005)
U/C Withholding - Responses

  1. If the TP responds to a CP 2501 Notice that was issued only for U/C questionable W/H or U/C questionable W/H with U/R issue(s) that result in a below tolerance net tax change and:

    1. Provides documentation or acknowledges that the U/C W/H should have been reported on the return, allow the additional U/C W/H. See (2) below for further instructions.

      Example:

      The TP signs the CP 2501 and makes no indication of disagreement.

    2. Fails to address/verify the U/C W/H, close the case with PC 52 (no closure letter). Send a Letter 1802C to inform the TP that we have concluded our investigation and they may file a Form 1040X if they have any additional information they want us to consider.

    3. Only addresses SOME of the U/C W/H, input the adjustment for the additional documented/acknowledged W/H ONLY on the ASSESSMENT window. See (2) below for further instructions. Send a letter to explain the W/H adjustment allowed and instruct the TP to file a Form 1040X if they have any additional information they want us to consider.

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

  2. If all other issues have been resolved or result in a below tolerance net tax change and allowable U/C W/H is still an issue:

    Exception:

    If the TP responds with an acceptable Form 1040X or provides revised figures, pursue all issues.

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

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

    3. Complete and commit Return Value screen.

    4. Access the Assessment window.

    5. Input Priority Code "3" .

    6. Close the case with PC 53 (CP 2501), PC 68 (CP 2000) or PC 88 (Statutory Notice).

      Caution:

      If the return is Virtual and there is no information (loose forms, schedules or correspondence), to be associated with the refile DLN, enter "N" in the SOURCE DOCUMENT ATTACHED? field of the Assessment window.

4.19.3.20.4  (08-26-2016)
Discrepancy Explained/No Change- General

  1. Close a case with no change to original tax liability if a response to the notice contains an acceptable explanation for the full amount in question.

    Note:

    If the TP gives an acceptable explanation for all income in question and requests an interview, conference, or hearing, take appropriate action to resolve the case. Also contact the TP (via telephone call or a Letter 1802C), and tell them the issue was resolved and to contact their local Area Office if they still would like an interview.

  2. If a case is being closed No Change and the TP submits a payment, input/verify the TC 290-0 on the Assessment window to refund the payment.

    Note:

    Delete any other Reference Code(s), TC(s), and/or amount(s) that are present on the Assessment window (i.e., Reference Code(s) 886, 888).

  3. If the case is closed No Change and an adjustment to prepayment credits and/or AGI/TXI is necessary, see IRM 4.19.3.20.6 (9) b through d, Partially Agreed Responses.

  4. No change PCs 15, 39, 47, 48, 51, 52, 69, 70, 71, 72, 73, 89, 91, 92 and 93 automatically generate a TC 290-0 with a "Y" in the SOURCE DOCUMENT ATTACHED? field in the Assessment window for electronically filed returns.

    Note:

    Beginning with TY 2015 PCs 39, 69 and 89 will no longer designate identity theft closures; these PCs are input on jointly filed return cases which require assessment to MFT 31 accounts for each TP.

    • If "M" is entered in the Auto/Manual IND field, the automatic assessment does not generate. The assessment must be input using the IAT "REQ54" tool.

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

  5. If the TP provides an acceptable explanation of all the income in question, close the case using PC 47, 52, 70, 71, 91 or 92 as appropriate. If the U/R issues are only partially resolved, follow instructions in IRM 4.19.3.20.6, Partially Agreed Responses, or see IRM 4.19.3.20.6.1, Recomputation Notice/Supplemental Report, to determine the correct action (i.e., Notice Indicator, PCs, etc.).

  6. If the case is closed No Change and

    1. there is no balance due on the module remove the flag (if present) and leave the Form 9465, Form 433-D or written IA request with the case.

    2. there is a module balance, complete Form 4442, attach Form 9465, Form 433-D or written IA request and forward to Collections indicating AUR case was closed No Change.

4.19.3.20.4.1  (09-04-2015)
Discrepancy Explained/No Change

  1. Use the following examples as a guide for evaluating TP responses. These examples are not all inclusive. The explanation of disagreement with the proposal on one or more of the issues is acceptable when the response meets the following criteria:

    1. The income in question is nontaxable, and information sources (the Internal Revenue Code, Pub 17 , etc.) confirm the nontaxability.

    2. The same issue was addressed in a prior year and was correctly closed No Change.

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

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

      Note:

      Check the Payer Agent window; if the information is not present, route a copy of the documentation provided by the TP/payer to the AUR Payer Agent Coordinator.

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

      Note:

      Follow procedures in IRM 4.19.3.20.7.1 (7), Responses Needing Correspondence, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

    7. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    8. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

    10. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    11. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    12. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    13. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Note:

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

      Note:

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

      Note:

      If deleting Wage IRs, see IRM 4.19.3.20.7.4 (5), Referrals, to prepare a Form 9409, IRS/SSA Wage Worksheet, unless the TP has provided an SSA determination letter, on the WAGE IR(s) in question.

  2. Accept the response if the TPs states they have ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Note:

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

    Caution:

    If deleting Wage IRs, see IRM 4.19.3.20.7.4 (5) Referrals to prepare a Form 9409 unless the TP has provided an SSA determination letter on the WAGE IR(s) in question.

  3. If Master File shows an indication of a mixed entity situation, forward to Accounts Management. See IRM 21.6.2, Adjusting TIN-Related Problems.

    • AUR may utilize the IAT "aMend" tool, research portion, to assist in determining scrambled SSN or Mixed Entity.

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

4.19.3.20.5  (08-26-2016)
Agreed Responses

  1. An agreed response must contain no disputing comments and must meet ONE of the following conditions:

    Note:

    If only one TP has signed the consent and the criteria in a) below is not met or both TP’s signed separate consent forms, see IRM 4.19.3.20.5.1, Responses – Married Filing Joint – Single Signature on Consent, for additional information.

    Note:

    Comments concerning interest are not considered disputing, treat as an agreed response. The TP does not have to consent to the assessment of interest as this is a statutory adjustment. Issue a Letter 1802C to inform the TP. See IRM 4.19.3.20.1.2, Abatement of Interest.

    1. Be full paid - prior to issuance of a Statutory Notice - for tax and all penalties, except the following: ES Penalty, social security tax on tips, Accuracy-Related Penalty Due to Negligence/Substantial Understatement if evidence of reasonable cause is provided and accepted and FTF/FTP relating solely to adjustments to W/H and/or excess SSTAX.

      Caution:

      Full payment received after issuance of a Statutory Notice cannot be accepted as agreement to the tax increase. Attempt to contact the TP by phone to request the missing signature(s). If unable to reach the TP by phone, issue a Letter 2626C to acknowledge payment and request missing signature(s). If the suspense time frame has expired, input PC 90 to default the case.

    2. Contain the necessary signatures on the CP 2000, Form 9465, Form 433-D for both tax and penalties, Waiver, Form 1040X, statement, or similar document.

      Note:

      A statement or similar document must contain (in addition to the signature) the tax year, the tax increase amount, and applicable penalties unless attached to the notice.

      Note:

      A consent to assess additional tax (CP 2000, Letter 2626C, Form 5564-A (Statutory Notice), Form 9465 and Form 433-D) can be accepted by fax.

    3. Contain signatures, on an unaltered CP 2000 with no TP comments/attachments, under the third party authorization (both signatures on a jointly filed return, unless one of the spouses is deceased) AND checks the "I agree with all the changes" box.

    4. A signature on a CP 2501ONLY when the TP provides a complete, accurate tax computation.

  2. Both signatures are required on a jointly filed return that is not fully paid (the signature of a surviving spouse is acceptable). See IRM 4.19.3.20.1.18, Divorced/Separated Taxpayers, and IRM 4.19.3.20.1.18.1, Divorced/Separated Taxpayers - Single Signature on Consent, for additional information if the TPs are divorced or separated. If on a MFJ return full payment is not received prior to Stat issuance and only one TP signs the consent or both TPs sign separate consent forms (different IRS received. dates), see IRM 4.19.3.20.5.1, Responses – Married Filing Joint – Single Signature on Consent, for additional information.

  3. The signature of a third party is acceptable if:

    1. A POA has been filed authorizing the third party to sign, or

    2. The third party is executor or administrator of the TP's estate.

  4. If there is an entry in the MANUAL INTEREST field on the Return Value screen, follow local procedures to transfer the case to the designated UID.

  5. If the case is designated as an ARDI case (proposed adjustment of $100,000 or more), do not input the assessment even if the TP has fully agreed. Indicate ARDI on the case folder and transfer the case to a locally designated UID for processing. See IRM 4.19.3.20.1.3, Accounts Receivable Guidelines, for additional information.

  6. If the TP agrees to the notice and indicates he/she would like to talk to someone:

    1. Contact the TP by phone (only one attempt is required), and

    2. Take the appropriate action.

  7. If the TP requests that the subsequent year's refund be applied to the deficiency and the case can be closed agreed:

    1. Close the case agreed.

    2. Fax request to:
      470-769-3681
      Atlanta CSCO
      Attn: Lead Team 203

      Note:

      Be sure the request includes the SSN, Tax Year, amount due and the TPs request.

    3. Issue a Letter 1802C to the TP. Inform him/her the request has been forwarded to the appropriate department, but we may not have time to deduct the liability from this year's refund.

    4. Leave AUR case note, "TC 130 Req to Coll" or similar verbiage.

  8. If the TP does not request an Installment Agreement, but indicates that they can pay the balance due within 120 days, forward the extension to pay to Collections for processing.

    1. Issue a Letter 1802C.

    2. Leave AUR case note, "Extension to Pay to Coll" or similar verbiage.

    3. Close the case agreed.

  9. Close case using PC 53, 67, or 87 as appropriate. If the case has been flagged for an installment agreement, remove the flag from the Form 9465, Form 433-D or written IA request and send to Collections.

  10. An assessment record generates automatically, up to a locally determined date, but no later than the dates listed in the table below. After that time, manual assessments must be input on IDRS.

    Notice Type TY 2013 TY 2014 TY 2015
    CP 2000 January 6, 2017 January 5, 2018 January 4, 2019
    Statutory Notice May 5, 2017 May 4, 2018 May 3, 2019

4.19.3.20.5.1  (08-26-2016)
Responses – Married Filing Joint – Single Signature on Consent

  1. A MFT 31 module must be established for each TP when taxpayers file jointly, the case is not fully paid prior to issuance of a STAT, and either of the following applies:

    • Only one spouse signs the consent

    • Each TP signs separate consent forms that are not dated the same

    Exception:

    Do not establish MFT 31 when the IRS received date is the same on both consent forms. Refer to IRM 4.19.3.20.10.1, The Assessment Window, for additional information.  

    Caution:

    These procedures are for paper case responses ONLY. If during a telephone call it is determined that an action is needed (i.e., letter, revised notice, assessment, No Change closure) on a case in BT 89004/89005/89006, check the action required box and leave a DETAILED case note explaining the action(s) needed (if the case is controlled at your campus follow local procedures to route detailed instructions for the required action(s) to the appropriate individual/unit). If the TP indicates agreement with the notice, instruct the TP to sign, date, and return the consent to tax increase, or, refer the TP to the consent page of the notice which provides complete information.

  2. Establish the MFT 31 module for each taxpayer by accessing IDRS CC TXMODA from the MFT 30 primary account. Use the IAT "REQ 77" tool to establish the MFT 31 accounts for both primary and secondary SSN as follows:

    Note:

    The SSN, MFT, tax period, and name control will populate from CC TXMODA.

    1. TC: Input "971" .

    2. TRANS-DT: Date of TC 971 input.

    3. TC971/151-CD: Input "103" .

    4. XREF-TIN: Input SSN (create a module for both SSNs).

    5. Leave remarks: e.g., "Split/Spousal MFT 31 established" .

      Reminder:

      Complete the above actions for both the primary and secondary SSN using the XREF-TIN field to establish each TP a MFT 31 module.

      Note:

      The TC971 AC 103 generally posts within 2 weeks after input.

  3. Monitor the case to ensure the MFT 31 has been created for both accounts. Once the MFT 31 has been created, input TC971 AC 110 on each MFT 31 account. Use the IAT "REQ 77" tool to input the TC971 AC 110 by taking the following actions:

    Note:

    Use the batch listing for the 89004 or 89005 batch or Agree/Non-Agree and Docketed Appeals (NPS) Suspense Inventory Report to monitor the case and input the TC971 AC110.

    1. TC: Input "971" .

    2. TRANS-DT: Date of TC 971 input.

    3. TC971/151-CD: Input "110" .

    4. XREF-TIN: Input SSN (create a module for both SSNs).

    5. Leave remarks: e.g., "TC971 AC110" .

  4. Access the Update Address window and update the taxpayer addresses as follows:

    • Input the address of the primary spouse using Address Type "T" , and an end date one year (365 days) from the current date. Edit the first name line to reflect only the primary spouse name.

    • Input the address of the secondary spouse on the Update Address window using Address Type "S" ; even if it is the same address. Edit the first name line to reflect only the secondary spouse name.

      Note:

      If the TP indicates they are now divorced or separated, see IRM 4.19.3.20.1.18.1, Divorced/Separated Taxpayers – Single Signature on Consent , for additional information.

  5. If additional correspondence or a recomputed notice is necessary, take the following actions:

    If Then
    Additional correspondence is necessary
    1. Verify the information in the Update Address window is correct based on (4) above.

    2. Issue Letter 2626C separately to each taxpayer to address response issue(s), and advise TPs they are jointly and separately liable for the tax and attempt to obtain the missing signature, using the following verbiage as an example: "When you file a joint return, both taxpayers are jointly and separately responsible for the full amount of tax owed on the return and both signatures agreeing to the consent to tax are required. We are unable to continue processing your signed agreement until we have received both signatures."

    3. Input IPC S6 (CP2000) or S3 (Stat) and release the case; the case is moved to BT 89005 or 89004 respectively.

    A recomputed notice is required (suspense timeframe NOT expired)
    1. Verify the information in the Update Address window is correct based on (4) above.

    2. Rework the case following normal processing procedures.

    3. Input appropriate PC (i.e., PC 59 or PC 95) and release the case.

    4. Monitor the case for the PC to post. Once posted, request the case.

    5. Input IPC S6 (CP 2000) or S3 (Stat) and release the case; the case is moved to BT 89005 or 89004 respectively.

    An assessment is necessary Do not input agreed or default assessment PCs until further notice; i.e., PC 67, 68, 87, 88, 90, RN, or SR. Continue to hold.
    STAT issuance is necessary Issue a manual STAT to the non-agreeing taxpayer ONLY.
  6. Leave a detailed case note to indicate which taxpayer agreed; i.e., secondary TP agreed, input IPC S6 (CP2000) or S3 (Stat) and release the case to move the case to BT 89005 or BT 89004; respectively.

  7. Use the batch listing for the 89004 or 89005 batch or Agree/Non-Agree and Docketed Appeals (NPS) Suspense Inventory Report, to monitor the case to await expiration of the suspense timeframe. Once expired, request the case.

4.19.3.20.6  (08-26-2016)
Partially Agreed Responses

  1. A response is considered partially agreed when the TP includes acceptable explanations for SOME of the amounts in question. Recompute the tax on the remaining AUR issues.

    Note:

    A Form 1040X can be considered a partially agreed response.

  2. Use the Recomputed Notice process to update the TP's account. Using IPC "RN" (CP 2000) or "SR" (Statutory Notice) with the appropriate Notice Indicator ensures that State Disclosure information is properly updated.

    1. IPC "RN" and "SR" are not valid for Employee Cases. If the TP’s response is a partial agree that would otherwise have been closed with IPC "RN" or "SR" , issue a recomputed notice (PC 59 or PC 95) for the TP’s signature. This ensures the CP 2000 History is properly updated to allow for correct State Disclosure information. However, if there is insufficient time left on the Statutory Notice suspense period use PC 88 to assess the case.

    2. If the system recomputes an amount LESS than the TP's calculation, always use the system figures. Include a Special Paragraph explaining the difference. Use Notice Indicator 7 to ensure the TP receives a "for your information only" CP 2000 Notice.

  3. When the TP responds to a CP 2000/CP 2501/Statutory Notice, use the NET TAX CHANGE tolerance to determine future action on the case. See IRM 4.19.3.12.4 (3), Net Tax Increase/No Net Tax Increase/Tax Decrease Notices, for further description of net tax change.

  4. If there is an entry in the MANUAL INTEREST field on the Return Value screen, follow local procedures to transfer the case to the designated UID.

  5. When the TP responds with an acceptable explanation for some of the amounts in question, does not provide revised tax figures and≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ :

    • signs the consent to tax increase on the CP 2000, Waiver or attached statement or similar document (with or without full payment) or

    • submits a payment which equals or exceeds the new tax increase ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and all penalties (except ES Penalty and FICA tax on tips)

    Take the following actions:

    1. Rework the case as necessary. Consider penalties as applicable.

    2. Input/verify the appropriate entries on all screens. Input "7" or "8" as appropriate in the NOTICE IND field of the Summary screen.

      Reminder:

      Notice Indicator "8" should only be used when the Non-Refundable Credits window is used to make the AUR system match the TP’s figures or payment ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . In these situations a letter should be sent to the TP confirming that we used the information/computation they provided to make the assessment to their account.

    3. Input IPC RN or IPC SR. When IPC RN or IPC SR is used, the system generates an automatic assessment.

      Caution:

      Full payment received after issuance of a Statutory Notice cannot be accepted as agreement to the tax increase. Issue a Recomputed Notice (PC 95) to acknowledge payment and request missing signature(s). Unless the necessary signature(s) are obtained, these cases are left to Default.

    4. Remove the flag from the Form 9465, Form 433-D or written IA request and send to Collections.

  6. If the TP's acceptable response results in no tax deficiencies (i.e., tax decrease with no decreases to either EIC or ACTC), with or without a signed consent:

    Note:

    See IRM 4.19.3.12.4, Net Tax Increase/No Net Tax Increase/Tax Decrease Notices, for definition of deficiency items.

    1. Rework the case as necessary. Consider penalties as applicable.

    2. Input/verify the appropriate entries on all screens. Input "7" or "8" as appropriate in the NOTICE IND field of the Summary screen.

      Reminder:

      Notice Indicator "8" should only be used when the Non-Refundable Credits window is used to make the AUR system match the TP’s figures ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . In these situations a letter should be sent to the TP confirming that we used the information/computation they provided to make the assessment to their account.

    3. Input IPC RN or IPC SR. When IPC RN or IPC SR is used, the system generates an automatic assessment.

      Note:

      For CP 2501 responses issue a CP 2000.

    4. If the case cannot be closed (assessed or no change), leave the flag attached. If no flag is present attach a flag indicating "IA" to the Form 9465, Form 433-D or written IA request and continue normal processing. If closing case, see (10) below.

  7. If the recomputed net tax change is above tolerance and the TP includes an acceptable explanation for some of the amounts in question, provides revised figures and meets agreed criteria:

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

    2. Input/verify the appropriate entries on all screens. If the system is unable to compute the same amounts as the TP did ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , adjust the MISCELLANEOUS CREDITS field of the Non-Refundable Credits window (in Return Value) to resolve the difference.

    3. Input "7" or "8" in the NOTICE IND field on the Summary screen.

      Note:

      If the system recomputes an amount LESS than the TP's calculation, always use the system figures. Include a Special Paragraph to explain the difference. Use Notice Indicator "7" to ensure the TP receives a "for your information only" CP 2000 Notice.

      Reminder:

      Notice Indicator "8" should only be used when the Non-Refundable Credits window is used to make the AUR system match the TP’s figures ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . In these situations a letter should be sent to the TP confirming that we used the information/computation they provided to make the assessment to their account.

    4. If present, remove the flag from Form 9465, Form 433-D or written IA request and send to Collections.

    5. Input IPC "RN" or "SR" .

    Note:

    For CP 2501 responses, if the TP includes a specific amount of tax increase, update/verify the Assessment window and input PC 53.

  8. If the recomputed net tax change is above tolerance and the TP has not signed a consent to tax increase nor fully paid with no disputing comments, issue a Recomputation Notice, use PC 59 (CP 2000) or PC 95 (Stat) with the appropriate Notice Indicator. See IRM 4.19.3.20.6.1, Recomputation Notice/Supplemental Report.

    Caution:

    If Form 9465 or Form 433-D is attached and there is no flag, securely staple a flag indicating "IA" to the Form 9465, Form 433-D or written IA request and leave in the case.

    Example:

    The CP 2000 was originally issued for a tax increase of $1,000 and an increase to W/H of $800. Based on the TP's response, the recomputed tax increase is now $840, with an increase to W/H of $800. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ If the agreed criteria is not met, the tax examiner MUST issue a revised CP 2000 for the TP's signature(s).

  9. If the recomputed net tax increase is below tolerance and the TP does not submit a payment, or does not request a bill/notice, close the case No Change.

    Note:

    If there is a Form 9465 or Form 433-D attached, see (10) below.

    1. If an adjustment to prepayment credits (W/H, excess SSTAX, and additional MCTXW) and/or AGI/TXI is NOT necessary, use PC 47 (CP 2501), PC 70 (CP 2000) or PC 91 (Statutory Notice) to close the case.

    2. If an adjustment to prepayment credits (W/H, excess SSTAX, and additional MCTXW) IS necessary, input/verify the appropriate entries in the Assessment window. Use PC 53 (CP 2501), PC 68 (CP 2000), PC 88 (Statutory Notice) or PC 94 (Default Statutory Notice) to close the case.

    3. If an adjustment to AGI and/or TXI ONLY is necessary and the tax change is zero (example: TP agrees to unreported income that impacts the AGI, however due to negative TXI, the tax change is zero), input/verify the appropriate entries in the Assessment window. Issue the appropriate Correspondex letter to advise the TP of the adjustment to AGI and/or TXI and use PC 52 (CP 2501), PC 71 (CP 2000) or PC 92 (Statutory Notice) to close the case.

      Note:

      Do not include AGI/TXI changes for amounts that the TP has not agreed to. For example: ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Caution:

      Do not use IPC RN or SR to create the assessment record when the tax change is zero.

      Reminder:

      See IRM 4.19.3.20.4 (4), Discrepancy Explained/No Change - General, for further information when closing Virtual returns.

    4. If an adjustment to AGI and/or TXI is necessary≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Issue the appropriate Correspondex letter to advise the TP of the adjustment to AGI and/or TXI and use. PC 52 (CP 2501), PC 71 (CP 2000) or PC 92 (Statutory Notice) to close the case.

      Note:

      Do not include AGI/TXI changes for amounts that the TP has not agreed to. For example: ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Caution:

      Do not use IPC RN or SR to create the assessment record when the tax change is zero.

    5. If the case cannot be closed (assessed or no change), leave the flag attached. If no flag is present attach a flag indicating "IA" to the Form 9465, Form 433-D or written IA request and continue normal processing.

    Reminder:

    See IRM 4.19.3.20.4 (4), Discrepancy Explained/No Change - General, for further information when closing Virtual returns.

  10. If the case is closed No Change and

    1. there is no balance due on the module remove the flag (if present) and leave the Form 9465, Form 433-D or written IA request with the case.

    2. there is a module balance, complete Form 4442, attach Form 9465, Form 433-D or written IA request and forward to Collections indicating AUR case was closed No Change.

  11. If the recomputed net tax change is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and the TP or authorized representative acknowledges the existence of a remaining balance due/refund (e.g., submits a payment, a signed Form 1040X, requests a "bill" or "notice" , etc.) and;

    1. The recomputation is equal to or less than the payment amount (or the TP did not submit a payment), access the Summary screen. Use Notice Indicator 7 or 8, as appropriate. Close case with IPC "RN" (Recomputation Notice) or IPC "SR" (Statutory Recomputation Notice). For CP 2501 responses, if the TP includes a specific amount of tax increase, update/verify the Assessment window and input PC 53.

      Exception:

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

    2. The recomputation is more than the payment amount, adjust the MISCELLANEOUS CREDITS field of the Non-Refundable Credits window (in Return Value) to arrive at the payment amount as the recomputed net tax change amount and close the case with IPC "RN" (CP 2000) or "SR" (Statutory Notice). For CP 2501 responses, if the TP includes a specific amount of tax increase, update/verify the Assessment window and input PC 53.

    3. If present, remove the flag from the Form 9465, Form 433-D or written IA request and send to Collections.

  12. If there is a recomputed refund less than $1 and the TP requests a refund, issue it using manual refund procedures in IRM 21.5.1, General Adjustments, IRM 21.4.4, Manual Refunds, and IRM 21.5.2, Adjustment Guidelines.

4.19.3.20.6.1  (08-26-2016)
Recomputation Notice/Supplemental Report

  1. Rework and input appropriate indicators to:

    • Recompute the tax when the TP's response is partially agreed

    • Correct an erroneous CP 2000 or Statutory Notice

    • Send the TP an "information only" notice

    • Suppress the issuance of another CP 2000 when the TP has partially agreed and provided revised figures

  2. The system recomputes the tax, if required, based on changes input on applicable screens and windows. The interest updates and any payment submitted by the TP is included on the recomputed notice. PARAGRAPH 87 automatically generates when the payment posted as a TC 640 (see IRM 4.19.3-7, CP PARAGRAPHS). However; if the payment posted as a TC other than TC 640, send PARAGRAPH 87. See IRM 4.19.3-7, CP PARAGRAPHS. When the notice is complete, if there is an entry in the MANUAL INTEREST field on the Return Value screen or the Summary screen, follow local procedures to transfer the case to the designated UID. See IRM 4.19.3.16.10, Manually Computed Interest for the CP 2000, for further instructions.

    Note:

    Enter the payment in the Return Value screen or the Summary screen when using IPC/PC MI, RN, SR, 57, 59, or 95 (N/A if using Notice Indicator 8).

    1. All screens and windows used in the initial analysis of the case are available to the response tax examiner.

    2. After the case is reworked and if the proposed Social Security Tax on Tips Penalty and/or FTF penalty still need to be partially or fully abated, select the Limit Penalties window. See IRM 4.19.3.16.8, Limited Penalties, for further instructions. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Penalties.

  3. When a condition exists that requires a recomputation notice:

    1. Input/verify the total of all payments credited towards the TP's current AUR account received subsequent to our initial contact notice in the AMOUNT PREVIOUSLY PAID field on the Return Value or Summary screen.

      Note:

      When the TP's response indicates a payment was made, research Tax Account screen or IDRS for payments previously made. Input/verify on Return Value or Summary screen in the AMOUNT PREVIOUSLY PAID field, when issuing a recomputed or amended notice to the TP.

    2. Input Amended Indicator A (for amended notices) and Notice Indicators 0 - 5, 7 or 8 in the appropriate INDICATOR field(s) on the Summary screen.

      Note:

      Do not use BOTH the Amended AND a Notice Indicator on a case unless the previous PC is 59 or 95.

      Notice Indicator Definition
      0 The 90-day period for petitioning the U.S. Tax Court has expired.
      1 The 90-day period for petitioning the U.S. Tax Court is not expired.
      2 A response to a CP 2501 was received.
      3 NO response to the CP 2501 was received.
      4 Information supplied by the TP used to refigure the amount of tax he/she now owes IRS.
      5 The documentation or explanation that the TP provided was not sufficient to allow waiving the Accuracy-Related Penalty Due to Negligence or Substantial Understatement of Tax.
      7 The TP indicates partial agreement, sends information to refigure his/her tax, meets "agree criteria" and the notice is being sent for informational purposes ONLY.
      8 Used when the TP partially agrees to the CP 2000, AND the Non-Refundable Credit window is used to make the system match the TP's figures ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ This is the case where the TP has agreed to some of the proposed items, explained the other discrepancies satisfactorily, and recomputed the figures on the CP 2000. Indicator 8 updates the recirculating file (for an automatic assessment) but does not generate or send a notice to the TP.
    3. Use PC 57 when inputting Notice Indicator 2 or 3.

    4. Use PC 95 when inputting Notice Indicator 1.

    5. Use PC 59 when inputting Notice Indicator 4 or 5.

    6. Use IPC SR when inputting Notice Indicator 0 (zero).

    7. Use IPC RN (SR if Statutory phase) when inputting Notice Indicator 7 or 8.

    Note:

    Notice Indicator "8" should only be used when the Non-Refundable Credits window is used to make the AUR system match the TP’s figures ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . In these situations a letter should be sent to the TP confirming that we used the information/computation they provided to make the assessment to their account.

  4. Elements of IRs that were not sent on the original CP 2000 can be selected for inclusion on the recomputation notice. Mark the elements of additional IRs with Send Indicator "S" .

    Reminder:

    If an element of an IR is NOT to be included, the Send Indicator "S" must be removed.

  5. Review the notice PARAGRAPHs in the Summary screen. Delete any PARAGRAPHs that no longer pertain to the recomputed notice (i.e., the original issue requiring the PARAGRAPH has been resolved).

  6. If a decrease to the tax deficiency is necessary after a Statutory Notice was issued, issue a recomputed CP 2000 using PC 95 (if there is sufficient time left on the Statutory Notice suspense period). If there is not sufficient time:

    1. Input IPC SR and Notice Indicator 0 (zero); OR,

    2. Send a Letter 1151C to the TP(s) and input IPC "8M" .

    Note:

    Issuance of a Statutory Notice does not extend the period for assessing FICA tax.

  7. If the TP’s response indicates agreement to a tax increase that is more than the deficiency shown on the Statutory Notice and:

    1. The TP does not provide the revised tax figures, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. The TP does not provide the revised tax figures, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ see IRM 4.19.3.20.11.1 (2), Rescinding Statutory Notices.

    3. The TP supplies revised tax figures, see IRM 4.19.3.20.11 (15), Instructions Specific to Statutory Notices/Responses.

  8. When Form 9465, Form 433-D or written IA request is attached

    If Then
    Issuing a revised notice (PC 57, 59, or 95) Leave the Form 9465, Form 433-D or written IA request in the case file. If there is no flag, securely attach one indicating "IA" to the Form 9465, 433-D or written IA request.
    Issuing a recomputed notice (IPC RN or SR) Remove the Form 9465, Form 433-D or written IA request and send to Collections.

4.19.3.20.7  (08-26-2016)
Responses Needing Further Action

  1. AUR receives responses that require additional action before the case can be closed. Additional action may include:

    • Correspondence with the TP via a letter or recomputation notice

    • Correspondence with a payer

    • Research

    • Referral

    • Routing of information, including non-IRP related inquiries

    • Address updates

    • Extension of the CP 2000 suspense period

    • Telephone contact

    • Designation as an ARDI case (i.e., Proposed Adjustment of $100,000 or more) see IRM 4.19.3.20.1.3, Accounts Receivable Guidelines.

    • Form 9465 or Form 433-D see IRM 4.19.3.20.1.21, Installment Agreements.

    Note:

    Do not issue multiple Letter 2626Cs to request the same information and/or documentation or to provide the TP the same clarification. If unable to secure the information after the second attempt, continue processing.

  2. If the TP wants to talk to (or have their case reviewed by) a manager, refer the case to a manager. The manager will attempt to resolve the issue(s) by telephone contact. If the telephone contact does not resolve the issue(s), continue normal processing.

  3. If, in response to a request to verify a previous response of "didn’t file a tax return" , the TP submits a tax return or a signed statement that they did not have a filing requirement, see IRM 4.19.3.20.1.25.3.1(4), IDT Claims - Responses. Refer to Exhibit 4.19.3-19, Filing Requirements for Most People, for additional information

4.19.3.20.7.1  (08-26-2016)
Responses Needing Correspondence

  1. Tax examiners determine if further TP contact would help to resolve the U/R issue. Issue a letter or contact the TP by telephone when:

    • A response indicates the TP does not understand the notice

    • The TP requests further information regarding taxability

    • Further contact will help resolve the U/R issue

      Note:

      Document any telephone contacts in the case note or TP Info window.

  2. If the TP replies the U/R income belongs to another person and does not provide the name OR the SSN of the recipient:

    1. Send Letter 2626C to request the name and SSN of the person responsible for the income and recommend the TP contact the payer to correct their records.

    2. If the TP responds to the Letter 2626C and provides EITHER the name or the SSN of the other person, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. If the TP responds to the Letter 2626C by stating that he/she is unable to furnish either the name or SSN of the person, issue a CP 2000 (CP 2501 phase), Statutory Notice (CP 2000 phase). If a Statutory Notice was issued, send the appropriate letter and send a Special Paragraph using the following verbiage as an example: "We are unable to change the proposed adjustment to your income tax based on your explanation that the income belongs to another person because you did not provide the name and social security number of the actual recipient."

    4. If the TP does not respond to the Letter 2626C, issue a CP 2000 (CP 2501 phase), a Statutory Notice (CP 2000 phase) or, if a Statutory Notice was issued, resuspend the case for the remaining time in the Statutory Notice suspense period.

    Caution:

    If deleting Wage IRs, see IRM 4.19.3.20.7.4 (5), Referrals, to prepare a Form 9409 unless the TP has provided an SSA determination letter, on the WAGE IR(s) in question.

  3. If the TP replies the U/R income belongs to a minor child and no return was required, accept the TP's explanation at face value if the U/R income in question ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . )#. If the U/R income is greater than the amounts in table below follow instructions in (2)a – d above.

    ≡ ≡ ≡
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    ≡ ≡
  4. If the TP requests a copy of the tax return for the open AUR tax year, send a photocopy of the paper return to the TP at no charge. If the TP filed electronically print a transcript using AMS, Control D (for MFTRAX) or IDRS CC TRPRT to send to the TP.

  5. If the TP requests that we deduct the AUR balance due from their expected refund, and

    1. The case is being closed (assessed), see IRM 4.19.3.20.5 (7), Agreed Responses, for additional information.

    2. The case cannot be closed, issue a Letter 2626C (include paragraph "t" ) or

    3. A recomputed notice is being issued, send PARAGRAPH 177. See Exhibit 4.19.3-7, CP PARAGRAPHS.

  6. If the TP requests an explanation for the amount of time it took the IRS to notify them of the unreported income, issue a Letter 2626C, and include paragraph "J" . If issuing a recomputed notice send PARAGRAPH 181. See Exhibit 4.19.3-7, CP PARAGRAPHS.

  7. If the TP admits that the U/R income was reported in an incorrect tax year, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ If the TP does not provide this information or U/C W/H is an issue, take the following action:

    1. Inform him/her that the proposed tax assessment on the CP 2000 is correct. Advise the TP to file Form 1040X to adjust the income claimed in the incorrect year. Send PARAGRAPH 89, see Exhibit 4.19.3-7, CP PARAGRAPHS.

    2. Obtain the TP's signature (both signatures on a jointly filed return) if it was not on the previous correspondence. After receiving the signature(s), make the assessment and close the case.

  8. When the response indicates the investment income (i.e., Int, Div, CG etc.) was reported on Form 8814 (parent's return) and the TP reported non-investment income on their return, do not accept the explanation. Advise the TP that the income must be reported on their return. Send a Special Paragraph using the following verbiage as an example: "The income cannot be claimed on your parents Form 8814 since you reported non-investment income on your return."

  9. If the TP requests a copy of Form W-2, 1099 series, Schedule K-1 or other payer documents, advise him/her to request a duplicate copy from the payer. If issuing a recomputed notice, send PARAGRAPH 180. (See Exhibit 4.19.3-7, CP PARAGRAPHS. Whenever possible, provide the TP with the payer's name and address.

  10. If the U/R issue is resolved, but the TP states that another amount was not claimed, underclaimed, or overstated on the original return, and the TP provides sufficient information, input/verify the appropriate entries on all applicable windows to make the adjustment. Use good judgement in determining if the TP is entitled to this adjustment. If questionable issues are involved (i.e., increased exemptions, etc.) discuss with a manager/lead to determine the action to be taken.

    Reminder:

    NOL carryback/carryforward cases are not worked by AUR, see the Exception at IRM 4.19.3.20.1.7 (3), Adjustment Cases Relating to AUR.

  11. If the U/R issue is resolved, but the TP states that another amount was not claimed, underclaimed, or overstated on the original return and the TP does NOT provide sufficient information to make the adjustment, close the case. Issue a Letter 1802C to the TP with a Special Paragraph using the following verbiage as an example: "Form 1040X can be used to reduce the income you indicate was over stated on your original return. Form 1040X is available at 1-800-829-3676 or online at www.irs.gov."

    Note:

    Be alert to Statutes of Limitations. See IRM 4.19.3.1.2, Statute Awareness Program.

  12. If the TP requests to change his/her filing status, see IRM 4.19.3.20.7.4, Referrals.

  13. If the TP's response indicates ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , see IRM 4.19.3.20.1.25.3.1 (3), IDT Claims - Responses.

  14. If the TP indicates they will be submitting a Form 1040X take the following actions:

    1. Issue a Letter 2626C, include a Special Paragraph using the following verbiage as an example: "Your response indicated that you will be filing an amended tax return. Please send a signed copy, including all applicable forms and schedules to the address shown on this letter. To ensure that the amended return is received by the appropriate area, please attach a copy of this letter to the front of the amended return."

    2. Input appropriate IPC.

4.19.3.20.7.2  (08-26-2016)
Responses Needing Research and Correspondence

  1. If the TP states U/R income was reported, review the return and the Tax Account screen for applicable adjustments. If the income cannot be found, issue a Letter 2626C. Send a Special Paragraph using the following verbiage as an example: "You indicated that the income in question was reported. However, we are unable to find this income on your return. Please indicate where on your return the income is reported, so that we can give you proper credit."

  2. If the TP indicates the U/R income was reported on Form 1065 (Partnership), Form 1120-S (Small Business), or Form 1041 (Trust), check the return to see if the TP reported income or a loss from these sources.

    Exception:

    If the U/R income is conduit, do not accept TP's explanation. Advise the TP the income should be reported on Schedule E, Part II or Part III or they must provide a corrected Schedule K-1.

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , if income or a loss (in any amount) is shown on Schedule E.

    2. If the TP provides the name and/or the EIN of the business, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. If no income or loss is reported, or the name and/or EIN of the business is not provided, issue a Letter 2626C to request additional information.

  3. If the TP response states that we did not adjust the non-refundable carry forward credit(s)and:

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Enter the revised amount(s) in the appropriate field(s) of the Non-Refundable Credit window.

    2. Does not address the subsequent year carry forward credit issue, research the subsequent tax year (using IDRS CC IMFOL) for evidence that a Form 1040X was filed. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. Does not address the subsequent year carry forward credit issue and there is no indication that the subsequent year return was amended or if the subsequent year tax return has not been filed, issue a Letter 2626C. Inform the TP that we cannot adjust the allowable amount of credit until either the filed subsequent year tax return has been amended/corrected or a signed statement is received confirming that the carry forward credit records have been corrected.

  4. If the TP replies that a payment was submitted, but there is no indication on the Tax Account screen that the payment was received and at least three weeks have passed since the IRS Received Date:

    1. Use the IAT "Payment Tracer" or Tracer tool to research the payment. The tool will research IDRS CC TXMODA, IMFOLI, IMFOLP, or IMFOLT. If researching a joint return, check the secondary account using the "Search X REF" tab.

      Note:

      If there is no record of the payment, research IDRS CC TXMOD as the payment may be pending or unpostable.

    2. If payment is found posted on another tax module (i.e., subsequent year) ensure the payment is transferred to the correct module using the IAT "Credit Transfer" tool.

    3. If no record of the payment is found, issue a Letter 2626C to request a copy of the front and back of the canceled check.

    4. When the TP replies with the copy of the front and back of the check, use the encoding on the check to determine where the payment has posted. The back of the check should display the following information Name Control or CK Digit, the DLN, the TC, the MFT Code, the EIN or SSN, the Tax Period and the Posting Date. See Document 6209, IRS Processing Codes and Information.

    Note:

    The Remittance Tracking Research (RTR) System provides 3 years of check images (from ISRP and Lockbox Bank processing sites) and may be used to research the payment.

  5. If the TP replies that a payment was made online or by credit card, but there is no indication on the Tax Account screen that the payment was received and at least two weeks have passed since the payment date:

    1. Use the IAT "Payment Tracer" or Tracer tool. The payment may show as pending or unpostable. The tool will research IDRS CC TXMODA, IMFOLI, IMFOLP, or IMFOLT. If researching a joint return, check the secondary account using the "Search X REF" tab.

      Note:

      If there is no record of the payment, research IDRS CC TXMOD as the payment may be pending or unpostable.

    2. If payment is found posted on another tax module (i.e., subsequent year) ensure the payment is transferred to the correct module using the IAT "Credit Transfer" tool.

    3. If no record of the payment is found, issue a Letter 2626C requesting a signature (both signatures for married filing joint) to complete action on the case. Advise the TP that we have no record of their payment and provide them with the Accounts Management telephone number to initiate a payment tracer.

4.19.3.20.7.3  (09-01-2013)
Extension Requests (Correspondence)

  1. When the TP requests an extension to respond to the notice, or indicates he/she will obtain information and send it later, take the following action(s):

    If Then
    The TP requests an extension to respond to the CP 2501:
    1. Issue a CP 2000 with a Special Paragraph using the following verbiage as an example: "Based on your request for an extension we have issued this notice which allows you additional time to respond."

    2. Input PC 57.

    The TP requests an extension to respond to the CP 2000:
    1. Issue a Letter 2626C informing the TP their request for an extension has been granted.

    2. Input IPC 6L.

    Note:

    DO NOT grant a subsequent extension, unless extenuating circumstances apply.

    The TP requests an extension to respond to the Statutory Notice:
    1. Issue a Letter 2626C advising the TP that the period of time to petition the US Tax Court cannot be extended.

    2. Input IPC 8L.

    Reminder:

    All Statutory Notice responses are worked on an expedite basis.

4.19.3.20.7.4  (08-26-2016)
Referrals

  1. If a non-IRP related inquiry is included with the response:

    1. Photocopy the inquiry and route to the appropriate function. Include the TP's name, address, SSN, and the Received Date.

    2. Send an acknowledgment letter to the TP.

  2. If an original current year return is attached to a response, route it to the appropriate area for processing.

  3. If the TP requests to change his/her filing status:

    From To Then
    Married filing separately, single, or head of household Married filing jointly Check Tax Account for a TC 640/670. If no payment is present go to step 4 otherwise:
    1. Access the AUR Assessment window and change the AUTO/MANUAL indicator from "A" (auto) to "M" (manual).

    2. Commit <F4> the Assessment window.

    3. Access IDRS and input TC 290 .00 with Hold Code 4.

    4. Send Letter 1802C to inform the TP their request for a filing status change has been sent to the appropriate area.

    5. Input closing PC 71 (CP 2000) or PC 96 (Stat).

    6. Send the case file to Accounts Management.

    Caution:

    Be sure that all U/R issues have been answered by the TP prior to transferring the case to Accounts Management. If not, correspond with the TP to resolve all U/R issues before sending the case to Accounts Management.

    Married Filing Joint Any other filing status after the due date of the return
    1. Disallow the request.

    2. Send the appropriate letter and include a Special Paragraph using the following verbiage as an example: "Once you file a joint return, you may not change your filing status for that year after the due date of the return."

      Note:

      If the TP states the return is invalid, see IRM 4.19.3.4.8.2, AUR Tax Examiners Fraud Responsibilities.

    Any other filing status   Master File adjustments are necessary. IDRS CC ENMOD must be updated.

    Note:

    When the filing status is changed on the Return Value screen, the system uses the correct filing status to recompute the tax.

    Note:

    AUR may receive requests for filing status changes based on the June 26, 2013 Supreme Court ruling on a provision of the 1996 Defense of Marriage Act (DOMA) and Rev. Rul. 2013-17. The effect of the Supreme Court’s opinion is that same-sex couples who are lawfully married under state law are treated as married for all federal tax purposes including income and gift and estate taxes. The ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions taking the standard deduction, employee benefits, contributing to an IRA and claiming earned income tax credit (EITC) and child tax credit (CTC).

  4. If the TP's response indicates they did not file a tax return, regardless of agreement to U/R income, see IRM 4.19.3.20.7.1, Responses Needing Correspondence.

  5. When deleting WAGES IRs, correct the TP's records by preparing Form 9409, including full AUR contact information at the bottom of the Form. Mail Form 9409 to the Social Security Administration (SSA) at the following address:

    Note:

    Form 9409 should ONLY be used for Wage IRs that contain the SSWAG element.


    Social Security Administration
    Office of Earnings Records Operations
    6100 Wabash Ave
    LL-F-1A
    Baltimore, MD 21215Do not complete Form 9409 if:

    • The SSN has been TIN perfected or is an ITIN (begins with "9" ) as these will be rejected by SSA.

    • The employer indicates that the information has been corrected with SSA (Form W-2C, Statement of Corrected Income and Tax Amounts).

  6. If the TP wants their case sent to their local Area Office, advise the TP that their case cannot be transferred to the local Area Office. Attempt to resolve the issue(s) by telephone contact. If the telephone contact does not resolve the issue(s) and:

    Note:

    See IRM 4.19.3.20.1.8, Appeals, when the TP wants the case sent to Appeals.

    1. The Statutory Notice has not been issued: Inform the TP that a Statutory Notice of Deficiency will be issued via certified mail. Leave a case note documenting the phone contact (including if the TP is uncooperative). Input PC 75.

    2. The Statutory Notice has been issued: Advise the TP that they need to file a petition with the U.S. Tax Court, following the instructions in the Statutory Notice they received. For filing status other than married filing joint, advise the taxpayer that if their intent is to change their filing status to Married Filing Joint, they MUST do so before filing a petition with the Tax Court as they will be precluded from changing their filing status once the petition is filed with the Tax Court. Remind the TP that they must file their petition within the 90-day period. Also, inform the TP that a case petitioned to the U.S. Tax Court will usually be considered for settlement by Appeals before their trial date. If necessary, refile the case for the remainder of the Statutory Notice suspense period or until you are notified to pull the case from suspense because the TP filed a U.S. Tax Court petition.

  7. If the taxpayer wants their case sent to their local Area Office advise the taxpayer that their case cannot be transferred to the local Area Office. Attempt to resolve the issue(s) by telephone contact. If unable to contact the TP by telephone, leave a case note documenting the attempt and:

    1. The Statutory Notice has not been issued: Issue a Letter 2626C, advise the TP that we are unable to transfer their case to the local area office. Inform the TP that a Statutory Notice of Deficiency will be issued via certified mail. Input PC 75.

    2. The Statutory Notice has been issued: Issue a Letter 2626C advising the TP that we are unable to transfer the case to the local area office and that they need to file a petition with the U.S. Tax Court, following the instructions in the Statutory Notice they received. Remind the TP that they must file their petition within the 90-day period. Also, inform the TP that a case petitioned to the U.S. Tax Court will usually be considered for settlement by Appeals before their trial date.

4.19.3.20.7.5  (08-26-2016)
Payer Contacts

  1. If the TP disagrees with our proposal because he/she did not receive the Form W-2 or 1099, DO NOT issue a Letter 2625C. Inform the TP he/she is responsible for reporting all taxable income received.

  2. Per RRA 98 Section 3417, third party contact requirements must be followed whenever a Letter 2625C is sent to a third party. See IRM 25.27.1, Third Party Contact Program, for additional information.

    1. When a Letter 2625C is generated through the AUR system, the third party information for Form 12175, Third Party Contact Report Form, is systemically uploaded.

    2. When the Letter 2625C is manually issued through the IAT "Letters" tool or IDRS, Form 12175 must be manually completed and forwarded to the designated Third Party Coordinator. To find the designated Third Party Coordinator go to http://mysbse.web.irs.gov/examination/tip/3rdparty/contacts/11899.aspx.

  3. If the TP disclaims knowledge of the income and/or the payer, and both conditions below are met, issue Letter 2625C, see (5) below for additional information.

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ AND

    • The IR was NOT TIN PERFECTED.

    If the discrepancy is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ or the IR is TIN perfected, see IRM 4.19.3.20.4.1 (2), Discrepancy Explained/No Change.

    Exception:

    The following instructions apply to closed cases ONLY: If the case is closed, and the case originated at another site, check the Action Required Box and leave a case note indicating a payer letter should be sent. If the case originated at your site, follow local procedures to forward the request to the clerical function for inclusion in Reconsideration inventory.

  4. If the TP disputes the amount, follow third party contact per RRA 98 Section 3417 before issuing Letter 2625C. Issue Letter 2625C, see (5) below.

    1. If the TP provides an amount leave a case note indicating the amount the TP agrees to.

    2. If the TP doesn’t provide an amount, issue a Letter 2626C to the TP requesting the amount they received and to provide any documentation to support their claim. Include paragraph "N" on the Letter 2626C.

  5. Use the following instructions to issue the Letter 2625C:

    Reminder:

    Do not issue a Letter 2625C to the Social Security Administration, see IRM 4.19.3.20.3.12 (3), Social Security/ Railroad Retirement (SS/RR).

    1. Research IDRS using CC INOLE or ENMOD to obtain the employer/payer address.

      Note:

      If the payer address cannot be obtained, DELETE the issue.

    2. When research is complete, update the address for the employer/payer using the Update Address window with Address Type B1 - B9, as appropriate.

    3. Issue a Letter 2625C to the employer/payer, always select paragraph "X" and other applicable paragraphs to compose the body of the letter.

      Caution:

      For FS 2 cases be sure the Letter 2625C refers to the correct TP.

    4. When a third party contact letter is mailed to an individual, Paragraph "W" MUST be included on the 2625C.

    5. Issue an interim letter to the TP. Select paragraphs that: acknowledge the TP's response, identify the reason(s) the final response is delayed AND specify a contact date when we will provide the final response. Follow the chart below to determine appropriate TP letter:

      Exception:

      Telephone assistors may verbally inform the taxpayer of action taken instead of issuing Letter 3404C, Letter 4314C or Letter 2626C. Leave a case note to document what information was provided to the taxpayer.

    If And Then
    The TP has not granted permission to contact the payer There are no other issues that need to be addressed Issue Letter 3404C.

    Note:

    If manually issuing Letter 3404C using the IAT "Letters" tool or IDRS, you must wait 10 days before issuing the Letter 2625C.

    The TP has granted permission to contact the payer There are no other issues that need to be addressed Issue Letter 4314C.
    The TP has not granted permission to contact the payer There are other issues that need to be addressed Issue Letter 2626C.
    The TP has granted permission to contact the payer There are other issues that need to be addressed Issue Letter 2626C
  6. Take the following actions when the employer/payer responds to the Letter 2625C,

    IF THEN
    The third party contact letter was mailed to an individual, and the response indicates "Fear of Reprisal"
    1. Document the case file.

      Note:

      Any concern raised by the third party with respect to reprisal will be taken at face value. Do not question any third party claims to reprisal.

    2. Replace the Form 12175 that was previously completed; either manually or systemically, with a new Form 12175 to reflect the reprisal determination.

    3. Route Form 12175 to the designated Third Party Coordinator. To find the designated Third Party Coordinator go to: : http://mysbse.web.irs.gov/examination/tip/3rdparty/contacts/11899.aspx

    The information provided by the employer/payer indicates the income does not belong to the TP. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    If the result is a no change closure, use normal no change PCs, not those designated for Stolen Identity.

    The employer/payer indicates the same situation occurred in a subsequent year. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and attach a copy of the response from the employer/payer and the IR(s) to the subsequent year's return.

    Note:

    If the result is a no change closure, use normal no change PCs, not those designated for Stolen Identity.

    The information provided by the employer/payer indicates that the income DOES belong to the TP (the name and SSN on the IR is correct). Issue a Letter 2626C to inform the TP that the employer/payer verified the income for the TP's name, address, and SSN.
    If it cannot be determined that the income belongs to the TP OR if the payer refuses to furnish the necessary information, AND the TP disclaims knowledge of or denies receipt of the income. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    If the result is a no change closure, use normal no change PCs, not those designated for Stolen Identity.

    Reminder:

    When deleting Wage IRs, see IRM 4.19.3.20.7.4 (5), Referrals, to prepare a Form 9409 unless the TP has provided an SSA determination letter, on the WAGE IR(s) in question.

  7. When the TP responds AFTER the employer verifies the income, take the following actions:

    IF THEN
    The TP responds to the Letter 2626C and disagrees with the amount of income in question. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    After being informed that the employer/payer verified the income, the taxpayer responds and still disclaims knowledge of or denies receipt of the income. Issue a Letter 2626C using the following verbiage as an example: "The payer has confirmed that the income was paid to your social security number. If you believe that someone is illegally using your social security number, please send legible copies of a valid federal or state issued identification and either a completed, signed Form 14039, Identity Theft Affidavit (available at www.irs.gov) or a copy of a police report and provide a signed statement identifying each specific item(s) that is a result of the identity theft."

    Note:

    Case is not considered IDT until the TP makes a claim. Use the appropriate non-IDT letter IPC.

    Exception:

    Phone assistors may provide this information during a call, in lieu of sending Letter 2626C. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Reminder:

    When deleting Wage IRs, see IRM 4.19.3.20.7.4 (5), Referrals, to prepare a Form 9409 unless the taxpayer has provided an SSA determination letter, on the WAGE IR(s) in question.

  8. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

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

4.19.3.20.7.6  (11-08-2005)
Prior and/or Subsequent Year Impact

  1. If the TP’s response indicates that the same error of income omission was made on a subsequent and/or prior tax year:

    1. Process the AUR issue(s) per normal procedures.

    2. Send the appropriate letter and inform the TP to file a Form 1040X to include the omitted income in the affected tax year.

  2. If the TP’s response includes acceptable explanations for some or all of the AUR issues AND indicates that the same erroneous payer information will occur in the subsequent year, take the following action:

    1. Leave a case note explaining that a copy of the TP’s response was sent to be associated with the subsequent year tax return.

    2. Advise the TP that a copy of his/her response has been forwarded to be associated with his/her subsequent year’s tax return.

    3. Research IDRS for the subsequent year tax return DLN in order to forward a photocopy of the response to the Campus Files Function.

      If Then
      The subsequent year tax return was Electronically filed, there is no paper return stored in the Campus Files function to associate the photocopied response. Use IDRS to post a TC 290-0 in a "05" blocking series. Do not use an attachment or association form.
      There is an indication that the subsequent year’s tax return has not yet been filed, Correspond with the TP and advise them to include a copy of their explanation/documentation with their tax return.

4.19.3.20.8  (08-26-2016)
Correspondence

  1. When TP responses require additional correspondence, use Create Correspondence Letter screen to select the appropriate letter and applicable paragraphs. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Create Letter Window, for more information. If none of the pattern paragraphs are applicable, use a Special Paragraph.

    1. Review Special Paragraphs before mailing.

    2. To prevent unnecessary communication, ensure all TP issues are addressed.

  2. When correspondence includes the name of a specific contact person, use the name of an actual IRS employee unless procedures allow for the use of a registered pseudonym as described in IRM 21.3.3, Incoming and Outgoing Correspondence/Letters. This also applies to the signature on all correspondence.

  3. When acknowledging the TP response input the date using the following priority:

    Exception:

    When issuing Letter 4314C, input the IRS received date for the TP’s correspondence.

    Note:

    When Letter 4314C is automatically generated by the AUR system, the acknowledgement date will be systemically input from AUR records. The date will be the IRS or AUR received date for the TP's correspondence.

    1. The date the TP entered on his/her most recent correspondence.

      Note:

      If the letter is being generated based on a phone conversation, use the date of the phone call as the TP response date.

    2. Envelope postmark date or date stamped by fax machine.

    3. Three days prior to the IRS Received Date.

    4. Current date.

  4. If subsequent correspondence (other than a Recomputed Notice or Supplemental Report) on a response case requires a reply from the TP, payer, or employer, use the applicable IPC to issue the letter and move the case into a suspense batch. See Exhibit 4.19.3-3, AUR Internal Process Codes, for more information about IPCs.

    Caution:

    Certain conditions (i.e., misplaced paragraphs, invalid money amounts, etc.) may cause letters to reject.

  5. There are some situations where it is necessary to issue a letter to the TP and take another action on the case at the same time.

    1. Input the PC or IPC of the subsequent action. DO NOT input the IPC of the letter.

    2. Miscellaneous letter information uploads daily to generate the appropriate IDRS letter after the batch is disassembled.

      Note:

      Miscellaneous letters are generated for cases that remain in Unit Research Suspense (BT 42, 62, and 77).

    3. The letter displays the case sequence number (CSN).

    4. Clerks file cases in the appropriate suspense file based on the PC input by the tax examiner.

      Note:

      Format and commit the letter screen before you exit the window or the letter will not generate. The system does NOT automatically delete a letter if the PC is changed (e.g., if a tax examiner inputs a Letter 2893C with PC 20 then decides to do a PC 55 to issue a Notice, the tax examiner must DELETE the letter first).

  6. If the information provided by the TP does not justify a change in the tax deficiency, and it is necessary to send an appropriate letter for further information, always send the Consent paragraph for a CP 2000 or a Statutory Notice.

    Note:

    If a Statutory Notice was issued and a letter sent, suspend the case for the remainder of the 90-day period. If the necessary information is not present at the end of the 90-day period (150 days for notices mailed outside the United States), plus 15 additional days, the tax deficiency is assessed by default.

  7. A letter sent to a TP requesting information should have the following paragraphs, as applicable, in addition to other paragraphs sent for a specific condition:

    1. Send a paragraph that informs the TP a response is needed within 30 days.

      Exception:

      The system inputs a date which is 30 days later than the letter date when a selected paragraph asks for this type of response (or 45 days for foreign addresses).

    2. Send a paragraph requesting the TP's telephone number and the most convenient time to call.

    3. If a payment was submitted, send a paragraph acknowledging the payment.

    4. If the TP submitted a request for a payment plan, send a paragraph informing the TP his/her request will be forwarded to the proper department once an agreement is received and a fee may be charged for processing the request.

      Note:

      If Form 9465, Form 433-D or written IA request is attached and there is no flag, securely staple a flag indicating "IA" to the Form 9465, Form 433-D or written IA request and leave in the case.

    5. When a response from the TP is required, send a paragraph stating a return envelope is enclosed.

    6. When a Statutory Notice was issued, send a paragraph to inform the TP whether the 90-day period to petition the Tax Court has expired.

      Note:

      Refer to IRM 21.3.3, Incoming and Outgoing Correspondence/Letters, for further information on TP correspondence.

  8. When it is necessary to send the TP a letter that is not one of the AUR online letters, there are locally designated letters, Campus (SC), IDRS, or a combination of both SC and IDRS, which may be used. These are considered "manual" letters.

    1. Use these manual letters on an exception basis only.

    2. The Letter 1151C does not update the balance due amounts in the AUR tables, and the AUR system does not monitor this type of case for special handling during the No Response processing of 30 days. For these reasons, use Recomputed Notices for this type of case.

  9. If additional correspondence is required after the Statutory Notice was issued, make every effort to correspond with the TP before the statutory period expires to allow the TP enough time if he/she decides to petition the Tax Court. Send a Special Paragraph to inform the TP that the subsequent correspondence does not extend the statutory period. Chief Counsel suggests the following wording:

    "We received the information that you sent following the receipt of the Notice of Deficiency we mailed you. Please be advised that this correspondence and reconsideration has not extended the period within which you must file a petition with the United States Tax Court, if you decide to do so."

4.19.3.20.9  (02-12-2016)
Disagreed Responses

  1. A response is disagreed when:

    1. The TP clearly does not agree with at least some part of the adjustment (excluding interest) and does not provide an acceptable explanation.

    2. The TP makes any comment that he/she does not intend to waive his/her appeal rights, even if the Consent to Tax Increase on the CP 2000 or the Waiver on the Statutory Notice is signed, or the tax and all penalties (except for ES Penalty, FICA Tax and/or Penalty on Tips, and Employee's share of FICA tax) have been fully paid.

    3. The TP submits full payment after issuance of the Statutory Notice and the necessary signature(s) are not present. Issue a Letter 2626C to acknowledge payment and request missing signature(s). If the suspense time frame has expired, input PC 90 to default the case.

      Reminder:

      An out call must be attempted before issuing a Letter 2626C. See IRM 4.19.3.20.2.4.1, Out Calls - Calling the Taxpayer, for further information.

  2. Photocopies of the following types of responses should be sent to the FRP in Ogden (continue normal processing):

    • CONSTITUTIONAL BASIS - Refusal to provide requested information because of violation of constitutional rights, including Porth-Daley type returns, Fourth Amendment, Fifth Amendment, or Sixteenth Amendment basis.

    • FAIR MARKET VALUE - The TP reduced gross income because of the declining value of the dollar.

    • GOLD/SILVER STANDARD - The TP stated that only gold or silver currency can be taxed.

    • NONPAYMENT - The TP did not pay or underpaid because of belief based on reasoning other than accuracy of findings.

    • VOW OF POVERTY - The TP received income from non-religious sources and declares that it is nontaxable because of vow of poverty (also referred to as mail order ministry).

    • DISAGREEMENT LETTER - The TP disagrees with the use of taxes for war, defense, welfare, etc., and indicates that this affects reporting and payment of taxes.

    • FAMILY ESTATE - Showed that income was reported on Form 1041 filed for a family, equity, pure, prime, or constitutional trust and provides the name or SSN of the actual recipient.

    • OID and W/H amount on the same IR.

    Additional items from the FRP web site:

    • REPARATIONS - AFRICAN-AMERICANS GET A SPECIAL TAX REFUND

    • NO TAXES BEING WITHHELD FROM YOUR WAGES

    • I DON'T PAY TAXES, WHY SHOULD YOU?

    • PAY THE TAX, THEN GET THE PRIZE

    • UNTAX YOURSELF

    • SOCIAL SECURITY TAX SCHEME

    • I CAN GET YOU A BIG REFUND - FOR A FEE

    • SHARE/BORROW EIC DEPENDENTS

    • PUT MONEY IN A TRUST AND NEVER PAY TAXES AGAIN

    • IRS "AGENT" COMES TO YOUR HOME TO COLLECT

    • HOME BASED BUSINESS

    • CLAIM DISABLED ACCESS CREDIT FOR PAY PHONES

    • CLAIM OF RIGHT, includes IRC 1341 - "Compensation for personal labor" and IRC 1001

    • IRC 1341

    For a full list of recognized frivolous arguments, see Notice 2010-33 and IRM 25.25.10, Frivolous Return Program.

  3. A frivolous return or response is defined as noncompliance with filing and/or paying tax based on unfounded legal or constitutional arguments per IRM 25.25.10, Frivolous Return Program. Objecting to paying interest/penalty, being upset because he/she was not notified sooner, using off-color language, etc., are NOT frivolous arguments and should be handled with a normal reply to the TP. If in doubt about whether the return and/or response is frivolous, consult with your lead or manager. If it is determined that the return or response is frivolous, refer a photocopy of the return and/or response to the Frivolous Tax Team in Ogden and continue normal processing.

4.19.3.20.10  (08-26-2016)
Assessments

  1. Automatic adjustment processing was expanded to include most assessments made by the tax examiner. Tax examiners have the capability of generating an auto assessment by either entering an assessment PC or completing the assessment window.

  2. The manual assessment document is not required on the majority of assessments, but is available to the tax examiner if necessary.

  3. The AUR system automatically creates an assessment record on all cases up until a locally determined date but no later than the date listed in the table below. Information is uploaded by AUR to IDRS on tape.

    Notice Type TY 2013 TY 2014 TY 2015
    CP 2000 January 6, 2017 January 5, 2018 January 4, 2019
    Statutory Notice May 5, 2017 May 4, 2018 May 3, 2019
  4. AUR uploads the transaction codes, reference numbers, and other data items necessary for an automatic assessment for PC 67, 87, 89, 90 and 91-93. The tax examiner verifies and/or inputs the necessary items on the Assessment window to create an automatic assessment for the following PCs, when necessary:

    • PC 15

    • PC 20

    • PC 35-39

    • PC 44, 46, 47 and 48

    • PC 51-53

    • PC 62-66

    • PC 68-71

    • PC 73-75

    • PC 77

    • PC 80

    • PC 82-86

    • PC 88

    • PC 94

    • PC 95

    PCs 15, 39, 47, 51, 52, 69, 70, 71, and 73 automatically generate a TC 290-0 for Virtual returns. If there is no information (loose forms, schedules or correspondence), to be associated with the refile DLN, enter "N" in the SOURCE DOC field in the Process Code window.

    Note:

    Beginning with TY 2015 PCs 39, 69 and 89 no longer designate identity theft closures. These PCs are input on jointly filed return cases which require assessment to MFT 31 accounts for each TP. See IRM 4.19.3.20.5.1, Responses - Married Filing Joint - Single Signature on Consent, for further information.

    Reminder:

    If Form 9465, Form 433-D or written IA request is attached, see IRM 4.19.3.20.1.21, Installment Agreements.

  5. After the dates listed in the table in (3) above, or the locally determined date, ALL assessments must be input via IDRS. Use the AUTO/MANUAL box on the Assessment window to initiate printing of the assessment document.

  6. On the AUR system, the Tax Account screen updates weekly with all the new transactions posted to the module at Master File (IDRS pending transactions do not display). Prior to selecting the Assessment window, refer to IRS Processing Codes and Information, Document 6209, IRS Processing Codes and Information, for freeze codes that appear on the Tax Account screen.

  7. If the Tax Account screen shows a -L Freeze and an open TC 420 or 424, check for a case note indicating prior contact with Exam. Take the following actions based on the results:

    1. If a case note is present indicating Exam does not want the case, continue processing and input the assessment with Priority Code 1.

    2. If there is no indication of prior contact with Exam, see IRM 4.19.3.3.3.2 (9), Freeze Codes, to make the necessary Exam contact before inputting the assessment.

    Note:

    Always use Priority Code 1 when inputting an assessment and the case contains a -L Freeze code and open TC 420.

  8. If the Tax Account screen shows a -I Freeze, TC 29X must be input with a TC 34X to prevent an unpostable condition. Refer to IRM 20.2, Interest, for Manual Interest computation. See IRM 4.19.3.16.10, Manually Computed Interest for the CP 2000, for additional instructions.

    Note:

    Use a non restricting TC 340, whenever possible. See IRM 20.2.8.11, Non-Restricting Transaction Code (TC) 340, for additional information.

  9. Prior to the input of a refund adjustment, when there is an indication that the TP is deceased refer to IRM 21.5.1, General Adjustments, and IRM 21.4.4, Manual Refunds, for manual refund procedures.

4.19.3.20.10.1  (08-26-2016)
The Assessment Window

  1. When responses are closed with a PC 53, PC 68, PC 88, or PC 94, use the Assessment window to input the adjustment. When the Assessment window is committed an assessment record generates and posts to IDRS when the batch is disassembled.

    Note:

    Do not commit the Assessment window unless there is a valid assessment to be made.

  2. If the Assessment window was committed and it is subsequently determined that an assessment is not necessary at this time, delete the assessment to prevent the assessment from posting. To delete an assessment record:

    1. Use the Delete Record <F3> sequence to delete any applicable enterable field in the Assessment window.

    2. Commit the window and Exit.

  3. Adjustment data pertaining to the case displays upon entry into the Assessment window. The REASON CD, SOURCE DOCUMENT ATTACHED, and REMARKS fields are the only fields required for input by the tax examiner. Before a window is allowed to be committed, the system verifies that these fields and any other required fields have valid entries.

    Caution:

    Verify the entry in the RECEIVED DATE field of the Assessment window.

  4. BLOCKING NUM - The blocking series of the adjustment. For AUR adjustments, the following blocking series display:

    1. Blocking Series 500 - 519 for CP 2000 responses that are both TIMELY (within 30 days of the notice date) and FULL PAID (in their entirety) and for TC 291 (tax decrease).

    2. Blocking Series 550 - 589 for CP 2501 responses or CP 2000 responses that are OTHER THAN FULL PAID.

    3. Blocking Series 600 - 619 for Statutory Notice responses that are FULL PAID. A full payment is equal to or more than the balance due on the CP 2000.

    4. Blocking Series 650 - 679 for Statutory Notice responses that are OTHER THAN FULL PAID.

    5. The system uses Blocking Series 05 for pre-Stat no change closures for Virtual returns to file correspondence in Document Retention.

  5. CORRESP DT - This date is required on all AUR assessments when the TP has submitted a response. Input using the following priority:

    1. The date the TP entered on his/her most recent correspondence.

    2. Envelope postmark date or the date stamped by the Fax machine.

    3. Three days prior to the IRS Received Date.

    4. Current date.

    Note:

    In subsequent notices to the TP, provide the date of the correspondence that was used for the assessment.

  6. DB INT TO DT - Debit Interest to Date is the date Manual Interest was computed to on TC 34X cases. It is a required field when a TC 340 or 341 is input on the Assessment window.

  7. IRS RECEIVED DT - The IRS Received Date is part of the control base history record and is systemically updated on masterfile every time a PC is entered. If it is necessary to enter the IRS received date, determine the date using the following priority:

    1. Received date stamped on correspondence.

    2. Envelope postmark date or the date stamped by the Fax machine.

    3. Signature date.

    4. Current date.

  8. CREDIT INTEREST DATE (Agreement) - The TP is entitled to an interest-free period if IRS fails to generate a Master File Settlement Notice to him/her within 30 days after filing a waiver of restrictions on assessment. This interest free period begins on the 31st day after the IRS Received Date and continues until the date of the notice and demand for payment (i.e., the date an assessment is made or 23C date). The agreement date assures that any computer generated interest on a subsequent notice to the TP takes into account this interest free period if applicable. If it is necessary to input the agreement date, use the priority for determination of dates listed in (7) above. Use the following criteria to determine if an agreement date is necessary:

    1. Verify the correct agreement date is present in the Assessment window on all agreed assessments. Ensure that the CREDIT INTEREST DATE field is blank if the case is being assessed by Default (For example, PC 94).

    2. Verify the correct CREDIT INTEREST DATE field is input, even on fully paid assessments. Even though interest stops automatically at the date of the payment, the TP may be entitled to this interest-free suspension period on a subsequent assessment.

    3. Verify that the CREDIT INTEREST DATE field is blank on tax decrease cases.

    4. Verify that the CREDIT INTEREST DATE field is blank on W/H, SSTAX and/or additional MCTXW adjustments with a TC 290-0 (zero).

    5. Verify the CREDIT INTEREST DATE is blank when inputting a TC 290-0 on a pre-Stat No Change Virtual case closure to file correspondence in Document Retention. This prevents an unpostable condition.

    6. Verify the CREDIT INTEREST DATE is blank when inputting a TC 290-0 and adjusting AGI/TXI only.

  9. REFUND STATUTE CONTROL DATE (RFSCDT) - This field helps identify cases with an expired Refund Statute Expiration Date (RSED) based on the time that has elapsed since the filing of the tax return (3 year period of limitation). The field does not display on the Assessment window since cases with this condition cannot be worked on AUR. However, if the condition exists, a warning message displays. If the message displays, place the case in unit suspense and refer to IRM 2.4, IDRS Terminal Input, for processing instructions.

  10. OVERRIDE CD - An Override Code of "R" displays when the IRS Received Date is over one year old.

  11. TRANSACTION CODES - Transaction codes display in the TRANS CODE field as applicable. The corresponding transaction amount displays in the TRANS AMT field.

    1. TC 290/291 - Adjusts the tax.

    2. TC 170/171 - Adjusts the ES Penalty when a penalty was previously assessed and there is a change to W/H.

    3. TC 160/161 - Adjusts the Failure to File penalty.

      Note:

      When the Failure to File penalty is being reversed with a TC 161, access the Tax Account screen. Add all the displayed TC 16Xs together and compare this total with the TC 161 on the Assessment window. If the TC 161 is more than the total from the Tax Account, change the TC 161 to reflect the total from the Tax Account window. This action is needed because of rounding discrepancies and prevents an unpostable condition.

    4. TC 310 - Assesses the SS Tip Penalty. In order to post this penalty, a Reference Code 891/892 with an amount must be input. Leave an action trail indicating the SS Tip Penalty has been assessed.

    5. TC 766 (with CRN 252) - Adjusts excess SSTAX.

    6. TC 766/767 (with CRN 336) - Adjusts the Additional Child Tax Credit.

  12. SRCE CD - These codes are used with TC 29X adjustments and display in the SRCE CD field. The Source Codes determine the statement which appear on the TP's adjustment, with the Reason Code completing the statement. See Document 6209, IRS Processing Codes and Information, for a complete list of Source Codes.

    Note:

    Use Source Code "9" on Default cases where no response was received.

  13. REASON CODES - At least one reason code is required unless the only TC input is a TC 290 for zero amount and no reference numbers are present. Up to three Reason Codes may be used. The Reason Code(s) determine the explanation that prints on the adjustment notice. For valid codes see Document 6209, IRS Processing Codes and Information.

  14. HOLD CD - Use Hold Codes with TC 29X adjustments to prevent or delay the issuance of a refund and/or notice. See Document 6209, IRS Processing Codes and Information, for a list of valid codes.

  15. PRIORITY CD - Priority Codes display in the PRIORITY CD field and are used to post adjustments to the Master File when certain module conditions exist. Failure to use the Priority Code when specified cause the transactions to unpost.

    1. Always use Priority Code 1 when there is an -L freeze. See IRM 4.19.3.3.3.2 (9), Freeze Codes, for further instructions.

    2. Use Priority Code 2 when there is an -L Freeze on the account AND a refund is being issued.

    3. Use Priority Code 3 when issuing a refund.

      Exception:

      Do not use Priority Code 3 when refunding a payment.

    4. Use Priority Code 5 to bring interest and penalty accruals up to date, especially on no change cases with a balance due.

      Exception:

      Cases in current IA status.

    5. Priority Code 8 is system generated when there is an increase to EIC (TC 764/768 is present on the Tax Account screen).

    6. Priority Code 8 automatically generates when there is a change to W/H credits, excess SSTAX and/or additional MCTXW and a TC 170/171 is present on the Tax Account screen, but no adjustment to the ES Penalty (TC 170/171) is necessary.

    7. Priority Code 8 must be input when an AUR tax increase/decrease is within $10 of a previous TC 290/291 adjustment.

  16. FLC - The File Location Code identifies the District Code for DLN purposes on foreign returns being assessed. Valid codes are 66 for Puerto Rico returns and 98 for Office of International Operations (OIO) returns. This must be input in the FLC field when applicable. Otherwise, leave this field blank.

  17. REFERENCE CD - The following Credit Reference Numbers, (18) - (36) below, display in the REFERENCE CODE field as applicable. The corresponding adjustment amount displays in the REFERENCE AMOUNT field.

    Note:

    If more than eight (8) Reference Codes are necessary, see IRM 4.19.3.20.10.2, Over Eight Credit References, for additional information.

  18. 680 - Assesses the Accuracy-Related Penalty (imposed for Negligence or Disregard of Rules or Regulations, or Substantial Understatement). The computer generates a TC 240. If the Assessment window is used to input an adjustment, the 680 does not display correctly on: CP 2501 responses, partially agreed CP 2000 responses, and Letter 1151C responses. In these cases, manually enter or correct the displayed 680 amount. Consider the following information when entering/verifying the 680 amounts on the Assessment window:

    1. The correct negligence penalty displays in the MANUAL NEGLIGENCE PENALTY field on the Limit Penalty window. Compare this amount with the 680 amount on the Assessment window and correct the 680 amount if necessary. If the 680 is not present, use INSERT RECORD to add the 680 and corresponding amount.

    2. Refer to IRM 4.19.3.16.5, Accuracy-Related Penalty Due to Substantial Understatement of Tax, to determine if the Substantial Understatement penalty still applies. If applicable, manually compute the Substantial Understatement penalty by multiplying the NET CHANGE field in Return Value by 20 percent. Correct the 680 amount if necessary. If the 680 is not present, use INSERT RECORD to add the 680 and corresponding amount. If the penalty no longer applies, use DELETE RECORD to delete the 680 and the corresponding amount. If both the Negligence and the Substantial Understatement penalties apply to a given underpayment, only one 20 percent penalty may be imposed.

  19. 764/765 - Adjusts EIC.

  20. 806/807 - Adjusts W/H.

  21. 886 - Adjusts taxable income (TXI).

    1. If the adjustment is a decrease, the taxable income cannot be adjusted to less than zero (0). The module shows the TXI as zero (0) even if the TP's TXI on the return is a negative amount.

    2. If the adjustment is an increase which changes a zero (0) or negative taxable income per return, the 886 amount is the amount of the new corrected taxable income.

      Note:

      An 886 entry is not necessary if the TXI remains zero (0) or negative. An incorrect entry will cause an unpostable condition.

  22. 861 - Adjusts Net Investment Income.

  23. 862 - Adjusts Net Investment Income Tax.

  24. 863 - Adjusts Additional Medicare Tax on Medicare wages PLUS the Additional Medicare tax on SE income.

  25. 864 - Adjusts Additional Medicare Tax on Railroad Retirement compensation.

  26. 878 - Adjusts self-employment income for the primary TP.

  27. 879 - Adjusts self-employment income for the secondary TP.

  28. 887 - Adjusts the number of exemptions claimed on the original return. When the EXEMPTIONS NOW field reflects a change from the EXEMPTIONS PER RETURN field in the Return Value screen, the system automatically enters the 887 change in the Assessment window.

  29. 888 - Adjusts the Adjusted Gross Income (AGI).

    Note:

    Do not adjust the AGI if the TP responds that a lump-sum distribution qualifies for the Special 5/10 Year Averaging Method on Form 4972 and there is no other U/R issue which changes the TXI.

  30. 889 - Adjusts SE tax.

    Note:

    Reference Number 878/879 and/or 895/896 must ALWAYS be used in conjunction with Reference Number 889.

  31. 891 - Adjusts the primary allocated tip income.

  32. 892 - Adjusts the secondary allocated tip income.

  33. 895 - Adjusts the primary Medicare income.

  34. 896 - Adjusts the secondary Medicare income.

  35. 898 - Adjusts the primary Medicare tip income.

  36. 899 - Adjusts the secondary Medicare tip income.

  37. SOURCE DOCUMENT ATTACHED?- This is a required field and is used to inform the Campus Files function when an assessment(s) with a source document (tax return, correspondence, etc.) is routed there for attachment of CF 5147. Valid entries for this field are:

    • Y - Source Document attached

    • N - No Source Document attached

  38. REMARKS- This is a required field input by the tax examiner. Use it to leave an action trail concerning the adjustment.

  39. AUTO/MANUAL IND - Use this field when the assessment must be manually input to IDRS. This field is required after the dates listed in the table below.

    Notice Type TY 2013 TY 2014 TY 2015
    CP 2000 January 6, 2017 January 5, 2018 January 4, 2019
    Statutory Notice May 5, 2017 May 4, 2018 May 3, 2019

    Caution:

    If the assessment window is marked with an "M" , the assessment MUST be input manually on IDRS. Assessment indicator "M" is generally used only after the dates listed above.

  40. Verify that all fields in the Assessment window are correct before committing the window. This ensures an accurate adjustment to the TP's account.

  41. If a field (such as TRANSACTION, CODE/AMOUNT or REFERENCE CODE/AMOUNT) contains an entry that must be changed or deleted:

    1. Place the cursor in the field of the change.

    2. Use the [F3] (Delete Record) key to delete a TC and/or amount or a Ref Code.

    3. Use the [F5] (Clear Field) key to delete any other fields in the Assessment screen.

    4. Input the appropriate entry or leave blank.

      Note:

      Do NOT use the Clear Field key to remove the entry.

    5. Commit the screen.

      Caution:

      Accessing the Assessment window after you have committed and exited, deletes any changes and restores the original figures.

  42. To enter a new TC/Amount or Reference Code/Amount in a field that does not already contain an entry:

    1. Place the cursor in the last TRANS CODE or REFERENCE CD field which contains an entry.

    2. Use the INSERT RECORD function. The cursor moves to the next blank field.

    3. Input new Transaction/Reference Code and Amount.

    4. Commit the screen.

      Caution:

      Accessing the Assessment window after you have committed and exited, will delete any changes and restore the original figures.

  43. After the assessment PC posts, a history of the assessment can be viewed by accessing the Case History screen and clicking on the date of the assessment. See IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures - Viewing Cases.

  44. If a case is being closed No Change and an adjustment to prepayment credits is necessary, see IRM 4.19.3.20.6 (9) b, Partially Agreed Responses.

4.19.3.20.10.2  (08-26-2016)
Over Eight Credit References

  1. Neither AUR, nor IDRS, will allow an assessment containing more than 8 Credit Reference Codes. Therefore, these adjustments must be split into 2 parts. The AUR system part of the adjustment will contain the majority of the adjustment information.

  2. Access the AUR Assessment Window and identify the Credit Reference Codes causing the over-eight condition. (These reference codes will be input separately on IDRS.)

    1. Determine if the TC 888 and 886 amounts are the same. If the amounts are the same and the TXI remains a positive amount, the TC 886 and the corresponding amount can be deleted using the F3 key. When the AUR adjustment downloads to IDRS, the TC 886 will automatically post an amount matching the TC 888 amount.

      Caution:

      If only one Credit Reference Code is causing the over-eight condition, this procedure will eliminate the need for a separate IDRS adjustment.

    2. Identify Credit Reference Codes that relate to each other (i.e., TC 878, TC 895 and TC 889) and that adjust income only (i.e., do NOT use TC 764 or TC 765, since these adjust EIC; a prepayment credit.). Ensure all Credit Reference Codes related to SE are made on the same adjustment to avoid an unpostable condition.

    3. Remove the PTC Credit Reference Numbers 886, 865, 867 (and Reason Code 152) and 868.

      Exception:

      Do not remove Credit Reference Number 262 or Reason Code 151. This will create a bill or refund and must remain with the AUR assessment.

  3. Once identified, the Credit Reference Codes are input on IDRS as follows:

    1. Input a TC 290 - 0.

    2. Use blocking series 05.

    3. Enter Hold Code 2.

    4. Enter Source Code 0, 1, or 2.

    5. Enter applicable Reason Codes (same as those shown in the AUR Assessment window).

    6. Enter the credit references identified from (2) above and the related money amounts.

    7. Enter an "N" in the SOURCE DOCUMENT ATTACHED field of the ADJ54 screen.

    8. Enter "Over 8 Reference Codes" in the Remarks field.

    Once the IDRS adjustment has been input take the following actions on AUR:

    1. Access the Assessment window.

    2. Delete the credit reference numbers and the related money amounts that were input on IDRS using the <F3> key.

    3. Commit the Assessment window.

    4. Leave a case note over eight references were input on IDRS.

    5. Use the applicable PC to close the case (PC 53 for CP 2501, PC 68 for CP 2000, PC 88 or PC 94 for Stats)

4.19.3.20.11  (02-12-2016)
Instructions Specific to Statutory Notices/Responses

  1. A Statutory Notice of Deficiency includes the following:

    1. CP 3219A, Notice of Deficiency, which explains how and when to file a petition with Tax Court.

    2. Form 5564A, Notice of Deficiency - Waiver, which is the consent to assess and collect.

    3. A partial reprint of the most recent CP 2000.

    4. Pub 1 , Your Rights as a Taxpayer.

  2. The following non-statutory items are not included in the increase in tax (deficiency) on CP 3219A, Notice of Deficiency, or Form 5564A, Notice of Deficiency - Waiver:

    • Withholding

    • Excess SST

    • FICA tax

    • Additional Medicare tax withheld

    • Additional Medicare tax on wages or RRTA compensation

    • Shared Responsibility Payment

      Note:

      Any non-statutory items were included or addressed in notices or letters sent to the TP previously.

  3. Before generating a Statutory Notice, the system automatically checks for posted payments, proper splitting of the primary and secondary TPs' names, and address changes on all No Response cases. HOWEVER, it does not check for payments on Disagreed cases. Prior to entering a PC to generate a Statutory Notice on a Disagreed CP 2000 case, follow instructions in IRM 4.19.3.20.7.2, Responses Needing Research and Correspondence. Also look for payments that were made for issues other than the AUR case.

  4. If the TP's account was in BALANCE DUE STATUS prior to the CP 2000 and the BLOCKING SERIES of the payment is other than 300-399, assume the payment is NOT related to the proposed U/R assessment.

  5. Input PC 75 (PC 77 if a manual stat notice is required) and issue a Statutory Notice.

    Note:

    Although there are no enclosures for the Statutory Notice of Deficiency, a copy of the tax computation, generally the CP 2000, must be attached.

  6. In order to insure proper tracking of the TP's account, PC 75 or PC 77 must be posted.

  7. When the IRS is proposing a deficiency on a jointly filed tax return, RRA '98, section 3201(d), a non-code provision, requires for a joint return that the IRS issue a copy of the Statutory Notice of Deficiency to the primary and secondary TP residing at the same address. Each will have a Certified number.

  8. The AUR system is able to split the majority of all filing status "2" name lines. Whenever the AUR system cannot confidently split the primary and secondary TPs, the system alerts the tax examiner to review the split before a Statutory Notice of Deficiency can be generated.

  9. The Update Address window contains the following fields, PRIMARY STAT NAME, SECONDARY STAT NAME and SPLIT CODE. The SPLIT CODES and their meanings are as follows:

    • C - Auto Confident - System confidently split names and does not require review before Statutory Notice of Deficiency is generated.

    • D - TP deceased - Does not require review before Statutory Notice of Deficiency is generated.

    • A - Auto - System unable to confidently split names. Tax examiner review is required before the Statutory Notice of Deficiency is generated.

    • M - Manual - Tax examiner split filing status "2" into PRIMARY STAT NAME and SECONDARY STAT NAME.

  10. When PC 75 is entered and the SPLIT CODE is "A" , the UPDATE ADDRESS window displays how the system split the name line.

    1. The tax examiner must review the information, making any necessary changes, and enter SPLIT CODE "M" (manual).

    2. If the tax examiner is updating the FIRST NAME LINE adding "DECD" , the system will require the tax examiner to enter SPLIT CODE "D" .

  11. When it is necessary to close a case without posting a TC 290-0 (e.g., transfer to another function), use PC 96. Annotate routing instructions for the Clerical Function on the case folder.

  12. After a PC 75 is assigned, the notice can be stopped no later than two Fridays before the notice date. Cases with PC 75 are automatically stopped and PC 79 is automatically generated when the cases are added to the Stop Notice tape. However, Statutory Notices generated by PC 77 do not have a bar code and must be pulled manually. Notify the Clerical Function about PC 77 Stop Notices.

  13. To "stop" Statutory Notices from being mailed, use the following instructions:

    1. Select the Stop Notice option and add the SSN to the list. The system posts a C (Notice not generated) or D (Deleted - Notice stopped before it was generated) and the PC does not display in the Case History.

    2. The system generates a PC 79 and batches the case to BT 65 (CP 2000 Unit Suspense).

      Note:

      If the SSN cannot be added to the Stop Notice List, the PC will not update.

  14. When a response is received after the Statutory Notice generates, but before it is mailed, the Clerical Function builds the case into BT 58 (Late CP 2000 Response/Statutory Notice Generated). The system generates PC 79. Process the response per CP 2000 response procedures.

    1. If the SSN is not entered in time to stop the Statutory Notice mailout, the case cannot be built into BT 58 because it cannot be added to the Stop Notice List. Clerical builds these cases to a Statutory Notice response batch.

    2. When working BT 58, it may be determined that the Statutory Notice should be mailed. The AUR Coordinator can delete PC 79, if the SSN is entered in time to stop the notice.

  15. When the TP response includes a signed Form 1040X/Amended return or a signed computation including the amount of tax (facsimile), that is more than the tax increase per the Statutory Notice, review the Tax Account screen to determine if the adjustment has already posted. If it has not posted:

    1. Math verify the TP’s figures.

    2. Ensure all AUR issues are addressed.

    3. Update the Assessment window per the Form 1040X/Amended return or facsimile.

    4. Close the case with PC 88.

    Note:

    If the Form 1040X has posted AND all AUR issues are included - close the case with a "no change" PC that does not generate an automatic closure letter.

  16. After a Statutory Notice is mailed it may be necessary to rescind the notice. See IRM 4.19.3.20.11.1, Rescinding Statutory Notices, for further information.

  17. Consider the assessment statute expiration date (ASED) before inputting U/R transactions. If the ASED is greater than ninety (90) days, the statute is not imminent. Process the case using normal procedures.

  18. If the ASED is ninety (90) days or less, the statute is imminent. An AUR assessment SHOULD NOT be made using normal procedures. Follow the instructions below to process a case.

    1. Recompute the ASED and input the TC 560 using CC REQ77. The ASED for most AUR cases is April 15th.

    2. If TC 560 is not input, an Unpostable Code 178 will result.

    3. If TC 560 is not input to extend the ASED, prepare the case for a manual assessment and route to Accounting.

    4. Enter TC 560 on IDRS CC REQ77 in Blocking Series 700. Up to one hundred (100) cases may be input daily with TC 560. An unpostable condition occurs when more than one hundred (100) TC 560 transactions are input daily.

    5. TC 560 cannot be input during the CP 2000 phase to extend the assessment input date. TC 560 is for Statutory Notice assessments only.

      Note:

      Do not input a TC 560 on the same IDRS cycle that a TC 290 is input. If the TC 560 does not post, the TC 290 will not post which may result in a barred assessment.

  19. For a Statutory Notice with a subsequent agreement received prior to expiration of the 90 days, the assessment period is extended for the number of days the Statutory Notice was outstanding (from the issue date to the TP reply date), ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

4.19.3.20.11.1  (09-30-2014)
Rescinding Statutory Notices

  1. After a Statutory Notice is mailed, it may be necessary to rescind the notice. The TP or the IRS may initiate rescission of a Statutory Notice. The decision to rescind is discretionary on the part of the IRS, is made on a case-by-case basis and requires the TP's written consent. AUR tax examiners will NOT rescind Statutory Notices without prior managerial approval confirmed in a case note. When a TP requests the rescission of a Statutory Notice, the first step is to attempt TP contact to resolve the TP's concern/issue.

  2. Per Revenue Procedure 98-54, 1998-2 C. B. 531, a rescission may be agreed to if:

    1. The notice was issued as a result of an administrative error (to the wrong TP, for the wrong tax period or without considering a properly executed Form 872, Consent to Extend the Time to Assess Tax, or Form 872-A, Special Consent to Extend the Time to Assess Tax).

      Note:

      If the Statutory Notice was issued for the wrong TP or wrong tax period, close the case with the applicable No-Change PC.

    2. The TP submits information establishing the actual tax due is less than the amount shown in the notice.

      Note:

      Issue a Recomputed notice for the lesser amount.

      Note:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ to the Statutory Notice deficiency. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , leave a case note and process the case on the original deficiency.

    3. The TP requests a conference with Appeals (for the purpose of entering into settlement negotiations - as determined by Appeals) and the case will be received in Appeals with at least 365 days remaining on the statute of limitations.

      Note:

      If there is less than 365 days remaining on the statute of limitations a rescission may be agreed to if the Appeals Office also agrees with the decision to rescind.

  3. Per Revenue Procedure 98-54, 1998-2 C. B. 529, a rescission will not be considered when:

    1. On the date of the rescission, 90 days or less remain before the expiration date of the period of limitations on assessment; however, a notice of deficiency may be rescinded in these circumstances if, before rescission, the TP and the Service execute a consent to extend the period of limitations on Form 872 or Form 872-A;

    2. The 90-day (or 150-day for TPs living outside the U. S.) restriction period under IRC 6213(a) has expired and the TP has not filed a petition with the Tax Court;

    3. The TP has petitioned Tax Court or;

    4. The TP and the Service, prior to issuance of the notice of deficiency, executed a Form 872-A covering any of the tax years in the notice.

  4. After all the conditions in (1), (2), and (3) have been considered (managerial approval is required), follow these steps to obtain the TP's consent:

    1. Complete a Letter 2264(SC) in duplicate (one copy for the TP and the other to be attached to the file copy of the Statutory Notice, if available on Control D, otherwise attach to a print of the Statutory Notice History screen).

    2. Prepare a Form 8626, Agreement to Rescind Notice of Deficiency, in duplicate. Attach one copy to the Letter 2264(SC) and attach the other copy to the file copy of the Statutory Notice, if available on the AUR system or Control D, otherwise attach to a print of the Statutory Notice History screen.

    3. Send the Letter 2264(SC) with a copy of the Form 8626 and a return envelope to the TP that day.

    4. Enter a case note and ensure the file copies are in the case file.

    5. Use IPC 8S to resuspend the case.

      Note:

      If communicating with the TP pending receipt of the rescission agreement, be sure to include notification that the 90-day period to petition Tax Court is still in effect.

  5. When the TP returns the signed Form 8626 (both signatures are needed for jointly filed returns), the Form 8626 must be countersigned by the Director Compliance Service, Field or designated official. The rescission is effective on the date the Director or designated official countersigns the Form 8626. Take the following actions:

    1. Complete a Letter 2262 (DO) in duplicate.

    2. Send the TP one copy of the letter and a copy of the countersigned Form 8626.

    3. Leave a case note.

    4. Maintain copies of the Form 8626 and a Letter 2262 (DO) in the case file.

  6. Assign PC 78 and continue processing.

    Note:

    PC 75 cannot follow PC 78.

4.19.3.20.11.2  (08-26-2016)
Default Statutory Notices

  1. Thoroughly review each case prior to defaulting to ensure:

    Note:

    If there is a previous IPC MI on the case, follow local procedures to transfer the case to the designated UID.

    1. There is no agreed response from the TP(s). If there is an agreed response, process the case using agreed response procedures. Do not use default instructions to process the case.

      Caution:

      Full payment received after issuance of a Statutory Notice cannot be considered agreement to the tax increase. Since the necessary signature(s) were not obtained, these cases are closed as Defaults.

    2. The suspense time frame (105 days) has elapsed before assigning PC 90. If not, use IPC "RF" to continue the suspense time frame.

      Note:

      If the suspense batch has aged a message displays "Invalid Process Code - Batch is aged" . Take necessary actions to issue a letter or move the case to the next phase.

  2. Verify the ASED of each default case.

    1. If the ASED is more than 90 days, the statute is not imminent. Process the case using normal procedures. TC 560 IS NOT NEEDED ON THESE CASES. If there are five work days or fewer before the ninety (90) day time frame, input the adjustment immediately.

    2. If the ASED is less than 90 days, recompute the ASED and input TC 560.

      Note:

      The assessment (TC 290) on a default case that needs a TC 560 cannot be input until the TC 560 has posted.

      Caution:

      The TC 560 should be input before April 15th.

  3. Compute the EXDATE (Extended Statute Expiration Date) for a Defaulted 90 Day Letter with an original ASED of 04-17-2015 as follows:

    1. Determine the original ASED and convert to the Julian date (April 15 = 105th Julian date).

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

    4. Convert the sum to a calendar date ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Example:

    Determination of EXTENDED ASED on a Defaulted 90 Day Letter with an original ASED of May 17. May 17 is the 137th Julian day. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , the EXTENDED ASED date.

  4. Default cases with a TC 560 input on or before the date listed in the table below do not require input of a Transaction Date (TRANS-DT).

    TY 2013 TY 2014 TY 2015
    04-15-2017 04-15-2018 04-15-2019

    Input TC 560 using IDRS CC REQ77/FRM77. Input and/or verify the following:

    1. TIN.

    2. MFT code.

    3. Tax period (YYYYMM).

    4. Name control.

    5. TC 560.

    6. Extension date (MMDDYYYY) - (new ASED).

    7. DLN-CD blocking code 70. Used only when the ASED on TXMOD has expired at the time of TC 560 input; this is commonly used on AUR Bankruptcy cases.

    8. Remarks - Input New ASED.


More Internal Revenue Manual