4.119.4 BMF Underreporter (BUR) Program

Manual Transmittal

August 13, 2018

Purpose

(1) This transmits revised IRM 4.119.4, BMF Liability Determination, BMF Underreporter (BUR) Program.

Material Changes

(1) The following changes were effective with IPU 17U1402 dated 10-05-2017.

  • IRM 4.119.4.2.2(2) revised and deleted tax examiners are responsible for printing.

  • IRM 4.119.4.2.2(2) alpha list. Deleted "print" and added description.

  • IRM 4.119.4.2.2(3) revised and deleted IDRS prints.

  • IRM 4.119.4.4.3(2) revised Freeze Code -O activity code.

  • IRM 4.119.4.4.5(1) deleted print for case file.

  • IRM 4.119.4.4.5(4) deleted annotate the IRPTR print.

  • IRM 4.119.4.19(4) deleted print for the case file.

  • IRM 4.119.4.21.10(19) added withholding.

  • IRM 4.119.4.21.1.3(5) b)added "the taxpayer or" .

  • IRM 4.119.4.25.3(1) a),b), c) and d) deleted print.

(2) The following changes were effective with IPU 17U1597 dated 11-15-2017..

  • IRM 4.119.4.4.9(7) Replaced high dollar with unique or novel issue.

  • IRM 4.119.4.6(1) Removed sensitive case reminder.

  • IRM 4.119.4.19(15) Added new IRM reference and removed bullet list.

  • IRM 4.119.4.21.1.14(2) Revised b) replaced high dollar with unique or novel issue.

  • IRM 4.119.4.21.1.14.2 Deleted and merged tridoc into IRM 4.119.4.21.1.15.

  • IRM 4.119.4.21.1.14.3 Deleted and merged tridoc into IRM 4.119.4.21.1.15.

  • IRM 4.119.4.21.1.15 Added new Tridoc for Large Dollar ARDI Guidelines.

  • IRM 4.119.4.21.5(3) Added new IRM reference and removed bullet list.

  • IRM 4.119.4.21.7.2(1) Telephone Response table added new section for cases in a response batch.

  • IRM 4.119.4.21.11.2(1) Added new IRM reference and deleted bullet list.

  • Exhibit 4.119.4-3 Revised definition and description for Subfile 7 and 8.

(3) Changed title of IRM section from BMF Underreporter (BMF-AUR) Program to BMF Underreporter (BUR) Program.

(4) Changed BMF Underreporter program acronym from "BMF-AUR" to "BUR" throughout this IRM.

(5) The following changes will be effective upon publication of IRM 4.119.4 dated 10-1-2018.

  • 4.119.4.1.8 Corrected IRM reference in the second bullet under (1)

  • 4.119.4.1.9 (3) removed CSC FLC codes.

  • 4.119.4.4.9 Added new (5) to address Section 965 Tax.

  • 4.119.4.4.9 Removed (7) c) regarding 1120S K-1.

  • 4.119.4.7.11 (1) Added Market Discount to the table.

  • 4.119.4.7.11 (1) Removed MARKETDISC from the note.

  • 4.119.4.7.13.1 Removed (1) regarding 1120S K-1.

  • 4.119.4.7.13.1 (11) Revised to clarify specific tax year.

  • 4.119.4.7.13.1 Added new (12) to address new IRPTR information.

  • 4.119.4.7.13.2 (8) Revised to clarify specific tax year.

  • 4.119.4.7.13.2 Added new (9) to address new IRPTR information.

  • 4.119.4.7.17.1 Removed (1) regarding 1120S K-1.

  • 4.119.4.7.19 Removed the note under (3) due to outdated information.

  • 4.119.4.9 Revised dates in the note under (1).

  • 4.119.4.9 (2) Revised to clarify specific tax year.

  • 4.119.4.9 Added new note under (2) to address Section 965.

  • 4.119.4.11 Added new note under (3) to address Section 965.

  • 4.119.4.12 (1) Updated Tax Rate Schedules.

  • 4.119.4.12 Added new note below the table in (1) to address Section 965.

  • 4.119.4.14 Added new note under (3) to address Section 965.

  • 4.119.4.14.1 Updated table in (2).

  • 4.119.4.14.1 Updated table in (6).

  • 4.119.4.15.2 (3) Removed 2531 and revised wording in the step list.

  • 4.119.4.16.1 Added tax year 2017 information to the table in (4).

  • 4.119.4.16.1 Revised wording in the note under (4).

  • 4.119.4.16.1 (8) Replaced 6209 reference with IRM reference.

  • 4.119.4.19 Corrected the reference in (16).

  • 4.119.4.21.1.3 Corrected the IRM reference in (2) c).

  • 4.119.4.21.1.9 (4) Added instruction to the step list in the table.

  • 4.119.4.21.1.9 (6) Added instruction to the step list.

  • 4.119.4.21.1.11 (3) Revised wording and separated content into new (4) and (5) to enhance readability.

  • 4.119.4.21.2 (4) Replaced ASPECT with CISCO.

  • 4.119.4.21.2.2 Added CEO to the table in (4).

  • 4.119.4.21.2.4 (1) Updated transfer numbers.

  • 4.119.4.21.2.4 (2) Updated transfer numbers.

  • 4.119.4.21.6.1 Removed (2) c) due to outdated information.

  • 4.119.4.21.7.5 Revised wording in (3) c) to clarify.

  • 4.119.4.21.10 (1) Revised wording in the table to clarify.

  • 4.119.4.21.10 (15) Revised wording to clarify.

  • 4.119.4.26.1 (1) Replaced IDRS employee number with BUR.

  • 4.119.4.26.1 Corrected information in the bullet list under (3).

  • Exhibit 4.119.4-1 Added IRN and PRN to the acronym list.

  • Exhibit 4.119.4-3 Updated category descriptions.

  • Exhibit 4.119.4-3 Removed Subfile 7 and 8.

  • Exhibit 4.119.4-5 Corrected definition for IPC 45TA.

  • Exhibit 4.119.4-10 Updated information in PARAGRAPH 70.

(6) Editorial changes have been made throughout this IRM.

Effect on Other Documents

This revision supersedes IRM 4.119.4 dated 09/06/2017 (effective 10/02/2017).

Audience

BUR tax examiners at the Small Business and Self-Employed site.

Effective Date

(10-01-2018)

Michael W. Damasiewicz
Director, Exam Field and Campus Policy
Small Business Self-Employed

Program Scope and Objectives

  1. Purpose. This Internal Revenue Manual (IRM) provides instructions for the Business Underreporter (BUR), the analysis and processing of potential underreported (U/R) issues identified through information return (IR) matching.

  2. Audience. These procedures apply to BUR employees assigned to the various programs discussed in this IRM.

  3. Policy Owner. BUR is under Examination Operation.

  4. Program Owner. BMF Document Matching, under Exam Field and Campus Policy, is responsible for the content of this IRM and providing guidance for administering the BMF Underreporter program.

Background

  1. BUR cases are built from two primary sources:

    • The Business Master File (BMF) which contains information reported to the IRS by taxpayers

    • The Information Return Master File (IRMF) which contains information submitted by payers

  2. BUR Operations, compile and control selected cases.

    1. Form 4251 (Return Charge-Out), contains a Taxpayer Identification Number (TIN), tax year, and other case identification information.

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

    3. Cases are controlled on Integrated Data Retrieval System (IDRS).

  3. The BMF file contains information reported on Form 1120, U.S. Corporation Income Tax Return, and Form 1041, U.S. income Tax Return for Estates and Trusts.

  4. The IRMF information is matched with the BMF information to verify all income is reported. A BUR case results when computer analysis detects a discrepancy between the two data sources. Examples (not all inclusive) of the information in the IRMF are:

    • Form 1099-MISC, Miscellaneous Income

    • Form 1099-PATR, Taxable Distribution Received From Cooperatives

    • Schedule K-1, Shareholder’s Share of Income, Deductions, Credits, etc.

    • Form 1099-INT, Interest income

  5. Avoid AUDITING RETURNS. All returns in the BUR inventory were previously screened for unallowable items and audit potential. They were not selected for action in either event. See IRM 4.119.4.21, Taxpayer Responses, for additional information.

Authority

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

Roles and Responsibilities

  1. The Director of Exam Field and Campus Policy is responsible for the BMF Underreporter program.

  2. Management officials are responsible for:

    1. Providing internal controls relating to each program, process or activity.

    2. Ensuring the instructions are communicated to and carried out by the proper officers and employees.

  3. Employee-Tax examiner (TE). After cases are selected from the inventory, they are worked according to procedures in this IRM. The TE performs an in-depth analysis of each case. The TE determines if the income/deductions in question is satisfactorily identified on the tax return. If so, close the case. If reasonable doubt remains that the income/deductions are included on the return, send taxpayer either:

    • A Letter 2030, Initial Notice Issued to Request Verification for Underreported Income, Deductions, Payments and/or Credits on BMF Income Tax Returns Matched to Payer Information Documents or

    • A Letter 2531, Initial Contact for Potential Discrepancy of Income, Deductions and/or Credits Claimed on BMF Income Tax Returns Matched to Payer Information Documents

      Note:

      A Letter 3219B, Statutory Notice of Deficiency, may be sent as a follow up to the Letter 2030.

  4. Tax examiners also use Correspondex (CRX) letters to obtain or provide additional information. In order to distinguish guidelines relative to Letter 2531, Letter 2030 and/or Letter 3219B from guidelines relative to Correspondex letters, the following statements in this IRM are true.

    1. Any references to notice or notices refer to Letters: 2531, 2030 and/or 3219B (unless otherwise specified).

    2. Any references to letter or letters refer to Correspondex (CRX) letters (unless otherwise specified).

  5. Process Codes (PC) are used to provide an audit trail for BUR case processing.

  6. Internal Processing Codes (IPC) are codes used in BUR for internal processing.

  7. Tax examiners use the Data Collection Instrument (DCI) to record actions taken.

Program Management and Review

  1. Program Reports. The following reports are used to monitor BUR inventory and identify multiple controls:

    • IDRS CCA 4243 (generated weekly and contains all cases controlled to an IDRS employee number)

    • IDRS CCA 4244 (identifies cases when two or more employees have an open control base on the same TIN)

Terms/Definitions/Acronyms

  1. See Exhibit 4.119.4-1, Acronyms, and Exhibit 4.119.4-2, Glossary, for a list of abbreviations and definitions used in BUR processing.

Taxpayer Advocate Service (TAS)

  1. Even though the Internal Revenue Service (IRS) strives to improve its systems and provide better service, some taxpayers still have difficulty in getting solutions to their problems or appropriate responses to their inquiries. The purpose of the Taxpayer Advocate Service (TAS) is to give taxpayers someone to speak for them within the Service - an Advocate. TAS is an independent organization within the IRS. The Taxpayer Bill of Rights (TBOR) includes the taxpayer’s right to receive assistance from TAS if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels. For additional information about Taxpayer Bill of Rights, visit https://www.irs.gov/taxpayer-bill-of-rights.

  2. TAS and Small Business Self-Employed (SBSE) have a Service Level Agreement (SLA) between them that outlines the procedures and responsibilities for the processing of TAS cases whenever the statutory or delegated authority to complete case transactions rests outside of TAS. The SBSE SLA covers the BUR operation. An Addendum to the SLA lists contacts from various Operations in the Ogden Service Center. Visit the Service Level Agreement (SLA) at http://tas.web.irs.gov/policy/sla/default.aspx.

  3. Refer taxpayers to TAS when the contact meets TAS criteria (see IRM 13.1.7, Taxpayer Advocate Service (TAS) Case Criteria) ,or when Form 911 , Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order), is received and steps cannot be taken to resolve the taxpayer’s issue the same day.

    Note:

    "Same day" includes cases that can be resolved in 24 hours, as well as cases where steps can be taken within 24 hours to begin resolving the issue. See IRM 13.1.7.4, Same Day Resolution by Operations, for additional information.

  4. All potential TAS referrals must be approved by the BUR TAS Liaison.

    1. Update IDRS Activity and /or Category Code as Appropriate, See Exhibit 4.119.4-7, Activity Codes/Category Codes.

    2. Update DCI.

    3. Update case folder.

  5. The BUR TAS Liaison will complete Sections I, II and III of Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order) and forward to TAS. The taxpayer's problem and the taxpayer's relief sought must be clear and specific in Items 12a and 12b of Section I. The Liaison is also required to document the reason why the relief action was not taken.

    Note:

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

Operations Assistance Request (OAR), Form 12412
  1. A Form 12412, Operations Assistance Request, is sent by TAS for cases when there is an issue that they do not have the authority to resolve. An OAR can be received by fax, mail or E-mail and will have a Form 3210, Document Transmittal, attached.

  2. The Form 12412 will contain the name, telephone, and fax number of the TAS employee making the request. An OAR package will also include an explanation of what is being requested and any documentation obtained by the TAS employee.

  3. Form 12412 is to be acknowledged within 1-day for expedited cases or 3-days for all other cases. The acknowledgement on the Form 3210 sent with the OAR, and will include the name and phone number of the assigned person (or team/manager).

  4. The following are addressed when working an OAR:

    1. An expedited Form 12412 has three days to be completed.

    2. After the period: for a non-expedited Form 12412, the SB/SE employee assigned the OAR will negotiate with the TAS employee a reasonable time frame for OAR resolution.

    3. Sections V and VI of Form 12412 must be completely filled out by a BUR employee, including any actions taken and the reasons behind those actions.

    4. A file copy of the OAR is kept by BUR for 6-months.

    5. The completed OAR package is returned to the TAS employee.

Statute Awareness Program

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

  2. Employees must be personally knowledgeable of the rules that govern the Assessment Statute Expiration Date (ASED). These rules are outlined in IRM 25.6, Statute of Limitations.

    Note:

    The ASED can be found using IDRS CC:TXMOD. The date should always be verified.

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

  4. On a quarterly basis, verification that the Operation has completed the required search for cases that are statute imminent is sent to the Planning and Analysis (P&A) Staff. The P&A staff forwards a consolidated Campus report to the Headquarters Statute Analyst.

Related IRMs and Publications

  1. Before disclosing any tax information, ensure the caller is the taxpayer or the authorized representative. See the Taxpayer Authentication guidelines in IRM 21.1.3.2.3, Required Taxpayer Authentication or IRM 21.1.3.2, General Disclosure Guidelines, for further information.

    • See IRM 11.3.2.7.1, Leaving Information on Answering Machine/Voice Mail, for proper disclosure protocols before leaving messages on a taxpayer's answering machine

    • See IRM 11.3.1.14, Facsimile (FAX), Electronic Facsimile (E-FAX), and IRS Internal Enterprise Electronic Facsimile (EEFAX) Transmission of Tax Information, for proper disclosure protocols before faxing confidential information to the taxpayer

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

    Note:

    Technical issues that occur frequently should be brought to the attention of the IRM 4.119.4, BMF Underreporter (BUR) Program, author for consideration for inclusion in this IRM.

    • IRM 2.3, IDRS Terminal Responses

    • IRM 2.4, IDRS Terminal Input

    • IRM 3.13.62, Campus Document Services - Media Transport and Control

    • IRM 3.42.4, Electronic Tax Administration - IRS e-file for Business Tax Returns

    • IRM 4.13.1, Audit Reconsiderations - Introduction

    • IRM 4.19.3, IMF Automated Underreporter Program

    • IRM 4.119.1, BMF Underreporter (BMFAUR) Control

    • IRM 4.119.4, BMF Underreporter (BUR) Program

    • IRM 5.9, Bankruptcy and Other Insolvencies

    • IRM 8.20.10, Account and Processing Support (APS)

    • IRM 10.5, Privacy and Information Protection

    • IRM 10.8.1, Information Technology (IT) Security, Policy and Guidance

    • IRM 11.3, Disclosure of Official Information

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

    • IRM 20.1, Penalty Handbook

    • IRM 20.2, Interest

    • IRM 21.1.1, Accounts Management and Compliance Services Operations - Accounts Management & Compliance Services Overview

    • IRM 21.1.3.18, Operational Guidelines Overview, Taxpayer Advocate Service (TAS) Guidelines

    • IRM 21.3.3, Taxpayer Contacts - Incoming and Outgoing Correspondence/Letters

    • IRM 21.3.7.1.3, Processing Third Party Authorizations onto the Centralized Authorization File (CAF) What is A Third Party Authorization Processing sites (CAF Function)

    • IRM 21.4.4, Refund Inquiries - Manual Refunds

    • IRM 21.4.5, Erroneous Refunds

    • IRM 21.5, Account Resolution

    • IRM 21.6, Individual Tax Returns

    • IRM 21.7, Business Tax Returns and Non-Master File Accounts

    • IRM 25.1.2.3, Fraud Handbook - Recognizing and Developing Fraud, Indicators of Fraud

    • IRM 25.6, Statute of Limitations

    • IRM 25.16, Disaster Assistance and Emergency Relief

    • IRM 25.25.10, Revenue Protection - Frivolous Return Program

    • Publication 1220, Specifications for Electronic Filing of Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G

    • Publication 542, Corporations

    • Publication 544, Sales and Other Dispositions of Assets

    • Publication 550, Investment Income and Expenses

    • Publication 559, Survivors, Executors, and Administrators

    • Document 6209, IRS Processing Codes and Information

Modernized e-File (MeF)

  1. Modernized e-File (MeF) is a web based system that allows electronic filing of Tax Returns through the Internet. MeF documents can be obtained on-line using the Employee User Portal (EUP). Click the following link to access EUP: https://eup.eps.irs.gov/eup_login/.

  2. The following forms can be e-filed through the MeF platform:

    • Corporations - Form 1120, Form 1120-F and Form 1120-S and related forms and schedules

    • Partnerships - Form 1065 and Form 1065-B and related forms and schedules

    • Individuals - Form 1040 and related forms and schedules

    • Estates and Trust - Form 1041 and related forms and schedules

    Note:

    See IRM 3.42.4.5 , Modernized e-file (MeF) System Functionality Overview, for additional information.

  3. Electronically transmitted returns are identified by a unique Document Locator Number (DLN). The first two digits represent the File Location Code (FLC). Use the FLC shown below for the electronic filing of income tax returns. The second number listed is the rollover FLC used when a site exhausts the regular FLC for a given processing date.

    • OSC - 60, 78, 88, 92, 93

  4. An attachment or association form cannot be used to file information such as loose forms, schedules, and correspondence to a MeF return. They must be filed separately.

Integrated Data Retrieval System (IDRS)

  1. The Integrated Data Retrieval System (IDRS) is a computer system that contains the most accurate and current information for each taxpayer’s account.

  2. The most common command codes are:

    • CC:ACTON: Used to open, update and close controls on IDRS

    • CC:CFINK: Displays a list of Third Party Information and authorizations present for the taxpayer

    • CC:ENMOD: Displays name, address, and other entity information

    • CC:ESTAB: Used to request a document from Files

    • CC:INOLE: Displays name line information available for any account associated with that Tax-payer Identification Number (TIN)

    • CC:IRPTR: Displays on-line payee transcripts of income reported on various documents types

    • CC:REQ54: Used to input an adjustment on IDRS

    • CC:REQ77: Used to request a format to input a transaction

    • CC:SUMRY: A summary of all Taxpayer Information File (TIF) modules available

    • CC:TRDBV: A display of the returns/schedules/forms

    • CC:TXMOD: Request a display of tax information for a specific Business Master File (BMF) module

Integrated Automation Technologies (IAT)
  1. BUR employees are mandated to use the Integrated Automation Technologies (IAT) tools when an action must be taken on IDRS. The IAT tools assist with IDRS research and input.

  2. Cases should be worked using IDRS when the IAT tool is not functioning properly.

Accounts Management Services (AMS)

  1. Is a web-based system which provides the capability to record case history notes, collect, retrieve, view and manage taxpayer account information through a single user interface. It includes automated inventories such as correspondence imaging (CIS), 4442 and e911 referrals, and transcripts. Additional case resolution tools such as automated forms, pre-formatted letters, worksheets, checklists, payoff calculator, tax return data, and IDRS alerts are all available in AMS. AMS interfaces with a variety of systems including IDRS, ACSWeb, AUR, ATFR, RCA, ANMF, and ELITE. See IRM 4.119.4.3.5, Correspondence Imaging System (CIS) Documents, for additional information.

Case Information

  1. Each BUR case contains information for a single BMF account.

Controlling Work

  1. Underreporter cases to be analyzed by BUR tax examiners are assembled into batches, which are then divided into work units.

  2. Activity Codes/Category Codes and Process Codes are required to provide an audit trail for BUR case processing. See Exhibit 4.119.4-7, Activity Codes/Category Codes, and Exhibit 4.119.4-6, BUR Process Codes (PC), for further instructions.

  3. When assigning a work unit from a batch, verify that there is a case folder for every TIN shown on the Work Unit Listing and that the TIN on the case folder matches the TIN on the Work Unit Listing BEFORE updating the control on IDRS. If a case folder is missing (or there is an extra folder) see IRM 4.119.4.2.3, Lost Case.

  4. Update the IDRS Control for the case folders that are verified against the Work Unit Listing.

    Note:

    If the case folder is missing either a DCI or a paper filed tax return or contains an incorrectly associated paper tax return, see IRM 4.119.4.2.3, Lost Case.

  5. Whenever an action is taken on a case:

    1. Update IDRS Activity and/or Category Code as appropriate. See Exhibit 4.119.4-7, Activity Codes/Category Codes.

    2. Input Transaction Code (TC) 925 with the applicable Process Code using IDRS CC:REQ77/FRM77. See Exhibit 4.119.4-6, BUR Process Codes (PC), and Exhibit 4.119.4-14, Process Code Consistency Chart, for additional information.

    3. Update the DCI.

    4. Update the case folder.

  6. When it is necessary to refer the case to another user:

    1. Update IDRS Activity Codes with the appropriate referral action.

    2. Annotate DCI and case folder with applicable referral IPC. See Exhibit 4.119.4-5, BUR Internal Process Codes (IPC).

  7. When it is necessary to transfer the case to another program area outside of BUR (i.e., Appeals, Exam, etc.) see IRM 4.119.4.21.1.1.4, Case Transfer to Another Area.

  8. When the income or deduction(s) in question are satisfactorily identified on the tax return or analysis identifies acceptable information return reporting, the case is closed and the taxpayer is not contacted.

    1. Close the case using the appropriate Process Code (PC). See Exhibit 4.119.4-6, BUR Process Codes (PC), and Exhibit 4.119.4-14, Process Code Consistency Chart, for additional information.

    2. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    3. Update the activity code and close the control base. See Exhibit 4.119.4-7, Activity Codes/Category Codes, for further information.

    4. Annotate the DCI and case folder with the appropriate Process Code (PC).

Case Contents

  1. Each case consists of tax year information for the current BUR processing year. The contents of the case folder include:

    • Form 1120 or Form 1041, if it was a paper filed tax return

    • DCI

  2. In addition, a complete case file must include the following:

    1. Current IDRS CC:IRPTRL for information return (IR) data.

    2. Current IDRS CC:ENMOD for the taxpayer entity information.

      Caution:

      If IDRS CC:ENMOD displays indicator PDT (Potentially Dangerous Taxpayer), see IRM 25.4.1, Potentially Dangerous Taxpayer, for additional information. If IDRS CC:ENMOD displays indicator CAU (Caution Upon Contact), see IRM 25.4.2, Caution Upon Contact Taxpayer.

    3. Current IDRS CC:TXMODA for tax account activity.

    4. Current IDRS CC:CFINK for Power of Attorney information.

  3. Ensure that the Tax Return and IDRS; CC:IRPTRL, CC:TXMODA, CC:ENMOD and CC:CFINK are all for the same entity and for the correct tax year.

  4. Some cases may have an amended return attached to the original income tax return.

    If And Then
    There is an indication that the amended return was filed to claim a tentative carryback or carryfoward credit, research IDRS CC:TXMOD for a corresponding TC 976 and TC 295. TC 976 and TC 295 are present Leave the amended return attached and continue working the case.
    There is an indication that the amended return was filed to claim a tentative carryback or carryfoward credit, research IDRS CC:TXMOD for a corresponding TC 976 and TC 295. TC 976 and TC 295 are not present The carryback has not been processed. See IRM 4.119.4.21.7.3, NOL Carryback/Carryforward, for further instructions.
    The amended return was processed, - consider it in the BUR case resolution and refile separately when the case is closed.
    The amended return was not processed, the issue(s) do not meet CAT-A criteria as identified in IRM Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General. Refer to the Lead Tax Examiner for review.
    The amended return was not processed, the issue(s) meet CAT-A criteria as identified in IRM Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General. Refer the case to the Lead Tax Examiner for review.
  5. An action trail MUST be made part of the case file. As the case is worked, document actions taken.

    Note:

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

Lost Case (LC)

  1. When a TIN is assigned to a batch, but the corresponding case (i.e., case folder, DCI, and/or paper filed tax return) is missing, it is considered a "lost" case. Lost case includes incorrectly associated paper tax return in the case folder or incorrect case folder in the work unit (based on the Work Unit listing verification).

  2. When a lost case is identified, provide the information to the Lead Tax Examiner who will attempt to locate the case:

    Note:

    If only the DCI is missing, the Lead Tax Examiner will obtain a new DCI from the Clerical Function.

    If Then
    The Lead Tax Examiner locates the case Continue processing.
    The Lead Tax Examiner cannot locate the case folder
    1. Update IDRS activity with 4XLCMMDD (X represents the phase). See Exhibit 4.119.4-7, Activity Codes/Category Codes.

    2. Ensure that the IDRS control remains in the Clerical IDRS control number.

    3. Print IDRS CC:TXMOD and give to the Lead Tax Examiner who will route to the Clerical Function.

    The Lead Tax Examiner cannot locate the paper filed tax return
    1. Update IDRS activity with 4XLCMMDD (X represents the phase). See Exhibit 4.119.4-7, Activity Codes/Category Codes.

    2. Return the case folder to the Lead Tax Examiner who will route to the Clerical Function.

    Note:

    If the Clerical Function is unable to locate the case, they will update IDRS back to their control.

Wrong Pulls in Screening (WP)

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

    1. Leave the Form 4251 attached to the tax return and annotate WP in the upper right corner.

    2. Update IDRS activity with 41WPMMDD.

    3. Annotate IPC 41WP on the case folder and the DCI.

      Note:

      The tax return will be sent to Federal Records Center (FRC).

Mixed Entity/Period

  1. If the tax return was processed to the incorrect entity or tax year/period, research IDRS to determine if the mixed issue (entity or period) has been corrected:

    If Then
    The mixed issue has been corrected Continue normal processing.
    The mixed entity/period is not corrected
    1. Close the case using PC 4290.

    2. Input TC 925 with PC 4290 using IDRS CC:REQ77/FRM77.

    3. Annotate PC 4290 on the DCI and case folder.

    4. Complete Form 3465, Adjustment Request, and route to Accounts Management. See IRM 4.119.4.2.5.1, Form 3465, Adjustment Request, for further information.

Form 3465, Adjustment Request
  1. Prepare Form 3465, Adjustment Request, when an adjustment action is needed. The following fields must be completed:

    1. Taxpayer's name.

    2. Document Locator Number (DLN).

    3. Check Routing box for "Accounts Management."

    4. TIN.

    5. MFT.

    6. Period ending, year and month.

    7. Tax form number.

    8. In the "Remarks" area, thoroughly explain the problem Include any pertinent research that will help resolve the issue.

    9. Complete the blocks for Signature, Unit, Phone and Date.

  2. Assemble the following items together, in the order listed below, and route to Accounts Management:

    1. Form 12634, OIRSC Campus Document Transmittal.

    2. Form 3465, Adjustment Request.

    3. Tax return or MeF printout.

  3. Paper tax returns must be recharged to Accounts Management. Enter BMF AM in the "RECHARGE DOCUMENT TO" box on the Form 4251, RETURN CHARGE OUT, and route to the Files function.

TXMOD Review

  1. IDRS CC:TXMOD displays posted information from the taxpayer's Master File account. It contains return amounts, transactions, and other current data.

  2. Compare the Taxable Income on the return with the Taxable Income on IDRS CC:TXMOD. A mismatch could be due to a taxpayer and/or processing error. The BUR Function is responsible for issuing a Letter 2030 to correct these types of errors.

    Note:

    If the processing error resulted in an erroneous refund, transfer to the Erroneous Refund Coordinator.

Power of Attorney (POA)

  1. A numeric indicator displays in the Centralized Authorization File (CAF) field of IDRS CC:TXMOD when a POA is on file. See Document 6209, IRS Processing Codes and Information, for the applicable POA indicators.

  2. In addition to CAF indicators, the following transaction codes may also be present on the account:

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

    • TC 961 reverses the CAF Indicator (POA revoked)

    • TC 962 updates the CAF (POA revised)

  3. CAF must always be researched to determine if there is a valid POA (who is authorized to receive notices) on file, before issuing a notice. Indications that a POA is authorized to receive notices include:

    • IDRS CC:CFINK for a specific tax year displays "YES" in the Notice field

    • IDRS CC:CFINK summary screen displays "N" in the Receipt Code (RCTS) field

    • IAT Disclosure Tool displays "N" for notice

  4. The Third Party Designee (Check Box) authority on the tax return does not apply to Compliance issues, including BUR. Therefore, do not send copies of BUR correspondence to a Third Party Designee and do not disclose specific case or tax return information based on a Third Party Designee check box.

  5. If an original POA is found attached to the tax return (not detached during processing), take the following actions:

    1. Fax Form 2848, Power of Attorney and Declaration of Representative to the POA team as soon as possible but no later than 24 hours of receipt.

    2. Annotate (in Red) "Faxed POA," and the date in the upper right corner of the Form 2848.

    3. Leave the original POA in the case file.

    4. Input a History item on IDRS stating "POA faxed."

  6. Disregard invalid POAs.

  7. Consider valid POAs approved.

  8. Check Yes or No on the POA section of the DCI to indicate if a POA is authorized to receive notices.

Freeze Codes

  1. Review IDRS CC:TXMOD for Transaction Codes (TC), Freeze Codes, or for Indicators that may require research, referral, or other specific actions.

  2. If any of the following conditions are present on the current year follow the instructions below to perform required actions.

  3. If Freeze Code -A is present, this indicates an amended return was filed. See IRM 4.119.4.3.3, Transaction Codes Reflecting Tax Liability, for further instructions.

  4. If Freeze Code -F is present, this indicates that an advanced payment (TC 640) has posted to the account. See IRM 4.119.4.3.4, Other Transaction Codes and Math Error Codes, for further instructions.

  5. If Freeze Code -I is present, a Manual Interest computation is required at the time of assessment.

    Note:

    If a Manual Interest computation is required, consult with the Lead Tax Examiner. A non-restricting TC 340 should be used whenever possible. See IRM 20.2.5.6.3, Non-Restricting Transaction Code (TC) 340, for additional information.

  6. Freeze Code “-L” (Audit Indicators TC 420 or 424, not reversed by TC 421) indicates the return is currently being requested or possibly audited by Exam. Take the following action when this Freeze Code is present:

    Before a Notice has been issued (Screening Phase): After a Notice has been issued:
    1. Research IDRS CC:TXMODA for a pending TC 421 that will reverse the “-L” freeze. If there is a reversal or CURRENT-STATUS-CD is 08 or less, continue normal processing.

    2. If there is NO reversal, determine if the case is controlled by the Tax Equity and Fiscal Responsibility Act (TEFRA) function. These cases are identified on IDRS by a “33” or “34” under the CURRENT-STATUS-CD/DATE field on IDRS CC:AMDISA. If the case is controlled by TEFRA, continue normal processing. Do not use the Exam transfer PC's to close TEFRA cases.

    3. If the conditions above are not met refer to the Lead Tax Examiner who will contact the appropriate Exam area to determine further case action.

    1. Review IDRS CC:AMDISA to determine the Primary Business Code (PBC), Secondary Business Code (SBC) and Employee Group Code (EGC).

    2. Use the PBC, SBC and EGC information from CC:AMDISA to locate the correct Exam contact by accessing the following website:
      http://mysbse.web.irs.gov/exam/mis/contacts/empgroupcode/default.aspx

    3. If Exam wants the case, use PC 4380 (Letter 2531), PC 4570 Letter 2030) or PC 4790 (Letter 3219B Statutory Notice). See IRM 4.119.4.21.1.1.4, Case Transfer to Another Area, for additional information.

      Exception:

      If a STAT notice has been issued, place the case in suspense and allow the statutory period to expire before closing the case PC 4790.

    4. If Exam does not want the case, leave a case note and continue normal processing.

  7. Freeze Code -O is a Disaster Indicator set by TC 971 AC 086 or 087 on IDRS CC:ENMOD. See IRM 4.119.4.4.3, Declared Disaster Areas, for further instruction.

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

  9. Freeze Code -S identifies tax returns filed within a declared disaster area and is set with a TC 971 Action Code (AC) 688 on CC:ENMOD. See IRM 4.119.4.4.3, Declared Disaster Areas.

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

  11. Freeze Code -U indicates the Erroneous Refund area is monitoring a case for available credits. Transfer to the Erroneous Refund Coordinator.

  12. Freeze Code -V and/or TC 520 (not reversed by TC 521 or 522), a Bankruptcy condition is present. If identified on the IDRS CC:TXMOD:

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

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

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

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

  13. Freeze Code -W and/or TC 520 (not reversed by TC 521 or 522) with closing code 60-67, 70-81, 84, 85 or 89 indicates that a Bankruptcy or litigation is present. If present:

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

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

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

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

  14. Freeze Code -Y indicates that the taxpayer filed an Offer-in-Compromise (OIC) with the service. See IRM 4.119.4.3.4, Other Transaction Codes and Math Error Codes, TC 780 for further guidance.

  15. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

      Note:

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

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

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

  16. Refer to Document 6209, IRS Processing Codes and Information, for additional information regarding any other Freeze Codes not mentioned above.

Transaction Codes Reflecting Tax Liability

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

  2. TC’s 29X and 30X indicate an adjustment to the tax after the original return was filed (i.e., TC 150). These adjustments are associated with a source document that details the reason for the adjustment.

    1. TC’s 290 and 300 indicate additional tax was assessed. Add these amounts to the TC 150 amount to determine the total tax per return.

    2. TC’s 291 and 301 indicate a portion or all of a previously assessed tax was abated. Subtract these amounts from the TC 150 amount to determine the total tax per return.

  3. Prior to issuing Letter 2531 or Letter 2030, review the TC 29X/30X source document. The following are considered source documents:

    • Form 5147, IDRS Transaction Record

    • Form 5344, Examination Closing Record

    • Form 1120X or Amended Form 1041

    • Duplicate Form 1120 or Form 1041

    • Correspondence Imagining System (CIS) document. See (4) below for additional information on how to identify when a CIS document is present on IDRS CC:TXMODA

    If And Then
    The TC 29X/30X source document is present in the case file (i.e., attached to the original paper return) or available on CIS It resolves the U/R issue
    1. Close the case with PC 42X0 as appropriate.

    2. Input TC 925 with the appropriate PC using IDRS CC:REQ77/FRM77.

    3. Annotate the PC on the DCI and case folder.

    The TC 29X/30X source document is present in the case file (i.e., attached to the original paper return) or available on CIS It does not account for all of the U/R income Issue a notice for the outstanding U/R income issues.

    Note:

    Consider all previous changes to income, deductions, refundable/non-refundable credits, taxes and penalties when a Letter 2030 is to be issued.

    The TC 29X/30X source document is not present in the case file (i.e., attached to the original paper return) The source document is not a CIS document. Order the source document before contacting the taxpayer. See (8) below for additional information on ordering documents.

    Note:

    See (7) below for situations where it is not necessary to order the TC 29X/30X source documents.

    The TC 29X/30X source document is not present in the case file (i.e., attached to the original paper return) The source document is a CIS document See (4) below.
  4. IDRS CC:TXMOD will indicate if the adjustment source document is a CIS document. If it is determined the adjustment is a CIS document, view/print the CIS print utilizing AMS view image. See IRM 4.119.4.3.5, Correspondence Imaging System (CIS) Documents, for further information. If the image is not available via AMS or MeF AND does not meet the conditions in (7) below, close the case PC 4290.

    1. Input TC 925 with PC 4290 using IDRS CC:REQ77/FRM77.

    2. Annotate PC 4290 on the DCI and case folder.

  5. TC 290 for .00 adjustment source documents should be ordered when one of the following is present:

    Form 1120 Form 1041
    1. Corresponding TC 976.

    2. TC 971 Action Code (AC) 010 or 012 through 016.

    3. TC 766/767 without a Credit Reference Number (CRN) and a TC 290 for .00 for returns posted prior to cycle 201703. This is an indication of an adjustment to W/H.

    4. TC 766/767 CRN 399 for returns posted in cycle 201703 and subsequent. This is an indication of an adjustment to W/H.

    5. MeF return and the Blocking Series of the TC 290 for .00 is "00" or "15" .

    1. Corresponding TC 976.

    2. TC 971 Action Code (AC) 010 or 012 through 016.

    3. TC 806/807 and a TC 290 for .00. This is an indication of an adjustment to W/H.

    4. MeF return and the Blocking Series of the TC 290 for .00 is "00" or "17" .

  6. Do not order TC 290 for .00 adjustment source documents for the following:

    1. The TC 290 for .00 adjustment source document is for changes to refundable credits (i.e., TC 766/767 with a Credit Reference Number (CRN) other than CRN 399) and there is no change to TXI.

    2. The TC 290 for .00 has a corresponding TC 971 AC 270. These are cases where the amended return was sent back to the taxpayer.

    3. The TC 290 for .00 is in the 98 blocking series (adjustment made without the original return) and there is a RC 062. These are penalty abatement request disallowances and have no impact on our BUR case.

    4. The adjustment is a TC 290 for .00 with a corresponding TC 971 AC 142. This is a true duplicate return.

    5. TC 290.00 with only a corresponding TC 170/171. This is an Estimated Tax Penalty issue.

  7. Do not order the TC 290/291 (or TC 300/301) source document for the following situations:

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

    2. The difference between the TXI on the return and the TXI shown on the Tax Module matches the discrepant amount within ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Consider the amount in question reported and close the case using PC 4210 if there are no other related issues.

    3. The adjustment is a TC 291/301 when the TXI and the tax has been reduced to zero. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Input TC 925 using IDRS CC:REQ77/FRM77. Annotate the DCI and case folder.

  8. Use IDRS CC:ESTAB to request the source document:

    Exception:

    Do not order MeF returns or CIS document. See IRM 4.119.4.1.9, Modernized e-File (MeF), or IRM 4.119.4.3.5, Corresponding Imaging System (CIS) Documents.

    1. Update IDRS activity with the applicable Activity Code. See Exhibit 4.119.4-7, Activity Code/Category Codes.

    2. Annotate the DCI and case folder with IPC 41RR, 43RR, 45RR or 47RR as appropriate.

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

      Note:

      If you are unable to secure the requested source document, close the case with PC 4290. Input TC 925 with PC 4290 using IDRS CC:REQ77/FRM77. Annotate the DCI and case folder.

  9. Once you receive the requested source document determine if the source document resolves the U/R issue:

    If Then
    The information in the source document resolves the U/R income issue
    1. Close the case with PC 42X0 as appropriate.

    2. Input TC 925 with the appropriate PC using IDRS CC:REQ77/FRM77.

    3. Annotate the PC on the DCI and case folder.

    4. Refile the requested source document separately.

    The information in the source document does not resolve the U/R income issue Issue a notice for the outstanding U/R income issues.

    Note:

    Consider all previous changes to income, deductions, refundable/non-refundable credits, taxes and penalties when a Letter 2030 is to be issued.

    Note:

    Refile the requested source document separately when the case is eventually closed.

    Reminder:

    If you are unable to secure the requested source document, close the case with PC 4290. Input TC 925 with PC 4290 using IDRS CC:REQ77/FRM77. Annotate the DCI and case folder.

  10. When a TC 300/301 is present on the Tax Module with a TC 421 and no -L freeze, a Disposal Code displays on the Tax Module. If pursuing U/R income, determine the Disposal Code. The Disposal Code is located under the column titled DIS CD in the transaction section of the Tax Module:

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

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

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

  12. A TC 976 or TC 971 AC 010 or 012 through 016 present on the tax account indicates that the taxpayer filed an amended (or duplicate) tax return. If a TC 290/291 is NOT present allow Accounts Management time to process the amended/duplicate return before contacting the taxpayer.

    1. Update IDRS activity with the applicable Activity Code to suspend the case. See Exhibit 4.119.4-7, Activity Codes/Category Codes.

    2. Monitor the case for 45-days from the date the case was assigned to you.

    If And Then
    The TC 290/291 has posted The return is available electronically Review the electronic document to determine if the U/R income has been accounted for and proceed accordingly.
    The TC 290/291 has posted The return is not available electronically Order the adjustment source document.
    The TC 290/291 has not posted by the end of the 45-day monitoring period - Refer to the Lead Tax Examiner for review.
  13. TC 295 indicates an abatement of tax, based on a tentative allowance, input by Accounts Management. TC 299 indicates an abatement of the original tax. If there is a TC 295 or 299 unreversed, (or only partially reversed) by TC 294 or 298, and there is U/R income, issue a notice. Subtract the TC 295 (plus the TC 299) amount minus the TC 294/TC 298 amount from the TC 150 amount to determine the total tax per return.

  14. TC 305 indicates an abatement of tax, based on a tentative allowance, input by Exam. TC 309 indicates an abatement of the prior tax assessment (with an interest computation date). If there is a TC 305 or 309 unreversed, (or only partially reversed) by TC 304 or 308, and there is U/R income, issue a notice. Subtract the TC 305 (plus the TC 309) amount minus the TC 304/TC 308 amount from the TC 150 amount to determine the total tax per return.

Other Transaction Codes and Math Error Codes

  1. Other TCs shown on the Tax Module may require additional action.

  2. TC 160 or 166 indicates a Delinquency/Failure to File Penalty was assessed. TC 161 or 167 means a portion or all of the penalty has been abated. When a U/R issue exists, compute or recompute the Delinquency/Failure to File Penalty when required. If the Delinquency/Failure to File penalty is restricted by a TC 160/161 and applicable, enter the amount on the adjustment or it will unpost. See IRM 4.119.4.16.1, Failure to File Penalty (FTF), for additional information.

  3. TC 170 or 176 indicates an Estimated Tax (ES) Penalty was assessed. TC 171 or 177 means a portion or all of the penalty has been abated.

  4. TC 270 or 276 indicates a Failure to Pay Penalty (FTP) was assessed. TC 271 or 277 means a portion or all of the penalty is abated.

  5. TC 460 indicates a request for extension of time to file was approved. The extension date appears at the end of the transaction code line in the EXT-DT field.

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

  7. TC 530 (not reversed by TC 531 or 532) with a closing code 07 or 10, indicates that the account is considered uncollectible.

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

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

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    4. Annotate the DCI and case folder with the appropriate PC.

  8. TC 604 (not reversed by TC 605) indicates that assessed debit has been cleared.

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

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

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    4. Annotate the DCI and case folder with the appropriate PC.

  9. TC 640 indicates an advanced payment of an underreporter proposal. The TC 640 payment sets an -F freeze and is released with a TC 29X in a BUR blocking series.

  10. TC 670 indicates a subsequent payment. When a payment relating to the BUR issue posts as a TC 670, input a TC 570 to prevent the payment from refunding.

  11. TC 766 or 767 indicates substantiated payment credits, including withholding (W/H). W/H may need to be adjusted due to the BUR processing. Before proposing a change to W/H, be certain that the adjustment has not been previously allowed.

    Note:

    Beginning in January 2017, Form 1120 Corporate series returns claiming W/H/Backup W/H posting in cycle 201703 and subsequent will post as a TC 766/767 with CRN 399.

  12. TC 780 indicates that the Service accepted an Offer In Compromise(OIC) from the taxpayer. If an unreversed TC 780 is present, take the following action:

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

      Exception:

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

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

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

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

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

  13. TC 806 credits the tax module for W/H claimed on a Form 1041 tax return. TC 807 reverses the TC 806 credit in whole or in part. W/H may need to be adjusted due to the BUR processing. Before proposing a change to W/H, be certain that the adjustment has not been previously allowed.

  14. TC 830 or 836 identifies the credit elect amount on the overpaid module and TC 710 or 716 identifies the posting of the prior year credit elect to the BUR tax year module.

  15. TC 925 is a universal indicator of BMF–AUR IDRS activity. TC 925 displays process codes in a string of up to 10 process codes, allowing IDRS users to know the extent of BMF–AUR activity on the account (i.e., case open, Letter 2030 issued, closed agreed, etc.).

  16. TC 971 Action Code 375, 376 or 377 (not reversed by TC 972), indicates that a Form 1120-S was converted to Form 1120 tax return.

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

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

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    4. Annotate the DCI and case folder with the appropriate PC.

  17. TC 971 Action Code 522 indicates Identity Theft. Refer the case to Lead Tax Examiner for referral to Headquarters (HQ).

  18. TC 971 Action Code 653 indicates that Rev. Rul. 99-40, (May Sequa), has been considered on the module. Manual Interest determination is required when inputting the assessment. See IRM 4.119.4.16.6, Revenue Ruling 99-40 and Credit Elects (MaySequa), for additional information.

  19. If a Transaction Code other than those explained in IRM 4.119.4.3.3, Transaction Codes Reflecting Tax Liability, or IRM 4.119.4.3.4, Other Transaction Codes and Math Error Codes, are indicated on the IDRS CC:TXMOD, refer to Document 6209, IRS Processing Codes and Information.

  20. If there is a math error code present, it displays in the MATH-STS-CD field of IDRS CC:TXMOD. See Document 6209, IRS Processing Codes and Information, for a full definition of Math Error Codes.

  21. When preparing a Letter 2030, use "per return" figures from the filed tax return, however, when "per return" amounts on the Letter 2030 differ from those shown on the original return because of a processing change (Math Error Code present), previously filed amended return, or other adjustment, and:

    If Then
    The taxpayer was notified of the adjustment. Indicators that the taxpayer was notified of the adjustment include:
    1. Presence of a TC 290 or 291, generally due to filing of an amended return. OR

    2. Presence of a TC 300 or 301, due to prior Examination. OR

    3. TXMOD shows MATH-STS-CD > 3

    Include PARAGRAPH 30 on the Letter 2030.

    Note:

    PARAGRAPH 30 reminds the taxpayer that the “per return” amounts shown on the Letter 2030 differ from the originally filed tax return due to prior adjustments to the account.

    The taxpayer was not notified of the adjustment Include PARAGRAPH 31 on the Letter 2030.

    Note:

    There must be a significant difference (i.e. more than $1) between the “per return” amount used on the Letter 2030 and the corresponding amount on the originally filed tax return.

Correspondence Imaging System (CIS) Documents

  1. The Correspondence Imaging System (CIS) is used to manage scanned images of amended returns, documents and electronic case files.

  2. When a duplicate/amended return (TC 976 or TC 971 with AC 010 or 012 through 016 and a posted TC 290/291) is present, IDRS CC:TXMODA will display an indicator 1 in the CIS-IND field indicating that a CIS document is available.

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

    1. Access IDRS.

    2. Access AMS.

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

    4. In the Taxpayer Lookup screen, enter the taxpayer TIN in the "Request by TIN" field and then click on go or press enter on the keyboard.

      Note:

      This will allow the taxpayer account screen to appear.

    5. In the Alert section, click on the view pages link.

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

      Caution:

      If an amended return is not present, check EUP to see if it is an MeF return. See IRM 4.119.4.1.9, Modernized e-File (MeF), for further instructions.

      Note:

      The thumbnail view can be used to view each page.

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

  4. To exit AMS click on the Exit Account link in the upper right hand corner. In the Taxpayer Lookup window, click on the Log off link to exit the system.

Analysis Procedures

  1. The following instructions are for use by BUR tax examiners. They are to be used in conjunction with training materials:

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

    2. An OVER-DEDUCTED (O/D) condition exists when the taxpayer claims more of a deduction than is substantiated by IR(s) and/or allowed by law.

    3. An UNDERCLAIMED (U/C) condition exists when the taxpayer does not claim all the payments to which they are entitled.

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

  2. Analyze income elements on the IR(s) following the guidelines for specific income types as provided in this IRM.

  3. Proposed adjustments on the Letter 2030, or Letter 2531 may require an explanation to the taxpayer. There is only one set of explanation paragraphs for both the Letter 2030 and Letter 2531.

    • Letter 2030, Letter 2531 paragraphs are annotated in this IRM as "PARAGRAPH."

      Note:

      See Exhibit 4.119.4-10, CP PARAGRAPHS, for a listing of available CP Paragraphs.

    • Miscellaneous Notice or Letter paragraphs are annotated as "Special Paragraph."

    Note:

    The verbiage provided in this IRM for a "Special Paragraph" is for example only and can be modified as needed.

  4. When issuing a notice for underreported issues, enclose the applicable IR(s) using IDRS CC:IRPTRW.

  5. Tax returns with a calendar year of less than 12-months are considered short year returns. Calendar dates are listed at the top of the tax return below the title. Take the following action when a short year return is identified:

    If And Then
    Form 1041 - Continue normal processing.
    Form 1120 The return shows that it is an "initial return" as identified by a check mark on Form 1120, Section E, box 1. Continue normal processing.
    Form 1120 The return is other than "initial return."
    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

Fraud Referral Program

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

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

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

    1. Identify cases with potential fraud.

    2. Develop potential fraud cases with guidance from the Campus Fraud Technical Advisor.

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

    4. Develop fraud guidance to ensure campus employees are properly trained on the indicators of fraud.

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

  5. The Functional Fraud Coordinator (FFC) is a fraud specialist assigned to a specific function or operation within the Campus. The FFC is responsible for reviewing Form 13549, Campus Fraud Lead Sheet, for potential fraud issues, conducting research to establish a pattern of non-compliance and, when appropriate, referring cases to the Campus Fraud Coordinator.

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

Identifying and Developing Fraud in BUR
  1. During the course of BUR case work, situations may be encountered involving potential fraud, referred to as indicators of fraud. Although only a small percentage of cases are fraudulent, it is essential to detect and report any potential fraudulent activities. IRM 25.1.2.2, Fraud Handbook - Recognizing and Developing Fraud, Indicators of Fraud, provides several lists of Fraud Indicators. The following list has been developed for BUR and identifies examples of indicators of fraud that are most likely to be found in a campus environment (this list is not all inclusive and may involve a promoter/return preparer):

    • Altered Documents

    • False deductions/adjustments to income

    • False basis in assets

    • Concealing assets

    • False transaction date for asset disposition

    • False statements made by taxpayer

    • False business, rental, or farm expenses

    • False or overstated refundable credits

    • Amended returns with any of the above

    • Understating Income

    • Failure to cooperate

    • Maintaining inadequate records

    • Inconsistent or implausible explanations

    • Engaging in illegal activities

    • Concealment of activities

    • Preparer schemes

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

  3. See IRM 25.1.1.3, Indicators of Fraud vs. Affirmative Acts of Fraud.

BUR Tax Examiners Fraud Responsibilities
  1. Identify indications of fraud that are uncovered through regular case processing. Use the list in IRM 4.119.4.4.1.1, Identifying and Developing Fraud in BUR.

  2. Discuss the indicators of fraud with the Lead Tax Examiner (i.e., Approving Official). The Lead Tax Examiner will then make the determination if the case should be transferred to the designated individual responsible for working/monitoring fraud cases by:

    1. Completing Sections I, II, III, and item 1 of Section V of Form 13549, Campus Fraud Lead Sheet and submitting to the approving official for approval.

    2. The approving official will forward the approved Form 13549 and case file to the designated BUR Functional Fraud Coordinator (FFC).

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

    • All case actions

    • All documents received

    • All contacts must be adequately documented (e.g., changes to entity information were recognized/updated)

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

BUR Fraud Coordinator Responsibilities
  1. The BUR Functional Fraud Coordinator (FFC) is responsible for developing fraud cases. The FFC is responsible for conducting preliminary screening of Form 13549 to determine if the referral should be forwarded to the Campus Fraud Coordinator (CFC). The FFC will:

    1. Review the Form 13549 and case file to determine if indicators of fraud exist.

    2. Complete, document and attach research information, including, but not limited to IDRS transcripts, ACCURINT prints, and relevant web searches. Research will help to establish a pattern of non-compliance.

    3. Complete Section IV of the Form 13549, (Developmental Actions) and item 3 in Section V.

    4. The FFC has ten business days from the receipt date of a case and Form 13549 to evaluate a fraud referral and make a determination whether to accept or decline the referral.

    5. If the FFC accepts referral then acceptance is noted in item 3b, Section V, and the form and case file are forwarded to the CFC for final fraud determination.

    6. If the FFC declines the referral then item 3a in Section V is completed along with a written explanation for the declination in Section VI and returned to the initiator through the approving official. The case will be reassigned to the initiator’s Standard Employee Identifier (SEID).

    7. Update the Fraud Referral Monitoring Report (FRMF).

    8. Maintain a copy of each Form 13549.

    9. Track all BUR fraud leads, including those declined/returned to BUR and those accepted for further Fraud development.

    10. Submit information on Fraud referral/accepted/declined cases to Headquarters by the fifth day of each month.

      Note:

      The CFC is required to make a determination to accept or decline the fraud referral, within 21 business days of receipt of the case from the FFC.

  2. If the CFC accepts the fraud referral for further development, they will request the case be reassigned and ensure the case is established on Audit Information Management System (AIMS). The BUR FFC will:

    1. Close the case using Fraud Closing PC 4140, 4370, 4580, or 4770 as appropriate.

    2. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    3. Annotate the DCI and case folder with the appropriate PC.

    4. Annotate the Form 13549 and keep a copy for the BUR records.

    5. Make and send a copy of the Form 13549 to the initiator through the initiator's manager.

    6. Ensure the entire case contents are forwarded.

  3. If the CFC declines the fraud referral they will return the Form 13549 with a written explanation to the BUR FFC. The BUR FFC will return the Form 13549 to the initiator through the approving official and transfer the case to the initiating tax examiner’s SEID.

Frivolous Return Program (FRP)

  1. A frivolous return is defined as noncompliance with filing and/or paying tax based on unfounded legal or constitutional arguments per IRM 25.25.10, Revenue Protection - Frivolous Return Program. If in doubt about whether the return is frivolous, consult with the Lead Tax Examiner or manager. If it is determined during screening that the return is frivolous, close the case with PC 4130.

    1. Input TC 925 with PC 4130 using IDRS CC:REQ77/FRM77.

    2. Annotate PC 4130 on the DCI and case folder.

    3. Annotate the DCI and case folder with “FRP to Ogden.”

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

  3. If FRP requests a BUR case after contacting the taxpayer, close the case with the appropriate PC (4570 or 4790), annotate the case folder and DCI for clerical "FRP to Ogden." See IRM 4.119.4.21.1.1.4, Case Transfer to Another Area, for additional information.

Declared Disaster Areas

  1. BUR Coordinator alerts tax examiners of ZIP Codes for specific declared disaster area situations as necessary based on IRS Disaster Relief Memos. Follow Coordinators instruction on proper handling of declared disaster area cases.

  2. Possible Disaster case impact:

    If And Then
    Freeze Code -S is present on IDRS CC:TXMOD A notice is to be issued Continue processing by issuing the applicable notice (i.e., Letter 2531, Letter 2030, or Letter 3219B).
    Freeze Code -S is present on IDRS CC:TXMOD The Stat notice suspense time frame has elapsed but the disaster time frame has NOT expired
    1. Update IDRS activity with 47MRDSMMDD. See Exhibit 4.119.4-7, Activity Codes/Category Codes, and Exhibit 4.119.4-8, Definer Codes.

    2. Suspend the case until the Disaster date expires.

    3. Once the Disaster end date has passed, complete the default action on the case.

    Freeze Code -O is present on IDRS CC:TXMOD -
    1. Do not issue a notice or assess by default.

    2. Update IDRS activity with 4XMRDSMMDD. See Exhibit 4.119.4-7, Activity Codes/Category Codes, and Exhibit 4.119.4-8, Definer Codes.

    3. Suspend the case until the Disaster date expires.

    4. Once the Disaster end date has passed continue normal processing.

    Note:

    See IRM 4.119.4.21.1.9, Disaster Area, if correspondence is received during the Disaster time frame.

Consolidated Returns Form 851 Affiliation Schedule

  1. An affiliated group of corporations can elect to file a consolidated income tax return by including Form 851, Affiliation Schedule.

  2. When Form 851 is included with the tax return, the consolidated return must include all the income of the parent plus the income of each subsidiary for the portion of such taxable year during which it was a member of the group.

    1. Research IDRS CC:IRPTR for each listed affiliated TIN(s).

    2. Consider all information returns as part of the case review.

  3. When issuing a notice include the following Special Paragraph: "Our records show you filed Form 851, Affiliations Schedule, with your tax return. We have enclosed transcripts of information for each entity shown on your affiliations schedule. All income reported on a consolidated return must include the income of the parent plus the income of each subsidiary for the portion of the taxable year during which it was a member of the group."

Information Returns - Review

  1. The initial review of information returns (IR(s)) is accomplished using IDRS Command Code (CC) IRPTRL.

  2. Compare payer information to the tax return and take the correct action if there are any discrepancies.

    1. Be aware of Payer Agent information. See IRM 4.119.4.5, Payer Agent, for further instruction.

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ If the IR contains Federal Withholding, see IRM 4.119.4.15.1, Withholding W/H - Analysis, for additional information.

    Note:

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

  3. When comparing income from payers to the tax return, discrepancies may be discovered. Discrepancies can occur for a variety of reasons. The most common causes for discrepancies are:

    • Misplaced entries

    • Entries added incorrectly

    • Income not carried forward from attached schedules

    • Incorrect information from payers

    • Omission of information

  4. Review each IR for validity prior to determining any unreported amounts. Use the following status codes to indicate the result of the review:

    1. "R" to indicate reported.

    2. "U" to indicate underreported.

    3. "X" to indicate deleted.

  5. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ if any of the following conditions are present:

    Condition... And...
    The payee area indicates that the income belongs to a retirement plan. Indicators may include the following terms:
    • Retirement Plan

    • Retirement Rollover

    • Profit Sharing Plan (PSP)

    • Defined Benefit Pension Plan

    • Defined Benefit Plan (DFB or DBP)

    • Employee Benefit Plan (EBP)

    • Keogh (HR-10) or Tax Shelter Annuities (403(b)

    • Simplified Employee Pension (SEP) or Individual Retirement Accounts (IRA)

    • 401 (k) Plans

    Note:

    The above list is not all inclusive.

    Note:

    Consider all abbreviations and/or variations of terms.

    -
    The payer area identifies the income as deriving from a Municipal Bond or a Capital Construction Fund (CCF) account. -
    The payee name line(s) is obviously not the taxpayer, even though the EIN matches.

    Exception:

    If it is obvious that the Payee may be an owner of the business. For example, the business is a medical practice and the name listed is one of the physicians.

    -
    The Payer EIN is 99–9999999, foreign income Another EIN is present for the same payer.

    Note:

    Income dollar amounts may vary due to currency exchange rates. Foreign source IRs are treated the same as domestic source IRs. Therefore, do not delete a foreign source IR unless another related IR from the same payer is present. See (8) below for additional information.

    The money amount on a single IR equals $999,999,999, unless the taxable income on the tax return supports this amount (this may be an indicator the information return is incorrect). -
    If all elements (TIN, name, amount, account number, income type, etc.) on any two IRs are identical:
    • Including the source, delete one IR.

    • Except the source, delete the paper source.

    -
    The IR is found on the Payer Agent listing Instructions state to delete the IR.

    Note:

    If all U/R income is from identified Payer Agents and the Payer Agent listing contains instructions to delete the IR(s): close the case with PC 4240, input TC 925 with PC 4240 using IDRS CC:REQ77/FRM77, annotate PC 4240 on the DCI and case folder.

    There is an indication in the payee area that the income is not attributable to the taxpayer. Indicators may include the following terms:
    1. Escrow.

    2. Trust For (TR).

    3. In Trust For (ITF).

    4. Trust Account.

    5. Trust.

    6. Workers Compensation.

    Note:

    The above list is not all inclusive.

    Note:

    Consider all abbreviations and/or variations of terms.

    Exception:

    If there is an indication that the income is attributable to the taxpayer, then consider the IR as belonging to the taxpayer. For example: the taxpayer is ABC Corp and the payee area displays: "XYZ Corp ITF ABC Corp." In this instance ABC Corp is responsible for reporting the income.

    ONLY when working Form 1120 cases.
    All elements on any two IRs are identical except that one does not contain an account number. Delete the IR without the account number. -
    If all elements (except the account numbers) of any two IRs are the same It can be determined that the account numbers of both IRs contain the same sequence of numbers or characters, delete one of the IRs.
    Form 1099-MISC and Schedule K-1 information returns are present with identical elements (TIN, name, amount, income type, etc.) It appears that one of the IRs is fully reported, delete the other. Otherwise pursue the income from both IRs.
  6. Consider the IR valid (as belonging to the taxpayer) when ANY of the following conditions are present:

    1. The payer's name is garbled, missing, or incomplete. Use the TIN to research IDRS for the proper payer name. If the income is U/R include a special paragraph to explain the proper name of the payer TIN being shown on the IR.

    2. The payee name is in a different order on the IR.

    3. Only a name control is showing as the payee name and it matches the Entity name.

    4. The name on the IR is different and a review of IDRS CC:ENMOD and/or IDRS CC:FINDE (when working Form 1120 cases) shows it as a prior name.

    5. If it is obvious that the Payee name may be an owner of the Business (e.g., the Business is a medical practice and the name listed is the Physicians).

  7. Foreign source income IRs may be identified by:

    • A payer TIN of “99-9999999”

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

    • Foreign country abbreviation in the State field on the payer address

    • Account Code Type “T”

    Reminder:

    Foreign source IRs are treated the same as domestic source IRs. Therefore, do not delete a foreign source IR (even if the payer name appears unclear or garbled) unless another related IR from the same payer is present.

  8. See IRM 4.119.4.4.5.1, Amended/Corrected Original Submission IRs, when the IR is an amended or corrected original submission.

  9. Compare all valid IR’s to amounts on the tax return and related schedules. Use instruction for the particular type of income involved.

Amended/Corrected Original Submission IRs
  1. The IDRS CC:IRPTR transcript displays the following payer information return submission types:

    1. ORIGINAL SUBMISSION.

    2. CORRECTED ORIGINAL SUBMISSION.

    3. AMENDED SUBMISSION.

  2. When an IR is either an amended (or corrected original) submission, determine if an original submission IR is also present. Delete original submission IR(s) when there is a matching amended (or corrected original) IR(s). Both IRs must have:

    • The same payer name and/or TIN

    • The same account number (if present)

    • The same type of income if the money amount changes or different amount type’s when the money amount stays the same (i.e., amending a Form 1099-MISC from NONEMP COM to RENTS)

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

  4. Consider a valid payer document attached to the tax return marked "Corrected" more accurate than the IDRS CC:IRPTR original submission information.

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

Comparison of Information Returns with Return Information

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

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

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

    3. Allow a tolerance of $1 (rounding) for each IR.

    4. Consider Payer Agent criteria when evaluating IRs.

    5. Place an "R" on the IR for reported, a "U" for underreported or "X" to delete.

      Caution:

      Be sure that income identified on attachments are appropriately carried forward and included in the total income when applicable.

  2. Misplaced entries on the tax return are frequent causes of U/R discrepancies. Taxpayers report income in a variety of places. It is important to thoroughly review the ENTIRE return. Consider all attached schedules, forms, documents and statements before identifying income as being underreported.

  3. For IRs with multiple Amount Types (e.g., Form 1099-MISC or Schedule K-1) consider each component of the IR separately.

  4. Whenever possible attempt to match IR amounts to a specific line on the tax return. For example, match the sum of INTEREST Amount Types to the amount reported on Form 1120, line 5 or Form 1041, line 1.

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

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

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

  6. When payer documents are attached to a paper return, consider them more accurate than the IR UNLESS:

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

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

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

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

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

    1. Give credit for amounts based on the available tax return information.

    2. Compute if the necessary supporting schedule or form is missing.

    3. Include a Special Paragraph requesting the missing forms or schedules from the taxpayer and apologize for the inconvenience.

  8. Group same amount types together when a breakdown has not been provided and it is necessary to compare a total money amount for related IRs with a single or multiple line entries on the tax return e.g., MED PAYMTS and NONEMP COM will often be combined when the business is medical.

    1. If the group total amount is larger than the single line entry on the return, consider the difference underreported.

    2. If the group total amount is smaller than the single line entry on the return, consider the issue resolved.

  9. If a Form 1099-MISC IR has two identical money amounts (e.g., Nonemployee Compensation is $500 and Medical Payment is $500) and the taxpayer reports one of the amounts, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  10. If a Form 1099-K and Form 1099–MISC are present with identical money amounts, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  11. A photocopy of a prior year Letter 2030 or Letter 2531 response may be attached to the return. Consider the information in the previous year's response. This information may result in resolving the U/R issue(s).

  12. When a U/R issue for the same Amount type from the same payer was resolved per a copy of a Letter 4552C response from a prior year attached to the return, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  13. If a prior year BUR closure Letter 4551C is attached to the return, request the prior year tax return to see if the resolved issue(s) corresponds to the current BUR year discrepancy. If so, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

    2. Pursue the U/R issue.

    3. Include a special paragraph to advise the taxpayer of the error.

  15. If the discrepancy is totally resolved, close the case using PC 4210.

    1. Input TC 925 with PC 4210 using IDRS CC:REQ77/FRM77.

    2. Annotate PC 4210 on the DCI and case folder.

  16. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

  17. If the taxable income per return is a negative amount include PARAGRAPH 32 on the Letter 2030.

Service Center Recognition/Image Processing System (SCRIPS)
  1. All paper submissions are scanned into the Service Center Recognition/Image Processing System (SCRIPS).

  2. Tax examiners should screen all paper filed IR(s) with care. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ :

    1. Obvious decimal point errors. A decimal error may be identified by multiplying the U/R amount by 1.111 and the result equals the IR (within $1).

    2. Commas read as numeric (i.e., $1,050 read as $12050, etc.). U/R amounts that are a multiple of one-thousand (1,000) is an indication that the comma was misread as a numeric.

      Example:

      SCRIPS IR displays as 21230 (comma misread as the digit "1" ), the taxpayer reports 2230 with a resulting U/R of 19000.

    3. Dollar signs read as numeric. When a dollar sign is misread as a numeric, the U/R amount is a multiple of 10, 100, 1,000, 10,000, etc., depending upon the number of digits in the SCRIPS IR.

      Example:

      SCRIPS IR displays 587 (dollar sign misread as the digit "5" ), the taxpayer reports 87 with a resulting U/R of $500.

    4. Duplicate money amounts for both income and withholding.

    Note:

    If a SCRIPS IR is U/R and none of these conditions are present, consider the IR valid and pursue the issue using normal procedures.

Nominee Recipient

  1. When a taxpayer indicates they received income on behalf of another entity/person because they acted as an intermediary, agent, or broker for that entity/person they are considered a nominee recipient.

    Note:

    Consider the taxpayer a nominee recipient when their explanation states that the income was: held in escrow, received but are not entitled to its use, or other statements that the income was passed through to another recipient.

  2. When an attachment or statement indicates that the taxpayer acted as a nominee recipient, and:

    1. Includes sufficient information about the intended recipients (name and/or TIN and amount distributed): research IDRS CC:PMFOLS, CC:IRPTRI and CC:IRPTRL (for the recipient/payee) to determine if the taxpayer issued Forms 1099 to the intended recipients.

      Note:

      The Forms 1099 issued to the intended recipients should be the same type as the Form 1099 received by the taxpayer.

      If Then
      IDRS research confirms the presence of the Form 1099 for the intended recipients and the amount is equal to or greater than the U/R amount Consider the U/R discrepancy resolved.
      Form 1099 payments are present for the intended recipients and the amount is less than the U/R amount OR IDRS research does not indicate any distribution of payments
      1. Attempt to verify that the income was reported on the recipient’s tax return. See IRM 4.119.4.21.7.7, Income Reported on Another Return (Not Nominee).

      2. If the income can be accounted for on another return then consider the U/R discrepancy resolved.

      3. If the income cannot be accounted for on the recipient’s return, pursue the U/R discrepancy in full and include PARAGRAPH 25.

    2. Does not include sufficient information about the intended recipients to research IDRS, pursue the nominee income as U/R and include PARAGRAPH 25.

Grantor Trusts

  1. A Grantor Trust is a trust in which all income is distributed to the beneficiaries and not taxable to the trust.

  2. If the entire trust is a Grantor Trust, taxpayers are instructed to fill in only the entity portion of the return and not have any entries on Form 1041, lines 1 through 22.

  3. Treat Form 1041 as a Grantor Trust ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ when the taxpayer checks Grantor Trust box in Form 1041, Section A and:

    Note:

    In lieu of checking the box, the taxpayer writes Grantor Trust on the return or cites IRC 671-678.

    1. Reports no income or deductions. If the only entry is for the exemption on Form 1041, line 20 consider this the same as reporting no income/deductions.

    2. Taxpayer reports income and then distributes the entire amount on Form 1041 line 18 and includes related Schedule K-1’s.

    Reminder:

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

  4. When the taxpayer checks the Grantor Trust box and another box in Form 1041, Section A and reports income/deductions, this is an indication that a portion of the trust is taxable. If part of the trust is taxable, the income, deductions, etc., that are taxable to the trust are reported on Form 1041. The amounts that are taxable directly to the grantor are shown on an attachment to the return or can be a statement indicating a percentage allocable to them.

    1. When screening the various amount types on IDRS CC:IRPTR determine if the trust reported the appropriate portion on the Form 1041.

      Example:

      Attached statement says 50% distributed to beneficiaries, IR for $5,000 Interest and $2,500 is reported on Form 1041, line 1.

    2. Consider the IR fully resolved if the portion allocable to the trust is reported.

    3. If the IR cannot be fully accounted for, pursue the entire difference.

  5. If none of the above conditions apply, pursue the U/R income in full.

Miscellaneous

  1. If IRC 6501(d), Request for Prompt Assessment, is noted on the tax return, or there is a statement requesting a prompt assessment ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

  2. When there is an indication on the tax return that income was reported on another return see IRM 4.119.4.4.7, Nominee Recipient, for additional information.

  3. When Form 1120 is from a financial institution and the entity section shows "FDIC" (Federal Deposit Insurance Corp.) or similar wording and/or cites IRC 7507a (Exemption of insolvent banks from tax), close the case with PC 4260.

    1. Input TC 925 with PC 4260 using IDRS CC:REQ77/FRM77.

    2. Annotate PC 4260 on the DCI and case folder.

  4. When an attachment indicates the income in question is nontaxable and the taxpayer cites the Internal Revenue Code (IRC), Regulations, Revenue Rulings, or a court case, etc., research the IRC to determine its validity. Consult with the Lead Tax Examiner if necessary.

    Exception:

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

    1. If the IRC is not valid, pursue the issue and include a Special Paragraph to inform the taxpayer that the explanation is not acceptable. Leave a case note to clearly document your findings.

    2. If the IRC is valid, accept the taxpayer’s statement.

  5. Tax year 2017 and subsequent - If there is any indication the taxpayer computed tax under "Section 965" , Transition Tax on Untaxed Foreign Earnings of Foreign Corporations with U.S. Shareholders, (e.g., “Section 965” or “965 TAX” or similar language notated on the return, attachments or statements, or IRC 965 Transition Tax Statement or similar statement is attached), refer the case to the Lead Tax Examiner for review.

  6. Various conditions may exist that warrant Tax Compliance Officer (TCO) review. Any potential TCO referral (for any reason) cannot be directly transferred to the TCO. All potential TCO referrals MUST first be referred to the Lead Tax Examiner for review and approval prior to transfer to the TCO.

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

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

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

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

      Caution:

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

    Reminder:

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

  8. If a case meets sensitive case criteria (i.e., unique or novel issue, high profile or affects a large number of taxpayers) consult with the Lead Tax Examiner for determination and referral. See IRM 4.119.4.21.1.14, Sensitive Case, for additional information.

Erroneous Refunds

  1. An erroneous refund is any receipt of money from the Service to which the recipient is not entitled. It includes all erroneous payments to the taxpayer, even if the erroneous refund involves returning the taxpayer’s own money. An erroneous refund may occur when:

    • The statute of limitations has expired and a refund is issued

    • There are misapplied payments

    • The BUR adjustment erroneously releases a credit hold

    • The BUR payment posted with TC 670 or TC 610

  2. When an erroneous refund is identified and the TC 846 has posted, use the IAT "Stop Refund" tool to attempt to stop the refund. See IRM 4.119.4.4.10.1, Stopping Refunds, for additional information.

    Caution:

    See IRM 21.4.5, Erroneous Refunds, if the IAT "Stop Refunds" tool is unable to stop the TC 846.

Stopping Refunds
  1. IDRS CC:NOREF is used to stop a refund check from being sent and must be input by 4:00 p.m. Eastern Standard Time (EST), the Thursday prior to the TC 846 for taxpayer Master File (BMF).

  2. IDRS CC:NOREF cannot be initiated more than 10-days prior to the 23C date of the TC 846 being stopped.

  3. Complete all account actions, except credit transfers, when requesting to stop a refund. Utilize a post delay code of 4 and hold code 2 on IDRS CC:REQ54 adjustments to delay posting and notice issue prior to the TC 841 posting the account. Transfer a credit after the TC 841 posts. If the account action will result in a balance due, input TC 470 to hold any balance-due notices that may generate. It takes 4-6 weeks for the TC 841 to post.

  4. Employees stopping the refund will maintain an open control on all cases where a IDRS CC:NOREF is input. The employee places the open control in "B" or "M" status. The case can be closed when confirmation is received that the refund has been stopped.

    • The controlling employee must monitor for the TC 841 and take appropriate action. If there is an adjustment on the module and the control is in background, the tax examiner should make the adjustment based on the information provided by the taxpayer.

    • Utilize IAT for resolving or stopping refunds, erroneous refund procedures and manual refund.

Payer Agent

  1. The Payer Agent file is a compilation of Payer Information Return (IR) documents which have been verified as erroneously filed or processed. The BUR Payer Agent file is tax year specific.

  2. Payer Agent listing is currently maintained by the IMF-AUR program. Any updates made by either the AUR or BUR Payer Agent Coordinator will be available to both programs.

  3. Taxpayers and/or Payers may contact or notify IRS BUR that a discrepancy with documents or the filing of the Information Returns for a tax year has occurred; examples are duplicate IRs, incorrect Amended IR, or IRs with incorrect information.

Tax Examiner - Instructions

  1. Access the Payer Agent listing when questionable IR(s) are present.

  2. During the screening phase, the tax examiner may identify questionable Information Returns (IRs) which appear to be erroneous. When the IRs appears to be questionable or erroneous, forward the case and any additional supporting information documents to the Lead Tax Examiner for determination.

  3. During the response phase, the tax examiner may receive information from the payer or the taxpayer indicating the proposed U/R is the result of a payer reporting error. Forward a copy of the case and any additional supporting information documents to the Lead Tax Examiner and continue processing.

BUR Site Payer Agent Coordinator - Instructions

  1. The BUR Payer Agent (P/A) Coordinator will perform the following tasks.

    1. Take action on all IRs referred by tax examiners as questionable/suspicious Payer Agent data.

    2. Sort and review the screen prints received from tax examiners deemed questionable/suspicious. Begin research when four or more screen prints with the same EIN are identified. The BUR Site P/A Coordinator should attempt to make a determination about the discrepant IRs. If payer contact is necessary to determine the impact, check IDRS for a telephone number or call XXX-555-1212 (XXX represents the area code of the city/state being called).

      Note:

      Revised Third Party procedures allow for the administrative action of verifying information received from Employers/Payers. This verification is not considered a third party contact if the purpose of the contact is to process information received from the source and/or to ensure its validity/correctness.

    3. Add new or update existing information to the Payer Agent Listing as appropriate.

  2. At the end of the BUR program for the tax year, print a copy of the Payer Agent Listing and retain in the Payer Agent file for three years.

Determination of Letter 2531 Issuance

  1. Letter 2531 (PC 4300) is required as the first taxpayer contact for the following conditions:

    1. On Form 1120, the U/R income results in ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. On Form 1041, the U/R income results in ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. Cases involving the use of Schedule O to determine tax. See IRM 4.119.4.9.2, Schedule O, Consent Plan and Appropriation Schedule for a Controlled Group, for further information.

      Reminder:

      When taxpayers file Schedule O and also check the "qualified personal service corporation" box on Form 1120, Schedule J, line 2, the QPSC indicator takes priority over Schedule O.

    4. Cases involving Schedule PH, U.S. Personal Holding Company (PHC) Tax. Include the following Special Paragraph: "According to our records, you filed Schedule PH, U.S. Personal Holding Company (PHC) Tax. Send us a revised Schedule PH using the underreported income as shown on this notice. If we don’t receive your revised Schedule PH, we’ll determine any additional tax due by treating the underreported income as undistributed PHC income."

    5. Cases involving ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ See IRM 4.119.4.15.2, Withholding - Miscellaneous, for further information.

    6. Cases resulting in an ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. In certain situations, a Letter 2531 may be issued as the initial taxpayer contact since it is an inquiry instead of a proposal of assessment. If in doubt, consult the Lead Tax Examiner for guidance.

Analysis of Income Types

  1. BUR evaluates third party income from information returns (IRs) against amounts reported on the income section of Form 1041, U.S. Income Tax Return for Estates and Trusts, and Form 1120, U.S. Corporation Income Tax Return, for the following areas of income to determine the Underreported amount (U/R) for each income type:

    Form 1041 Form 1120
    • Interest income, line 1

    • Total ordinary dividends, line 2a

    • Business income or (loss), line 3

    • Capital gain or (loss), line 4

    • Rents, royalties, partnerships, other estates and trusts, line 5

    • Farm income or (loss), line 6

    • Ordinary gain or (loss), line 7

    • Other income, line 8

    • Gross receipts or sales, line 1a

    • Dividends, line 4

    • Interest, line 5

    • Gross rents, line 6

    • Gross royalties, line 7

    • Capital gain net income, line 8

    • Net gain (or loss) from Form 4797, line 9

    • Other income, line 10

  2. The following instructions are used to process the various U/R income amounts by each income type. Review the complete return including all attached statements and schedules to make determinations.

  3. Analyze all income elements on all of the IR(s) following the guidelines for specific income types as provided in this IRM.

  4. See IRM 4.119.4.15, Withholding (W/H) - General, anytime the taxpayer claims withholding or the Information Return contains Amount Type (IRPTR Literal) FED TAX W/H.

Aggregate Profit or Loss on Contracts - General

  1. Transactions relating to regulated futures contracts, section 1256 option contracts and foreign currency contracts are taxable under IRC Section 1256 and are generally referred to as "Section 1256 Contracts." Payers report these transactions on Form 1099-B, boxes 8-11. The overall aggregate profit or loss on contracts is reported in box 11.

  2. Aggregate Profit or Loss on Contracts are identified with Document Type 1099-B and Amount Type (IRPTR Literal) PROFT&LOSS.

    Note:

    UNREAL PY, REALIZED, and UNREAL CY are for information purposes only.

Aggregate Profit or Loss on Contracts - Analysis
  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

  3. When more than one information return containing Aggregate Profit Or Loss On Contracts is present and the taxpayer does not provide a breakdown:

    1. Group all Aggregate Profit or Loss on Contracts together.

    2. Compare the group total amount to the total reported Aggregate Profit or Loss on Contracts on Form 1041, line 4 or Form 1120, line 8.

    3. If the group total is smaller, consider the issue resolved.

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

  4. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instruction.

Aggregate Profit or Loss on Contracts - Miscellaneous
  1. If Aggregate Profit or Loss on Contracts Income is U/R, enter the following on the Letter 2030:

    1. Select AGGREGATE PROFIT & LOSS from the drop down menu in the "Your income and deductions" field.

    2. Enter the gross reported amount in the "Shown on return" field.

    3. Enter the total of all U/R Aggregate Profit or Loss on Contracts IR amounts PLUS the "Shown on return" amount in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

  2. Include PARAGRAPH 14 when Aggregate Profit or Loss is U/R.

Agriculture Payments and Market Gain on Commodity Credit Corp (CCC) Loans - General

  1. Agriculture Payments are governmental subsidies paid to farmers and agricultural businesses to supplement their income. Market Gain on Commodity Credit Corp (CCC) Loans are the market gain associated with the repayment of a CCC loan.

  2. Agriculture Payments and Market Gain on Commodity Credit Corp (CCC) Loans display on IDRS CC:IRPTR with the following Amount Type and Document Type:

    Income Type Amount Type (IRPTR Literal) Document Type
    Agriculture Payments AG SUBS 1099-G
    Market Gain on Commodity Credit Corporation loans repaid using cash or CCC certificates MRKGAINCCC 1099-G
Form 1041 Agricultural Payments and Market Gain on Commodity Credit Corp. (CCC) Loans - Analysis
  1. Compare Agriculture Payments and/or Market Gain amounts with entries on:

    1. Form 1040, Schedule F, lines 4a (line 4b if line 4a is zero or blank) or line 39a (line 39b if line 39a is zero or blank).

    2. Form 1040, Schedule E, Part I, line 3. Group all farm related Amount Types from all IR(s) with any other rental related Amount Types IR(s) present.

      Exception:

      Do not allow credit for any amount reported on Form 1040, Schedule E, Part I, line 3 if the taxpayer has reported farming income elsewhere on the return.

    3. Form 1040, Schedule E, Part II. If the income is from a farming business, consider the Agriculture Payments and/or Market Gain amount reported.

    4. Form 4835, Farm Rental Income and Expenses line 3a (line 3b if line 3a is zero or blank).

    5. Form 1041, line 6.

    6. Form 1040, Schedule E, Part V, line 42:

    If the amount reported on Schedule E, Part V, line 42 is Then
    Equal to or greater than the sum total of all farm related Amount Types from all IR's Consider the income discrepancy resolved.
    Less than the sum total of all farm related Amount Types from all IR's Pursue the IR amount(s) in full DO NOT give credit for any amount reported on this line.

    Exception:

    Do not allow credit for any amount reported on Form 1040, Schedule E, Part V, line 42 when the taxpayer has reported farm income elsewhere on the return.

  2. Agriculture Payments and/or Market Gain comparisons for the following entries must match within $1 or be CLEARLY IDENTIFIED:

    1. Form 1040 Schedule F, lines 8 or 43. Form 1040 Schedule F, lines 2 or 37 (agricultural payments reported as commodities).

    2. Form 4835, Farm Rental Income and Expenses, line 6.

    3. Form 1041, line 8.

      Note:

      Give credit for amounts reported on Form 1041, line 8 when identified as Gross Farm Income ONLY when Form 1040, Schedule F or Form 4835 is not attached.

  3. Agricultural subsidy payments made to members of federally recognized Native American Tribes under programs administered by the Department of Agricultures Stabilization and Conservation Service are exempt from federal income taxes when the subsidy is received as a result of activity occurring on the individual's allotted land. Do not pursue apparent U/R Agricultural subsidy payments amounts if information on the return or attached schedules/statements references Rev. Rul. 69-289.

  4. When more than one information return containing Agriculture Payments and/or Market Gain amounts are present and the taxpayer does not provide a breakdown:

    1. Group all Agriculture Payments and/or Market Gain together.

    2. Compare the group total amount to the total reported.

    3. If the group total is smaller, consider the issue resolved.

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

  5. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instruction.

Form 1120 Agricultural Payments and Market Gain on Commodity Credit Corp. (CCC) Loans - Analyzsis
  1. Compare Agriculture Payments and/or Market Gain amounts with entries on:

    1. Form 1120, line 10. Taxpayers are instructed to identify any amounts reported on Form 1120, line 10. DO NOT give credit for any unidentified amounts reported on line 10, unless there is a $1 match.

    2. Form 1040, Schedule F, lines 4a (line 4b if line 4a is zero or blank) or line 39a (line 39b if line 39a is zero or blank).

    3. Form 4835, line 3a (line 3b if line 3a is zero or blank).

      Note:

      Give credit for amounts reported on Form 1120, line 10 when identified as Gross Farm Income ONLY when Form 1040, Schedule F or Form 4835 is not attached.

    4. Form 1120, line 1a when the taxpayer name or Business Activity as shown on Form 1120, Schedule K, lines 2a – 2c relates to farming activity. See IRM 4.119.4.7.10, Form 1120 Gross Receipts or Sales (Bartering/Payment Card Transactions/Attorney's Proceeds/Fishing Proceeds/Medical Payments/Nonemployee Compensation) - General, for additional information. Consider any other Gross Receipts and farming related IRs when determining the total amount to compare to Form 1120, line 1a.

      Exception:

      Do not give credit for any amounts reported on Form 1120, line 1a when the taxpayer has reported farming income on Form 1120, line 10.

  2. When more than one information return containing Agriculture Payments and/or Market Gain amounts are present and the taxpayer does not provide a breakdown:

    1. Group all Agriculture Payments and/or Market Gain together.

    2. Compare the group total amount to the total reported.

    3. If the group total is smaller, consider the issue resolved.

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

  3. When an attachment or statement indicates Nominee income see IRM 4.119.4.4.7, Nominee Recipient, for further instruction.

Agricultural Payments and Market Gain on Commodity Credit Corp. (CCC) Loans - Miscellaneous
  1. If Agricultural Payments or Market Gain on CCC Loans are U/R, enter the following on the Letter 2030:

    1. Select AGRICULTURAL PROGRAM PAYMENTS or MARKET GAIN ON CCC LOAN from the drop down menu in the "Your income and deductions" field.

      Exception:

      Form 1041 only - When giving credit for amounts reported on Form 1040, Schedule E, Part I, line 3, select RENTS from the drop down menu in the "Your income and deductions" field.

    2. Enter the gross reported amount in the "Shown on return" field.

    3. Enter the total of all U/R Agricultural Payments or Market Gain on CCC Loans IR amounts PLUS the "Shown on return" amount in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

Form 1041 Business Income or (Loss) (Bartering/Payment Card/Third Party Network Payments/Fishing Boat Proceeds/Medical Payments/Nonemployee Compensation - General

  1. If an estate operated a business, income and expenses are reported on Form 1040, Schedule C Profit or Loss From Business (or Schedule C-EZ, Net Profit From Business). Net profit or (loss) from Schedule C (or Schedule C-EZ) is carried forward to Form 1041, line 3.

  2. Income types generally considered Business Income display on IDRS CC:IRPTR with the following Amount Type and Document Type:

    Income Type Amount Type (IRPTR Literal) Document Type Income Description
    Bartering BARTERING Form 1099-B An exchange of one taxpayer’s property or services for another taxpayer’s property or services. The fair market value of property or services received through barter is taxable income.
    Gross Proceeds Paid to an Attorney ATTRNY FEE Form 1099-MISC Gross proceeds paid to an attorney in connection with legal services.
    Gross Amount of Payment Card / Third Party Network Transactions GAMC&TN

    Note:

    JAN PMT - DEC PMT and CARDNTPRES are for information only.

    Form 1099-K Consist of total transactions received from payment card transactions (i.e., Master Card, Visa, etc.); electronic payment facilitators or third party settlement organizations (i.e., PayPal, etc.).
    Fishing Boat Proceeds FISH INC Form 1099-MISC Proceeds from the sale of a catch.
    Medical and Healthcare Payments MED PAYMTS Form 1099-MISC Compensation for medically related services provided or goods sold.
    Nonemployee Compensation NONEMP COM Form 1099-MISC Compensation for services provided or goods sold.
  3. Payers (generally insurance companies) report gross proceeds paid to an attorney (i.e., Attorney’s Fees) on Form 1099-MISC when they cannot determine the specific portion of the payment attributable to the taxpayer. The taxpayer is instructed to report only the taxable portion as income on their return. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. During Case Analysis, do not consider this amount type when determining U/R UNLESS the taxpayer provides a specific breakdown of their Business Income and includes this amount type on their tax return.

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

    3. During response phase it may be necessary to account for this amount type when evaluating the taxpayer's response.

Bartering Analysis
  1. Compare Bartering amounts with entries on:

    1. Form 1040, Schedule C, lines 1 or 6 or C-EZ, line 1.

    2. Form 1040, Schedule F, lines 1a, 2, 7, 8, 9, 37, 42, 43, or 44. (Consider bartering reported here only if it can determine from the payer name or business activity that it is farm related income).

    3. Form 1041, line 3.

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

    1. Form 1041, line 8.

    2. Form 1041, Schedule D.

      Note:

      Payers may erroneously report securities transactions as bartering since both income types are reported on Form 1099-B

      .

    3. Form 8949.

    4. Form 1040, Schedule E, lines 3 or 4.

    5. Form 4835, lines 1, 6 or 7.

  3. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instruction.

Bartering - Miscellaneous
  1. If Bartering is U/R, enter the following on the Letter 2030:

    1. Select BARTERING from the drop down menu in the "Your income and deductions" field.

      Exception:

      GROSS RECEIPTS may be selected from the drop down menu when multiple business income related Amount Types (IRPTR Literals) are involved.

    2. Enter the gross reported amount in the "Shown on return" field.

    3. Enter the total of all U/R Bartering IR amounts PLUS the "Shown on return" amount in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

Payment Card/Third Party Network Payments - Analysis
  1. Compare Payment Card/Third Party Network Payments amounts with entries on:

    1. Form 1040, Schedule C, Part I, line 1.

    2. Form 1040, Schedule C-EZ, Part II, line 1.

    3. Form 1040, Schedule F.

    4. Consider Payment Card/Third Party Network Payments reported if it is included in a larger total for the applicable taxpayer on Form 1040 Schedule C, C-EZ, or F, unless the IR is obviously not the same type of income.

    5. Form 1041, line 3.

  2. If a Form 1099-K and Form 1099-MISC are present with identical money amounts, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. Gross Payment Card transactions are not adjusted for any authorized returns or other allowances.

    1. During Case Analysis consider the entire IR amount when determining underreported income UNLESS the taxpayer provides a specific breakdown of their Gross Receipts or Sales and includes this amount type on their tax return.

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

  4. When comparing Payment Card/Third Party network Payment IRs with entries on any line not specifically identified for Payment Card/Third Party Network Payments the amount must match within $1 or be CLEARLY IDENTIFIED by payer name, activity or as Payment Card/Third Party Network Payments income:

    1. Form 1041, Schedule D, Part I, lines 1a - 3, column (d) or Part II, lines 8a, 9 or 10, column (d).

    2. Form 1040, Schedule E, Part I.

    3. Form 8949, Part I, line 1 column (d) or Part II, line 1, column (d).

    4. Form 4797, Parts I, II, or III.

  5. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instruction.

Payment Card/Third Party Network Payments - Miscellaneous
  1. If Payment Card/Third Party Network Payments is U/R, enter the following on the Letter 2030:

    1. Select GROSS PAYMENT CARD PAYMENTS from the drop down menu in the "Your income and deductions" field.

      Exception:

      GROSS RECEIPTS may be selected from the drop down menu when multiple business income related Amount Types (IRPTR Literals) are involved.

    2. Enter the gross reported amount in the "Shown on return" field.

    3. Enter the total of all U/R Payment Card/Third Party Network Payment IR amounts PLUS the "Shown on return" amount in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

  2. Include PARAGRAPH 1 when Payment Card/Third Party Network Payments is U/R.

Fishing Boat Proceeds - Analysis
  1. When comparing Fishing Boat Proceeds amounts with the following entries, the amount must match within $1 or be CLEARLY identified by payer name, activity or as fish income:

    1. Form 1040, Schedule C, Part I.

    2. Form 1040, Schedule C-EZ Part II.

    3. Form 1040, Schedule E, Part I.

    4. Form 1040, Schedule E, Part II.

    5. Form 1041, line 3.

    6. Form 1041, line 8.

  2. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instruction.

Fishing Boat Proceeds - Miscellaneous
  1. If Fishing Boat Proceeds are U/R, enter the following on the Letter 2030:

    1. Select FISHING BOAT PROCEEDS from the drop down menu in the "Your income and deductions" field.

      Exception:

      GROSS RECEIPTS may be selected from the drop down menu when multiple business income related Amount Types (IRPTR Literals) are involved.

    2. Enter the gross reported amount in the "Shown on return" field.

    3. Enter the total of all U/R Fishing Boat Proceeds IR amounts PLUS the "Shown on return" amount in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

Medical Payments - Analysis
  1. Compare Medical Payments with entries on:

    1. Form 1040, Schedule C, Part I or Schedule C-EZ, Part II if it appears to be for a medical practice.

    2. Form 1040 Schedule E, Part II if it appears to be related to the medical profession.

    3. Form 1041, line 3.

    4. Form 1041, line 8, the amount must match within $1 or be CLEARLY IDENTIFIED as Medical Payments.

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

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

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

      Exception:

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

  3. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instruction.

Medical Payments - Miscellaneous
  1. If Medical Payments are U/R, enter the following on the Letter 2030:

    1. Select MEDICAL PAYMENTS from the drop down menu in the "Your income and deductions" field.

      Exception:

      GROSS RECEIPTS may be selected from the drop down menu when multiple business income related Amount Types (IRPTR Literals) are involved.

    2. Enter the gross reported amount in the "Shown on return" field.

    3. Enter the total of all U/R Medical Payments IR amounts PLUS the "Shown on return" amount in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

Nonemployee Compensation - Analysis
  1. Compare Nonemployee Compensation amounts with entries on:

    1. Form 1040, Schedule C, Part I.

    2. Form 1040, Schedule C-EZ, Part II.

    3. Form 1040, Schedule F, Part I or III.

    4. Form 4835, Part I.

    5. Consider Nonemployee Compensation reported if it is included in a larger total on Form 1040, Schedule C, C-EZ, F or Form 4835, unless the IR is obviously not the same type of income.

    6. Form 1041, line 3.

  2. When comparing Nonemployee Compensation IRs with entries on any line not specifically identified for Nonemployee Compensation, the amount must match within $1 or be CLEARLY IDENTIFIED:

    1. Form 1040, Schedule E, Part I.

    2. Form 4797, Sales of Business Property, Parts I, II, or III - Consider the Nonemployee Compensation reported if the sales price matches the IR within $1.

    3. Form 6252, Installment Sale Income, line 5 or line 21.

    4. Form 1041, Schedule D, Part I, lines 1a, 2 , or 3 column (d) or Part II, lines 8a, 9 or 10, column (d).

    5. Form 8949, Part I, line 1 column (d) or Part II, line 1, column (d).

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

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

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

  4. Nonemployee Compensation may represent crop insurance proceeds, which are reported on Form 1040, Schedule F, line 6a or 6b, or Form 4835, line 5a or 5b.

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

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

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

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

  6. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instruction.

Nonemployee Compensation - Miscellaneous
  1. If Nonemployee Compensation are U/R, enter the following on the Letter 2030:

    1. Select NONEMPLOYEE COMPENSATION from the drop down menu in the "Your income and deductions" field.

      Exception:

      GROSS RECEIPTS may be selected from the drop down when multiple business income Amount Types (IRPTR Literals) are involved.

    2. Enter the gross reported amount in the "Shown on return" field.

    3. Enter the total of all U/R Nonemployee Compensation IR amounts PLUS the "Shown on return" amount in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

Cancellation of Debt - General

  1. Cancellation of Debt is considered income to the taxpayer if a debt owed to the Federal Government, financial institution, credit union or other creditor was discharged and is not otherwise excluded from gross income.

  2. Cancellation of Debt is reported on Form 1099-C.

  3. Cancellation of Debt is identified on IDRS CC:IRPTR as Amount Type (IRPTR Literal) AMT DBT CN.

    Note:

    PRPTY FMV and INT FORGVN are displayed for information purposes only.

Cancellation of Debt - Analysis
  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

      Exception:

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

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

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

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

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

  2. Cancellation of Debt comparisons for the following entries must match within $1 or be CLEARLY IDENTIFIED:

    Form 1041 Form 1120
    1. Form 1041, line 8.

    2. Form 1040 Schedule C, Part I, line 6 (or Schedule C-EZ, line 1).

    3. Form 1040, Schedule E, Part I, lines 3 and/or 4.

    4. Form 1040, Schedule F, Part I, lines 3a, 4a, 5b, 6a, and 8 or Part III, line 39a through 43.

    1. Form 1120, line 10.

    2. Form 4797: Compare the description of debt property from the IR(s) to Column (a) in Parts I, II, and III and allow credit for gross amounts reported. If the IR is not clearly identified, purse the income. If the PRPTY FMV amount is less than the AMT DBT CN, pursue the difference.

  3. If the taxpayer reduces the reported AMT DBT CN amount by the INT FORGVN amount, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. If the taxpayer received AMT DBT CN from a Foreclosure or Repossession and the taxpayer is personally liable (recourse debt), the amount by which the canceled debt exceeds the PRPTY FMV of the property must generally be reported as ordinary income on Form 1041, line 8 or Form 1120, line 10.

    Note:

    The payer may indicate on the Form 1099-C that the taxpayer is personally liable for repayment of the debt. The 1099-C IR indicates Personally liable in the "Was Debtor Personal liable" field on IDRS CC:IRPTR.

  5. If the taxpayer has received AMT DBT CN from a Foreclosure or Repossession and the taxpayer is not personally liable (non-recourse debt), the gain or loss is computed by comparing the balance of the loan amount (1099-C) with the adjusted basis.

    1. Losses are non-deductible, unless the property was used in trade or business or held for investment. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Include a Special Paragraph to inform the taxpayer these losses are not deductible.

    2. Losses in excess of gains from sales of property used in trade or business are deductible as ordinary losses.

  6. If the taxpayers indicate that the income is not taxable because they are insolvent, (e.g., Form 982, Box 1b, is checked or on an attached statement), they MUST provide a statement showing the amount of their insolvency. If taxpayers do not provide a breakdown of their assets and liabilities, DO NOT consider them to be insolvent. The taxpayers are considered insolvent if the net liability amount(s) shown on the attached statement is GREATER than the total fair market value of assets immediately prior to the debt cancellation.

    1. If the AMT DBT CN amount(s) is less than or equal to the insolvency amount, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. If the AMT DBT CN amount(s) is more than the insolvency amount, the amount of the taxpayers insolvency must be considered. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Example:

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

  7. When more than one information return containing Cancellation of Debt amounts are present and the taxpayer does not provide a breakdown:

    1. Group all Cancellation of Debt together.

    2. Compare the group total amount to the total reported.

    3. If the group total is smaller, consider the issue resolved.

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

Cancellation of Debt - Miscellaneous
  1. If Cancellation of Debt is U/R, enter the following on the Letter 2030:

    1. Select CANCELLATION OF DEBT from the drop down menu in the "Your income and deductions" field.

    2. Enter the gross reported amount in the "Shown on return" field.

    3. Enter the total of all U/R Cancellation of Debt IR amounts PLUS the "Shown on return" amount in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

  2. Include PARAGRAPH 24 when Cancellation of Debt is U/R.

Commodity Credit Corporation (CCC) Loans Forfeited - General

  1. Commodity Credit Corporation (CCC) Loans Forfeited are reported on Form 1099-A, Acquisition or Abandonment of Secured Property, and displays on IDRS CC:IRPTR as Amount Type (IRPTR Literal) DEBT OUT.

    Note:

    PRPTY FMV is displayed for information purposes only.

Form 1041 Commodity Credit Corporation (CCC) Loans Forfeited - Analysis
  1. When the outstanding debt relates to a forfeited Commodity Credit Corporation loan, the payer is instructed to indicate "CCC" in the property description on Form 1099-A, box 6.

  2. The debt (principal only) owed at the time that the Commodity Credit Corporation (CCC) loan is forfeited is considered income.

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

  4. Compare Debts Out (i.e., CCC Loan Forfeited) with entries on:

    1. Form 1040, Schedule F, line 5b (use line 5c if line 5b is zero or blank) or line 40b (use line 40c if line 40b is zero or blank).

    2. Form 1040, Schedule E, Part I, line 3. Group all farm related Amount Types from all IR(s) with any other rental related Amount Types IR(s) present.

      Exception:

      Do not allow credit for any amount reported on Form 1040, Schedule E, Part I, line 3 if the taxpayer has reported farming income elsewhere on the return.

    3. Form 4835, line 4b (use line 4c if line 4b is zero or blank).

    4. Give credit for amounts reported on Form 1041, line 6.

    5. Form 1041, line 8. Taxpayers are instructed to identify any amounts reported on Form 1041, line 8. DO NOT give credit for any unidentified amounts reported on line 8, unless there is a $1 match.

    6. Give credit for amounts reported on Form 1041, line 8 when identified as Gross Farm Income ONLY when Form 1040, Schedule F or Form 4835 is not attached.

    7. Form 1040, Schedule E, Part V, line 42:

    If the amount reported on Schedule E, Part V, line 42 is Then
    Equal to or greater than the sum total of all farm related Amount Types from all IR's Consider the income discrepancy resolved.
    Less than the sum total of all farm related Amount Types from all IR's Pursue the IR amount(s) in full DO NOT give credit for any amount reported on this line.

    Exception:

    Do not allow credit for any amount reported on Form 1040, Schedule E, Part V, line 42 when the taxpayer has reported farm income elsewhere on the return.

  5. Consider CCC loans Forfeited reported if income from a farming business is reported on Schedule E, Part II.

  6. When more than one information return containing CCC Loan Forfeited amounts are present and the taxpayer does not provide a breakdown:

    1. Group all CCC Loan Forfeited together.

    2. Compare the group total amount to the total reported.

    3. If the group total is smaller, consider the issue resolved.

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

  7. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instruction.

Form 1120 Commodity Credit Corporation (CCC) Loans Forfeited - Analysis
  1. When the outstanding debt relates to a forfeited Commodity Credit Corporation loan, the payer is instructed to indicate "CCC" in the property description on Form 1099-A, box 6.

  2. The debt (principal only) owed at the time that the Commodity Credit Corporation (CCC) loan is forfeited is considered income.

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

  4. Compare Debts Out (i.e., CCC Loan Forfeited) with entries on:

    1. Form 1120, line 10. Taxpayers are instructed to identify any amounts reported on Form 1120, line 10. DO NOT give credit for any unidentified amounts reported on line 10, unless there is a $1 match.

    2. Form 1040, Schedule F, line 5b (use line 5c if line 5b is zero or blank) or line 40b (use line 40c if line 40b is zero or blank).

    3. Form 4835, line 4b (use line 4c if line 4b is zero or blank).

    4. Give credit for amounts reported on Form 1120, line 10 when identified as Gross Farm Income ONLY when Form 1040, Schedule F or Form 4835 is not attached.

    5. Form 1120, line 1a when the taxpayer name or Business Activity as shown on Form 1120, Schedule K, lines 2a – 2c relates to farming activity. See IRM 4.119.4.7.10, Form 1120 Gross Receipts or Sales (Bartering/Payment Card Transactions/Attorney's Proceeds/Fishing Proceeds/Medical Payments/Nonemployee Compensation) - General, for additional information. Consider any other Gross Receipts and farming related IRs when determining the total amount to compare to Form 1120, line 1a.

      Exception:

      Do not give credit for any amounts reported on Form 1120, line 1a when the taxpayer has reported farming income on Form 1120, line 10.

  5. When more than one information return containing CCC Loan Forfeited amounts are present and the taxpayer does not provide a breakdown:

    1. Group all CCC Loan Forfeited together.

    2. Compare the group total amount to the total reported.

    3. If the group total is smaller, consider the issue resolved.

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

  6. When an attachment or statement indicates Nominee income see IRM 4.119.4.4.7, Nominee Recipient, for further instruction.

Commodity Credit Corporation (CCC) Loans Forfeited - Miscellaneous
  1. If CCC Loans forfeited are U/R, enter the following on the Letter 2030:

    1. Select COMMODITY CREDIT CORPORATION LOAN FORFEITED from the drop down menu in the "Your income and deductions" field.

      Exception:

      Form 1041 only - When giving credit for amounts reported on Form 1040, Schedule E, Part I, line 3, select RENTS from the drop down menu in the "Your income and deductions" field.

    2. Enter the gross reported amount in the "Shown on return" field.

    3. Enter the total of all U/R Commodity Credit Corporation (CCC) Loans Forfeited IR amounts PLUS the "Shown on return" amount in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

Cooperative Distributions - General

  1. Cooperative Distributions are paid by cooperatives to their members.

  2. Cooperative Distributions display on IDRS CC:IRPTR with the following Amount Type and Document Type:

    Income Type Amount Type (IRPTR Literal) Document Type
    Patronage Dividends PATRONAGE 1099-PATR
    Per-unit Retained Allocations RTAIN ALLC 1099-PATR
    Redemption of Nonqualified Notices and Retain Allocations REDEMPTION 1099-PATR
    Non Patronage Distributions NONPAT DIS 1099-PATR

    Note:

    INVEST CRD, WRK OP CRD, PT AMT ADJ, PROD DEDCT and OTH CDT&DD are for information purposes only.

Form 1041 Cooperative Distributions - Analysis
  1. Group Patronage Dividends, Per-unit Retain Allocations, Redemption Amount and Non Patronage Distributions IRs to determine the overall amount AND compare with the following entries:

    1. Form 1040, Schedule F, line 3a (use 3b if line 3a is zero or blank) or 38a (use line 38b if line 38a is zero or blank).

      Caution:

      Per Unit Retain Allocations may be reported on Form 1040, Schedule F line 2. Only give credit if the amount reported on line 2 matches within $1 or is clearly identified as Per Unit Retain Allocations.

    2. Form 4835, Farm Rental Income and Expenses, line 2a (line 2b if line 2a is zero or blank).

    3. Form 1040, Schedule E, Part I, line 3. Group all farm related Amount Types from all IR(s) with any other rental related Amount Types IR(s) present.

      Exception:

      Do not allow credit for any amount reported on Form 1040, Schedule E, Part I, line 3 if the taxpayer has reported farming income elsewhere on the return.

    4. Form 1041, line 6.

    5. Form 1041, line 8. Taxpayers are instructed to identify any amounts reported on Form 1041, line 8. DO NOT give credit for any unidentified amounts reported on line 8, unless there is a $1 match.

      Note:

      Give credit for amounts reported on Form 1041, line 8 when identified as Gross Farm Income ONLY when Form 1040, Schedule F or Form 4835 is not attached.

    6. Form 1040, Schedule E, Part V, line 42:

      If the amount reported on Schedule E, Part V, line 42 is Then
      Equal to or greater than the sum total of all farm related Amount Types from all IR's Consider the income discrepancy resolved.
      Less than the sum total of all farm related Amount Types from all IR's Pursue the IR amount(s) in full DO NOT give credit for any amount reported on this line.

      Exception:

      Do not allow credit for any amount reported on Form 1040, Schedule E, Part V, line 42 when the taxpayer has reported farm income elsewhere on the return.

  2. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instruction.

Form 1120 Cooperative Distributions - Analysis
  1. Group Patronage Dividends, Per-unit Retain Allocations, Redemption Amount and Non Patronage Distributions IRs to determine the overall amount AND compare with the following entries:

    1. Form 1120, line 10. Taxpayers are instructed to identify any amounts reported on Form 1120, line 10. DO NOT give credit for any unidentified amounts reported on line 10, unless there is a $1 match.

    2. Form 1040, Schedule F, Profit or Loss From Farming, line 3a (use 3b if line 3a is zero or blank) or 38a (use line 38b if line 38a is zero or blank).

      Caution:

      Per Unit Retain Allocations may be reported on Form 1040, Schedule F line 2. Only give credit if the amount reported on line 2 matches within $1 or is clearly identified as Per Unit Retain Allocations.

    3. Form 4835, line 2a (line 2b if line 2a is zero or blank).

      Reminder:

      Give credit for amounts reported on Form 1120, line 10 when identified as Gross Farm Income ONLY when Form 1040, Schedule F or Form 4835 is not attached.

    4. Form 1120, line 1a when the taxpayer name or Business Activity as shown on Form 1120, Schedule K, lines 2a – 2c relates to farming activity. See IRM 4.119.4.7.10, Form 1120 Gross Receipts or Sales (Bartering/Payment Card Transactions/Attorney's Proceeds/Fishing Proceeds/Medical Payments/Nonemployee Compensation) - General, for additional information. Consider any other Gross Receipts and farming related IRs when determining the total amount to compare to Form 1120, line 1a.

      Exception:

      Do not give credit for any amounts reported on Form 1120, line 1a when the taxpayer has reported farming income on Form 1120, line 10.

  2. When an attachment or statement indicates Nominee income see IRM 4.119.4.4.7, Nominee Recipient, for further instruction.

Cooperative Distributions - Miscellaneous
  1. If Cooperative Distributions is U/R, enter the following on the Letter 2030:

    1. Select COOPERATIVE DISTRIBUTIONS from the drop down menu in the "Your income and deductions" field.

      Exception:

      Form 1041 only - When giving credit for amounts reported on Form 1040, Schedule E, Part I, line 3, select RENTS from the drop down menu in the "Your income and deductions" field.

    2. Enter the gross reported amount in the "Shown on return" field.

    3. Enter the total of all U/R Cooperative Distribution IR amounts PLUS the "Shown on return" amount in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

Crop Insurance - General

  1. Crop Insurance proceeds are payments received by farmers or agricultural businesses as a result of destruction or damage to crops.

  2. Crop Insurance is reported on Form 1099-MISC and displays on IDRS CC:IRPTR as Amount Type (IRPTR Literal) CROP INS.

Form 1041 Crop Insurance - Analysis
  1. Compare Crop Insurance with entries on:

    1. Form 1040, Schedule F, line 6a (use line 6b if line 6a is zero or blank) or line 41.

    2. Form 1040, Schedule E, Part I, line 3. Group all farm related Amount Types from all IR(s) with any other rental related Amount Types IR(s) present.

      Exception:

      Do not allow credit for any amount reported on Form 1040, Schedule E, Part I, line 3 if the taxpayer has reported farming income elsewhere on the return.

    3. Form 4835, line 5a (use line 5b if line 5a is zero or blank).

    4. Give credit for amounts reported on Form 1041, line 6.

    5. Form 1041, line 8. Taxpayers are instructed to identify any amounts reported on Form 1041, line 8. DO NOT give credit for any unidentified amounts reported on line 8, unless there is a $1 match.

      Note:

      Give credit for amounts reported on Form 1041, line 8 when identified as Gross Farm Income ONLY when Form 1040, Schedule F or Form 4835 is not attached.

    6. Form 1040, Schedule E, Part V, line 42:

      If the amount reported on Schedule E, Part V, line 42 is Then
      Equal to or greater than the sum total of all farm related Amount Types from all IR's Consider the income discrepancy resolved.
      Less than the sum total of all farm related Amount Types from all IR's Pursue the IR amount(s) in full DO NOT give credit for any amount reported on this line.

      Exception:

      Do not allow credit for any amount reported on Form 1040, Schedule E, Part V, line 42 when the taxpayer has reported farm income elsewhere on the return.

  2. Apparent Crop Insurance discrepancies may be due to the taxpayer electing to defer reporting the proceeds to the next year. Consider any Crop Insurance discrepancies resolved when ALL of the following conditions are met:

    1. Uses a cash accounting method (see Form 1040, Schedule F), AND

    2. Attaches a statement electing to defer Crop Insurance proceeds to the subsequent year (under IRC Section 451(d) and Regulation Section 1.451-6).

      Note:

      If the taxpayer filed Form 1040, Schedule F, box 6c should be checked. If Form 4835 is filed, box 5c should be checked.

  3. When more than one information return containing Crop Insurance amounts are present and the taxpayer does not provide a breakdown:

    1. Group all Crop Insurance together.

    2. Compare the group total amount to the total reported.

    3. If the group total is smaller, consider the issue resolved.

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

  4. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instruction.

Form 1120 Crop Insurance - Analysis
  1. Compare Crop Insurance with entries on:

    1. Form 1120, line 10. Taxpayers are instructed to identify any amounts reported on Form 1120, line 10. DO NOT give credit for any unidentified amounts reported on line 10, unless there is a $1 match.

    2. Form 1040, Schedule F, line 6a (use line 6b if line 6a is zero or blank) or line 41.

    3. Form 4835, line 5a (use line 5b if line 5a is zero or blank).

      Note:

      Give credit for amounts reported on Form 1120, line 10 when identified as Gross Farm Income ONLY when Form 1040, Schedule F or Form 4835 is not attached.

    4. Form 1120, line 1a when the taxpayer name or Business Activity as shown on Form 1120, Schedule K, lines 2a – 2c relates to farming activity. See IRM 4.119.4.7.10, Form 1120 Gross Receipts or Sales (Bartering/Payment Card Transactions/Attorney's Proceeds/Fishing Proceeds/Medical Payments/Nonemployee Compensation) - General, for additional information. Consider any other Gross Receipts and farming related IRs when determining the total amount to compare to Form 1120, line 1a.

      Exception:

      Do not give credit for any amounts reported on Form 1120, line 1a when the taxpayer has reported farming income on Form 1120, line 10.

  2. Apparent Crop Insurance discrepancies may be due to the taxpayer electing to defer reporting the proceeds to the next year. Consider any Crop Insurance discrepancies resolved when ALL of the following conditions are met:

    1. Uses a cash accounting method (see Form 1120, Schedule K), AND

    2. Attaches a statement electing to defer Crop Insurance proceeds to the subsequent year (under IRC Section 451(d) and Regulation Section 1.451-6).

      Note:

      If the taxpayer filed Form 1040, Schedule F, box 6c should be checked. If Form 4835 is filed, box 5c should be checked.

  3. When more than one information return containing Crop Insurance amounts are present and the taxpayer does not provide a breakdown:

    1. Group all Crop Insurance together.

    2. Compare the group total amount to the total reported.

    3. If the group total is smaller, consider the issue resolved.

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

  4. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instruction.

Crop Insurance - Miscellaneous
  1. If Crop Insurance is U/R, enter the following on the Letter 2030:

    1. Select CROP INSURANCE from the drop down menu in the "Your income and deductions" field.

      Exception:

      Form 1041 only - When giving credit for amounts reported on Form 1040, Schedule E, Part I, line 3, select RENTS from the drop down menu in the "Your income and deductions" field.

    2. Enter the gross reported amount in the "Shown on return" field.

    3. Enter the total of all U/R Crop Insurance IR amounts PLUS the "Shown on return" amount in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

  2. Include PARAGRAPH 20 whenever Crop Insurance is U/R.

Dividends and Capital Gain Distributions

  1. Dividends are distributions of property made by a corporation to its shareholders out of its current or accumulated earnings and profits. Dividends paid directly to a shareholder are reported on Form 1099-DIV, Dividends and Distributions. Dividends received indirectly through a pass-through entity are reported on Schedules K-1 from Form 1065, U.S. Return of Partnership Income, Form 1041, U.S. Income Tax Return for Estates & Trusts, and Form 1120-S, U.S. Income Tax Return for an S Corporation.

  2. Capital gain distributions are normally paid by regulated investment companies, mutual funds, and real estate investment trusts from their net long term capital gains.

Dividends - General
  1. Dividends display on IDRS CC:IRPTR with the following Amount Type and Document Type:

    Income Type Amount Type (IRPTR Literal) Document Type
    Ordinary Dividend ORD DIV 1099-DIV
    Ordinary Dividends DIVIDENDS K-1 1120S
    Ordinary Dividends DIVIDENDS K-1 1041
    Ordinary Dividends DIVIDENDS K-1 1065

    Note:

    QLF DVDNDS, 28% RT GN, UN 1250 GN, CASH LIQ, NOCASH LIQ, SC 1202 GN, NONDV DIST, INVEST EXP, FRGN TX PD, EXMTINTDIV, and SPRVACTBID, are for information purposes only.

Form 1041 Dividends - Analysis
  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ :

    • Keogh (HR-10) or Tax Sheltered Annuities (403(b)) accounts

    • Simplified Employee Pensions (SEP) or Individual Retirement Accounts (IRA)

    • A pension plan or profit sharing plan (PSP) (including a 401(k) plan)

    • An Escrow Account (Attorneys)

    • Municipal Bonds

  2. Compare Ordinary dividends and/or Dividend amounts with entries on:

    1. Form 1041, line 2a.

    2. Form 1040, Schedule E, Parts II, III, and/or IV. The amounts must match within $1 or be clearly identified as Dividend Income.

  3. Do not screen the QLF DVDNDS element of the IR(s). The taxpayer determines the portion of QLF DVDNDS (from Form 1099-DIV, Box 1b) that is entered on Form 1041, line 2b. For all 1099-DIV IRs where the ORD DIV element is fully or partially U/R and a QLF DVDNDS element is present, take the following action:

    1. When issuing a Letter 2030, always enter the qualified dividends reported on Form 1041, line 2b(2) in the Capital Gains Tax Rate Calculation worksheet.

      Note:

      Qualified Dividends are used in determining the proper Capital Gains tax rate.

    2. Include the QLF DVDNDS element(s) on the IRs.

    3. Include PARAGRAPH 6.

  4. When more than one information return containing Ordinary Dividends and/or Dividends are present and the taxpayer does not provide a breakdown:

    1. Group all Ordinary Dividend and/or Dividend IRs together.

    2. Compare the group total amount to the total reported.

    3. If the group total is smaller, consider the issue resolved.

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

  5. Dividends and Interest income may be interchanged. Check any interest income areas when comparing IR amounts. Offset dividend income against interest income ONLY if an unidentified amount matches the U/R dividend amount within $1.

  6. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instruction.

Form 1120 Dividends - Analysis
  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ :

    • Keogh (HR-10) or Tax Sheltered Annuities (403(b)) accounts

    • Simplified Employee Pensions (SEP) or Individual Retirement Accounts (IRA)

    • A trust or a plan where the corporation is listed as a Trustee

    • A pension plan or profit sharing plan (PSP) (including a 401(k) plan)

    • An Escrow Account (Attorneys)

    • Municipal Bonds

  2. Compare Ordinary dividends and/or Dividend amounts with entries on:

    1. Form 1120, line 4.

    2. Form 1120, line 10. The amount must match within $1 or be clearly identified as dividend income.

  3. When more than one information return containing Ordinary Dividends and/or Dividends are present and the taxpayer does not provide a breakdown:

    1. Group all Ordinary Dividend and/or Dividend IRs together.

    2. Compare the group total amount to the total reported.

    3. If the group total is smaller, consider the issue resolved.

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

  4. Dividends and Interest income may be interchanged. Check any interest income areas when comparing IR amounts. Offset dividend income against interest income ONLY if an unidentified amount matches the U/R dividend amount within $1.

  5. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instructions.

Dividends - Miscellaneous
  1. If Dividends are U/R, enter the following on the Letter 2030:

    1. Select DIVIDENDS from the drop down menu in the "Your income and deductions" field.

    2. Enter the gross reported amount in the "Shown on return" field.

    3. Enter the total of all U/R Dividend IR amounts PLUS the "Shown on return" amount in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

  2. Include the following:

    Form 1041 Form 1120
    PARAGRAPH 6 when sending QLF DVDNDS elements with the notice. PARAGRAPH 4 when dividends are U/R.
Capital Gains Distributions - General
  1. Capital Gain Distributions display on IDRS CC:IRPTR with Amount Type (IRPTR Literal) CAPTL GAIN and Document Type Form 1099-DIV.

  2. Capital Gain Distribution are considered separately from Ordinary Dividends.

Capital Gain Distributions - Analysis
  1. Compare Amount Type CAPTL GAIN amounts with entries on:

    Form 1041 Form 1120
    • Schedule D, line 13

    • Line 4, if Form 1041, Schedule D is not attached

    • Schedule D, line 14

    • Line 8, if Form 1120, Schedule D is not attached

    Exception:

    Do not give credit for amounts on Form 1041, line 4 or Form 1120, line 8 if the amounts listed are clearly identified as a different income type.

  2. If the taxpayer provides a breakdown of Capital Gains Distributions (for example on an attachment/statement), ensure that the amount was properly carried forward to the following lines before considering them reported:

    1. Form 1041, Schedule D, line 13 or Form 1041, line 4.

    2. Form 1120, Schedule D, line 14 or Form 1120, line 8.

  3. Verify that Capital Gain Distributions reported on Schedule D, are appropriately carried forward to page one of the tax return. If not, then consider the amount U/R and include PARAGRAPH 12.

  4. When more than one information return containing Capital Gain Distributions are present and the taxpayer does not provide a breakdown:

    1. Group all Capital Gain Distributions IRs together.

    2. Compare the group total to the amount reported on:

      Form 1041 Form 1120
      • Schedule D, line 13

      • Line 4, if Form 1041, Schedule D is not attached

      • Schedule D, line 14

      • Line 8, if Form 1120, Schedule D is not attached

      Exception:

      Do not give credit for amounts on Form 1041, line 4 or Form 1120, line 8 if the amounts listed are clearly identified as a different income type.

    3. If the group total is smaller, consider the issue resolved.

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

  5. Form 1041 only - If there is CAPTL GAIN U/R and the taxpayer reports a capital loss of $3,000 or more include PARAGRAPH 8.

  6. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instructions.

Capital Gain Distributions - Miscellaneous
  1. If Capital Gain Distributions are U/R, enter the following on the Letter 2030:

    1. Select CAPITAL GAIN DISTRIBUTIONS from the drop down menu in the "Your income and deductions" field.

    2. Enter the gross reported amount in the "Shown on return" field.

    3. Enter the total of all U/R Capital Gain Distribution IR amounts PLUS the "Shown on return" amount in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

  2. Include the following:

    Form 1041 Form 1120
    • PARAGRAPH 8 when applicable

    • PARAGRAPH 12 when applicable

    • PARAGRAPH 12 when applicable

Gambling Winnings - General

  1. Gambling winnings are identified on IDRS CC:IRPTR as Document Type "W-2G" and Amount Type (IRPTR Literal) GR WINNING.

    Note:

    IDEN WAGER is displayed for information purpose only.

Gambling Winnings - Analysis
  1. Compare Gambling winnings with entries on:

    Form 1041 Form 1120
    1. Form 1041, Line 8. Taxpayers are instructed to identify any amounts reported on Form 1041, line 8. DO NOT give credit for any unidentified amounts reported on line 8, unless there is a $1 match.

    2. Form 1040, Schedule C, line 1 or C-EZ line 1 ONLY when the Business Activity relates to Gambling Industries - including Casinos and Racetracks activities. Consider any other Business income related IRs when determining the total amount to compare to Form 1040, Schedule C, line 1 or C-EZ line 1.

    1. Form 1120, Line 10. Taxpayers are instructed to identify any amounts reported on Form 1120, line 10. DO NOT give credit for any unidentified amounts reported on line 10, unless there is a $1 match.

    2. Form 1120, line 1a (Gross Receipts) ONLY when the Business Activity on Form 1120, Schedule K lines 2a - 2c relates to Gambling Industries - including Casino and Racetrack activities. See IRM 4.119.4.7.10, Gross Receipts or Sales (Bartering/Payment Card Transactions/Attorney's Proceeds/Fishing Proceeds/Medical Payments/Nonemployee Compensation) – General, for additional information on information returns that are related to Gross Receipts or Sales. Consider any other Gross Receipts related IRs when determining the total amount to compare to Form 1120, line 1a.

  2. When more than one information return containing Gambling Winnings amounts are present and the taxpayer does not provide a breakdown:

    1. Group all Gambling Winnings together.

    2. Compare the group total amount to the total reported.

    3. If the group total is smaller, consider the issue resolved.

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

  3. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instructions.

Gambling Winnings - Miscellaneous
  1. If Gambling winnings is U/R, enter the following on the Letter 2030:

    1. Select GAMBLING INCOME from the drop down menu in the "Your income and deductions" field.

    2. Enter the gross reported amount in the "Shown on return" field.

    3. Enter the total of all U/R Gambling winning IR amounts PLUS the "Shown on return" amount in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

Form 1120 Gross Receipts or Sales (Bartering/Payment Card Transactions/Attorney's Proceeds/Fishing Proceeds/Medical Payments/Nonemployee Compensation) - General

  1. Income types generally considered Gross Receipts display on IDRS CC:IRPTR with the following Amount types and Document Types:

    Income Type Amount Type (IRPTR Literal) Document Type Income Description
    Bartering BARTERING Form 1099-B An exchange of one taxpayer’s property or services for another taxpayer’s property or services. The fair market value of property or services received through barter is taxable income.
    Gross Amount of Payment Card / Third Party Network Transactions GAMC&TN

    Note:

    JAN PMT - DEC PMT and CARDNTPRES are for information only.

    Form 1099-K Consist of total transactions received from payment card transactions (i.e., Master Card, Visa, etc.); electronic payment facilitators or third party settlement organizations (i.e., PayPal, etc.).
    Gross Proceeds Paid to an Attorney ATTRNY FEE Form 1099-MISC Gross proceeds paid to an attorney in connection with legal services.
    Fishing Boat Proceeds FISH INC Form 1099-MISC Proceeds from the sale of a catch.
    Medical and Healthcare Payments MED PAYMTS Form 1099-MISC Compensation for medically related services provided or goods sold.
    Nonemployee Compensation NONEMP COM Form 1099-MISC Compensation for services provided or goods sold.
Form 1120 Gross Receipts or Sales (Bartering/Payment Card Transactions/Attorney's Proceeds/Fishing Proceeds/Medical Payments/Nonemployee Compensation) - Analysis
  1. Gross Receipts or Sales refer to all other income received except those that are reported on Form 1120 lines 4 through 10.

  2. When determining underreported income, compare affected Amount Types to Form 1120, line 1a (Gross receipts or sales) and/or Form 1120, line 10 (Other income).

    Note:

    Taxpayers are instructed to identify any amounts reported on Form 1120, line 10. DO NOT give credit for any unidentified amounts reported on line 10, unless it is a dollar match to the information return amount.

  3. If a Form 1099-K and Form 1099-MISC are present with identical money amounts, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. Gross Payment Card transactions are not adjusted for any authorized returns or other allowances.

    1. During Case Analysis consider the entire IR amount when determining underreported income UNLESS the taxpayer provides a specific breakdown of their Gross Receipts or Sales and includes this amount type on their tax return.

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

  5. Payers (generally insurance companies) report gross proceeds paid to an attorney (i.e., Attorney’s Fees) on Form 1099-MISC when they cannot determine the specific portion of the payment attributable to the taxpayer. The taxpayer is instructed to report only the taxable portion as income on their return. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. During Case Analysis, do not consider this amount type when determining U/R UNLESS the taxpayer provides a specific breakdown of their Gross Receipts or Sales and includes this amount type on their tax return.

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

    3. During response phase you may need to account for this amount type when evaluating the taxpayer’s response.

  6. When there are more than one type of Gross Receipts (e.g., Nonemployee Compensation and Medical payments) present on the same case and the taxpayer does not provide a breakdown. Group to determine the overall income amount to compare against amounts reported on the tax return.

    1. If the group total is larger, consider the difference underreported.

    2. If the group total is smaller, consider the issue resolved.

  7. If the taxpayer reports the same amount of Form 1099-MISC income as shown on the IR, but under a different payer name, consider the IR reported.

  8. When an attachment or statement indicates Nominee income see IRM 4.119.4.4.7, Nominee Recipient, for further instructions.

Form 1120 Gross Receipts or Sales (Bartering/Payment Card Transactions/Attorney's Proceeds/Fishing Proceeds/Medical Payments/Nonemployee Compensation) - Miscellaneous
  1. If Gross receipts are U/R, enter the following on the Letter 2030:

    1. Select GROSS RECEIPTS from the drop down menu in the "Your income and deductions" field.

    2. Enter the amount from Form 1120, line 1a in the "Shown on return" field.

    3. Enter the total of all U/R Gross Receipt IR amounts PLUS the "Shown on return" amount in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

  2. Include PARAGRAPH 1 when Gross Payment Card transactions are U/R.

  3. Select the appropriate income type from the drop down for any U/R Amount Types that are not part of the "Gross Receipts" group.

    Example:

    If there is U/R from Amount Type BARTERING that was partially reported on Form 1120, line 10 statements, then "Bartering" should be displayed in the "Your income and deductions" section of the notice. Enter the amount of bartering reported on the tax return in the "Shown on return" field on the notice.

Interest - General

  1. Interest income displays on IDRS CC:IRPTR with the following Amount Type and Document Type:

    Income Type Amount Type (IRPTR Literal) Document Type
    Interest INTEREST 1099-INT
    Interest on U.S. Savings Bonds and Treasury Obligations SAV BOND 1099-INT
    Early Withdrawal Penalty INT FORFET 1099-INT
    Market Discount MARKETDISC 1099-INT
    Original Issue Discount on U.S. Treasury Obligation OID TRS OB 1099-OID
    Original Issue Discount for Current Year OR ISS DSC 1099-OID
    Other Periodic Interest INTEREST 1099-OID
    Early Withdrawal Penalty INT FORFET 1099-OID
    Market Discount MARKETDISC 1099-OID
    Interest INTEREST K-1 1120S
    Interest INTEREST K-1 1041
    Interest INTEREST K-1 1065

    Note:

    INVEST EXP, FRGN TX PD, TX EXM INT, SP PR INT, BOND PREM, BDPMTAXEXM, AQUISPREM TAXEMPOID and BDPMTREAS are for information purposes only.

  2. Original issue discount (OID), which is treated as interest income, is the difference between the issue price and stated redemption price of a debt instrument (e.g., bond).

Interest - Analysis
  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • Municipal Bonds

    • Keogh (HR-10) or Tax Sheltered Annuities (403(b)) accounts

    • Simplified Employee Pensions (SEP) or Individual Retirement Accounts (IRA)

    • A Pension Plan or Profit Sharing Plan (including a 401(k) plan)

    • A Capital Construction Fund (CCF) account

    Exception:

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

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

  3. Compare Interest, Market Discount, Savings Bond and OID amounts with entries on:

    Form 1041 Form 1120
    • Form 1041, Line 1

    • Form 1041, Line 8. The amount must match within $1 or be clearly identified

    • Form 1120, Line 5

    • Form 1120, Line 10. The amount must match within $1 or be clearly identified

  4. The taxpayer may reduce INTEREST amounts by the Early Withdrawal Penalty shown on the information return as Amount Type "INT FORFET" and report the difference on Form 1041, line 1 or Form 1120, line 5.

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

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

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

  5. When more than one information return containing Interest, Savings Bond and/or OID are present and the taxpayer does not provide a breakdown:

    1. Group all Interest, Savings Bond and OID IRs together.

    2. Compare the group total amount to the total reported interest.

    3. If the group total is smaller, consider the issue resolved.

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

  6. Form 1041 only - Interest comparison for the following entries must match within $1 or be CLEARLY IDENTIFIED as interest:

    • Form 1040 Schedule C, line 6

    • Form 1040 Schedule E, Parts ll, lll,or IV

    • Form 1040 Schedule F, Lines 8 or 43

  7. Form 1041, line 1 or Form 1120, line 5 may be reduced by any of the following. The amount should reflect the taxable amount of interest minus these adjustments:

    • Accrued Interest - Interest on securities transferred between interest payment dates

    • Tax-Exempt Interest - (e.g., Municipal Bonds, etc.)

    • Amortizable Bond Premium - Premium offsets interest on taxable bonds acquired after December 31, 1987

    • Frozen Deposits - An account from which the taxpayer is unable to withdraw funds because the financial institution or others in the area are bankrupt, insolvent, or in receivership

    • Acquisition Premium offsets OID

  8. Interest and Dividends income may be interchanged. Check any dividend income area when comparing IR amounts. Offset Interest/OID income against dividend income ONLY if an unidentified amount matches the U/R Interest/OID amount within a $1.

  9. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instructions.

Interest - Miscellaneous
  1. If Interest is U/R, enter the following on the Letter 2030:

    1. Select INTEREST from the drop down menu in the "Your income and deductions" field.

    2. Enter the gross reported amount in the "Shown on return" field.

    3. Enter the total of all U/R Interest IR amounts PLUS the "Shown on return" amount in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

Other Income - General

  1. Other income is identified with Document Type "1099-MISC" and displays on IDRS CC:IRPTR as Amount Type (IRPTR Literal) MISC OTH I.

Other Income - Analysis
  1. Compare Amount Type MISC OTH I with entries on:

    1. Form 1041, line 8 or Form 1120, line 10. Taxpayers are instructed to identify any amounts reported on these lines. DO NOT give credit for any unidentified amounts, unless there is a $1 match.

    2. Form 1040, Schedule F, lines 8 or 43. The amount must match within $1 or be clearly identified.

    3. Form 4835, line 6. The amount must match within $1 or be clearly identified.

    4. Form 1040, Schedule C, line 6.

  2. When more than one information return containing Other Income amounts are present and the taxpayer does not provide a breakdown:

    1. Group all Other Income together.

    2. Compare the group total amount to the total reported.

    3. If the group total is smaller, consider the issue resolved.

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

  3. The Other Income amount on a Form 1099-MISC IR represents the full value of Other Income. If the taxpayer reports a lesser amount, consider the difference U/R, unless documentation is attached to the return.

  4. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instruction.

Other Income - Miscellaneous
  1. If Other Income is U/R, enter the following on the Letter 2030:

    1. Select OTHER INCOME from the drop down menu in the "Your income and deductions" field.

    2. Enter the gross reported amount in the "Shown on return" field.

    3. Enter the total of all U/R Other Income IR amounts PLUS the "Shown on return" amount in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

Partnership/Trust/S-Corporation (Conduit Income) - General

  1. Conduit income is the taxpayer's distributive share from a Form 1065, U.S. Return of Partnership Income, Form 1120-S, U.S. Income Tax Return for an S Corporation or Form 1041, U.S. Income Tax Return for Estates and Trusts.

  2. Conduit income displays on IDRS CC:IRPTR with the following Amount Type and Document Type:

    Income Type Amount Type (IRPTR Literal) Document Type
    Ordinary Dividends DIVIDENDS
    • K-1 1120S

    • K-1 1041

    • K-1 1065

    Interest Income INTEREST
    • K-1 1120S

    • K-1 1041

    • K-1 1065

    Net Rental Real Estate Income REAL EST
    • K-1 1120S

    • K-1 1065

    Net Rental Real Estate Income NET RENTAL
    • K-1 1041

    Other Net Rental Income OTHER RENT
    • K-1 1120S

    • K-1 1065

    Other Rental Income OTH RENTAL
    • K-1 1041

    Net Short Term Capital Gain SHT TRM CG
    • K-1 1120S

    • K-1 1041

    • K-1 1065

    Net Long Term Capital Gain LNG TRM CG
    • K-1 1120S

    • K-1 1041

    • K-1 1065

    Other Portfolio and Non-Business Income OTH PRTFLO
    • K-1 1041

    Royalties ROYALTIES
    • K-1 1120S

    • K-1 1065

    Ordinary Business Income OR INC K-1
    • K-1 1120S

    • K-1 1065

    Ordinary Business Income BUSI INC
    • K-1 1041

    Guaranteed Payments GUAR PAYMT
    • K-1 1065

    Section 179 Deduction SECT179 EX
    • K-1 1120S

    • K-1 1065

    Note:

    The literals CREDITS CR&CR RCAP, OTHER INFO, and SECT179 EX are shown for information only. Do not pursue the 179EX amount.

Form 1041 Partnership/Trust/S-Corporation (Conduit Income) - Analysis
  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. When screening conduit IRs, keep the positive and negative amounts separate, but be aware that the taxpayer may have netted the negative IRs against positive IRs and/or the totals on the tax return. Review all forms, schedules and attached explanations to identify gross income amounts.

    Caution:

    Ensure that any amounts reported on attachments/forms are properly included as income on page one of the return.

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

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

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

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

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

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

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

  5. REAL EST, OTHER RENT, GUAR PAYMT and OR INC K-1 is reported on Form 1040, Schedule E, Part II, Columns (g) and/or (j). If the amount is not found on Form 1040, Schedule E, Part II, Columns (g) and/or (j), check column (a) for the payer name and/or column (d) for the payer EIN.

    1. If the taxpayer reports passive income on column (g) or passive loss on column (f) AND attaches Form 8582, Passive Activity Loss Limitations, accept the gain or loss as reported, regardless of the amount, including zero.

    2. If the taxpayer does not report the payer name/EIN on the Form 1040, Schedule E (or Schedule E is not completed/present) AND attaches Form 8582, Passive Activity Loss Limitation, that includes the payer name and/or EIN of the discrepant IR, consider the discrepancy resolved.

    3. If the taxpayer attaches a completed Form 6198, At Risk Limitation, that matches the payer name and/or EIN consider the discrepancy resolved regardless of whether there is corresponding income/loss reported on Form 1040, Schedule E.

  6. OTH RENTAL, NET RENTAL, BUSI INC and OTH PRTFLO is reported on Form 1040, Schedule E, Part III, column (d) and/or (f), If the amount is not found on Form 1040, Schedule E, Part III, column (d) and/or (f), check column (a) for the payer name and/or column (b) for the payer EIN.

    1. If the taxpayer reports passive income on column (d) or passive loss on column (c) AND attaches Form 8582, Passive Activity Loss Limitation, accept the gain or loss as reported, regardless of the amount, including zero.

    2. If the taxpayer does not report the payer name/EIN on the Form 1040, Schedule E (or Schedule E is not completed/present) AND attaches Form 8582, Passive Activity Loss Limitation, that includes the payer name and/or EIN of the discrepant IR, consider the discrepancy resolved.

    3. If the taxpayer attaches a completed Form 6198, At Risk Limitation, that matches the payer name and/or EIN consider the discrepancy resolved regardless of whether there is corresponding income/loss reported on Form 1040, Schedule E.

  7. Compare Amount Types: REAL EST, NET RENTAL, OTHER RENT, OTH RENTAL, OR INC K-1, BUSI INC, OTH PRTFLO, and GUAR PAYMT with entries on:

    1. Form 1040, Schedule E, Part II and III.

    2. The taxpayer may combine Schedule K-1 amounts with SECTION 179 DEDUCTION and report the net on Form 1041, Schedule E, Part II or III. If the taxpayer did not claim the SECTION 179 DEDUCTION do not pursue.

    3. Form 1041, line 8. Taxpayers are instructed to identify any amounts reported on Form 1041, line 8. DO NOT give credit for any unidentified amounts reported on line 8, unless there is a $1 match.

    4. These Amount Types may be found elsewhere on the return and/or attachments. Thoroughly review the entire return, schedules, forms and attachments before pursuing discrepant K-1 amounts.

  8. ROYALTIES are reported on Form 1040 Schedule E, Part I, line 4.

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

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

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

  10. If multiple conduit IRs are present from the same payer for the same taxpayer take the following action:

    1. Review IDRS CC:IRPTRL for each IR to determine the On File Date.

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

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

    4. If the On File Date is the same for multiple IRs and none of the IRs are reported, pursue all IRs.

  11. For tax year 2016 and prior IDRS research is required to determine if fully U/R Schedule K-1 (Form 1041) IRs Trusts are the result of a fiscal year filling requirement. Using the payer EIN, research IDRS CC:BMFOLI to determine the following:

    1. Presence of MFT 05 with a Return Posted indicator of "Y" , denoting that a Schedule K-1 (Form 1041) was filed.

    2. If the MFT 05 indicates that it is for our BUR tax year pursue the U/R amount. If for another tax year, consider the issue resolved.

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

  12. Beginning in tax year 2017, Schedule K-1 IDRS CC:IRPTR documents display the beginning tax period and ending tax period. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  13. Conduit income may be found elsewhere on the return and/or attachments. Thoroughly review the entire return, schedules and attachments before pursuing discrepant K-1 amounts:

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

    2. Consider each component of a K-1 IR separately. For example, if the taxpayer only reports the INTEREST/DIVIDENDS portion of the IR but fails to report the remaining K-1 income types included on the IR (e.g., OR INC K-1, GUAR PAYMT, etc.), pursue the remaining income types based on the applicable IRM procedures.

  14. DIVIDENDS - See IRM 4.119.4.7.8.2, Form 1041 Dividends - Analysis, for further instructions.

  15. INTEREST - See IRM 4.119.4.7.11.1, Interest - Analysis, for further instructions.

  16. RENTS and ROYALTIES - See IRM 4.119.4.7.17.1, Form 1041 Rents and Royalties – Analysis, for further instructions.

  17. Compare Schedule K-1 Amount Type SHT TRM CG with entries on:

    1. Form 1041, Schedule D, line 5.

    2. If the taxpayer did not file a Schedule D, determine if the Short Term Capital Gains are reported on Form 1041, line 4.

    3. Form 1041, line 8. Taxpayers are instructed to identify any amounts reported on Form 1041, line 8. DO NOT give credit for any unidentified amounts reported on line 8, unless there is a $1 match.

  18. Compare Schedule K-1 Amount Type LNG TRM CG with entries on:

    1. Form 1041, Schedule D, line 12.

    2. If the taxpayer did not file a Schedule D, determine if the Capital Gains are reported on Form 1041, line 4.

    3. Form 1041, line 8 Taxpayers are instructed to identify any amounts reported on Form 1041, line 8. DO NOT give credit for any unidentified amounts reported on line 8, unless there is a $1 match.

  19. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instruction.

Form 1120 Partnership/Trust/S-Corporation (Conduit Income) - Analysis
  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. When screening conduit IRs, keep the positive and negative amounts separate, but be aware that the taxpayer may have netted the negative IRs against positive IRs and/or the totals on the tax return. Review all forms, schedules and attached explanations to identify gross income amounts.

    Caution:

    Ensure that any amounts reported on attachments/forms are properly included as income on page one of the return.

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

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

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

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

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

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

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

  5. Compare Amount Types: REAL EST, NET RENTAL, OTHER RENT, OTH RENTAL, OR INC K-1, BUSI INC, OTH PRTFLO, and GUAR PAYMT with entries on Form 1120, line 10. Taxpayers are instructed to identify any amounts reported on Form 1120, line 10. DO NOT give credit for any unidentified amounts reported on line 10, unless there is a $1 match.

    1. These Amount Types may be found elsewhere on the return and/or attachments. Thoroughly review the entire return, schedules, forms and attachments before pursuing discrepant K-1 amounts.

    2. The taxpayer may combine Schedule K-1 amounts with SECTION 179 DEDUCTION and report the net on Form 1120, line 10. If the taxpayer did not claim the SECTION 179 DEDUCTION do not pursue.

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

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

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

  7. If multiple conduit IRs are present from the same payer for the same taxpayer take the following action:

    1. Review IDRS CC:IRPTRL for each IR to determine the On File Date.

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

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

    4. If the On File Date is the same for multiple IRs and none of the IRs are reported, pursue all IRs.

  8. For tax year 2016 and prior, IDRS research is required to determine if fully U/R Schedule K-1 (1041) IRs Trusts are the result of a fiscal year filing requirement. Using the payer EIN, research IDRS CC:BMFOLI to determine the following:

    1. Presence of MFT 05 with a Return Posted indicator of "Y" , denoting that a Schedule K-1 (1041) was filed.

    2. If the MFT 05 indicates that it is for our BUR tax year pursue the U/R amount. If for another tax year, consider the issue resolved.

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

  9. Beginning in tax year 2017, Schedule K-1 IDRS CC:IRPTR documents display the beginning tax period and the ending tax period. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  10. Conduit income may be found elsewhere on the return and/or attachments. Thoroughly review the entire return, schedules and attachments before pursuing discrepant K-1 amounts.

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

    2. Consider each component of a K-1 IR separately. For example, if the taxpayer only reports the INTEREST/DIVIDENDS portion of the IR but fails to report the remaining K-1 income types included on the IR (e.g., OR INC K-1, GUAR PAYMT, etc.), pursue the remaining income types based on the applicable IRM procedures.

  11. DIVIDENDS - See IRM 4.119.4.7.8.3, Form 1120 Dividends - Analysis, for further instructions.

  12. INTEREST - See IRM 4.119.4.7.11.1, Interest - Analysis, for further instructions.

  13. ROYALTIES - See IRM 4.119.4.7.18.1, Form 1120 Royalties – Analysis, for further instructions.

  14. Compare Schedule K-1 Amount Type SHT TRM CG with entries on:

    1. Form 8949, Part I, line 1. Taxpayers are instructed to write "from Schedule K-1" and to enter the amount in column (h).

    2. If the taxpayer did not file a Schedule D, determine if the Short Term Capital Gains are reported on Form 1120, line 8.

    3. Form 1120, line 10. Taxpayers are instructed to identify any amounts reported on Form 1120, line 10. DO NOT give credit for any unidentified amounts reported on line 10, unless there is a $1 match.

  15. Compare Schedule K-1 Amount Type LNG TRM CG with entries on:

    1. Form 8949, Part II, line 1. Taxpayers are instructed to write "from Schedule K-1" and to enter the amount in column (h).

    2. If the taxpayer did not file a Schedule D, determine if the Capital Gains are reported on Form 1120, line 8.

    3. Form 1120, line 10. Taxpayers are instructed to identify any amounts reported on Form 1120, line 10. DO NOT give credit for any unidentified amounts reported on line 10, unless there is a $1 match.

  16. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instruction.

Partnership/Trust/S-Corporation (Conduit Income) - Miscellaneous
  1. If Conduit Income is U/R, enter the following on the Letter 2030:

    1. Select the PARTNERSHIP/TRUST/SMALL BUSINESS from the drop down menu in the "Your income and deductions" field.

    2. Enter the gross reported amount in the "Shown on return" field.

    3. Enter the total of all U/R Conduit Income IR amounts PLUS the "Shown on return" amount in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

Form 1041 Qualified Education Program Payments - General

  1. Qualified Education Program Payments consist of Qualified Tuition Program (QTP) and are reported to IRS on Form 1099-Q. Amount indicators on the Form 1099-Q reflects Gross Distribution (Box 1); Earnings (Box 2); and Qualified Tuition Basis (Basis) (Box 3).

  2. Form 1099-Q IRs may display a distribution type based on the information in Form 1099-Q, Box 5. The following distribution types are for information only.

    1. PRIVATE BOX CHECKED.

    2. STATE BOX CHECKED.

    3. COVERDELL ESA. BOX CHECKED.

  3. Qualified Education Program Payments are reported on Form 1099-Q and displays on IDRS CC:IRPTR as Amount Type (IRPTR Literal) QTP EARNGS.

    Note:

    QTP DIST & QTP BASIS is for information purposes only.

Form 1041 Qualified Education Program Payments - Analysis
  1. If the IR shows TRUSTEE ROLLOVER BOX CHECKED the distribution is nontaxable. Do not pursue the issue.

  2. Only pursue net positive EARNGS. When there are multiple Form 1099-Q IR(s), combine positive EARNGS with any negative EARNGS. If the combined net EARNGS is negative, do not pursue the EARNGS issue.

  3. Generally, QTP distributions are nontaxable if they are less than the designated beneficiary's qualified education expenses. The taxable amount is reported on Form 1041, line 8. Consider the Form 1099-Q distribution(s) reported when:

    1. The taxpayer identifies the amount reported on line 8 as the taxable portion of the Form 1099-Q distribution.

    2. The taxpayer indicates the designated beneficiary's qualified education expenses were greater than the Form 1099-Q distribution.

  4. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instructions.

Form 1041 Qualified Education Program Payments - Miscellaneous
  1. If Qualified Education Program Payments is U/R, enter the following on the Letter 2030:

    1. Select QUALIFIED EDUCATION PROGRAM PAYMENTS from the drop down menu in the "Your income and deductions" field.

    2. Enter the gross reported amount in the "Shown on return" field.

    3. Enter the total of all U/R Qualified Education Program Payments IR amounts PLUS the "Shown on return" amount in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

  2. Include PARAGRAPH 9 when Qualified Education Program Payments is U/R.

Real Estate Sales - General

  1. Real estate transactions are the proceeds from the transfer (sale or exchange) of real estate.

  2. Real estate transactions are identified with Document Type "1099-S" and are displayed on IDRS CC:IRPTR as Amount Type (IRPTR Literal) REAL ES SL.

    Note:

    BYR RE TAX is displayed for information only.

Real Estate - Analysis
  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

  3. Compare Real Estate Sales amounts with entries on:

    Form 1041 Form 1120
    1. Form 1041, line 8. Taxpayers are instructed to identify any amounts reported on Form 1041, line 8. DO NOT give credit for any unidentified amounts reported on line 8, unless there is a $1 match.

    2. Form 1040, Schedule C, line 1 or 6 or C-EZ, line 1 ONLY when the Business Activity relates to Real Estate activities. Consider any other Business income related IRs when determining the total amount to compare to Form 1040, Schedule C, line 1 or 6 or C-EZ line 1.

    3. Form 4797, Sale of Business Property, lines 1, 2(d), 10(d), or 20.

    4. Form 6252, Installment Sale Income, lines 5 or 21.

    5. Form 1041, Schedule D, or Form 8949.

    6. Form 8824, Like-Kind Exchanges, line 15.

    1. Form 1120, line 10. Taxpayers are instructed to identify any amounts reported on Form 1120, line 10. DO NOT give credit for any unidentified amounts reported on line 10, unless there is a $1 match.

    2. Form 1120, line 1a (Gross Receipts) ONLY when the taxpayer name or Business Activity on Form 1120, Schedule K lines 2a - 2c relates to Real Estate activities See IRM 4.119.4.7.10, Form 1120 Gross Receipts or Sales (Bartering/Payment Card Transactions/Attorney's Proceeds/Fishing Proceeds/Medical Payments/Nonemployee Compensation) – General, for additional information on information returns that are related to Gross Receipts or Sales. Consider any other Gross Receipts related IRs when determining the total amount to compare to Form 1120, line 1a.

    3. Form 4797, Sale of Business Property, lines 1, 2(d), 10(d), or 20.

    4. Form 6252, Installment Sale Income, lines 5 or 21.

    5. Form 1120, Schedule D, Part I, line(s) 1 - 3 column (d) or Part II line(s) 8 - 10, column (d).

    6. Form 8949, lines Part I line 1 column (d) or Part II line 1 column (d).

    7. Form 8824, Like-Kind Exchanges, line 15.

  4. If the amounts reported on these Forms or Schedules are equal to or greater than the REAL ES SL IR(s) amounts, consider the issue resolved. If the amounts reported are less, consider the difference U/R.

  5. Ensure that amounts reported on Forms and Schedules are properly carried forward to page 1 of the tax return.

  6. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instruction.

Real Estate - Miscellaneous
  1. If Real Estate Sales is U/R, enter the following on the Letter 2030:

    1. Select REAL ESTATE SALES from the drop down menu in the "Your income and deductions" field.

    2. Enter the gross reported amount in the "Shown on return" field.

    3. Enter the total of all U/R Real Estate Sales IR amounts PLUS the "Shown on return" amount in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

  2. Include PARAGRAPH 18 when Real Estate Sales are U/R.

Form 1120 Rents - General

  1. Rental income is compensation for the use of property by someone other than the owner.

  2. Rents display on IDRS CC:IRPTR with the following Amount Type and Document Type:

    Income Type Amount Type (IRPTR Literal) Document Type
    Rents RENTS 1099-MISC
    Net Rental Real Estate Income NET RENTAL K-1 1041
    Other Rental income OTH RENTAL K-1 1041
    Net Rental Real Estate Income REAL EST K-1 1065
    Other Net Rental income OTHER RENT K-1 1065
    Net Rental Real Estate Income REAL EST K-1 1120S
    Other Net Rental Income OTHER RENT K-1 1120S
Form 1120 Rents - Analysis
  1. Compare Rental Information Return amounts with entries on:

    1. Form 1120, line 6.

    2. Form 1040, Schedule F, Part I or Part III. lines 2, 8 or 43. The amount must match within $1 or be clearly identified as Rental Income.

    3. Form 1120, line 10. The amount must match within $1 or be clearly identified as Rental Income.

    4. Form 1120, line 1a when the taxpayer name or Business Activity as shown on Form 1120, Schedule K, lines 2a – 2c relates to rental activity (i.e., Rental, Real Estate, Property Management, Warehouse Storage, Leasing, Rental Equipment, etc.). See IRM 4.119.4.7.10, Form 1120 Gross Receipts or Sales (Bartering/Payment Card Transactions/Attorney's Proceeds/Fishing Proceeds/Medical Payments/Nonemployee Compensation) - General, for additional information. Consider any other Gross Receipts related IRs when determining the total amount to compare to Form 1120, line 1a.

      Exception:

      Do not give credit for any amounts reported on Form 1120, line 1a when the taxpayer has reported an amount on Form 1120, line 6 (Gross Rents).

  2. When more than one information return containing Rental Income are present and the taxpayer does not provide a breakdown:

    1. Group all rent IRs together.

    2. Compare the group total amount to the total reported rents.

    3. If the group total is smaller, consider the issue resolved.

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

  3. When an attachment or statement indicates Nominee income see IRM 4.119.4.4.7, Nominee Recipient, for further instructions.

Form 1120 Rents - Miscellaneous
  1. If Rental Income is U/R, enter the following on the Letter 2030:

    1. Select GROSS RENTS from the drop down menu in the "Your income and deductions" field.

    2. Enter the gross reported amount in the "Shown on return" field.

    3. Enter the total of all U/R Rent IR amounts PLUS the "Shown on return" amount in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

Form 1041 Rents and Royalties - General

  1. Rent and Royalties income is compensation for the use of property or rights by someone other than the owner.

  2. Rent and Royalties display on IDRS CC:IRPTR with the following Amount Type and Document Type:

    Income Type Amount Type (IRPTR Literal) Document Type
    Rents RENTS 1099-MISC
    Net Rental Real Estate Income NET RENTAL K-1 1041
    Other Rental income OTH RENTAL K-1 1041
    Net Rental Real Estate Income REAL EST K-1 1065
    Other Net Rental Income OTHER RENT K-1 1065
    Net Rental Real Estate Income REAL EST K-1 1120S
    Other Net Rental Income OTHER RENT K-1 1120S
    Royalties ROYALTIES 1099-MISC
    Royalties ROYALTIES K-1 1065
    Royalties ROYALTIES K-1 1120S
Form 1041 Rents and Royalties - Analysis
  1. Compare RENTS or ROYALTIES amounts with entries on:

    1. Form 1040, Schedule E, Part I, lines 3 and 4.

    2. Form 1041, line 5.

    3. Form 1040, Schedule C, Part l, line 1 or Schedule C-EZ, Part II, line 1. If the taxpayer is in the business of rental property, or it can be determined from the payer name or business activity that the income is from the same source. When screening for Rents/Royalties income on Form 1040, Schedule C, also consider any additional Business Income IR(s) to determine the U/R amount.

    4. Consider the IRs reported if the gross amount on Form 4835 is large enough to include the Rent/Royalty amount. As long as distributions from Amount Types (IRPTR Literal) TX GRANT, PATRONAGE, NONPAT DIS, RTAIN ALLC, AG SUBS, MRKGAINCCC, and CROP INS are accounted for first. Otherwise, issue a Letter 2030 for the full amount of the IR(s).

    5. Form 1041, Schedule D, or Form 8949. If income is identified as Coal and Timber royalties, patents, rights of way, or easements. If the payer is identified and the amount is larger accept, if the payer is identified and the amount is smaller give credit and pursue the difference.

  2. RENTS or ROYALTIES for the following entries must match within $1 or be CLEARLY IDENTIFIED:

    1. Form 1040, Schedule C, Part 1, line 6.

    2. Form 1040, Schedule E, Part ll.

    3. Form 1040, Schedule F, Part I or Part III. Do not pursue IRs when the amount matches Form 1040, Schedule F, lines 2, 8 or 43 within $1, or a larger amount is present and is identified as rent or royalty.

    4. Form 1041, line 8.

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

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

      Note:

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

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

  4. If a breakdown of Rents and Royalty Income is not shown on the return and there is more than one IR:

    1. Group by income type RENTS or ROYALTIES as applicable.

    2. Compare the group total amount to the total reported rents or royalties.

    3. If the group total is smaller, consider the issue resolved.

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

  5. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instruction.

Form 1041 Rents and Royalties - Miscellaneous
  1. If Rents and Royalties is U/R, enter the following on the Letter 2030:

    1. Select RENTS or ROYALTIES from the drop down menu in the "Your income and deductions" field.

    2. Enter the gross reported amount in the "Shown on return" field.

    3. Enter the total of all U/R Rents or Royalties IR amounts PLUS the "Shown on return" amount in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

Form 1120 Royalties - General

  1. Royalties are compensation for the use of property, usually copyrighted works, patented inventions, or natural resources, by someone other than the owner.

  2. Royalties display on IDRS CC:IRPTR with the following Amount Type and Document Type:

    Income Type Amount Type (IRPTR Literal) Document Type
    Royalties ROYALTIES 1099-MISC
    Royalties ROYALTIES K-1 1065
    Royalties ROYALTIES K-1 1120S
Form 1120 Royalties - Analysis
  1. Compare Royalties amounts with entries on:

    1. Form 1120, line 7.

    2. Form 1040, Schedule F, Part I or Part III, lines 8 or 43. The amount must match within $1 or be clearly identified as Royalties.

    3. Form 1120, line 10. The amount must match within $1 or be clearly identified as Royalties.

    4. Form 1120, line 1a when the taxpayer name or Business Activity as shown on Form 1120, Schedule K, lines 2a - 2c relates to Mining, Independent Artists (including Writers and/or Performers), Advertising or Publishing (including Software Development and/or Film Production) activities. See IRM 4.119.4.7.10, Form 1120 Gross Receipts or Sales (Bartering/Payment Card Transactions/Attorney's Proceeds/Fishing Proceeds/Medical Payments/Nonemployee Compensation) - General, for additional information. Consider any other Gross Receipts related IRs when determining the total amount to compare to Form 1120, line 1a.

      Exception:

      Do not give credit for any amounts reported on Form 1120, line 1a when the taxpayer has reported an amount on Form 1120, line 7 (Gross Royalties).

  2. When more than one information return containing Royalties are present and the taxpayer does not provide a breakdown:

    1. Group all Royalties together.

    2. Compare the group total amount to the total reported Royalties.

    3. If the group total is smaller, consider the issue resolved.

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

  3. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instructions.

Form 1120 Royalties - Miscellaneous
  1. If Royalties are U/R, enter the following on the Letter 2030:

    1. Select GROSS ROYALTIES from the drop down menu in the "Your income and deductions" field.

    2. Enter the gross reported amount in the "Shown on return" field.

    3. Enter the total of all U/R Royalty IR amounts PLUS the "Shown on return" amount in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

Securities Sales and Cost Basis - General

  1. Securities Sales are the proceeds from transactions involving stocks, bonds, options, other debt obligations, commodities or forward contracts.

  2. Cost Basis represents the purchase price of the securities sale.

  3. Securities Sales are identified on IDRS CC:IRPTR with Document Type 1099-B and Amount Type (IRPTR Literal) PROCEEDS.

  4. Cost Basis is identified on IDRS CC:IRPTR with Document Type 1099-B and Amount Type (IRPTRL Literal) COST&BASIS.

    Note:

    Amount Type ADJUSTMENT, SALE&LOSS, and ACCRUED MDA are for information purposes only.

    Note:

    Payers report COST&BASIS on "covered securities" (e.g., the sale of a stock transaction that was purchased in 2011 or later). Therefore, not all Form 1099-B IRs will contain a COST&BASIS.

Securities Sales and Cost Basis - Analysis
  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. Generally, Form 1099-B PROCEEDS IRs contain a CUSIP (Committee on Uniform Security Identification Procedures) number. This number is usually nine characters long, consisting of alpha and/or numeric characters. The CUSIP number identifies the issuer of the transaction and the type of transaction. Alpha characters in the 7th and/or 8th position(s) of the CUSIP number denote fixed income obligation securities. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ When the taxpayer has reported these amounts, the IRs must be taken into consideration when determining the U/R amount.

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

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

  3. Some PROCEEDS IR(s) appear to be duplicates because the account numbers, the amounts, AND the source (paper or tape) are identical. DO NOT consider these IR(s) as duplicates if the transaction (sales) dates shown on the IR(s) are different.

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

    Example:

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

  5. Form 1041 or Form 1120, Schedule D, line 1a and/or line 8a is used to report an aggregate total of stock transactions that don't require a breakdown on Form 8949, Sales and Other Dispositions of Capital Assets. HOWEVER the taxpayer can also complete a Form 8949 for other transactions that are then reported on Form 1041 or Form 1120, Schedule D, line 1b, 2, 3, 8b, 9 and/or 10.

    1. Utilize the instructions in (6) and (7) below when screening cases where the taxpayer has reported transactions on Form 1041 or Form 1120, Schedule D line 1a and/or 8a AND also includes a Form 8949 to report other transactions.

    2. Attempt to resolve specific IRs by comparing them to the specific transactions reported on Form 8949BEFORE grouping to match against the aggregate total reported on Form 1041 or Form 1120, Schedule D, line 1a and/or 8a.

  6. If Form 1041 or Form 1120, Schedule D is present without Form 8949 compare PROCEEDS amounts with entries on:

    1. Form 1041 or Form 1120, Schedule D, Part I, line(s) 1a through 3, column (d).

    2. Form 1041 or Form 1120, Schedule D, Part II, line(s) 8a through 10, column (d).

      Note:

      Use the IR payer name or item description to identify the transactions reported on the tax return.

      Note:

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

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

      Reminder:

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

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

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
  7. If the Form 8949, or attachment includes a breakdown of transactions by payer name, sales date or item description:

    Caution:

    If the Form 8949 or attachment does not provide sufficient detail to match against the IRs (e.g., The description of property is listed as: securities, various, various stock sales, etc.), group any remaining outstanding IRs against the total proceeds reported on Form 8949, Part I, line 1, column (d) or Part II, line 1, column (d).

    1. Compare Form 8949, Part I, line 1, column (d) or Part II, line 1, column (d) entries to the PROCEEDS and give credit for identified reported amounts.

    2. If there are multiple IRs with the same payer name or item description, compare the total to the identified amount(s) reported on the return.

    3. Do not give credit for any amounts reported on the Form 8949 when the payer name or item description does not match the IR, unless there is a dollar match.

    4. Ensure that any amounts reported on attachments/forms are properly included as income on page one of the return.

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

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

      Reminder:

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

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

      ≡ ≡ ≡ ≡ ≡ ≡ ≡
      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
  8. Form 1041 only - If PROCEEDS are U/R and the taxpayer reports a capital loss of $3,000 or more include PARAGRAPH 8.

  9. If the taxpayer does not file a Form 1041 or Form 1120 Schedule D, Form 8949 or a breakdown of securities sales is not provided and there is more than one Securities Sales IR, take the following action:

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

    2. Group the remaining IRs by Amount Type PROCEEDS and compare the total to the gross amounts reported on Form 1041, line 4 or Form 1120, line 8.

      Exception:

      Do not give credit for amounts on Form 1041, line 4 or Form 1120, line 8 if the amounts listed are clearly identified as a different income type.

    3. If the PROCEEDS group total is smaller, consider the issue resolved.

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

    5. Group any COST&BASIS Amount Types, consider the difference underreported and enter zero as the reported amount.

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

      ≡ ≡
      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
  10. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instruction.

Securities Sales and Cost Basis - Miscellaneous
  1. When PROCEEDS is U/R, enter the following on the Letter 2030:

    1. Select SECURITIES SALES from the drop down menu in the "Your income and deductions" field.

    2. Enter the gross reported amount in the "Shown on return" field.

    3. Enter the total of all U/R Securities Sales IR amounts PLUS the "Shown on return" amount in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

  2. Send PARAGRAPH 13 when Securities Sales are U/R.

  3. When COST&BASIS is U/R, enter the following on the Letter 2030:

    1. Select COST BASIS from the drop down menu in the "Your income and deductions" field.

    2. Enter the gross reported amount as a negative in the "Shown on return" field.

    3. Enter the total of all U/R Cost Basis IR amounts PLUS the "Shown on return" amount as a negative in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

  4. Form 1041 only - Include PARAGRAPH 8 when applicable.

Substitute Payments in Lieu of Dividends or Tax-Exempt Interest - General

  1. Substitute Payments in lieu of dividends or tax-exempt interest are made by a broker who transfers a taxpayer’s securities for use in a short sale or in securities lending transaction and receives certain substitute dividend or tax-exempt interest payments on the taxpayer’s behalf while the short sale or securities lending transaction is open.

  2. Substitute Payments in lieu of dividends or tax-exempt interest are identified with Document Type "1099-MISC" and displays on IDRS CC:IRPTR as Amount Type (IRPTR Literal) SUB PAYMTS.

Substitute Payments in Lieu of Dividends or Tax-Exempt Interest - Analysis
  1. Compare Amount Type SUB PAYMTS. with entries on Form 1041, line 8 or Form 1120, line 10. Taxpayers are instructed to identify any amounts reported on Form 1041, line 8 or Form 1120, line 10. DO NOT give credit for any unidentified amounts reported on line 10, unless there is a $1 match.

  2. When more than one information return containing Substitute Payments in Lieu of Dividends or Tax-Exempt Interest amounts are present and the taxpayer does not provide a breakdown:

    1. Group all Substitute Payments in Lieu of Dividends or Tax-Exempt Interest together.

    2. Compare the group total amount to the total reported.

    3. If the group total is smaller, consider the issue resolved.

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

  3. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instruction.

Substitute Payments in Lieu of Dividends or Tax-Exempt Interest - Miscellaneous
  1. If Substitute Payments in Lieu of Dividends or Tax-Exempt Interest is U/R, enter the following on the Letter 2030:

    1. Select PAYMENTS IN LIEU OF DIVIDENDS from the drop down menu in the "Your income and deductions" field.

    2. Enter the gross reported amount in the "Shown on return" field.

    3. Enter the total of all U/R Substitute Payments in Lieu of Dividends or Tax-Exempt Interest IR amounts PLUS the "Shown on return" amount in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

Taxable Grants - General

  1. A grant is subsidized financing paid by a federal, state, or local programs for energy conservation or production projects, and is income to the recipient.

  2. Taxable grants are reported on Form 1099-G.

  3. Taxable grants are identified on IDRS CC:IRPTR as Amount type (IRPTR Literal) TX GRANT.

Form 1041 Taxable Grants - Analysis
  1. If the payer is the US Department of Agriculture, compare Taxable Grant amount(s) with entries on:

    1. Form 1040, Schedule F, lines 4a (line 4b if line 4a is zero or blank) or line 39a (line 39b if line 39a is zero or blank).

    2. Form 1040, Schedule F, lines 8 or 43. The amount must match within $1 or be clearly identified as grants.

    3. Form 1040, Schedule E, Part I, line 3. Group all farm related Amount Types from all IR(s) with any other rental related Amount Types IR(s) present.

      Exception:

      Do not allow credit for any amount reported on Form 1040, Schedule E, Part I, line 3 if the taxpayer has reported farming income elsewhere on the return.

    4. Form 4835, line 3a (line 3b if line 3a is zero or blank).

    5. Form 1041, line 6.

      Note:

      Give credit for amounts reported on Form 1041, line 8 when identified as Gross Farm Income ONLY when Form 1040, Schedule F or Form 4835 is not attached.

      Note:

      If agriculture payments are present, consider these amounts when determining the U/R.

    6. Form 1041, line 8. Taxpayers are instructed to identify any amounts reported on Form 1041, line 8. DO NOT give credit for any unidentified amounts reported on line 8, unless there is a $1 match.

    7. Form 1040, Schedule E, Part V, line 42:

      If the amount reported on Schedule E, Part V, line 42 is Then
      Equal to or greater than the sum total of all farm related Amount Types from all IR's Consider the income discrepancy resolved.
      Less than the sum total of all farm related Amount Types from all IR's Pursue the IR amount(s) in full DO NOT give credit for any amount reported on this line.

      Exception:

      Do not allow credit for any amount reported on Form 1040, Schedule E, Part V, line 42 when the taxpayer has reported farm income elsewhere on the return.

  2. When more than one information return containing Taxable Grants amounts are present and the taxpayer does not provide a breakdown:

    1. Group all Taxable Grants together.

    2. Compare the group total amount to the total reported.

    3. If the group total is smaller, consider the issue resolved.

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

  3. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instruction.

Form 1120 Taxable Grants - Analysis
  1. Compare Taxable Grants with entries on Form 1120, line 10. Taxpayers are instructed to identify any amounts reported on Form 1120, line 10. DO NOT give credit for any unidentified amounts reported on line 10, unless there is a $1 match.

  2. If the payer is the US Department of Agriculture, compare Taxable Grant amount(s) with entries on:

    1. Form 1040, Schedule F, lines 4a (line 4b if line 4a is zero or blank) or line 39a (line 39b if line 39a is zero or blank).

    2. Form 1040, Schedule F, lines 8 or 43. The amount must match within $1 or be clearly identified as grants.

    3. Form 4835, line 3a (line 3b if line 3a is zero or blank).

    4. Give credit for amounts reported on Form 1120, line 10 when identified as Gross Farm Income ONLY when Form 1040, Schedule F or Form 4835 is not attached.

      Note:

      If agriculture payments are present, consider these amounts when determining the U/R.

    5. Form 1120, line 1a when the taxpayer name or Business Activity as shown on Form 1120, Schedule K, lines 2a – 2c relates to farming activity. See IRM 4.119.4.7.10, Form 1120 Gross Receipts or Sales (Bartering/Payment Card Transactions/Attorney's Proceeds/Fishing Proceeds/Medical Payments/Nonemployee Compensation) - General, for additional information. Consider any other Gross Receipts and farming related IRs when determining the total amount to compare to Form 1120, line 1a.

      Exception:

      Do not give credit for any amounts reported on Form 1120, line 1a when the taxpayer has reported farming income on Form 1120, line 10.

  3. When more than one information return containing Taxable Grants amounts are present and the taxpayer does not provide a breakdown:

    1. Group all Taxable Grants together.

    2. Compare the group total amount to the total reported.

    3. If the group total is smaller, consider the issue resolved.

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

  4. When an attachment or statement indicates Nominee income. See IRM 4.119.4.4.7, Nominee Recipient, for further instruction.

Taxable Grants - Miscellaneous
  1. If Taxable Grants are U/R, enter the following on the Letter 2030:

    1. Select TAXABLE GRANTS from the drop down menu in the "Your income and deductions" field.

      Exception:

      Form 1041 only - When giving credit for amounts reported on Form 1040, Schedule E, Part I, line 3, select RENTS from the drop down menu in the "Your income and deductions" field.

    2. Enter the gross reported amount in the "Shown on return" field.

    3. Enter the total of all U/R Taxable Grants IR amounts PLUS the "Shown on return" amount in the "As corrected by IRS" field.

      Caution:

      It may be necessary to include any additional amounts identified on the return.

    4. Verify the "Difference" field matches the U/R amount.

Net Operating Loss (NOL) Recovery

  1. Net Operating Loss (NOL) Recovery cases are identified as returns claiming an NOL deduction on Form 1120, line 29a and a prior year BUR adjustment.

  2. Cases that meet the above criteria are identified on the DCI as Subfile N and/or identified with the following treatment code:

    Tax Year Treatment Code
    2015 and subsequent 3C0
    2014 NOL1
  3. Refer cases in Subfile N or identified with the above treatment codes to the Lead Tax Examiner.

Form 1120 Recomputation of Tax

  1. Most corporations figure their tax by using the tax rate schedule.

    Note:

    The Tax Rate Schedule shown below is valid for tax years 2015 - 2017.

    If taxable income is over But not over Tax is Of the
    amount over
    $0 $50,000 15% $0
    $50,000 $75,000 $7,500 + 25% $50,000
    $75,000 $100,000 $13,750 + 34% $75,000
    $100,000 $335,000 $22,250 + 39% $100,000
    $335,000 $10,000,000 $113,900 + 34% $335,000
    $10,000,000 $15,000,000 $3,400,000 + 35% $10,000,000
    $15,000,000 $18,333,333 $5,150,000 + 38% $15,000,000
    $18,333,333 ---------- 35% 0
  2. Tax year 2016 only - Corporations may also figure their tax by using the Alternative Tax for Corporations with Qualified Timber Gain only if the corporation has qualified timber gains under section 1201(b). The taxpayer must complete Form 1120, Schedule D, Part IV to determine their tax using this method. If the taxpayer uses this tax calculation refer the case to the Lead Tax Examiner for referral to HQ.

    Note:

    Tax year 2017 and subsequent - If there is any indication the taxpayer computed tax under "Section 965" , Transition Tax on Untaxed Foreign Earnings of Foreign Corporations with U.S. Shareholders, (e.g., “Section 965” or “965 TAX” or similar language notated on the return, attachments or statements, or IRC 965 Transition Tax Statement or similar statement is attached), refer the case to the Lead Tax Examiner for review.

Form 1120 Qualified Personal Service Corporation (QPSC) Tax Rate

  1. A corporation is considered a Qualified Personal Service Corporation (QPSC) when it meets both of the following conditions:

    1. Substantially all of the corporation’s activities involve the performance of services in the fields of: health, law, engineering, architecture, accounting, actuarial science, performing arts or consulting AND

    2. At least 95% of the corporation’s stock is directly or indirectly owned by its: employees, retired employees, and the estate or legatees of those persons, or any other person who acquired such stock by reason of the death of an employee or retired employee (but only for the 2-year period beginning on the date of the death of such individual).

  2. A QPSC is taxed at a flat rate of 35% on their taxable income.

    Note:

    Due to Original Processing errors, it is possible that the taxpayer indicated that they are a QPSC but did not use the 35% tax rate to calculate their base tax.

  3. A taxpayer is identified as a QPSC when they check the qualified personal service corporation box on Form 1120, Schedule J, line 2.

    Note:

    When the taxpayer checks this box the tax return is flagged and the following codes are uploaded to Masterfile: ABLM CD 400 and CONTROL GRP CD 2.

    Note:

    If the taxpayer also checks the "member of a controlled group" box 1 on Form 1120, Schedule J, the QPSC takes priority.

  4. When the taxpayer has checked the "qualified personal service corporation" box on Form 1120, Schedule J, line 2 take the following actions:

    1. Verify that the "PSC" box on the DCI contains a "check mark."

    2. If the "PSC" box on the DCI is blank, enter a "check mark" in the "PSC" box on the DCI.

    Reminder:

    Take into consideration any prior adjustments for tax and taxable income when preparing a notice. If information was received after the original return was filed (e.g., amended return was filed) indicating the corporation is no longer a QPSC, remove the PSC check mark on the DCI.

  5. When issuing a Letter 2030, use the QPSC rate to determine tax when there is an indication that the taxpayer is a QPSC.

  6. Include PARAGRAPH 35 on the Letter 2030 when the taxpayer indicated they are a QPSC but did not use the 35% tax rate to calculate their base tax.

  7. Based on the taxpayer’s response, it may be necessary to recalculate the QPSC tax to the applicable tax schedule rate.

Form 1120 Schedule O, Consent Plan and Apportionment Schedule for a Controlled Group

  1. A corporation that is a member of a controlled group uses Form 1120, Schedule O, Consent Plan and Apportionment Schedule for a Controlled Group, to report the distribution of taxable income and income tax (including certain tax benefits) between all members of the group. The Schedule O includes all of the control group members and lists them in Part II and Part III.

  2. For each member of the control group, taxable income is allocated to the following tax rate brackets:

    • 15% tax rate - limited to $50,000

    • 25% tax rate - limited to $25,000

    • 34% tax rate - limited to $9,925,000

  3. For each member of the control group, certain tax benefits are allocated to the following tax rate brackets:

    • 5% tax rate - limited to $11,750

    • 3% tax rate - limited to $100,000

  4. Taxpayers filing Form 1120, Schedule O are instructed to check Form 1120, Schedule J, box 1.

    Note:

    If the taxpayer also checks the "qualified personal service corporation" box on Form 1120, Schedule J, line 2, the QPSC indicator takes priority.

  5. If the taxpayer uses a Schedule O to determine tax, refer to the Lead Tax Examiner.

    Reminder:

    Issue a Letter 2531 as the initial taxpayer contact. See IRM 4.119.4.6, Determination of Letter 2531 Issuance.

  6. Include PARAGRAPH 36 when issuing a notice.

Form 1120 Non - Refundable Credits

  1. Non-Refundable credits are used to reduce tax. They include the following credits reported on:

    1. Form 1118, Foreign Tax Credit-Corporations, reported on Form 1120, Schedule J, line 5a.

    2. Form 8834, Qualified Plug-in Electric and Electric Vehicle Credit, reported on Form 1120, Schedule J, line 5b.

    3. Form 5735, American Samoa Economic Development Credit, reported on Form 1120, Schedule J, line 5b.

      Note:

      Although not listed on Form 1120, Schedule J, the Form 1120, reporting instructions direct the taxpayer to include any credit from Form 5735 on Schedule J, line 5b.

    4. Form 3800, General Business Credit, reported on Form 1120, Schedule J, line 5c.

    5. Form 8827, Credit for Prior Year Minimum Tax-Corporations, reported on Form 1120, Schedule J, line 5d.

    6. Form 8912, Credit to Holders of Credit Bonds reported on Form 1120, Schedule J, line 5e.

  2. Include PARAGRAPH 40 when the tax return shows any entries on Form 1120, Schedule J, lines 5a - 5e (other than zero).

Form 1120 Carryforward Credits

  1. The following credits are carryforward credits:

    1. Form 1118, Foreign Tax Credit-Corporations, Schedule K (Foreign Tax Carryover Reconciliation Schedule).

    2. Form 3800, General Business Credit.

    3. Form 8827, Credit for Prior Year Minimum Tax-Corporations.

      Note:

      Taxpayer can claim the unused portion of a carryforward credit on their subsequent year's tax return.

      Note:

      Both Form 3800, General Business Credit and Form 8827, Credit for Prior Year Minimum Tax-Corporations, have a refundable credit component which can be claimed on Form 1120, Schedule J, line 19c.

  2. Based on the taxpayer's response it may be necessary to revise the amount of carryforward credits claimed. Ensure that carryback/carryforward guidelines are followed if the taxpayer responds requesting change(s) to the amount of previously reported credit(s). See IRM 4.119.4.21.7.3, NOL Carryback/Carryforward, for additional instructions.

Form 1120 Other Taxes

  1. The following pertain to changes to certain other taxes claimed by taxpayers.

  2. These other taxes may include:

    • Additions to Base Tax - Taxpayers subject to deferred tax under IRC 1291 or IRC 197(f) are instructed to add the amount(s) to base tax on the dotted portion of Form 1120, Schedule J, line 2

    • Form 4626, Alternative Minimum Tax – Corporations

      Note:

      Refer the case to the Lead Tax Examiner when the taxpayer claims an amount greater than zero on Form 1120, Schedule J, line 3 and the case requires a Letter 2030 or a recomputed Letter 2030.

    • Form 1120, Schedule PH, U.S. Personal Holding Company (PHC) Tax

      Note:

      If the taxpayer filed Schedule PH, refer to the Lead Tax Examiner when a response (or no response to Letter 2531) requires a Letter 2030 (or recomputed Letter 2030).

    • Form 4255, Recapture of Investment Credit

    • Form 8611, Recapture of Low-Income Housing Credit

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

    • Form 8866, Interest Computation Under the Look-Back Method for Property Depreciated Under the Income Forecast Method

    • Form 8902, Alternative Tax on Qualifying Shipping Activities

    • Other taxes reported on Form 1120, Schedule J, line 9f

  3. Based on the taxpayer’s response Other Taxes may change.

    Note:

    Tax year 2017 and subsequent - If there is any indication the taxpayer computed tax under "Section 965" , Transition Tax on Untaxed Foreign Earnings of Foreign Corporations with U.S. Shareholders, (e.g., “Section 965” or “965 TAX” or similar language notated on the return, attachments or statements, or IRC 965 Transition Tax Statement or similar statement is attached), refer the case to the Lead Tax Examiner for review.

Form 1041 Recomputation of Tax

  1. Most estates and trusts figure their tax by using the tax rate schedule below:

    Tax Year 2017: If the taxable income is over: But not over: The tax is: Of the amount over:
    $0 $2,550 15% $0
    $2,550 $6,000 $382.50 + 25% $2,550
    $6,000 $9,150 $1,245.00 + 28% $6,000
    $9,150 $12,500 $2,127.00 + 33% $9,150
    $12,500 --------- $3,232.50 + 39.6% $12,500
    Tax Year 2016: If the taxable income is over: But not over: The tax is: Of the amount over:
    $0 $2,550 15% $0
    $2,550 $5,950 $382.50 + 25% $2,550
    $5,950 $9,050 $1,232.50 + 28% $5,950
    $9,050 $12,400 $2,100.50 + 33% $9,050
    $12,400 --------- $3,206.00 + 39.6% $12,400
    Tax Year 2015: If the taxable income is over: But not over: The tax is: Of the amount over:
    $0 $2,500 15% $0
    $2,500 $5,900 $375 + 25% $2,500
    $5,900 $9,050 $1225 + 28% $5,900
    $9,050 $12,300 $2,107+ 33% $9,050
    $12,300 -------- $3,179.50 + 39.6% $12,300

    Note:

    Tax year 2017 and subsequent - If there is any indication the taxpayer computed tax under "Section 965" , Transition Tax on Untaxed Foreign Earnings of Foreign Corporations with U.S. Shareholders, (e.g., “Section 965” or “965 TAX” or similar language notated on the return, attachments or statements, or IRC 965 Transition Tax Statement or similar statement is attached), refer the case to the Lead Tax Examiner for review.

  2. Estates and trusts may also figure their tax by using the Capital Gains tax rate. Generally the taxpayer completes Form 1041, Schedule D, Part V to determine their tax using this method. However, if the taxpayer reports qualified dividends on Form 1041, line 2b(2) and does not have to complete Schedule D, Part I or Part II, they can use the Qualified Dividends tax Worksheet instead.

    1. When issuing a Letter 2030, complete the Capital Gains Tax Rate Calculation Worksheet.

    2. Always enter the reported qualified dividends reported on Form 1041, line 2b(2) in the worksheet, even if the taxpayer did not file a Schedule D.

      Note:

      Qualified Dividends are used in determining the proper Capital Gains tax rate.

Form 1041 Non - Refundable Credits

  1. Non-Refundable credits are used to reduce tax. They include the following credits reported on:

    1. Form 1116, Foreign Tax Credit, reported on Form 1041, Schedule G, line 2a.

    2. Form 3800, General Business Credit, reported on Form 1041, Schedule G, line 2b.

    3. Form 8801, Credit for Prior Year Minimum Tax-Individuals, Estates and Trusts, reported on Form 1041, Schedule G, line 2c.

    4. Form 8912, Credit to Holders of Tax Credit Bonds, reported on Form 1041, Schedule G, line 2d.

  2. Include PARAGRAPH 40 when the tax return shows any entries on Form 1041, Schedule G, lines 2a-2d (other than zero).

Form 1041 Carryforward Credits

  1. The following credits are carryforward credits:

    1. Form 3800, General Business Credit.

    2. Form 8801, Credit for Prior Year Minimum Tax-Individual, Estates and Trusts.

    Note:

    Taxpayer can claim the unused portion of a carryforward credit on their subsequent year's tax return.

  2. Based on the taxpayer's response it may be necessary to revise the amount of carryforward credits claimed. Ensure that carryback/carryforward guidelines are followed if the taxpayer responds requesting change(s) to the amount of previously reported credit(s). See IRM 4.119.4.21.7.3, NOL Carryback/Carryforward, for additional instructions.

Form 1041 Other Taxes

  1. The following pertain to changes to certain other taxes claimed by taxpayers.

  2. These other taxes may include:

    • Tax on Lump-Sum Distributions Form 4972

    • Alternative Minimum Tax-Estates and Trusts Form 1041 Schedule I

    • Net Investment Income Tax - Individuals, Estates, and Trust - Form 8960 See IRM 4.119.4.14.1, Form 1041 Net Investment Income Tax - Individuals, Estates, and Trusts, Form 8960, for further instructions

    • Recapture taxes are reported on a Form 4255, Recapture of Investment Credit, or Form 8611, Recapture of Low Income Housing Credit

    • Household Employment Taxes. Form 1040, Schedule H

  3. Based on the taxpayer’s response Other Taxes may change.

    Note:

    Tax year 2017 and subsequent - If there is any indication the taxpayer computed tax under "Section 965" , Transition Tax on Untaxed Foreign Earnings of Foreign Corporations with U.S. Shareholders, (e.g., “Section 965” or “965 TAX” or similar language notated on the return, attachments or statements, or IRC 965 Transition Tax Statement or similar statement is attached), refer the case to the Lead Tax Examiner for review.

Form 1041 Net Investment Income Tax - Individuals, Estates, and Trusts, Form 8960

  1. The Health Care and Education Reconciliation Act of 2010 added a Net Investment Income Tax (NIIT) under section 1411 of the Internal Revenue Code for tax years 2013 and subsequent. The NIIT applies at a rate of 3.8% to certain Net Investment Income (NII) of individuals, estates and trusts.

  2. The NIIT tax applies to estates and trusts that have undistributed net investment income and their adjusted gross income (AGI) exceeds:

    Tax year 2017 $12,500
    Tax year 2016 $12,400
    Tax year 2015 $12,300
  3. Taxpayers figure their Adjusted Gross Income (AGI) by reducing the total income reported on line 9 by the following:

    1. The total of lines 12 (Fiduciary fees) 14 (Attorney, accountant and return preparer fees) and 15a (Other deductions not subject to the 2% floor) to the extent they are costs incurred in the administration of estate or trust.

    2. The domestic productions activities deduction (reported on Form 8903, Domestic Production Activities Deduction) claimed on 15a.

    3. Net Operating Loss deduction claimed on line 15b.

    4. Income Distribution deduction claimed on line 18.

    5. Exemption amount claimed on line 20.

  4. Net investment income includes:

    • Interest

    • Dividends

    • Capital Gains

    • Non-qualified Annuities (Distribution code D)

    • Royalties

    • Rents

  5. The NIIT tax is computed using Form 8960, Net Investment Income Tax – Individuals, Estates and Trusts.

  6. NIIT is based on investment income and Adjusted Gross Income (AGI). Therefore, NIIT must be considered whenever the taxpayer has investment income (reported or unreported) and U/R that causes the new AGI to exceed:

    Tax year 2017 $12,500
    Tax year 2016 $12,400
    Tax year 2015 $12,300
    1. When issuing a Letter 2030, always complete the NIIT Calculation worksheet.

    2. Include PARAGRAPH 33.

  7. See IRM 4.119.4.21.10, Adjustments, when inputting an assessment that requires an adjustment to NIIT.

Withholding (W/H) - General

  1. Withholding is identified on IDRS CC:IRPTR as Document Form 1042-S, Form 1099 and Form W-2 series as Amount Type (IRPTR Literal) FED TAX WH.

    Note:

    Form 1120S Schedule K-1 with Amount Type (IRPTR Literal) CREDIT and CREDIT CD 1 = O (letter O not zero) indicates Backup withholding (BUWH).

  2. Withholding (W/H) and backup withholding (BUWH) are treated the same way in the Document Matching program. Any withholding claimed needs to be supported by Information Return data.

  3. Taxpayers claim Withholding on:

    1. Form 1120, Schedule J, line 17.

    2. Form 1041, line 24e.

  4. Payments and Refundable Credits (including withholding) are reported on Form 1120, Schedule J, lines 12 through 21 appear on the IDRS CC:TXMOD with a TC 766:

    1. Subsequent adjustments to withholding display with a TC 766 (additional withholding) or TC 767 (reduction in withholding) without a Credit Reference Number (CRN).

      Note:

      Beginning in January 2017, Form 1120 Corporate series returns claiming W/H/Backup W/H posting in cycle 201703 and subsequent will post as a TC 766/767 with CRN 399.

    2. Subsequent adjustments to other refundable credits display with a TC 766 (addition credit) or TC 767 (reduction in credit) with the applicable CRN identifying the credit.

  5. Withholding reported on Form 1041, line 24e appears on IDRS CC:TXMOD with a TC 806. Subsequent adjustments to withholding display with a TC 806 (additional withholding) or TC 807 (reduction in withholding).

Withholding W/H - Analysis

  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ unless:

    1. Another IR from the same payer is present showing income.

    2. The withholding amount in question is shown on a valid payer information return document attached to the return.

  2. When a payer document(s) is included as part of the return and there is a corresponding IDRS CC:IRTPR information return(s) (i.e., payer name, document type and Amount Type and income amount matches), however the FED TAX WH amounts don’t match, consider the FED TAX WH on the IDRS CC:IRPTR IR more accurate UNLESS the Payer Agent Listing verifies that the IDRS CC:IRPTR information is not correct.

  3. Complete Form 13549 and refer to the BUR Fraud Coordinator for review, when payer document(s) included with the return appear to be altered.

    Note:

    Use the IDRS CC:IRPTR IR as the most accurate information even if the case does not meet referral criteria or if the referral is returned.

  4. For various reasons, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ There are instances when information documents attached to the return do not appear as IRs on IDRS CC:IRPTR print out.

    1. Consider the income and withholding from the attached document(s) as part of the review, unless it appears to be fraudulent. Consult with the BUR Functional Fraud Coordinator if appropriate.

    2. If income and/or withholding shown on the attached information documents is not reported, pursue the issue(s).

  5. Schedule(s) K-1 may contain BUWH that does not display on the information return. Consider attached Schedule(s) K-1 as documentation to support additional withholding (not shown on the IR) when:

    1. Schedule K-1 (Form 1041) contains an amount in box 13, with code "B" .

    2. Schedule K-1 (Form 1065) contains an amount in box 15 with code "O" .

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

      Note:

      Consider these amounts when determining overall allowable withholding.

  6. Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, IR may contain W/H. Consider the W/H amount when determining the overall withholding amount. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  7. Withholding can be either overclaimed (O/C) or underclaimed (U/C):

    1. O/C W/H occurs when the taxpayer claims more withholding on the tax return than is supported by payer information returns. When disallowing O/C W/H amounts and issuing a notice, show all available withholding related Amount Types. This will assist the taxpayer to determine the additional documentation they need to provide.

    2. U/C W/H occurs when the taxpayer claims less withholding on the tax return based on withholding related Amount Types on the information returns. Allow the additional W/H from the IRs unless it can clearly be determine that the IR is invalid (e.g., not the taxpayer, Payer Agent issue, etc.).

  8. Use the following methodology to determine any discrepancies between withholding reported on the tax return and withholding reported by payer(s).

    1. Determine the W/H PER RETURN

      Form 1120 Form 1041
      Use the amount claimed on Form 1120, Schedule J, line 17. Then add/subtract any subsequent TC 766/767 (without any Credit reference numbers) that appear on IDRS CC:TXMOD. This total is the W/H PER RETURN amount.

      Note:

      Beginning in January 2017, Form 1120 Corporate series returns claiming W/H/Backup W/H posting in cycle 201703 and subsequent will post as a TC 766/767 with CRN 399.

      Reminder:

      TC 767 reduces TC 766.

      Caution:

      Do not consider the initial TC 766 that displays on IDRS CC:TXMOD. That amount may include other refundable credits claimed on the tax return.

      Combine all TC 806 and TC 807 that appear on IDRS CC:TXMOD. This total is the W/H PER RETURN amount.

      Reminder:

      TC 807 reduces TC 806.

    2. Determine the W/H NOW. Total all the withholding from payer IRs shown on IDRS CC:IRPTR. Also include any withholding from valid payer documents attached to the tax return. This total is the W/H NOW amount.

    3. Compare the W/H NOW to the W/H PER RETURN. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      If Then
      The W/H NOW and W/H PER RETURN amounts are the same The withholding is reported.
      If the W/H NOW is more than the W/H PER RETURN The taxpayer has underclaimed their allowable W/H. The taxpayer is entitled to additional U/C withholding.
      If the W/H NOW is less than the W/H PER RETURN The taxpayer has overclaimed their allowable W/H. Disallow the difference as O/C withholding.
  9. If the taxpayer includes payer information return documents that correspond to every IDRS CC:IRPTR IR with a withholding related Amount Type and there is a withholding mismatch, the discrepancy may be due to:

    1. A math error, transposition of figures, illegible information document(s), displaced decimal point, and/or transcription error, etc.

    2. The taxpayer may have claimed an amount from the wrong box on the payer information return document.

    3. Payer(s) may have been identified as having submitted erroneous information and are included in Payer Agent data.

    4. The taxpayer may have received a corrected information document that is not shown on the IDRS CC:IRPTR.

  10. Do not adjust withholding when the taxpayer claims it correctly, but indicates that the income is not reported because it was not received until the subsequent year. Withholding is allowed when reported to IRS by the payer, while income is taxable when received by the taxpayer.

Withholding W/H - Miscellaneous

  1. A notice MUST BE issued when there is a tax change above tolerance and a withholding discrepancy.

  2. If the change to W/H is the only issue (i.e., tax change of zero ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ), issue:

    Caution:

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

    1. A Letter 2531 for cases with U/C W/H and an overall refund.

    2. A Letter 2030 for all other situations.

  3. When preparing a Letter 2030 that includes a W/H discrepancy, take the following steps:

    1. Enter the W/H PER RETURN amount in the "Shown on return" field for Withholding.

    2. Enter the W/H NOW amount in the "As corrected by IRS" field for Withholding.

    3. Include PARAGRAPH 60 and 71 when disallowing O/C W/H.

    4. Include PARAGRAPH 61 when allowing additional U/C W/H.

      Note:

      Include PARAGRAPH 60 (O/C W/H) or 61 (U/C W/H) when issuing a Letter 2531.

Penalties and Interest

  1. The following instructions are used in calculating the various penalties and interest amounts for BUR processing.

  2. IRC 6751(b)(1) states that no penalty may be assessed unless the initial determination of the penalty is approved (in writing) by the employee’s manager. This requirement does not apply to: the Failure to File penalty, Estimated Tax penalty or any other penalty automatically calculated through electronic means (IRC 6751(b)(2)). The Letter 2030 determines and calculates (through electronic means) the IRC 6662 accuracy-related penalties for negligence or substantial understatement. As a result, the initial Letter 2030 is exempt from written managerial approval. Once the taxpayer responds to the Letter 2030 (or notice of deficiency), the tax examiner’s evaluation of the response, regardless of whether or not the taxpayer specifically addresses the penalty, must also consider the penalty. Therefore, the exception no longer applies and written managerial approval is needed.

    1. The employee must make an independent determination as to whether the response provides a basis to waive the penalty.

    2. Whether the employee decides to apply the penalty or not, the employee's independent determination of whether the penalty is appropriate means that the penalty is not automatically calculated through electronic means. Therefore, written managerial approval of an employee's determination to assert the penalty is required.

    3. The following are examples of situations where written managerial approval is required (this list is not intended to be all inclusive):

      Example:

      The response requests that the penalty be waived and the examiner determines that the explanation does not meet reasonable cause criteria.

      Example:

      The response results in a lowering of the initial tax increase and a recomputed Letter 2030, that includes a revised accuracy related penalty, is needed.

      Example:

      The response is incomplete or unacceptable and the tax examiner issues a Letter 4550C to request additional information.

Failure to File Penalty (FTF)

  1. Tax returns worked in the BUR program are due by the following dates:

    1. Starting in Tax Year 2016, Form 1120 tax returns are due by April 15th.

      Note:

      Tax year 2015 and prior, Form 1120 was due by March 15th.

    2. Form 1041 tax returns are due by April 15th.

      Note:

      The above dates apply, unless they fall on a Saturday, Sunday, or a legal holiday. In this case the return is due on the next succeeding day that is not a Saturday, Sunday, or a legal holiday or by the approved extension date.

      Note:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ a Failure to File (FTF) penalty may have been assessed on the unpaid tax balance. An additional FTF penalty may be due because of BUR processing.

  2. Additional FTF penalty does not apply when:

    1. The original return was "R" coded. This code displays on IDRS CC:BRTVU in the "COMP COND CDS" also known as (CCC) field. If the tax return was paper filed, the "R" appears in the income section of the return. This code indicates that the taxpayer was not subject to FTF penalty because they provided reasonable cause for late filing.

    2. The penalty was previously removed using Reasonable Cause or First Time Abate criteria. See IRM 20.1.1-2, Penalty Reason Code Chart, for additional information.

  3. Compute additional FTF penalty using the mandatory “FTF calculator tool” when generating a Recomputed Letter 2030, Recompute After STAT Letter 2030 or Letter 3219B, Statutory Notice of Deficiency and the conditions below are present.

    Exception:

    If a TC 276 or TC 270 is posted on the account and a FTF penalty applies a manual penalty calculation is required. See Exhibit 4.119.4-7, Activity Codes/Category Codes and Exhibit 4.119.4-8, Definer Codes for additional information.

    1. The return posted date is later than the return due date as stated in (1) above.

      Caution:

      Before computing any FTF penalty, review the entity portion of the account to determine if the return due date (including extensions) fell within a Federally Declared Disaster area period. See IRM 20.1.2, Failure to File/Failure to Pay Penalties.

    2. Consider previously posted FTF penalty. TC 160 or TC 166. If the penalty was partially or fully reversed, it shows as TC 161 or TC 167.

    3. If the original FTF penalty was abated because it was under the ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , the abated amount must be added to the additional FTF penalty. Do NOT add any unpaid FTF penalty that was written off with TC 606 because the balance due was under the ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ A TC 607 will automatically generate to reverse the TC 606 write-off amount when the BUR assessment posts.

  4. A minimum penalty amount applies when the return is 60-days or more late and the penalty calculation is less than the amount shown below:

    Return Due Date (without extension) Minimum Amount
    Before 01/01/2009 $100.00 or 100% of the unpaid tax, whichever is less.
    Between 01/01/2009 and 12/31/2015 $135.00 or 100% of the unpaid tax, whichever is less.
    Between 12/31/2015 and 12/31/2017 $205.00 or 100% of the unpaid tax, whichever is less.
    After 12/31/2017 $210 or 100% of the unpaid tax, whichever is less.

    Note:

    The minimum amount in the table above is subject to inflation adjustments.

    Note:

    See IRM 20.1.2, Penalty Handbook - Failure to File/Failure to Pay Penalties, for procedures regarding the recomputation of FTF.

  5. If the tax on a late filed balance due return is decreased or if the net result of changes to W/H or Refundable Credits is a decrease in balance due, any unpaid tax is reduced and the FTF penalty is also reduced. If the return is adjusted to become a refund return, and TC 160/166 is present on IDRS CC:TXMOD, it is reversed with a TC 161/167.

  6. The FTF penalty is automatically corrected on IDRS when there is a change to pre-payments on a late-filed return. No action is needed to address the FTF penalty when posting a withholding only change.

  7. When posting a TC 290/291 for a significant amount and a previous TC 160/161 is present, a TC 160/161 must be input (including a TC 160 for .00) to avoid an unpostable condition.

  8. When an assessment is needed and the FTF penalty is being decreased with a TC 161, review IDRS CC:TXMOD. Add all the displayed TC 16Xs together and compare this total to the amount computed using the tool. Input the necessary TC 161 adjustment to correct the posted FTF penalty if required. This action is needed because of rounding discrepancies and will prevent an unpostable condition.

    Note:

    Reason Code(s) determine the explanation that prints on the adjustment notice. For valid codes see IRM 20.1.1-2, Penalty Reason Code Chart. BUR requires reason codes when abating penalties.

  9. Include PARAGRAPH 70 on the Letter 2030 or Letter 2531 when the taxpayer may be subject to an adjustment to FTF penalty.

Failure to Pay Penalty (FTP)

  1. If a FTP was assessed, it appears on IDRS CC:TXMOD as TC 270 or TC 276. If the penalty was partially or fully reversed, it shows as TC 271 or TC 277.

  2. Include PARAGRAPH 71 when disallowing O/C W/H.

Accuracy-Related Penalty on Underpayments

  1. Accuracy-Related Penalty on underpayments considered by BUR include:

    • Substantial Understatement of Income Tax, or

    • Negligence or Disregard of Rules or Regulations

  2. The penalty is equal to 20 percent of the underpayment of tax.

  3. If both the accuracy-related penalty due to negligence or disregard of rules or regulations and substantial understatement of tax apply, only the larger of the two penalties will be imposed.

Accuracy-Related Penalty Due to Substantial Understatement of Tax
  1. An understatement of income tax is considered substantial when it exceeds the greater of 10% of the tax required to be shown on the return or $5,000.

    Exception:

    In the case of a corporation (other than an S-Corporation or a personal holding company), an understatement of income tax is considered substantial when it exceeds the lesser of 10% of the tax required to be shown on the return (or, if greater, $10,000) or $10,000,000.

  2. When a substantial understatement exists, a penalty may be imposed equal to 20 percent of the underpayment of tax attributable to the understatement.

    Note:

    The Substantial Understatement Penalty may be proposed on returns that are also subject to the Failure to File Penalty.

  3. An underpayment may be subject to only one accuracy penalty even though that portion may be attributable to both a substantial understatement of tax and negligence or disregard of rules or regulations. If both penalties apply to the same underpayment, only one 20 percent penalty is imposed.

  4. As part of the Letter 2030 preparation process, the Substantial Understatement Penalty is automatically determined when the understatement meets the conditions above. The notice includes PARAGRAPH 76 to advise the taxpayer of the conditions subject to the penalty.

  5. See IRM 20.1.5, Penalty Handbook - Return-Related Penalties, for procedures regarding the computation of the penalty.

  6. The amount of the understatement is reduced to the extent the taxpayer shows that there is or was substantial authority for his or its reporting of the item on the return. Examples of sources that could provide substantial authority are:

    • Internal Revenue Code

    • Temporary, Proposed and Final Regulations

    • Court Cases

    • Revenue Rulings

    • Revenue Procedures

    • Tax Treaties with Accompanying Regulations and Official Explanations

    • Committee Reports (Congressional Intent)

    • Blue Book (Joint Committee Explanations)

    • Private Letter Rulings

    • Technical Advice Memoranda and Expedited Technical Advice Memoranda

    • Actions on Decisions

    • General Counsel Memoranda

    • IRS information including press releases, notices, announcements and other administrative pronouncements published in the Internal Revenue Bulletin

    Reminder:

    See IRM 20.1.5, Penalty Handbook - Return Related Penalties, for additional information.

  7. If the substantial understatement penalty can be waived, and a recomputed Letter 2030 is needed, see the Lead Tax Examiner for additional information.

    Reminder:

    Check the Penalty Waiver IND box on the DCI if the Accuracy Related Penalty has been waived.

Accuracy-Related Penalty Due to Negligence or Disregard of Rules or Regulations (Negligence Penalty)
  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. The negligence penalty is 20 percent of the portion of the underpayment attributable to negligence or disregard of rules or regulations. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. The negligence penalty is proposed as applicable, on ALL U/R income or O/C deduction issues when the issues result in an underpayment of tax.

    Note:

    The Negligence Penalty may be proposed on returns that are also subject to the Failure to File Penalty.

  4. An underpayment may be subject to only one accuracy penalty even though that portion may be attributable to both a substantial understatement of tax and negligence or disregard of rules or regulations. If both penalties apply to the same underpayment, only one 20 percent penalty is imposed.

  5. As part of the notice preparation process, the Negligence Penalty is automatically determined when the case is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ The notice includes PARAGRAPH 75 to advise the taxpayer they are subject to the penalty.

    Note:

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

  6. The amount of an underpayment attributable to Disregard of Rules or Regulations is reduced by any portion of the underpayment for which the taxpayer has made an adequate disclosure. A disclosure can be adequate only if it is made on Form 8275, Disclosure Statement or, if the position is contrary to a regulation, on Form 8275-R, Regulation Disclosure Statement. See IRM 20.1.5, Return Related Penalties, for additional information.

  7. The negligence penalty is NOT imposed if reasonable cause exists for the U/R. or O/C item. The most common reasonable cause issues for waiving the penalty (if they occurred at the time of filing) are as follows:

    • Death (taxpayer or individual responsible for filing and paying taxes)

    • Serious illness (taxpayer or individual responsible for filing and paying taxes)

    • Disaster (i.e., fire, floods, tornadoes)

    • Unavoidable absence (taxpayer)

    • Inability to obtain records due to reasons beyond the taxpayer’s control

    Note:

    See IRM 20.1.5, Penalty Handbook - Return-Related Penalties, for additional information.

    Reminder:

    Check the Penalty Waiver IND box on the DCI if the Accuracy Related Penalty has been waived.

    Note:

    Generally, reasons such as forgetfulness, ignorance of the law, or mistakes (e.g., the taxpayer/preparer forgot to include the income or thought the income was nontaxable) do not qualify for penalty relief because these actions do not demonstrate ordinary business care and prudence.

Interest for Letter 2030

  1. Interest on Letter 2030 is predetermined by letter date.

  2. Form 1120 filers worked within the BUR program with an underpayment or proposed deficiency greater than $100,000 may be subject to additional interest as described in IRM 20.2.5, Interest on Underpayments. See IRM 4.119.4.16.5, Form 1120 2% Large Corporate Underpayment (LCU) – 2% LCU, for additional information.

Form 1120 2% Large Corporate Underpayment (LCU) - 2% LCU

  1. Corporations are subject to a 2% increase above the prevailing underpayment rate when:

    1. A notice/letter of underpayment or proposed deficiency is greater than $100,000 (determined without regard to interest, penalties, or additions to the tax), AND

    2. The amount shown on a proposed deficiency is not paid within 30-days from the notice/letter date.

      Note:

      This is also known as 2% Large Corporate Underpayment or 2% LCU.

  2. Taxpayer accounts subject to 2% LCU require manually computed interest at the time of assessment.

  3. Taxpayers may be liable for 2% LCU based on original filing or previous activity on the account. If this is the case, the 2% - INT field on IDRS CC:TXMOD will contain a value.

  4. If the taxpayer was subject to 2% LCU based on prior account activity, any additional assessment (other than TC 290 for .00 to post a No Change) due to BUR underreporting will require manual interest (regardless of the amount of the BUR deficiency or the notice phase).

    1. Determine the amount of manual interest to be asserted on the assessment.

    2. Input the adjustment using IDRS CC:ADJ54. See IRM 4.119.4.21.10, Adjustments, for further information.

    3. Close the case with the applicable Process Code based on case disposition (agree or default).

    4. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    5. Annotate the DCI and case folder with the appropriate PC.

  5. If the BUR deficiency meets the 2% LCU criteria, and the taxpayer submits full payment within 30-days of the Letter 3219B, Statutory Notice of Deficiency:

    1. Review a current IDRS CC:TXMOD screen for presence of TC 640/670 payment relating to the amount on the Letter 3219B.

      Note:

      If payment has refunded see IRM 4.119.4.4.10, Erroneous Refunds, for additional information.

      Note:

      If payment has unposted, refer case to Lead Tax Examiner.

    2. If the payment submitted is for the entire deficiency and the payment date is equal to or less than 30-days from the Letter 3219B date, the taxpayer is not subject to the additional 2% LCU interest.

      Exception:

      Cash bonds and 6603 deposits are not considered for purposes of determining whether the underpayment is paid within 30-days.

    3. Process the case per normal procedures.

  6. If the BUR deficiency meets the 2% LCU criteria and the taxpayer does not submit full payment within 30-days of the Letter 3219B then:

    1. Determine the amount of manual interest to be asserted on the assessment.

    2. Input the adjustment using IDRS CC:ADJ54. See IRM 4.119.4.21.10, Adjustments, for further information.

    3. Close the case with the applicable Process Code based on case disposition (agree or default).

    4. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    5. Annotate the DCI and case folder with the appropriate PC.

Revenue Ruling 99-40 and Credit Elects (May Sequa)

  1. Rev. Rul. 99-40 provides rules for determining the date from which interest will be assessed on a deficiency when an overpayment claimed on the original return is credited to the succeeding year’s estimated tax or refunded without interest, and a deficiency for the overpayment year is subsequently determined.

  2. Transaction Code 830 or 836 identify the credit elect amount on the overpaid module and TC 710 or 716 identifies the posting of the prior year credit elect to the BUR tax year module. If these transaction codes are posted on IDRS CC:TXMOD, then the taxpayer may be allowed an interest-free period when computing interest on a deficiency for the year that generated the credit elect.

    Note:

    The taxpayer may also be eligible for an interest-free period on a deficiency assessment when Transaction Code 840 or 846, without credit interest, is present on the module. Manual interest is not needed unless there is another condition on the module that requires it.

  3. Taxpayer accounts with unreversed TC 830/836 require manually computed interest for subsequent assessments (other than TC 290 for .00 to post a No Change) when the subsequent year return has been filed.

    Note:

    A non-restricting TC 340 should be used whenever possible. See IRM 20.2.5.6.3, Non-Restricting Transaction Code (TC) 340, for additional information.

    Note:

    Manual interest is not needed if the subsequent year return has not been filed or the credit elect is applied only to the first installment, and the TC 836 transaction date posted is the date of the first installment.

    1. Determine the amount of manual interest to be asserted on the assessment. See IRM 20.2.5.7.2, Revenue Ruling 99-40 and Credit Elects (May/Sequa).

    2. Input the adjustment using IDRS CC:ADJ54. See IRM 4.119.4.21.10, Adjustments, for further information.

    3. If Rev. Rul. 99-40 was considered, input TC 971 with AC 653 using IDRS CC: REQ77 to document the module.

    4. Close the case with the applicable Process Code based on case disposition (agree or default).

    5. Annotate the DCI and case folder.

Letter Rejects

  1. When letters are sent to the taxpayer (e.g., Letter 4550C, Letter 4314C, etc.) and errors are discovered during review, or IDRS incompatibility causes the letter to reject, the letters or cases are returned to the tax examiner who issued the letter.

Letter 2531 and Letter 2030 Information

  1. The following instructions are used to process taxpayer contact by generating a Letter 2030 or Letter 2531 in the BUR Program.

Letter 2531 Preparation

  1. Letter 2531 is sent to a taxpayer to obtain additional information prior to issuing a Letter 2030.

    Caution:

    If Freeze Code -O is present on IDRS CC:TXMOD, see IRM 4.119.4.4.3, Declared Disaster Areas, for additional information.

  2. Select the Letter 2531 Master Letter template for the desired Letter Mailout Date.

    1. Select the applicable "Form Type."

    2. Complete the template.

    3. On a case by case basis, include any additional explanation paragraph(s) that will assist the taxpayer to understand the underreported issue(s).

    4. Edit IRPTRW print IR's to only show the discrepant amount type on the IR using the advanced editing tool when creating the notice.

  3. Complete Letter 937, Transmittal Letter For Power of Attorney, for cases that have a valid POA authorized to receive correspondence and attach a copy of the Letter 2531. See IRM 4.119.4.3.1, Power of Attorney (POA), for additional information.

  4. Upload the completed template, IRPTRW prints and Letter 937 (if applicable) to the BUR Letter Repository.

  5. Publication 1, Your Rights as a Taxpayer, is mailed as an enclosure with Letter 2531.

  6. When issuing Letter 2531 update the following:

    1. IDRS activity with CP2531MMDD. See Exhibit 4.119.4-7, Activity Codes/Category Codes, for further information.

    2. IDRS category to BUR1.

    3. Assign the case to the designated generic notice team number on IDRS.

    4. Input TC 925 with PC 4300 using IDRS CC:REQ77/FRM77.

    5. Annotate the DCI and case folder using PC 4300.

  7. The Clerical Function suspends the Letter 2531 for 60-days (90-days for foreign or APO/FPO address).

Letter 2030 Preparation

  1. Letter 2030 is sent to the taxpayer to propose a change to income tax liability because of income that is not identified or does not appear to be fully reported on the tax return.

    Caution:

    If Freeze Code -O is present on IDRS CC:TXMOD, see IRM 4.119.4.4.3, Declared Disaster Areas, for additional information.

  2. There are two initial Letter 2030 Master Letter templates based on tax return type.

  3. Select the applicable Letter 2030 Master Letter template based on the tax return for the desired Letter Mailout Date.

    Reminder:

    Refer any cases requiring a recalculation of: Schedule O, Schedule PH, or Form 4626 to the Lead Tax Examiner.

    1. Complete the template.

    2. On a case by case basis, include any additional explanation paragraph(s) that will assist the taxpayer to understand the underreported issue(s).

    3. Edit IRPTRW print IR's to only show the discrepant amount type on the IR using the advanced editing tool when creating the notice.

    Caution:

    When preparing a Letter 2030 based on a no reply to a Letter 2531, review the case to determine the correct underreported amounts.

  4. Complete Letter 937, Transmittal Letter For Power of Attorney, for cases that have a valid POA authorized to receive correspondence and attach a copy of the Letter 2030. See IRM 4.119.4.3.1, Power of Attorney (POA), for additional information.

  5. Upload the completed template, IRPTRW prints and Letter 937 (if applicable) to the BUR Letter Repository.

  6. Publication 1, Your Rights as a Taxpayer, is mailed as an enclosure with Letter 2030.

  7. When issuing Letter 2030 update the following:

    1. IDRS activity with CP2030MMDD, CORR30MMDD (corrected original Letter 2030) or FCP30MMDD (Letter 2030 after Letter 2531). See Exhibit 4.119.4-7, Activity Codes/Category Codes, for further information.

    2. IDRS category to BUR0.

    3. Assign the case to the designated generic notice team number on IDRS.

    4. Input TC 925 with PC 4500 or 4520 (Letter 2030 after Letter 2531), as applicable using IDRS CC:REQ77/FRM77.

    5. Annotate the DCI and case folder using PC 4500 or 4520 (Letter 2030 after Letter 2531).

  8. The Clerical Function suspends the Letter 2030 for 60-days (90-days for foreign or APO/FPO address).

Amended/Corrected Letter 2030 and Letter 2531

  1. If a notice is incorrect or a new address is identified, an amended/corrected notice can be created. Multiple amended/corrected notices can be created if necessary.

    1. Amended notices are created when either the notice is returned as undeliverable and the Clerical Function has found a new address or a new address is found during the no response notice preparation process. See IRM 4.119.4.20, Undeliverable Notices, or IRM 4.119.4.19, No Response, for further instructions.

    2. A corrected notice is created when the original notice has been mailed and during the no response notice preparation process (BT 59X Aged Letter 2030/Recomp Stat Preparation) it is determined that a new notice is needed.

  2. When it is necessary to correct a notice that has not been mailed:

    1. Delete the original file from the BUR Letter repository.

    2. Input TC 925 with the applicable Stopped Notice (Notice Not Mailed) PC: 4310 (Letter 2531 or Amended Letter 2531 not mailed), 4320 (Letter 2030 after a Letter 2531 not mailed), 4510 (Letter 2030 not mailed), 4540 (Amended or Recomputed Letter 2030 not mailed), 4760 (Recomputed Letter 2030 or Amended Letter 2030 after Statutory Notice not mailed) using IDRS CC:REQ77/FRM77. See Exhibit 4.119.4-14, Process Code Consistency Chart, for additional information.

    3. Annotate the DCI and case folder with the Stopped Notice (Notice Not Mailed) process code.

    4. Determine the next action:

      If Then
      A notice is needed
      1. Prepare a new notice for the next available Letter Mailout Date. See IRM 4.119.4.18.1, Letter 2531 Preparation, or IRM 4.119.4.18.2 Letter 2030 Preparation, for additional information.

        Reminder:

        Refer any cases requiring a recalculation of: Schedule O, Schedule PH or Form 4626 to the Lead Tax Examiner.

        Caution:

        There must be sufficient time remaining on the Statutory Notice of Deficiency suspense period to issue another recomputed notice (i.e., PC 4750).

      2. Update IDRS activity with the applicable Activity Code. See Exhibit 4.119.4-7 Activity Codes/Category Codes.

      3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

      4. Annotate the DCI and case folder with the appropriate PC.

      The case should be closed
      1. Close the case with the appropriate closing process code.

        Example:

        If the Letter 2030 (or Letter 2531) is not needed because all the U/R was accounted for on the tax return, then close the case with PC 4210.

      2. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

      3. Annotate the DCI and case folder with the appropriate PC.

  3. If an incorrect Letter 2030 has been mailed:

    1. Prepare a new notice for the next available Letter Mailout Date. See IRM 4.119.4.18.2, Letter 2030 Preparation, for additional information.

      Reminder:

      Refer any cases requiring a recalculation of: Schedule O, Schedule PH or Form 4626 to the Lead Tax Examiner.

    2. Update IDRS activity with Activity Code CORR30MMDD (corrected original Letter 2030) or FCP30MMDD (Letter 2030 after Letter 2531). See Exhibit 4.119.4-7, Activity Codes/Category Codes.

    3. Input TC 925 with Process Code 4500 or 4520 using IDRS CCREQ77/FRM77.

    4. Annotate the DCI and case folder with the appropriate PC.

  4. The Clerical Function suspends the amended/corrected notice for 60-days (90-days for foreign or APO/FPO address).

    Note:

    An amended/corrected Letter 2030 after a Stat Notice (PC 4750 or 4755) does not extend the period of time the taxpayer has to petition the U.S. Tax Court.

No Response

  1. When there is no response to a BUR notice, the case is moved to the next phase. Next phase is generally defined as:

    1. Letter 2531 no response, issue a Letter 2030. See IRM 4.119.4.18.2, Letter 2030 Preparation, for further information.

    2. Letter 2030 no response, issue a Letter 3219B Statutory Notice of Deficiency. See IRM 4.119.4.21.11, Letter 3219B Statutory Notice of Deficiency Preparation, for further information.

    3. Letter 3219B no response, assess the additional tax within 10-days. See IRM 4.119.4.21.11.2, Default Letter 3219B Statutory of Deficiency, for further information.

  2. At the end of every mail out date suspense period, the Clerical Function batches any remaining cases for tax examiner review.

    1. No Response Letter 2531 cases are built to Batch Type 49X (X = 0 for 1120 and 1 for 1041), Aged Letter 2531/2030 Preparation - No Response.

    2. No Response Letter 2030 cases are built to Batch Type 59X (X = 0 for 1120 and 1 for 1041), Aged Letter 2030/Recomp Stat Preparation - No Response.

    3. No Response Letter 3219B cases are built to Batch Type 79X (X = 0 for 1120 and 1 for 1041), Statutory Notice Defaults.

  3. Prior to processing the case to the next phase, review the account for any activity since the notice was issued.

  4. Review current IDRS CC:TXMODA, CC:ENMOD and CC:CFINK for any recent changes that would impact the processing of the case to the next phase. If changes are present update the case file.

    Reminder:

    If IDRS CC:ENMOD displays indicator PDT (Potentially Dangerous Taxpayer), see IRM 25.4.1, Potentially Dangerous Taxpayer, for additional information. If IDRS CC:ENMOD displays indicator CAU (Caution Upon Contact), see IRM 25.4.2, Caution Upon Contact Taxpayer.

  5. If IDRS CC:TXMOD shows the taxpayer submitted full payment for the tax and related penalties (i.e., TC 640 or TC 670) before issuance of a Letter 3219B Statutory Notice of Deficiency, and there was no balance due prior to the notice:

    Note:

    If payment has refunded see IRM 4.119.4.4.10, Erroneous Refunds, for additional information.

    Note:

    If payment has unposted, refer case to Lead Tax Examiner.

    Exception:

    If the TC 640 payment has a blocking series of 990-999 indicating it is a IRC 6603 deposit, issue Letter 4550C to acknowledge payment and request missing signature.

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

    2. Input the adjustment using IDRS CC:ADJ54. See IRM 4.119.4.21.10, Adjustments, for further information.

    3. Close the case with Process Code 4470, 4670 or 4870 as appropriate.

      Caution:

      Full payment received after issuance of Letter 3219B, Statutory Notice of Deficiency, cannot be accepted as agreement to the tax increase. Issue a Letter 4550C to acknowledge payment and request missing signature. If the suspense time frame of 105-days (165-days if the notice is addressed to a person outside the U.S.) has expired, default the case.

    4. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    5. Annotate the DCI and case folder with the appropriate PC.

  6. If the taxpayer submitted a partial payment, do not request the payment document. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ if the account was in Zero Balance prior to the notice, or if the payment Blocking Series is 300-399.

    Note:

    If the payment has refunded see IRM 4.119.4.4.10, Erroneous Refunds, for additional information.

    Note:

    If the payment has unposted, refer the case to Lead Tax Examiner.

    If Then
    The case is a no response to a Letter 2531 Issue a Letter 2030 (PC 4520).
    The case is a no response to a Letter 2030 Issue Letter 4550C requesting the taxpayer's signature to consent.
    The case is a no response to a Letter 3219B See IRM 4.119.4.21.11.2, Default Letter 3219B Statutory Notice of Deficiency (PC 4850).
    1. Update IDRS activity with the applicable Activity Code. See Exhibit 4.119.4-7, Activity Codes/Category Codes.

    2. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    3. Annotate the DCI and case folder with the appropriate PC.

  7. If full or partial payment posts AFTER the creation of the Letter 3219B but before the Stat Notice is mailed:

    1. Delete the Letter 3219B from the BUR Letter Repository.

    2. Input TC 925 with PC 4710 using IDRS CC:REQ77/FRM77.

    3. Request the case file from the Clerical Function.

    4. When the case file is received, update IDRS activity with 45MRPCMMDD. See Exhibit 4.119.4-8 Definer Codes.

    5. If two weeks have passed and correspondence has not been received, see (5) or (6) above.

    6. If the correspondence is received, rework the case per the correspondence.

  8. If IDRS CC:TXMOD shows a TC 976, research AMS and/or MeF as applicable:

    1. If the amended return is available, see IRM 4.119.4.21.1.5, Amended Return, for further information.

    2. If the amended return is not available, suspend action on case for 14-days. Update IDRS activity with the applicable Activity Code. See Exhibit 4.119.4-7, Activity Codes/Category Codes. After the 14-days have passed:

    If Then
    The amended return is available See IRM 4.119.4.21.1.5, Amended Return, for additional information.
    The amended return is not available
    1. Correspond with the taxpayer to request a signed copy of the amended tax return.

    2. Update IDRS activity with the appropriate Activity Code. See Exhibit 4.119.4-7, Activity Codes/Category Codes, for additional information.

  9. If a new Freeze Code is present, see IRM 4.119.4.3.2, Freeze Codes, for instructions.

    Exception:

    See (10) below when Freeze Codes -V or -W are present.

  10. Take the following actions when IDRS CC:TXMOD displays indicators of Bankruptcy or litigation:

    If Then
    1. Freeze code -V and/or TC 520 (not reversed by TC 521 or 522) is present.

    2. Freeze code -W and/or TC 520 (not reversed by TC 521 or 522) with closing code 60-67, 70-81, 84, 85 or 89 is present.

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

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    4. Annotate the DCI and case folder with the appropriate PC.

  11. If a TC 604 is present, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ as appropriate.

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    3. Annotate the DCI and case folder with the appropriate PC.

  12. If TC 971 AC 522 Identity Theft or any indication of identity theft, refer the case to the Lead Tax Examiner for referral to HQ.

  13. If a Letter 4552C was issued to the payer and no response was received:

    1. And the taxpayer disclaims knowledge of or denies receipt of the income, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. If the taxpayer disputes the amount of income in question ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  14. If a new address is present, review all prior notices to determine if a notice was previously mailed to that address.

    If Then
    A prior notice was issued to the address shown as the new address
    1. Process the case to the next phase. DO NOT reissue the same notice.

    2. Update IDRS activity with the applicable Activity Code. See Exhibit 4.119.4-7, Activity Codes/Category Codes.

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    4. Annotate the DCI and case folder with the appropriate PC.

    A prior notice was not mailed to the address shown as a new address
    1. Reissue the notice to the new address using the appropriate Amended Letter PC: 4305 (amended Letter 2531), 4505 (amended Letter 2030), 4525 (amended Letter 2030 after Letter 2531), 4535 (amended recomputed Letter 2030), 4705 (amended Stat Notice), 4755 (amended recomputed Letter 2030 after Stat Notice).

      Caution:

      There must be sufficient time remaining on the Statutory Notice of Deficiency suspense period to issue another recomputed notice (i.e., PC 4755).

    2. Update IDRS activity with the applicable Activity Code. See Exhibit 4.119.4-7, Activity Codes/Category Codes.

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    4. Annotate the case folder and DCI with the appropriate PC.

  15. If a Form 1120 case has a proposed adjustment of $1,000,000 (or more) or a Form 1041 case has a proposed adjustment of $100,000 (or more), do not close the case with default Process Code 4850. The case requires special handling. See IRM 4.119.4.21.1.15 , Large Dollar/Accounts Receivable Dollar Inventory (ARDI) Guidelines, for additional information.

  16. If the net tax increase is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Reminder:

    If the notice was returned as undeliverable and a newer address is available see (14) above. If a newer address is not available, follow the steps below.

    1. Issue Letter 4551C and include the following Special Paragraph: "We did not make any adjustments to the tax or prepaid credits because you did not respond to our previous notice."

    2. Close the case with PC 4400 or 4600.

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    4. Annotate the DCI and case folder with the appropriate PC.

      Reminder:

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

  17. When working a no response to a Letter 2531, if the notice was issued for questionable underclaimed withholding, the taxpayer did not respond ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Reminder:

    If the notice was returned as undeliverable and a newer address is available, reissue the notice to the newer address. Update the activity code and DCI as applicable. If a newer address is not available, follow the steps below.

    1. Issue Letter 4551C and include the following Special Paragraph: "We did not make any adjustments to the tax or prepaid credits because you did not respond to our previous notice."

    2. Close the case with PC 4400.

    3. Input TC 925 with PC 4400 using IDRS CC:REQ77/FRM77.

    4. Annotate PC 4400 on the DCI and case folder.

  18. When working a no response to a Letter 2030, if the notice was issued for questionable overclaimed withholding, the taxpayer did not respond ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Reminder:

    If the notice was returned as undeliverable and a newer address is available, reissue the notice to the newer address. Update the activity code and DCI as applicable. If a newer address is not available, follow the steps below.

    1. Input the adjustment using IDRS CC:ADJ54. See IRM 4.119.4.21.10, Adjustments, for further information.

    2. Close the case with PC 4680.

    3. Input TC 925 with PC 4680 using IDRS CC:REQ77/FRM77.

    4. Annotate PC 4680 on the DCI and case folder.

  19. If an incorrect Letter 2030 has been mailed and a corrected Letter 2030 needs to be issued, see IRM 4.119.4.18.3, Amended/Corrected Letter 2030 and Letter 2531, for additional information.

  20. When working a Form 1120 no response to Letter 2030 or Letter 3219B and the taxpayer is subject to 2% LCU. See IRM 4.119.4.16.5, Form 1120 2% Large Corporate Underpayment (LCU) – 2% LCU, for additional information.

Undeliverable Notices

  1. The Clerical Function researches all BUR notices returned by the U.S. Postal Service as undeliverable for a new address.

    1. If a new(er) address is not available, the notice is returned to the notice mail date until the end of the notice suspense period.

    2. If a new(er) address is found, the notice (and case) is built into a batch for tax examiner review.

    3. The Clerical Function will annotate the DCI and case folder with 4XUD (X represents the phase).

    4. The Clerical function updates the IDRS Category Code to "UNDL" when appropriate.

      Caution:

      Correspondex Letters returned as undeliverable are NOT researched for a new(er) address.

  2. When Clerical determines that the undeliverable notice contains a new(er) address, the case is built into the applicable Undeliverable batch (BT 410/411, BT 620/621 or BT 820/821). The tax examiner will review all prior notices to determine if a notice was previously mailed to that address.

    If Then
    A prior notice was issued to the address shown on the new address
    1. Process the case to the next phase. DO NOT reissue the same notice.

    2. Update IDRS activity with the applicable Activity Code. See Exhibit 4.119.4-7, Activity Codes/Category Codes.

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    4. Annotate the DCI and case folder with the appropriate PC.

    A prior notice was not mailed to the address shown as a new address
    1. Reissue a notice to the new address with the applicable Amended Notice PC: 4305 (amended Letter 2531), 4505 (amended Letter 2030), 4525 (amended Letter 2030 after Letter 2531), 4535 (amended recomputed Letter 2030), 4705 (amended Stat Notice), 4755 (amended recomputed Letter 2030 after Stat Notice).

      Caution:

      There must be sufficient time remaining on the Statutory Notice of Deficiency suspense period to issue another recomputed notice (i.e., PC 4755).

    2. Update IDRS activity with the applicable Activity Code. See Exhibit 4.119.4-7, Activity Codes/Category Codes.

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    4. Annotate the DCI and case folder with the appropriate PC.

  3. When working a case that is either in a response or no response batch and an undeliverable notice is present:

    Caution:

    DO NOT treat Stat Notices stamped as "UNCLAIMED or REFUSED" as an undeliverable.

    Note:

    If a notice addressed to a POA is returned as undeliverable, do not take any action to research for better POA address. Retain the undeliverable in the case file.

    If Then
    The undeliverable notice is the most recent notice and in the same phase as the case.
    1. Update the IDRS Category Code to "UNDL."

    2. Annotate the case folder and DCI with the applicable undeliverable IPC: 43UD (Letter 2531), 45UD (Letter 2030) or 47UD (Stat Notice).

    3. Follow normal procedures based on the case status (i.e., response batch or no response batch). See IRM 4.119.4.21, Taxpayer Responses, or IRM 4.119.4.19, No Response, for additional information.

    The undeliverable notice IS NOT in the same phase as the case or IS NOT the most recent notice.
    1. If not already present on the case folder and DCI, annotate the case folder and DCI with the applicable IPC: 43UD (Letter 2531), 45UD (Letter 2030) or 47UD (Stat Notice).

    2. Follow normal procedures based on the case status (i.e., response batch or no response batch). See IRM 4.119.4.21, Taxpayer Responses, or IRM 4.119.4.19, No Response, for additional information.

  4. Occasionally the Clerical Function receives an undeliverable notice for a case that is assigned to a tax examiner.

    Caution:

    DO NOT treat Stat Notices stamped as UNCLAIMED or REFUSED as an undeliverable.

    Note:

    If a notice addressed to a POA is returned as undeliverable, do not take any action to research for better POA address. Retain the undeliverable in the case file.

    If Then
    The undeliverable notice is in the most recent notice and in the same phase as the case.
    1. Associate the undeliverable with the case.

    2. Update the IDRS Category Code to "UNDL."

    3. Annotate the case folder and DCI with the applicable undeliverable IPC: 43UD (Letter 2531), 45UD (Letter 2030) or 47UD (Stat Notice).

    4. Follow normal procedures based on the case status (i.e., response batch or no response batch). See IRM 4.119.4.21, Taxpayer Responses, or IRM 4.119.4.19, No Response, for additional information.

    The undeliverable notice IS NOT in the same phase as the case or IS NOT the most recent notice.
    1. Associate undeliverable with the case.

    2. Annotate the case folder and DCI with the applicable undeliverable IPC: 43UD (Letter 2531), 45UD (Letter 2030) or 47UD (Stat Notice).

    3. Follow normal procedures based on the case status (i.e., response batch or no response batch).

  5. If the Post Office returns mail as "UNCLAIMED or REFUSED" rather than undeliverable, continue processing the case using normal procedures. An additional address check is not necessary.

Taxpayer Responses

  1. Most taxpayer explanations are self-explanatory and acceptable at face value. It is not necessary to verify everything the taxpayer says.

    1. The tax examiner should consider the reasonableness of the explanation. It may be necessary to consult with the Lead Tax Examiner.

    2. If other Exam issues are discovered during BUR processing, consult with the Lead Tax Examiner. Then, if necessary, consult with an Exam representative to decide the appropriate actions(s) to take.

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

    Exception:

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

Taxpayer Responses - Overview

  1. The primary purpose of the BUR Program is to account for discrepancies between amounts on IRs and amounts on the tax return.

  2. Review carefully what the response is trying to say and research all related information.

  3. A taxpayer's response to a BUR notice can be:

    1. A copy of the Letter 2030 or Letter 2531.

    2. The taxpayer response page from the Letter 2030 or Letter 2531.

    3. A copy of the Letter 3219B Statutory Notice of Deficiency.

      Note:

      Taxpayers may submit their response through electronic media (e.g., thumb drives, diskettes, flash memory etc.). See IRM 10.8.1, Information Technology (IT) Security, Policy and Guidance, for additional information.

      Note:

      The taxpayer is allowed 90-days (150-days if the notice is addressed to a person outside the U.S.) to petition the Tax Court. The taxpayer cannot receive an extension of this statutory period.

      Note:

      THE STATUTORY NOTICE IS A LEGAL DOCUMENT. If the taxpayer sends the original Letter 3219B Statutory Notice of Deficiency OR the Letter 2030 DO NOT make any marks or corrections on either response.

    4. A letter, note, or fax.

    5. An amended return.

    6. A telephone call.

    7. A Form 4442, Inquiry Referral, from Customer Service.

  4. The taxpayer's response (and all attachments) should be retained as part of the case file. If it can be determined that the taxpayer has submitted original documents make a copy for the case file and mail the originals to the taxpayer with a cover letter.

    Exception:

    Do not return original Information Return documents.

  5. If the taxpayer includes a telephone number in the response to any notice and it is appropriate, call them to resolve the outstanding U/R issue(s) before sending any written correspondence. Document when a phone call is made or attempted. Only one attempt is required. An attempt must be made even when the taxpayer provides only an evening phone number for a day shift tax examiner or a day phone number for a swing (night) shift tax examiner. See IRM 4.119.4.21.2.6, Out Calls, for further instruction.

    Note:

    Always identify yourself by title (e.g., Mr., Mrs. or Ms.) and last name or first and last name, employee identification (ID) Number, and as an IRS employee during telephone contact with the taxpayer. Provide the taxpayer with a telephone number to contact the Service about their case if needed. Always use courteous behavior when speaking to a taxpayer via the telephone. See IRM 4.119.4.21.2, Telephone Responses, for additional telephone and mandatory Disclosure procedures that must be followed.

  6. When evaluating responses, the tax examiner must review current BUR tax account activity for any changes.

    • Review IDRS CC:TXMOD for any new transaction codes, freeze codes, etc. that may impact processing

      Note:

      If there is any indication of Identity Theft on CC:TXMOD, refer the case to the Lead Tax Examiner for referral to HQ.

    • Review IDRS CC:ENMOD for any changes to the taxpayer's address

      Reminder:

      If IDRS CC:ENMOD displays indicator PDT (Potentially Dangerous Taxpayer), see IRM 25.4.1, Potentially Dangerous Taxpayer, for additional information. If IDRS CC:ENMOD displays indicator CAU (Caution Upon Contact), see IRM 25.4.2, Caution Upon Contact Taxpayer.

    • Review IDRS CC:CFINK for any changes to the taxpayer authorized representatives

  7. When evaluating responses, it may be necessary to review the Payer Agent List.

  8. While evaluating the taxpayer's response, verify revised calculations of the U/R amount, adjustments, tax, credits, and balance due/refund amounts are accurate. Leave an audit trail of all actions, if needed.

    Note:

    The following method may be used when processing a No Change case: All taxpayer addressed IRs that are now resolved (i.e., no longer U/R) should be marked with "Reported" , "Deleted" or "NonTaxable" , before using a Process Code to close the case.

  9. If additional returns or adjustment documents were requested during case analysis and:

    1. The case is being closed with an assessment in the Underreporter blocking series, leave the documents with the BUR case file.

    2. The case is being closed without an assessment, refile them separately.

  10. If the taxpayer writes in with a question or requests assistance on a Non-BUR related matter:

    1. Photocopy the question/request.

    2. Annotate taxpayer name, EIN, and address on the photocopy.

    3. Forward the photocopy to the appropriate area for response and leave the original in the case file.

    4. Follow Policy Statement P-21-3 (Action 61) Guidelines for responding to the taxpayer. See IRM 4.119.4.21.1.12, Policy Statement P-21-3 (formerly P-6-12) Guidelines (Action 61).

  11. Any response may require a new address. See IRM 4.119.4.21.1.3, Address Changes.

  12. When an original payment is included with the taxpayer response, see IRM 4.119.4.21.7.1, Discovered Remittances, for additional information.

  13. When working with correspondence that has not been processed through the Clerical Function (i.e., a faxed response sent directly to a specific tax examiner or correspondence received after a case/batch that has been assigned to a tax examiner/team), ensure that an IRS Received Date is recorded on IDRS.

    Exception:

    A faxed Form 2848, Power of Attorney and Declaration of Representative, with no explanation is not considered correspondence for purposes of updating the BUR Received Date.

Controlling Responses
  1. Response cases to be analyzed by the BUR tax examiner are assembled into batches, which are then divided into work units. See IRM 4.119.4.2.1 Controlling Work, for additional information regarding, updating: IDRS, DCIs and case folders for various actions.

  2. When assigning a work unit from a response batch, verify that there is a case folder for every TIN shown on the Work Unit Listing and that the TIN on the case folder matches the TIN on the Work Unit Listing BEFORE updating the control on IDRS. If a case folder is missing (or there is an extra folder) see IRM 4.119.4.21.1.1.1, Lost Cases (Responses).

  3. Update the IDRS Control for the case folders that are verified against the Work Unit Listing.

    Note:

    If the case folder is missing either a DCI or a paper filed tax return or contains an incorrectly associated paper tax return, see IRM 4.119.4.21.1.1.1 Lost Cases (Responses).

Lost Cases (Responses)
  1. When a TIN is assigned to a response batch, but the corresponding case (i.e., case folder, DCI, and/or paper filed tax return) is missing, it is considered a "lost" case. Lost case includes incorrectly associated paper tax return in the case folder or incorrect case folder in the work unit (based on Work Unit listing verification).

    Note:

    See IRM 4.119.4.21.1.1.2, Lost Responses, if the case file is missing taxpayer correspondence.

  2. When a lost case is identified, provide the information to the Lead Tax Examiner who will attempt to locate the case:

    Note:

    If only the DCI is missing, the Lead Tax Examiner will obtain a new DCI from the Clerical Function.

    If Then
    The Lead Tax Examiner locates the case Continue processing.
    The Lead Tax Examiner cannot locate the case folder
    1. Update IDRS activity with 4XLCMMDD (X represents the phase). See Exhibit 4.119.4-7, Activity Codes/Category Codes.

    2. Ensure that the IDRS control remains in the Clerical IDRS control number.

    3. Print IDRS CC:TXMOD and give to the Lead Tax Examiner who will route to the Clerical Function.

    The Lead Tax Examiner cannot locate the paper filed tax return Continue working the case. If necessary use IDRS CC:TRDBV to obtain tax return information.

    Note:

    These instructions do not apply to MeF returns.

Lost Responses
  1. During the Response phase a case may: contain an extra response, a wrong response or a response may be missing.

  2. If the case contains an extra response:

    1. Give the extra response to the Lead Tax Examiner who will research to determine if the response belongs to another case in the batch.

    2. If the extra response does not belong in the batch, the Lead Tax Examiner will print and attach the IDRS CC:TXMOD to the correspondence and route to the Clerical Function.

  3. If the case contains the wrong response:

    1. Give the wrong response to the Lead Tax Examiner who will research to determine if the response belongs to another case in the batch.

    2. If the wrong response does not belong in the batch, the Lead Tax Examiner will print and attach the IDRS CC:TXMOD to the correspondence and route to the Clerical Function.

    3. If the case no longer contains a valid response, the case must be refiled back to the previous status.

    4. Update IDRS activity with the Activity Code reflecting the prior case status.

      Example:

      CP2XXXMMDD or STATMMDD as appropriate. See Exhibit 4.119.4-7, Activity Codes/Category Codes.

    5. Annotate the DCI and case folder with 4XRF (X represents the phase).

    6. Route the case to the Clerical Function.

  4. If the case is missing the taxpayer's response (per the TIN assigned to the work unit) notify the Lead Tax Examiner who will search for the response in the batch. If the response is not located:

    1. Update the IDRS activity with 4XLRMMDD (X represents the phase). See Exhibit 4.119.4-7, Activity Codes/Category Codes.

    2. Annotate the DCI and case folder with 4XLR (X represents the phase).

    3. Give the case to the Lead Tax Examiner who will route the case to the Clerical Function.

    4. The Clerical Function will attempt to locate the missing response and will return the case file back to the originating tax examiner.

      If Then
      The Clerical Function locates the missing response. Continue processing.
      The Clerical Function cannot locate the missing response.
      1. Contact the taxpayer, apologize for the inconvenience and request the taxpayer resubmit their response.

      2. Update IDRS with the applicable Activity Code. See Exhibit 4.119.4-7, Activity Codes/Category Codes.

      3. Annotate on the DCI and case folder 4XLT or 4XPH (X represents the phase), as appropriate.

Refiling Cases (Internal Process Code 4XRF)
  1. There are occasions when a case needs to be refiled back to its previous status (e.g., a duplicate correspondence is received).

  2. When refilling a case to its previous status take the following actions:

    1. Update the IDRS activity with the previous suspense status.

      Example:

      CP2XXXMMDD or STATMMDD as appropriate. See Exhibit 4.119.4-7, Activity Codes/Category Codes.

    2. Annotate the DCI and case folder with 4XRF (X represents the phase).

    3. Route the case to the Clerical Function.

    Caution:

    If the Letter 2531,Letter 2030, or Letter 3219B has aged (time frame has expired or passed), do not refile the case. Continue processing. See IRM 4.119.4.19 No Response or IRM 4.119.4.21.11.2, Default Letter 3219B Statutory Notice of Deficiency, for further information.

Case Transfer to Another Area
  1. When transferring a case to another area (i.e., Appeals, Exam, Accounts Management, etc.), close the case with the appropriate transfer Process Code.

    1. Do Not input a TC 290 when transferring to another area.

    2. Close the IDRS control base.

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    4. Annotate the DCI and case folder with the appropriate PC.

    5. If the taxpayer has been contacted (i.e., Letter 2531, Letter 2030, etc.) issue Letter 4551C to inform the taxpayer we have transferred the case to another area.

      Exception:

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

    Reminder:

    When transferring a case in Stat Notice phase to Exam, place the case in suspense and allow the statutory period to expire before closing the case PC 4790. See IRM 4.119.4.3.2, Freeze Codes.

  2. When transferring a case to another area the case file must be complete. In addition to the current case contents the case file must include the following:

    1. Prints of all notices issued.

    2. Copy of DCI.

      Note:

      Ensure the original DCI is retained in the case file.

Abatement of Interest
  1. IRC 6404(e)(1) provides information for abatement of interest on deficiencies or payments of deficiencies attributable to any unreasonable error or delay by the Service in performing a ministerial or managerial act.

  2. A ministerial act is a procedural or mechanical action that does not involve the exercise of judgment or discretion, and that occurs during the processing of a taxpayer's case after all prerequisites to the act have taken place.

  3. A managerial act is an administrative action that occurs during the processing of a taxpayer case and that involves the temporary or permanent loss of records or the exercise of judgment or discretion relating to management of personnel. Interest attributable to a general administrative decision, such as the Service's decision on how to organize the processing of tax returns, may not be abated.

  4. IRC 6404 also provides several exceptions to the IRC 6601 general requirement that interest be charged from the due date of the return until the balance due is paid in full.

  5. Annotate and route taxpayer's requests and claims for abatement of interest to the Interest Abatement Coordinator (IAC) for processing.

    Note:

    If taxpayer requests interest abatement, address this in an open paragraph.

    Note:

    The assessment of interest is mandatory, unless the law specifically permits suspension, waiver or reduction of interest. The law does not permit the reduction of interest for reasonable cause.

Address Changes
  1. When a taxpayer contact includes clear and concise notification of an address change, including foreign address change, input the appropriate new address on IDRS CC:ENREQ.

  2. Changes to the taxpayer name line due to a spelling error should also be made. However, do not change the first four characters of the name line (i.e., the name control).

    1. The authority for making changes to a primary name line is delegated to the BMF Entity function.

    2. Any correspondence received after an EIN has been assigned, requesting a change to the primary name line, that affects the name control, must be routed to the appropriate BMF Entity function.

    3. See IRM 21.7.13.7.2.2, Cases Forwarded to Submission Processing BMF Entity, for additional information.

  3. For certain notices, such as the Letter 3219B, Statutory Notice of Deficiency, the Internal Revenue Code provides that when the notice is sent to the taxpayer's last known address (LKA), the notice is legally effective even if the taxpayer never receives it.

    Note:

    As a point of due diligence, if there is taxpayer correspondence with a different address mail a copy of the Letter 3219B, Statutory Notice of Deficiency, to that address as well. Do not update Master File without clear and concise notification from the taxpayer.

  4. Contacts that are considered clear and concise notification of an address change include the following:

    1. The taxpayer returns an IRS initiated correspondence that solicits or requires a response to IRS with corrections marked on their address information. The taxpayer's signature on the correspondence (for this purpose) is not required.

    2. A return (including an amended return) filed by a taxpayer with new address information. Update the Master File for address changes on any amended returns, that bypass normal pipeline processing and are processed as a response.

    3. Form 8822-B, Change of Address, when received in conjunction with a BUR case.

    4. Oral notification made in response to a BUR notice which meets appropriate disclosure guidelines or if a taxpayer is contacted by phone by an IRS employee in connection with the taxpayer's account (not related to an address change). The taxpayer may provide a change of address to the IRS employee who responded to the phone call or initiated the phone contact. See IRM 4.119.4.21.2, Telephone Responses, for additional information regarding telephone responses.

    5. Notification of an address change made by the U.S. Postal Service.

      Caution:

      Always verify the name on the Post Office notification with the name on the notice before updating the address.

      Note:

      A new address indicated as a return address on the envelope or in the letterhead of the taxpayer's correspondence is not by itself, clear and concise notification and is not sufficient to change an address of record.

  5. Clear and concise notification, whether written or oral, must contain the following:

    1. The Entity's full name.

    2. For written requests, the signature of the taxpayer or an authorized representative. For oral requests, successful completion of disclosure verification. See IRM 4.119.4.21.2.2, Disclosure, for additional information.

    3. The taxpayer's new address.

    4. The taxpayer's old address, unless it can be determined from the posted data. Do not request the old address from the taxpayer.

    5. The taxpayer identification number (TIN).

  6. If any of the information from (4) or (5) above is missing from the taxpayer's request, do not update Master File. Send the appropriate letter to the taxpayer, at the new address, using a Special Paragraph to advise them of the information needed. Enclose Form 8822-B, Change of Address.

  7. If the taxpayer provides a temporary address, a beginning and ending date of when the taxpayer will be using that address should be given. Do not update Master File.

  8. Any time doubt exists as to whether an address should be changed, discuss it with the manager who will either provide an answer or refer the question to the Disclosure Office.

  9. If a document is received containing a name or address change which does not meet the specific requirements for updating Master File, the information should be noted and maintained in the BUR case file. If a notice is returned, the Service is required to use due diligence in locating the taxpayer, which includes a search of existing records to locate any updated information supplied by the taxpayer.

Adjustment Cases Relating to BUR
  1. Accounts Management frequently receives amended returns or correspondence from taxpayers who received BUR notices. Multiple assessments could result if both Adjustments and BUR simultaneously work these cases.

  2. To eliminate multiple assessments:

    1. Accounts Management may route cases related to an OPEN BUR case to BUR. Work these cases following normal BUR procedures.

    2. Always check AMS and/or MeF (if applicable) for any indication that an amended return has been filed.

    3. Accounts Management will work responses or amended return related to a CLOSED BUR case as part of the subsequent adjustment.

    4. Accounts Management will forward all reconsideration cases to BUR prior to any new adjustment.

  3. Responses that deal with multiple tax years are treated as separate responses whenever feasible. In such instances, photocopy the response so each tax year has the appropriate response to resolve the case. Route copies of the responses that are non-BUR to Accounts Management.

    Exception:

    Coordinate Net Operating Losses (NOL) and carryback/carryforward (CB/CF) issues between Accounts Management and BUR. Exercise caution with regard to Statute of Limitations and payment of interest.

Amended Return
  1. If the taxpayer responds with an amended return, review IDRS CC:TXMOD to determine if the adjustment posted. Math verify any tax adjustments.

    Note:

    See IRM 4.119.4.21.11.1, Instructions Specific to Statutory Notices/Responses, for amended returns that exceed the tax increase shown on the Letter 3219B Statutory Notice of Deficiency.

  2. If the adjustment did not post and the taxpayer responds with a mathematically correct amended return or a signed statement that recalculates the tax on some but not all of the U/R issues, or does not address the penalties, send the appropriate notice to the taxpayer for signature. Include PARAGRAPH 110 to address penalties not included on the amended return. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Advise the taxpayer that the amended return information was included in the proposed adjustment.

    Note:

    If the amended return is received on or before the BUR contact date, do not pursue penalties.

    Note:

    Written managerial approval is required when the accuracy related penalty applies. See IRM 4.119.4.16, Penalties and Interest, for additional information.

  3. TCO approval is required when the taxpayer responds with a Form 1120X≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ U/R income included on our original notice AND ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Refer these cases to the Lead Tax Examiner for additional review.

    Exception:

    TCO approval is ALWAYS required when the originally filed return was for zero income and the taxpayer is now claiming more income than the U/R.

    Note:

    See IRM 4.119.4.21.3.16, Securities Sales and Cost Basis, when the taxpayer is claiming additional Cost Basis.

    Note:

    See IRM 4.119.4.21.3.6, Form 1099-K Payment Card Transactions and Third Party Network Payments, when the taxpayer is claiming additional expenses related to underreported Form 1099-K IRs.

    Caution:

    Taxpayers may use an amended return to further support their explanation of how income was treated on the originally filed return (e.g., netting, nominee recipient, income on another return, reported in a different tax year, etc.). Follow the instruction in the applicable IRM section when the taxpayer's explanation addresses these issues BEFORE considering a TCO referral.

  4. If the taxpayer submits an amended return that has not posted to IDRS and includes all U/R issues:

    1. Ensure it is for the correct tax year.

    2. Verify the name and address.

    3. Math verify for revised tax and applicable penalties (e.g., Accuracy Related penalty).

      Note:

      See IRM 4.119.4.21.6, Partially Agreed Responses, if the taxpayer's calculation of new tax does not match the verified revised tax figures and/or does not include applicable penalties.

    4. Once verified, process the assessment based on the recomputed tax figures. See IRM 4.119.4.21.10, Adjustments, for additional information.

      Caution:

      The response must contain a signature of agreement (including claims for refunds). If signature is missing, issue a new notice with revised figures. See IRM 4.119.4.21.6.1, Recomputed Notice/Supplemental Report.

      Note:

      If for any reason the amended return is not clear or complete, correspond for missing information.

    5. Close the case using Process Code 4470 (Letter 2531 phase) 4675 (Letter 2030 phase) or 4875 (Stat Notice phase).

    6. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    7. Annotate the DCI and case folder with the appropriate PC.

  5. If the taxpayer submits an amended Form 1041, agreeing to all the U/R income and allocates it to the beneficiaries:

    If Then
    They also provide amended Schedule K-1(s) for all the U/R income.
    1. Accept the explanation.

    2. Send Letter 4551C with the following special paragraph "Please advise the impacted beneficiaries to amend their tax return based on the amended Schedule K-1(s) you provided."

    3. Close the case with the applicable N/C Process Code.

    4. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    5. Annotate the case folder and DCI with appropriate N/C Process Code and include NRC 10.

    If all the amended Schedule K-1(s) are not provided.
    1. Send Letter 4550C requesting the amended Schedule K-1(s).

    2. Update IDRS activity with the applicable Activity Code. See Exhibit 4.119.4-7, Activity Codes/Category Codes.

    3. Annotate DCI and case folder with appropriate IPC.

    4. Suspend and monitor. If no activity at the end of suspense period, take next action.

  6. In order to accept the amended return as an agreed response, the tax change shown on the amended return must agree with the manually computed tax change ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and must address applicable penalties (e.g., Accuracy Related penalty). If not, advise the taxpayer of the discrepancy and continue processing the case.

  7. If the amended return information results in a zero (0) tax change and a TC 976 or TC 971 AC 010 or 012-016 posted, input/verify TC 290 for .00 to release the A Freeze.

    1. Close the case with the appropriate Process Code. If a change to TXI ONLY is necessary. See IRM 4.119.4.21.6, Partially Agreed Responses.

    2. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    3. Annotate the DCI and case folder with the appropriate PC.

  8. If the adjustment has posted:

    And Then
    The amended return correctly includes all U/R issues.
    1. Close the case with the appropriate N/C Process Code.

    2. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    3. Annotate the case folder and DCI with the appropriate Process Code and include NRC 10.

    The amended return addresses all U/R issues but not the Accuracy Related penalty.
    1. Pursue the penalty if the amended return was filed after the BUR contact.

    2. Issue Letter 4550C advising the taxpayer that they are subject to the Accuracy Related penalty.

    3. Prepare a Letter 3219B, Statutory Notice of Deficiency for the penalty amount. Continue processing the case through to default (if necessary).

    There are other U/R issues besides those reported on the amended return. Adjust the U/R by reworking the case and send the appropriate notice for the taxpayer’s signature.
  9. The taxpayer replies that they filed an amended return which included the U/R income in question, review IDRS CC:TXMOD.

    1. If IDRS shows a TC 290, and the tax increase due to U/R income matches the TC 290, close the case.

    2. If IDRS shows a TC 290, and the tax increase due to U/R income does NOT match the TC 290, order the TC 290 DLN.

    3. If IDRS shows a TC 976 or TC 971 AC 010 or 012-016 with no corresponding TC 290 and there is an indication that it is a CIS document order the return. See IRM 4.119.4.3.5, Correspondence Imaging System (CIS) Documents, for more information.

    4. If IDRS does not show a TC 976 or TC 971 AC 010 or 012-016, or the amended return cannot be obtained, send Letter 4550C to request a signed copy from the taxpayer. Include the following Special Paragraph: "You indicated that the income in question was reported on your amended return, however, we are unable to locate it. Please send or fax us a signed copy of your amended return attached behind a copy of this letter."

  10. If the amended return is not acceptable or all BUR issues are not addressed and case results in a tax decrease, send the appropriate letter with a Special Paragraph informing the taxpayer that we are unable to process the amended return as filed since they did not address all of the issues shown on our notice.

    Caution:

    Consider the date the amended return was submitted and the date the notice was issued when creating the Special Paragraph.

  11. If the U/R issue is resolved, but the taxpayer states that another amount was NOT CLAIMED, UNDERCLAIMED, OR OVER-STATED on the original return AND:

    1. The taxpayer provides sufficient information, make the necessary adjustment. Use good judgment to determine if the taxpayer is entitled to this adjustment. If necessary, discuss with the Lead Tax Examiner to determine action to be taken.

      Note:

      STATUTE OF LIMITATIONS MUST BE CONSIDERED.

    2. If the taxpayer does not provide all of the necessary information, contact the taxpayer for the missing information and/or documentation.

  12. If the amended return results in a no change to tax:

    1. Close the case with the appropriate Process Code.

    2. Input TC 925 with the applicable closing Process Code using IDRS CC:REQ77/FRM77.

    3. Annotate the case folder and DCI with the appropriate Process code and include NRC 10. See IRM 4.119.4.21.6, Partially Agreed Responses, for additional instructions.

  13. CAT-A criteria identifies issues that require a referral to the Examination Classifiers prior to allowing a taxpayer claim, including protective claims and requests for abatement of CAT-A criteria penalties as identified in IRM Exhibit 21.5.3-2 Examination Criteria (CAT-A) – General. If a response is received with CAT-A criteria refer the case to the Lead Tax Examiner for review.

Appeals
  1. If the taxpayer makes a non-docketed appeals request (i.e., specifically requests a hearing with an Appeals Officer or submits a Form 12203, Request for Appeals Review), prior to issuance of a Statutory Notice take the following actions:

    If Then
    There are less than 365-days left on the ASED.
    See IRM 4.119.4.1.7, Statute Awareness Program, for Statute guidelines.
    1. Attempt to resolve the issue(s) by telephone. See IRM 4.119.4.21.2.6, Out Calls, for further information.

    2. Advise the taxpayer that Appeals does not accept non-docketed cases when there are less than 365-days left on the statute.

    3. If the taxpayer still wants Appeals to consider their case, inform the taxpayer that they will receive a Statutory Notice of Deficiency that will allow for them to appeal their case to the U.S. Tax Court.

    4. Issue Letter 3219B, Statutory Notice of Deficiency.

    There are 365-days or more left on the ASED.
    1. Attempt to resolve the issue(s) by telephone. See IRM 4.119.4.21.2.6, Out Calls, for further information.

    2. If it is still necessary to transfer the case to Appeals, research the following website: http://appeals.web.irs.gov/APS/caserouting.htm. Select the Case Routing Addresses and Instructions link to access the Appeals Case Routing sharepoint site, and select the Spreadsheet Tool to launch the Case Routing Guide. Select Campus Source Exam for the type of Case, and the appropriate Campus Location to find the Campus Appeals office based on the IRS Campus source of the case.

    3. Complete Form 3210, Document Transmittal, and see IRM 4.119.4.21.1.1.4, Case Transfer to Another Area, for additional information on preparing the case for transfer.

    4. Close the case with PC 4590.

    5. Issue Letter 4551C to inform the taxpayer we have transferred the case to another area.

    6. Input TC 925 with PC 4590 using IDRS CC:REQ77/FRM77.

    7. Annotate PC 4590 on the DCI and case folder.

    8. Give the case to the Clerical Lead for the establishing of the AIMS control.

  2. If the taxpayer makes a non-docketed appeals request (i.e., specifically requests a hearing with an Appeals Officer or submits a Form 12203, Request for Appeals Review), after the issuance of a Statutory Notice:

    1. Issue a Letter 4550C advising the taxpayer that their request cannot be honored and that they need to file a petition with the U.S. Tax Court within the period specified (usually 90-days) and following the instructions in the Letter 3219B, Statutory Notice of Deficiency, they received.

      Note:

      The taxpayer has 150-days to petition the U.S. Tax Court if the notice is addressed to a person outside the U.S.

    2. Inform the taxpayer that as part of the petitioning process, their case will be reviewed by the Appeals Office.

    3. Continue processing, refile the case as necessary for the remainder of the Statutory Notice suspense period.

    Note:

    If less than 30-days remain on the 90-day period (150-days if the notice is addressed to a person outside the U.S.), the tax examiner must attempt to contact the taxpayer by telephone to advise them that their request has been denied. See IRM 4.119.4.21.2.6, Out Calls, for further information.

    Note:

    See IRM 4.119.4.1.7, Statute Awareness Program, for Statute guidelines.

    Note:

    DO NOT UPDATE DCI WITH PC 4800 FOR NON-DOCKETED CASES

    .

Bankruptcy Procedures - Responses
  1. When the taxpayer indicates that they filed for bankruptcy:

    If And Then
    IDRS CC:TXMOD displays the following Bankruptcy indicators:
    1. Freeze code -V and/or TC 520 (not reversed by TC 521 or 522).

    2. Freeze code -W and/or TC 520 (not reversed by TC 521 or 522) with closing code 60-67, 70-81, 84, 85 or 89.

    -
    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FM77.

    4. Annotate the DCI and case folder with the appropriate PC.

    Bankruptcy indicators are not present on IDRS CC:TXMOD The taxpayer does not provide documentation Request verification of the Bankruptcy and continue processing.
    Bankruptcy indicators are not present on IDRS CC:TXMOD The taxpayer provides documentation
    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FM77.

    4. Annotate the DCI and case folder with the appropriate PC.

Deposits to Stop the Accrual of Interest - Section 6603
  1. A taxpayer may stop the further accrual of interest while the case is being resolved by making either a payment or an IRC 6603 deposit.

  2. IRC Section 6603 allows taxpayers to submit deposits to suspend the running of interest on potential underpayments:

    1. IRC 6603 deposits are identified on IDRS CC:TXMOD by a TC 640 with a Blocking series of 990-999, or TC 640 with DPC 12.

    2. The taxpayer must use the specific designation for the payment or conversion of a cash bond to be considered an IRC 6603 payment.

    3. Unlike Cash Bonds, the taxpayer may be entitled to credit interest (at a lower 6603(d)(4) rate) on any refunded portion of the IRC 6603 deposit that was made for a disputable tax.

      Note:

      After an assessment is made and the funds are applied as a payment against the assessed liability, the normal rules regarding interest on overpayments apply.

  3. A taxpayer may request the return of all or part of a IRC 6603 deposit before the deposit is used for a payment of tax. The requests must be in writing and include the following:

    1. The date(s) and amount(s) of the original deposit(s),

    2. The type(s) of tax to which the deposit was intended to be applied,

    3. The tax year(s) to which the deposit was intended to be applied.

  4. If the taxpayer requests a return of a IRC 6603 deposit, a manual refund is required. Interest must be manually computed and input. See IRM 21.4.4, Manual Refunds, IRM 20.2.4.8.2.3, Request for Return on an IRC 6603 Deposit, IRM 21.5.1, General Adjustments, and IRM 21.5.2, Adjustment Guidelines, for more information.

    Note:

    The accrual of interest stops on the date of the taxpayer remittance. Interest continues to accrue on any unpaid amounts, including accrued interest.

Disaster Area
  1. The BUR Coordinator will monitor ZIP Codes for specific declared disaster area situations as necessary based on IRS Disaster Relief Memos.

  2. The BUR Coordinator will provide the tax examiners instruction for the states that have declared disasters.

  3. Review FEMA website at http://www.fema.gov for special case handling requirements.

    Reminder:

    IDRS CC:TXMOD displays a disaster related Freeze Code (-S or -O) on impacted accounts.

  4. The taxpayer corresponds before the disaster start date and a Freeze Code -O is present on the account:

    If Then
    The response results in a closure (i.e., No Change, Fully Agreed or Partially Agreed)
    1. Input TC 29X.

    2. Close the case with the appropriate Process Code.

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    4. Annotate the DCI and case folder with the appropriate PC.

    The response does not result in a closure (i.e., recomputed notice or additional correspondence is needed)
    1. Update IDRS activity with 4XMRDSMMDD (X represents the phase). See Exhibit 4.119.4-7, Activity Codes/Category Codes and Exhibit 4.119.4-8, Definer Codes.

    2. Suspend the case until the Disaster date expires.

    3. Once the Disaster end date has passed continue normal processing.

  5. The taxpayer corresponds during the disaster time frame:

    If Then
    The response results in a closure (i.e., No Change, Fully Agreed, or Partially Agreed)

    Reminder:

    Do not assess the case by default until the disaster expiration date has passed. See IRM 4.119.4.4.3, Declared Disaster Areas, for additional information.

    1. Input TC 29X.

    2. Close the case with the appropriate Process Code.

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    4. Annotate the DCI and case folder with the appropriate PC.

    The response does not result in a closure. Correspond for additional information (CRX Letter or next notice) as appropriate.

    Exception:

    See (6) below if the response indicates that the taxpayer’s place of business or records was lost, destroyed or not accessible due to the disaster.

  6. If the case is identified as entitled to disaster relief (based on FEMA ZIP codes or through taxpayer self-identification) and a response indicates that the taxpayer's place of business or records was lost, destroyed or not accessible due to the disaster:

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

    3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    4. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    5. Annotate the DCI and case folder with the appropriate PC.

    Caution:

    IRS disaster relief memos usually grant special treatment to those taxpayers who self-identify; therefore, BUR does not always identify impacted taxpayers by ZIP code.

Installment Agreements
  1. If the taxpayer AGREES (contains signature and no disputing comments) to the proposed BUR adjustment and STATES they cannot pay, will pay later, or submits a specific request for an installment agreement (IA), a payment plan, or requests the additional tax due to be added to an existing installment agreement (IA) close the case agreed and:

    1. Route the IA request to Compliance Service Collection Operation (CSCO).

      Note:

      If the Form 433-D or Form 9465 is the signature document used to agree to the tax increase, make a copy to send to CSCO. Use red ink to annotate the copy of the Form 433-D or Form 9465 with "Pending BUR Assessment." Annotate the original Form 433-D or Form 9465 that a copy was sent to Collection.

    2. Leave BUR Case Note "IA to Coll" or similar wording.

    3. Issue a Letter 4551C to advise the taxpayer that their payment plan request has been referred to the proper area.

Letters From a Third Party and Authorization From a Valid Power of Attorney (POA)
  1. Information supplied by an unauthorized third party may be used. However, SEND NO TAX INFORMATION TO, OR DISCUSS TAX INFORMATION WITH, AN UNAUTHORIZED PERSON. Any further correspondence required must be sent directly to the taxpayer.

  2. The Third Party Designee (Check Box) authority on the tax return, does not apply to Compliance issues, including BUR. Therefore do not send copies of BUR correspondence to a Third Party Designee and do not disclose specific case or tax return information based on a Third Party Designee check box.

  3. In order to respond to the Service on behalf of a taxpayer, a person must be part of a specifically authorized category of representative as listed on Form 2848, Power of Attorney and Declaration of Representative, Part II. If an individual does not qualify under one of those designations, they cannot represent taxpayers before the IRS. See IRM 1.25.1, Practice Before the IRS, Rules Governing Practice Before the IRS, for additional information. .

  4. A taxpayer may authorize the Service to discuss and provide specific confidential tax return information to any individual, corporation, firm, trust, partnership, or organization designated on Form 8821, Tax Information Authorization, but this form does not authorize the person to respond to the Service on behalf of the taxpayer if the response constitutes practice before the Service.

  5. A document/letter request may be used in lieu of Form 2848 or Form 8821, provided it contains all of the information described below.

    Note:

    The taxpayer may give oral authorization to address issues with a third party.

  6. The Form 2848, Form 8821, or a document/letter in lieu of these two forms, a facsimile (FAX), or photocopy of these forms should contain relevant information requested of a signatory by a Form 2848 or Form 8821, including:

    • Name, EIN, and mailing address of the entity

    • Name and mailing address of the designated representative Power of Attorney (POA) or Tax Information Authorization (TIA)

      Caution:

      DO NOT SEND copies of notices or Correspondex letters to the designated representative when the box on Form 2848 Part I, section 2 or Form 8821 box 5a is not marked.

    • Type of tax and the Federal tax form number

    • Tax year(s) or period(s) or specific use (POA) or specific matter (TIA)

    • Authorized signature and date of signature

    • In the case of a Form 2848, a completed Declaration of Representative (Part II)

    Caution:

    If the POA/TIA is determined to be invalid, return it to the taxpayer unless there is an indication that Form 2848 or Form 8821 has been sent to CAF for evaluation. Include the invalid POA/TIA as an attachment to Letter 2627C.

  7. If the POA/TIA is attached to the return, and the POA contains all of the above items, fax the authorization to the CAF Function for further processing and write "Faxed to POA" on the form and leave it in the case folder.

  8. If the POA/TIA is received without a return or document, and contains all of the items shown above, fax it to the CAF Function and leave a Case Note.

  9. If a letter request is used in lieu of Form 2848 or Form 8821 and contains all of the items shown above, fax the request to the CAF Function for processing and Write "Faxed to POA" on the letter and leave it in the case folder.

  10. When a valid POA/TIA is received specifically for the BUR notice (i.e., checks the "Specific Use" box in Form 2848, Part I, section 4 or indicates that the representative is only authorized to discuss the BUR notices) Do not fax to the CAF Function.

  11. If the taxpayer or POA/TIA writes in and requests that a current POA be revoked and that no further information should be sent to this POA:

    1. Fax the POA revocation request to the CAF Function for processing.

    2. Ensure information is not sent to the revoked POA.

  12. When a POA/TIA request is included in the response that does not relate to the BUR case (i.e., for another taxpayer, another tax return type or different tax year, etc.) route (do not FAX) the form(s) to the CAF unit for processing. DO NOT leave a copy in the BUR case file.

Policy Statement P-21-3 (formerly P-6-12) Guidelines (Action 61)
  1. Policy Statement P-21-3 (formerly P-6-12) Guidelines (Action 61) are the result of a task force initiated to provide timely, quality responses to taxpayer correspondence. The general guidelines are:

    • A quality response is an accurate and professional communication which, based on information provided, resolves the taxpayer issues

    • Requests additional information from the taxpayer, or

    • Notifies the taxpayer we have requested information from outside the IRS

  2. A quality response is timely when initiated within 30 calendar days of the IRS Received Date.

  3. When a quality response cannot be issued timely, an interim response must be initiated by the 30th calendar day from the IRS Received Date. Issue a Letter 4314C.

  4. All interim letters should inform the taxpayer when a final response can be expected and provide a contact name and number for additional inquiries.

    Reminder:

    Screen taxpayer responses to BUR notices received after the BUR case is closed (BUR Reconsideration cases) to ensure cases are worked on a first in, first out basis. Control the case on IDRS with the IRS received date no later than 14-days from the BUR received date (and send an interim letter if the 30-day criteria outlined above cannot be met). See IRM 4.119.4.24, BUR Reconsideration Cases, for additional information.

  5. Subsequent interim letters must be issued when a final resolution cannot be provided as indicated in the previous interim letter.

Relief from Accuracy Related Penalties
  1. If the taxpayer’s response claims or cites substantial authority as the basis for tax treatment of an item, see IRM 4.119.4.16.3.1, Accuracy-Related Penalty Due to Substantial Understatement of Tax.

  2. Accuracy-related penalties will not apply to any portion of the understatement if the taxpayer demonstrates that there was reasonable cause for the understatement and the taxpayer acted in good faith. The most common reasonable cause issues for waiving the penalty (if they occurred at the time of filing) include:

    1. Death (taxpayer or individual responsible for filing and paying taxes).

    2. Serious illness (taxpayer or individual responsible for filing and paying taxes).

    3. Disaster (i.e., fire, flood, tornadoes, etc.).

    4. Unavoidable absence (taxpayer or individual responsible for filing and paying taxes).

    5. Inability to obtain records due to reasons beyond the taxpayer’s control.

      Note:

      See IRM 20.1.1, Penalty Handbook - Introduction and Penalty Relief, for more information regarding reasonable cause criteria in general.

      Note:

      See IRM 20.1.5, Penalty Handbook - Return Related Penalties, for exceptions to the Substantial Understatement Penalty.

  3. Depending on the facts and circumstances of each case, the tax examiner has the following choices:

    1. Denying the request for penalty relief on the entire or a portion of the understatement.

      Note:

      Per IRC 6751(b), written managerial approval is required at the time that the tax examiner determines to deny the taxpayer’s request for penalty relief. The signed approval must be included with the case file.

    2. Waiving the penalty in its entirety.

    Caution:

    If the substantial understatement or negligence disregard penalty can be waived, and a recomputed Letter 2030 is needed, see the Lead Tax Examiner for additional information.

  4. Advise the taxpayer of the status of their request to have the penalty waived:

    1. If the penalty is fully waived, include PARAGRAPH 78 on the revised Letter 2030.

    2. If the request is denied, include PARAGRAPH 79 when issuing a revised Letter 2030.

      Note:

      If the taxpayer agrees with the proposed tax increase and the penalty request is denied, issue Letter 4550C advising the taxpayer why the Accuracy – Related Penalty was not waived.

Sensitive Case
  1. Sensitive Case Reports (SCR) are used to notify Leadership of the existence of a case where a notice has been issued with a potential balance due that is likely to attract media or stakeholder attention.

  2. Generally, a sensitive case meets one or more of the following criteria:

    1. Likely to attract media or Congressional attention. See IRM 4.119.4.21.1.14.1, Congressional Cases, for additional information.

    2. Unique or novel issue - Is the case novel or unusual in some way? Does the case fall outside of the other criteria, but is worth elevating to ensure leadership is aware of potential negative impact or public interest? A case under these criteria should be accompanied by a brief explanation of why it is unique., ,

    3. Affects a large number of taxpayers.

  3. If the BUR case meets the sensitive case criteria, consult with the Lead Tax Examiner for determination and referral.

  4. Take the following action to determine if a SCR is needed:

    1. Review the proposed assessment for technical and mathematical accuracy.

    2. Analyze the taxpayer’s account to ensure all affected tax periods are processed appropriately.

    3. Verify the payer information is accurate.

    4. If the taxpayer provides an unacceptable response (or states they disagree without giving a reason) an attempt to resolve the issue(s) by telephone MUST be made. Document the contact, including if telephone contact could not be made.

    5. When the evaluation is completed, and it is determined that an SCR is needed, notify BUR Headquarters of the proposed action and any updates for review prior to distribution of the report to local management.

Congressional Cases
  1. A case is considered a Congressional if correspondence/inquiry is received on U.S. Congressional Letterhead or attached to U.S. Congressional Letterhead.

  2. If a Congressional case is discovered, immediately give the case to the BUR Taxpayer Advocate liaison for expedite handling.

    Note:

    Do not consider a case a Congressional if the taxpayer states they sent a copy of the BUR notice to a member of Congress or the White House, or contacted or is going to contact a member of Congress or the President, or threatens to do so if the case is not resolved.

  3. The case may require a Sensitive Case Report (SCR). See IRM 4.119.4.21.1.14, Sensitive Case, for additional information.

Large Dollar/Accounts Receivable Dollar Inventory (ARDI) Guidelines
  1. Due to the adverse impact on Accounts Receivable Dollar Inventory (ARDI), the Service must strive to minimize the volume of unresolved large dollar debit and credit modules/issues in the inventory. Therefore, in accordance with prevailing guidelines and in tandem with all other processing timeliness requirements (i.e., first in, first out, etc.), it is necessary to ensure that all modules/issues involving a balance of $100,000 (Form 1041), $1,000,000 (Form 1120) and over are expeditiously resolved.

  2. Most of the cases that meet the large dollar case criteria require special case processing.

  3. Cases identified that require special handling, the tax examiner will:

    1. Leave a case note stating that the large dollar issue has been transferred to the Lead Tax Examiner.

    2. Transfer the case to the Lead Tax Examiner who will refer to a locally designated ARDI Coordinator for specialized processing.

    3. Update IDRS activity with the applicable Activity Code. See Exhibit 4.119.4-7, Activity Codes/Category Codes.

    4. If necessary, issue an interim letter to the taxpayer. See IRM 4.119.4.21.1.12, Policy Statement P-21-3 (formerly P-6-12) Guidelines (Action 61), for additional information.

  4. The ARDI Coordinator will take the following actions:

    1. Review the proposed assessment for technical and mathematical accuracy.

    2. Analyze the taxpayer's account to ensure that all affected tax periods process appropriately.

    3. Verify that the payer information is accurate.

    4. If the taxpayer provides an unacceptable response (or states they disagree without giving a reason) an attempt to resolve the issue(s) by telephone MUST be made. Leave a case note to document the contact, including if telephone contact could not be made.

      Note:

      For fully agreed cases, contact the taxpayer if necessary.

    5. Leave a case note.

  5. When the case evaluation is completed, take the appropriate case action (i.e., input the assessment, revise the proposal and issue a Recomputed Notice, or close the case No Change) using standard processing procedures.

  6. If the case is being closed with an assessment of over $10 million dollars: photocopy the entire case contents, make prints of the IDRS CC:TXMOD, Information Returns, Case Notes and Letter 2030/Letter 2531 and send the copies/prints to the Chief Financial Office Staff at the following address:

    IRS

    CFO, Business Analysis & Support Section

    Stop S-2, 1035

    333 W Pershing Rd

    Kansas City MO 64108

    Reminder:

    Leave a case note indicating that the case information was sent to CFO.

Telephone Responses

  1. The purpose of the BUR toll-free telephones is to assist taxpayer's and/or their authorized representatives who call IRS regarding BUR initiated contacts.

    Note:

    Written documentation may be requested if unable to determine if the oral statement is valid.

    Caution:

    When these instructions refer to the taxpayer, the instruction also applies to the authorized representative who calls for the taxpayer. See IRM 4.119.4.21.2.2, Disclosure, for additional information regarding authorized representatives.

  2. Hearing-impaired callers may be speaking through a relay operator. The operator will announce they are calling as a relay operator on behalf of a taxpayer as soon as you answer. Perform disclosure verification as if talking directly to the taxpayer and continue with the conversation. Inform the caller of the following: You have placed this call with the assistance of a Relay Service Operator (RSO). We assume that in doing so, you have consented to the disclosure of your return information to the Relay Services Operator to the extent necessary to assist you with your question.

    Caution:

    If the customer does not give oral consent, apologize to the customer (through the RSO) for the inconvenience. Because of disclosure rules, we cannot provide the requested information through this connection without oral consent. These rules were established to protect the privacy of all taxpayers.

  3. Oral Statement Authority is acceptance of information provided verbally to resolve account inquiries. The Toll Free BUR tool will be used to determine situations that will allow the Telephone Assistor to take actions on cases.

    Note:

    An Oral Statement cannot be used to close a case fully agreed. A signature must be secured.

  4. The BUR CISCO telephone system has been updated to always advise the taxpayer that the telephone call does not extend the 90-day period in which they have to petition the Tax Court as specified in the Notice of Deficiency. The caller will always hear this announcement prior to speaking with an assistor. Should the taxpayer question this announcement, inform the taxpayer that this is a requirement and answer any other related questions.

  5. If taxpayer calls and indicates they wish to fax their response/agreement to the BUR issue, clearly document the date of contact and the taxpayer's intent to fax a signed consent. A faxed consent to assess additional tax (Letter 2030, Letter 4550C, Letter 3219B (Stat Notice) or Form 433–D) is acceptable if contact was made and the case history documents the date of contact.

Answering the Telephone
  1. The Toll Free BUR tool will be used to determine situations that will allow the Telephone Assistor to take closing actions on cases.

  2. The Restructuring and Reform Act of 1998 (RRA '98) requires that IRS employees use a unique identifier in written or verbal communications with taxpayers. The entire 10 digits of the Position Identification (PID) will be used as the EMPLOYEE IDENTIFICATION. When speaking with a taxpayer, ALWAYS identify yourself by title and last name or first and last name and PID. Be courteous, polite and professional.

  3. Important steps to provide quality telephone assistance include the following:

    1. Greet the taxpayer: Identify yourself, including employee identification (badge) number, and indicate a willingness to help.

    2. Respond to the taxpayer's opening statement: Actively listen to the caller; deal with the taxpayer's feelings, if appropriate, and, acknowledge the ability to help. If appropriate, apologize for any mistakes made by IRS.

    3. Target the taxpayer's questions: Listen to the taxpayer's opening statement; form and use confirming questions; gain agreement from the taxpayer; and determine any targeting required to better identify the taxpayer's issue.

    4. Get the necessary facts: Ask the right questions and use appropriate hold procedures. Do not keep the caller on hold for more than a few minutes without giving them an explanation and apology. If additional research time is or will be too lengthy, offer to return the call with the requested information.

    5. Provide assistance: Provide accurate and complete assistance and/or appropriately refer the taxpayer to another source, if required.

    6. Close the conversation: Verify the taxpayer's understanding and conclude the contact courteously.

  4. Telephone assistors are expected to handle account actions while the taxpayer is on the phone. Telephone actions should be taken in "Talk or Hold status." Wrap time is appropriate when:

    • The caller does not wish to stay on the line,

    • The case is complex requiring significant time to complete documentation or research, or

    • The taxpayer is abusive or is using inappropriate language and the phone assistor has to end the call

    Note:

    Muting a call is not appropriate when research is being conducted. The caller should be placed on hold unless the caller specifically requests not to be placed on hold.

  5. When a call is received from a taxpayer regarding his/her IDRS CC:TXMOD information, there is no obligation to determine if the taxpayer is using an unsecured platform such as a cell phone. However, if the tax examiner becomes aware that the taxpayer is using a cell phone (e.g., the taxpayer states he/she is calling from a cell phone, etc.), the tax examiner may advise the taxpayer of the disclosure risk of using the cell phone to discuss his/her account information.

Disclosure
  1. Disclosure is defined as making known to any person, in any manner, a return or return information.

  2. When responding to telephone inquiries, disclose no tax return information until you are sure the person making the inquiry is authorized to receive the information. Most calls to the BUR toll-free number are in response to BUR notices and are not considered high risk.

    Reminder:

    The Third Party Designee check is intended to facilitate the processing of tax returns and does not cover Compliance issues, including BUR. Do not disclose specific case or tax return information to a Third Party Designee.

  3. Telephone assistors must use the IAT Disclosure tool to complete disclosure. This is mandatory for all cases that require access to specific account information in order to resolve the caller’s issue(s).

  4. Using the IAT Disclosure tool, determine who the caller is by asking for their name and title. The following chart is a list of those who may be authorized to receive tax information.

    Reminder:

    Disclosure also requires that the caller give the entity name, EIN and address.

    Exception:

    The POA/TIA is not required to provide the taxpayer address.

    Form 1120 Corporation
    • President/CEO

    • Officer authorized to legally bind the corporation. The authority to bind means the ability to execute agreements that are binding and legally enforceable against corporation under state law

    • Employee who signed the return and retains authority

    • Power of Attorney

    • Reporting Agent File

    • Third Party Designee

    • Oral Disclosure Consent

    Form 1041 Estate or Trust
    • Administrator, executor or trustee or personal representative whose name is listed in the entity portion of Master file. For banks listed as a trustee or a fiduciary ("ABC Bank Trust," ) ensure the caller is a trust department employee not any bank employee/officer

    • Any heir at law, next of kin, or beneficiary who establishes material interests must submit their requests in writing

    • Power of Attorney authorized after death

    • Reporting Agent File

    • Third party designee

    • Oral Disclosure Consent

  5. If a person states he/she is the authorized representative, request the taxpayer's name and TIN. Use the IAT disclosure tool to determine if a POA or authorized third party was filed for that person to represent the taxpayer.

  6. If they state they can fax a POA, provide them with the appropriate fax number. When POA is received see IRM 4.119.4.21.1.11, Letters From a Third Party and Authorization From a Valid Power of Attorney (POA), for further processing.

    Reminder:

    When responding to telephone inquiries, disclose no tax return or account information until you are sure the person making the inquiry is authorized to discuss this information. Complete disclosure using IAT.

  7. If disclosure is not passed, there is no POA or authorized third party on file, taxpayer information such as tax figures or case information may be discussed ONLY with the taxpayer.

  8. ORAL DISCLOSURE CONSENT - Treasury Reg. 301.6103(c)-1(c) authorizes the IRS to accept verbal consents authorizing the disclosure of return information to third parties assisting taxpayers in resolving Federal tax matters.

    Note:

    Do not solicit verbal authorization from the taxpayer.

    1. If the taxpayer wishes to verbally authorize a third party to assist them with BUR related matters, ensure that they understand that this consent will allow BUR to continue discussion with the designated third party until the issue is resolved. Annotate the taxpayers verbal authorization of the designated third party to discuss BUR related matters, and record the BUR specific authorization using IDRS CC:ACTON.

    2. If the taxpayer indicates that they want the designee to act for the taxpayer in matters beyond BUR, ensure that the taxpayer understands that this consent will allow the IRS to continue discussion with the designated third party until this particular tax matter is resolved. If the taxpayer still wants the authorization, record the Oral Disclosure Consent on IDRS, using IDRS CC:ACTON to input History Items on each tax module (TXMOD) under consideration. See IRM 4.119.4.21.2.4, General Inquiries, for further actions relating to non-BUR inquiries.

Contact Recording
  1. Contact Recording is a telephone application/tool/system that records incoming toll free telephone contacts for the purpose of possible subsequent monitoring. When the taxpayer calls the BUR toll-free number, they are notified that their call may be recorded.

    1. If the taxpayer objects to being recorded, use the "Stop Recording" icon on your desktop to disable the contact recording feature.

    2. If the call is transferred, advise the caller that they will have to restate their request that they do not wish to be recorded.

    3. If the caller also asks to record the conversation, advise the caller that they may not record the call; however, they may request a copy of the call under the Freedom of Information Act (FOIA). This request must be in writing and contain the date, name, identification number of the employee, and the approximate time of the call. See IRM 21.1.3.17.1, Freedom of Information Act (FOIA), for FOIA recording requests.

General Inquiries
  1. If the call is a general inquiry or a request for information about:

    1. BMF Underreporter issue(s) that do not require accessing the taxpayer’s account (e.g., "Where do I mail or fax my response?" , etc.): respond to the issue(s).

    2. Account related issues (other than IMF-AUR) that do not pertain to the BUR case: provide the Customer Service number, 800-829-1040 for IMF and 800-829-4933 for BMF.

    3. IMF-AUR related, (i.e., CP2501, CP2000, CP 3219-A, etc.): transfer the call to IMF-AUR #1841 for English or #1842 for Spanish.

      Note:

      If the taxpayer does not want to be transferred or is calling outside the AUR operational hours (7:00 a.m. - 8:00 p.m. local time) provide the toll free number 800-829-8310.

    4. Tax forms: provide the toll-free number for forms, 800-829-3676, or provide the IRS web site address www.irs.gov.

    5. Tax transcripts: provide the toll-free number, 800-908-9946 for IMF and 800-829-4933 for BMF, or provide the IRS web site address, www.irs.gov.

    6. Balance Due (non - status 22): transfer call to Accounts Management #1089 for English or #1076 for Spanish.

    7. Combined Annual Wage Reporting (CAWR) employee wage information reported by employer, transfer call to Accounts Management #1089 for English or #1076 for Spanish.

    8. Balance Due (status 22): transfer call to Automated Collection System #1085 for English or #1076 for Spanish.

    9. Exam inquires (open TC 420 or -L Freeze): transfer call to Exam #1861 for English or #1862 for Spanish.

    10. Tax Law questions can be transferred to Accounts Management under certain conditions. See 2 below for additional information regarding when a tax law related question can be referred to Accounts Management.

    11. The "Source for Telephone Numbers" at http://gatekeeper.web.irs.gov/plList.asp provides a listing of telephone numbers most frequently requested by taxpayers (including National Taxpayer Advocate, federal Trade Commission (identity theft), Practitioner Priority Services (PPS), etc.).

      Reminder:

      When transferring a call always inform the caller that they are being transferred.

  2. Accounts Management only answers specific tax law questions during filing season. Use the chart below to determine actions to take when the call is related to Tax law.

    If And Then
    The call is during the filing season (January 15th - April 16th) - Transfer the caller to Accounts Management by pressing #3013 for English or #3014 for Spanish. If unable to transfer to #3013 or #3014, use #3011.

    Reminder:

    When transferring a call, always inform the caller that they are being transferred.

    The call is after the filing season (i.e., after April 16th) The call is related to the following topics:
    • Tax Exempt Government Entities (TEGE)

    • Special Services: Military or Civilian Combat, Federally Declared Disaster

    • Affordable Care Act (ACA)

    • International Tax Law (overseas calls only)

    Transfer the call to Accounts Management by pressing #3011.

    Reminder:

    When transferring a call, always inform the caller that they are being transferred.

    The call is after the filing season (i.e., after April 16th) The tax law question is other than those above. Inform the caller that you cannot provide assistance on that topic and refer them to www.irs.gov and recommend they select any of the following:
    1. "Help & Resources" tab on the home page. Options are listed on the left side of the page, or

    2. Interactive Tax Assistant: Enter "ITA" into the Search feature, or

    3. IRS Tax map - Enter "IRS Tax Map" into the Search feature for more detailed information.

  3. If a phone call is received asking for a change to the primary name line, advise the taxpayer the request must be made in writing. Advise the taxpayer to send the request to the BMF Entity function. If the entity is a corporation or an LLC, advise them to include a copy of the amendment to their Articles of Incorporation or Articles of Organization showing the entity's correct name.

    Exception:

    Changes to the taxpayer name line due to a spelling error should be made. However do not change the first four characters of the name line (i.e., the name control). See IRM 4.119.4.21.1.3, Address Changes, for further information.

Case Specific Inquiries
  1. If the taxpayer has questions/information relating to a BUR case that cannot be answered without further reviewing the account, access the taxpayer account on IDRS and the Letter repository to determine how to help them.

    Reminder:

    If the caller is inquiring about multiple tax years, be certain that he/she has proper authority for each tax year in question and is entitled to receive information on those periods.

  2. If the taxpayer calls and disagrees with the proposed change, refer to the consent page of the notice which provides complete information. Instruct the taxpayer to sign, date, and fax or return any information to resolve the issue. Document the contact.

  3. The Toll Free BUR tool will be used to determine situations that meet Oral Statement Authority to allow the Telephone Assistor to take actions on cases (based on the taxpayer’s oral statements).

    If Then
    The taxpayer’s account cannot be resolved based on the oral statement:
    1. Ask the taxpayer/representative to mail or FAX the information.

    2. Provide the general toll free e-FAX number to the caller.

    3. Document the call activity.

    The taxpayer’s account can be resolved based on the oral statement:
    1. Document the call activity and the action being taken.

    2. Request the case file from the Clerical Function.

    3. When the case file is received, complete case processing using the documented call activity as the taxpayer’s response.

  4. If the taxpayer asks for an extension see IRM 4.119.4.21.7.2, Extension Requests, for further instructions.

  5. If the taxpayer calls and agrees with the proposed changes, instruct the taxpayer to sign, date, and fax or return the consent to tax increase, or refer the taxpayer to the consent page of the notice which provides complete information. Tell the taxpayer they should send in payment to stop the accrual of interest and penalties.

  6. If the taxpayer requests the balance due amount, provide the Letter 2030 amount and advise that penalty and interest continue to accrue. If the taxpayer requests a specific payoff amount computed to certain date, use IDRS CC:INTST if the BUR assessment has posted or IDRS CC:COMPA on open BUR cases.

    Caution:

    If the account contains restricted interest, ensure that the payoff amount correctly accounts for the restricted items.

  7. If the taxpayer agrees but states they cannot pay or requests a payment plan, advise them to complete and submit Form 433-D, Installment Agreement, along with the signed consent to tax increase.

  8. If the taxpayer states they are making a payment other than electronically, provide check annotation information if needed.

    1. The BUR phone script provides check annotation information if the taxpayer selects the "Agree" path or chooses to speak with a tax examiner. The tax examiner is not required to address this subject unless the taxpayer asks a specific question.

    2. To respond to the taxpayer's specific question, refer them to the consent page of the notice or advise them to make the check or money order payable to the "United States Treasury" and include the TIN, Form type and tax year from the notice.

  9. If the taxpayer inquires about paying electronically:

    1. Advise the taxpayer to call 800-555-4477 to speak with a representative from the Electronic Federal Tax Payment System (EFTPS).

    2. Advise the taxpayer that the EFTPS representative will provide any additional information.

    3. Advise the taxpayer to sign and return the consent to tax page in order to complete action on their case.

  10. If the taxpayer states the balance due has already been paid AND the payment is displayed on IDRS CC:TXMOD,

    1. Document the call activity and the action being taken.

    2. Request the case from the Clerical Function.

    3. When the case file is received, close the case using "Agreed Response" criteria. See IRM 4.119.4.21.5, Agreed Responses, for additional information.

    Exception:

    A signature is required if full payment was received after the Letter 3219B, Statutory Notice of Deficiency, was issued.

  11. If the taxpayer states they have paid the balance due in full and now received a bill for additional interest, research IDRS CC:TXMOD to determine if a TC 276 has posted after the BUR adjustment. If a TC 276 has posted inform the taxpayer that per the paragraph titled Failure To Pay Penalty - IRC 6651(a) on their Letter 2030 an additional penalty (FTP) was assessed on their account. Payments received are applied in the following order:

    1. Tax.

    2. Penalties.

    3. Interest.

    Caution:

    If TC 276 is not present, and if appropriate, inform the caller that interest is compounded daily until the entire amount is paid, including penalties and interest.

  12. If the taxpayer states a payment was sent and the payment is NOT shown on IDRS, determine if it has been at least two weeks since the taxpayer mailed their payment or one week since the scheduled date of an authorized electronic payment:

    If Then
    The above time frame has not been met Ask the taxpayer to call back at that time
    The above time frame has been met and the taxpayer paid by check
    1. Research IDRS CC:TXMODA, CC:BMFOLI, CC:BMFOLP or CC:BMFOLT.

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

    3. If the payment cannot be located ask the taxpayer to send a copy of the front and back of the cancelled check.

    The above time frame has been met and the taxpayer paid electronically EFTPS
    1. Research IDRS CC:EFTPS with definer E and ask the taxpayer for the 15 digit confirmation code.

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

    3. If the payment cannot be located ask the taxpayer to send in a copy of the bank statement or other documentation that shows the withdrawal.

    Note:

    Advise the taxpayer to sign and return the consent to tax page in order to complete action on their case.

  13. If during the telephone call, it is determined the taxpayer is due a refund or expects a refund, inform the taxpayer the refund will be issued if they owe no other taxes or federal obligations.

  14. If during a phone call, IDRS research shows the taxpayer's account balance due status (i.e., 21 or 58) is the result of a BUR assessment and the taxpayer agrees to provide documentation to resolve/change the assessment, input IDRS CC:STAUP to prevent issuance of additional notices while the case is being worked.

    Exception:

    If the account is in Collection status 22 or 26, input TC 470 on IDRS. See Exhibit 4.119.4-13, Notice Delay Actions (Reconsiderations), for additional information.

    Note:

    Allow the STAUP to be effective for up to six cycles, unless the situation warrants a longer period.

  15. When the taxpayer requests a call back or is told the tax examiner will call them back, inform the taxpayer you will return the call after you receive the information. Transfer the case to suspense, hold for up to 5-days. If the information is not received within the 5-days continue normal processing. Document the time frame as part of the call activity.

  16. When returning the taxpayer's/representative's call and if it is necessary to leave a message on an answering machine or voice mail:

    1. Leave your name, phone number, indicate that you are calling from the IRS and the name of the person you are calling.

    2. DO NOT divulge previous contact with the taxpayer/representative unless it is verified that the number reached was the one given for contact purposes (i.e., the taxpayer identifies themselves in the greeting) AND that the taxpayer/representative is the only person with access to the voice mail or answering machine.

    3. DO NOT provide any information about the specific tax matters involved nor indicate exactly why you need to speak to the taxpayer/representative.

  17. Input/verify the taxpayer telephone number using the IAT Disclosure Tool or IDRS CC:TELEA/TELEC.

  18. If the taxpayer provides a new address, update address on IDRS. See IRM 4.119.4.21.1.3, Address Changes. The latest address displays on IDRS CC:ENMOD. This may not be the address that received a notice.

  19. Verify the representative’s telephone number using the IAT Disclosure Tool.

    1. If the representative provides a new telephone number and/or address, document the information as part of the call activity.

    2. Inform the representative to file an amended Form 2848 or Form 8821 to have telephone number and/or address information updated.

  20. Document any information the caller provides, even if they do not pass disclosure.

    Exception:

    It is not necessary to document phone calls on closed cases. Advise the taxpayer/representative to mail or Fax any additional information. Provide the general toll free e-fax number.

Out Calls
  1. During the response phase there may be times when calling the taxpayer will expedite the resolution of the case.

    Example:

    Taxpayer responds to notice but inadvertently omitted required information or signatures delaying the action on the case.

  2. Out calls also provide better topic and time control of a conversation.

  3. It may be beneficial to make an out call in lieu of sending the taxpayer a letter to resolve their account when the taxpayer has provided telephone contact information, and the information needed can be provided orally or by fax.

  4. There are times during the response phase when you must attempt to call the taxpayer to resolve the issue. Always document the attempt. You must attempt to call the taxpayer when the taxpayer:

    Reminder:

    Normal telephone procedures should be followed when making an out call. Input/verify the taxpayer telephone number using the IAT Disclosure Tool or IDRS CC:TELEA/TELEC.

    1. Requests an appeal of our findings. Tax examiners must attempt to resolve the issue(s) by phone prior to forwarding the appeals request. See IRM 4.119.4.21.1.6, Appeals, for additional information.

    2. Requests a phone call. Tax examiners must attempt a call even when the taxpayer provides a contact time which is outside the tax examiner's shift.

    3. Fully agrees - but is missing required signature(s).

  5. There are times during the response phase when you may attempt to call the taxpayer to resolve the issue. Always document the attempt. Attempt to call the taxpayer when the taxpayer:

    1. Submits full payment after the Letter 3219B, Statutory Notice of Deficiency, is issued, without the required signature(s).

      Note:

      If unable to reach the taxpayer by phone and you are requesting a missing signature for a case in Letter 3219B, Statutory Notice of Deficiency, phase where the suspense time frame has expired, do not issue a Letter 4550C. See IRM 4.119.4.21.11.2, Default Letter 3219B Statutory Notice of Deficiency, for additional information.

    2. Omits requested information or documentation.

      Note:

      If unable to reach the taxpayer by phone, issue a Letter 4550C to request the missing signature(s) and/or information.

  6. When an outgoing phone call is initiated, the taxpayer may be reluctant to provide their Taxpayer Identification Number (TIN). To ease any concerns that the taxpayer may have, provide the taxpayer with the last four digits of the TIN and request that the taxpayer verify the first five digits. After verification of the TIN, follow, IRM 4.119.4.21.2.2, Disclosure, and use IAT and the Toll Free BUR Script tool.

  7. If taxpayer is still reluctant to provide information, leave a detailed case note outlining the information that is needed from the taxpayer. Provide the taxpayer with the BUR toll free number. The taxpayer can then call the toll free number and the assistor can inform the taxpayer what is needed.

  8. Use the following guidelines when leaving messages that contain confidential information on answering machines/voice mail. These guidelines are consistent with prudent business practices and disclosure rules while still providing good customer service.

    1. While tax information generally may not be left on an answering machine or voice mail, there are exceptions. If the employee "reasonably believes" he or she has reached the taxpayer’s correct answering machine or voice mail, it is acceptable to leave the employee’s name, telephone number, any appropriate reference number for the inquiry, the fact that he or she works for the IRS (identifying the function of the calling employee is permissible) and the name of the person who should return the call. Additional information can be left on the recording if the taxpayer has given prior approval to leave such information on voice mail or the answering machine.

    2. "Reasonable belief" is supported by the greeting on the answering machine or voice mail refers to the taxpayer being contacted or the taxpayer has indicated that this is the telephone number where he or she may be reached directly.

    3. Document the taxpayer’s telephone number, his/her approval to call that number, and the taxpayer’s permission for IRS to leave information on the recording.

    4. If the employee does not have a reasonable belief he or she has reached the correct taxpayer, no tax or other confidential information should be disclosed on the message.

  9. When the out-going call results in the taxpayer agreeing to submit additional information (i.e., additional documentation, signed consent to additional tax, etc.), suspend activity on the case to allow the taxpayer time to reply.

    1. Document the call.

    2. Update IDRS activity with 4XPHMMDD (X represents the phase). See Exhibit 4.119.4-7, Activity Codes/Category Codes.

    3. Annotate the DCI with the phone call date and 4XPH (X represents the phase).

    4. Annotate the case folder with 4XPH (X represents the phase).

    5. Suspend the case file until the purge date.

    6. When the information is received, call the taxpayer if the taxpayer requested receipt confirmation.

Instructions Specific to Income/Issue Types

  1. The following instructions provide guidelines for working specific BUR issues. These instructions apply to processing responses to either Form 1120 or Form 1041 tax returns unless, otherwise stated.

  2. See IRM 4.119.4.4.1, Fraud Referral Program, for potential FRAUD referrals.

Aggregate Profit Or Loss On Contracts
  1. An adjustment is required when the taxpayer agrees that an amount was U/R or omitted and provides sufficient information to determine the taxable gain or loss.

  2. If the taxpayer does not provide sufficient information to determine taxable gain or loss, contact the taxpayer to obtain the information needed to make the adjustment using normal processing procedures.

  3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Form 6781, Form 8949, and/or Schedule D reporting Aggregate Profit or Loss on Contracts.

Agriculture Payments
  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ taxpayer statement that their agriculture payments ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ any of the following:

    1. Surface Mining Control and Reclamation Act of 1977 (Rural Abandoned Mine Program).

    2. Water Bank Act.

    3. Agricultural Credit Act of 1978, Title IV (Emergency Conservation Measures Program).

    4. Soil Conservation and Domestic Allotment Act (Agricultural Conservation Program).

    5. Soil Conservation and Domestic Policy Act, Section 16 (Great Plains Conservation Program).

    6. Cooperative Forestry Assistance Act of 1978, Section 4 (Forestry Incentives Program).

    7. Watershed Protection and Flood Prevention Act.

    8. Agricultural, Rural Development, and Related Agencies Appropriations Act (Experimental Rural Clean Water Program).

    9. The Agriculture payment is not subject to federal income tax per the provisions outlined in Rev. Rul. 69-289. The subsidy payment was made to a member of a federally recognized Native American tribe in connection with activity occurring on allotted or restricted lands and is not subject to taxation.

    10. Food Security Act of 1985, Federal Agriculture Improvement and Reform Act of 1996 and Farm Security and Rural Investment Act of 2002 (Wetlands Reserve Program, Conservation Reserve Program, Forest Land Enhancement Program).

    11. Federal Agricultural Improvement and Reform Act of 1996 (Environmental Quality Incentives Program, or Wildlife Habitat Incentive Program).

    12. Agricultural Risk Protection Act of 2000 (Soil and Water Conservation Assistance Program or Agricultural Management Assistance Program).

    13. Colorado River Basin Salinity Control Act.

Cancellation of Debt
  1. If the taxpayer responds with a completed Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Exception:

    If Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) box 1b (insolvency) is checked, see (3) below.

  2. Accept the explanation when the taxpayer states ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

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

    3. Issue a Letter 4550C if Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), is submitted without a statement listing assets and liabilities.

  4. If the taxpayer reduces the cancelled debt by interest forgiven (as shown on the IR), accept the revised amount. If the IR does not show Amount Type (IRPTR Literal) INT FORGVN, correspond and request the additional documentation.

  5. If the taxpayer's response indicates that the cancelled debt was for a foreclosure or repossession and:

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

    2. The cancelled debt was due to a non-recourse debt, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. A worksheet for Foreclosures and Repossessions (or a similar statement is included), ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    4. They are entitled to take any losses claimed ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    If not, issue Letter 4550C stating that losses are non-deductible. See IRM 4.119.4.7.4.1, Cancellation of Debt - Analysis, for further information.

  6. If the taxpayer states that the discharge of debt is from a Qualified Farm Debt or real property taxpayer indebtedness, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  7. Do not delete the issue if the taxpayer provides a statement from the creditor/collection agency stating the settlement was paid in full. Issue a Letter 4550C to inform the taxpayer the difference between the original debt and the settlement offer amount is considered taxable income.

Dividends
  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ when:

    • Dividend income is a nontaxable distribution

    • Income is from a CCF account

    • If an attachment states that the dividend income was received from a Domestic Corporation and was a licensee under the Small Business Investment Act

    • The income in question was earned on an IRA, Keogh (HR-10), SEP, SIMPLE Plan, pension plan or profit sharing plan (including a 401(k) plan) or 403(b) plan

  2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ when:

    • Taxpayer’s explanation states that dividends were from a mutual savings bank and was reported as interest and it can be identified

    • Form 1120 ONLY: Dividends qualified for a deduction under IRC 243 and IRC 245

  3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ when the Corporation indicates that a portion of the dividends qualify for a special deduction (e.g., Form 1120, Schedule C).

  4. The Form 1041 response may state that the taxpayer is entitled to qualifying dividends or additional qualifying dividends. The QUALIFIED DIVIDEND is the amount of ORDINARY DIVIDEND that is eligible for the capital gain rate. If the taxpayer did not claim qualifying dividend on the original return and now states they want the capital gain rate. Determine the revised tax using the Capital Gain tax rate.

Fishing
  1. Accept the taxpayer explanation that ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. If the income is NONEMP COM or FISH INC accept the response when it states the taxpayer is a fisherman and one of the following:

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Note:

      IRC 6050A requires the boat captain to issue a Form 1099-MISC when the crewman (sternman) sells his/her portion of the catch for CASH. However, the buyer also issues a Form 1099.

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

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

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

Form 1099-K Payment Card Transactions and Third Party Network Payments
  1. If the taxpayer’s response indicates that there is a duplicate reporting of Payment Card Transactions on both Form 1099-K and Form 1099-MISC, review the IRs.

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

  3. If Form 1099-K and Form 1099-MISC IRs with duplicate amounts are not present and the taxpayer provided sufficient information to identify the affected IRs, contact the payers of both the Form 1099-K and Form 1099-MISC income. See IRM 4.119.4.21.7.5, Third Party Contacts, for additional information.

  4. If Form 1099-K and Form 1099-MISC IRs with duplicate amounts are not present and the taxpayer did not provide sufficient information to identify the affected IRs, correspond with the taxpayer.

  5. Accept the taxpayer’s explanation and consider the Form 1099-K issue resolved when:

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

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

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

      Note:

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

  6. If the taxpayer’s response is an amended return, accept the amended return when:

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

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

  7. If the taxpayer’s response indicates that they are unable to determine the underreported portion on the Form 1099-K, take the following action:

    1. Correspond with the taxpayer and include the following Special Paragraph: "To assist you in determining the underreported portion of the Form 1099-K transactions, please review the separate statement provided to you by your card processors, as applicable, along with your books and records. Examples of allowable items that can be used to reduce the underreported amount include: sales tax, fees, cash back, etc. Please provide us with a statement detailing any additional deductions you are entitled to."

    2. Suspend the case.

    3. Update IDRS activity as appropriate.

    4. Annotate the DCI and case folder.

  8. If the taxpayer states that their tax return was examined for Form 1099-K related issue in a prior year (i.e., Exam audit or BMF Underreporter), research the prior year(s).

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

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

      Note:

      See IRM 4.119.4.21.4.1, Discrepancy Explained (No Change-Analysis), if the taxpayer states the same issue was addressed by BUR in a prior year.

    3. If there is no indication of a prior year examination, and the issue cannot be resolved based on the instruction above, confer with the Lead Tax Examiner to determine the next steps.

Grantor Trusts
  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ the taxpayer checks Grantor Trust box in Form 1041, Section A and:

    Note:

    In lieu of checking the box, the taxpayer writes Grantor Trust on the return or cites IRC 671-678.

    1. Reports no income or deductions. If the only entry is for the exemption on Form 1041, line 20 consider this the same as reporting no income/deductions.

    2. Taxpayer reports income and then distributes the entire amount on Form 1041, line 18 and includes related Schedule K-1’s.

  2. When the taxpayer indicates the Grantor Trust was a combination of taxable and non taxable income and difference is due to the distribution of income to the beneficiaries:

    If Then
    They also provide amended Schedule K-1(s) for all the U/R income
    1. Accept the explanation.

    2. Send Letter 4551C with the following special paragraph "Please advise the impacted beneficiaries to amend their tax return based on the amended Schedule K-1(s) you provided."

    3. Close the case with the applicable N/C Process Code.

    4. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    5. Annotate case folder and DCI with appropriate N/C Process Code and include NRC 10.

    If all the amended Schedule K-1(s) are not provided
    1. Send Letter 4550C requesting the amended Schedule K-1(s).

    2. Update IDRS activity with 4XLT (X represents the phase). See Exhibit 4.119.4-7, Activity Codes/Category Codes.

    3. Annotate DCI and case folder with 4XLT (X represents the phase).

    4. Suspend and monitor. If no activity at the end of suspense period, take next action.

  3. If the taxpayer response indicates they are changing the status of the trust to a Grantor Trust refer to the Lead Tax Examiner.

Interest
  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ when:

    • The taxpayer is an attorney and states that the interest earned on an escrow account was paid to the Bar Association

    • Series E bonds were converted to Series H bonds. Therefore, the interest is not taxable upon the conversion

    • They elected to report bond interest or discount on savings bonds each year as it accrued

      Note:

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

    • The taxpayer reported short-term OID/obligation each year as it accrued

      Note:

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

    • The income in question is from a municipal bond and is nontaxable

    • The income in question is accrued interest that was paid when the bond was purchased

    • A lesser amount of interest was reported because the obligation was a short term OID/obligation

    • Income is from a CCF account

    • The taxpayer reported a lesser amount of interest as they amortized the bond premium or acquisition premium. This treatment offsets the interest or OID includable as income

    • The income in question was earned on an IRA, Keogh (HR-10), SEP, SIMPLE Plan, pension plan or profit sharing plan (including a 401(k) plan) or 403(b) plan

Medical Payments Form 1120 ONLY
  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ when the taxpayer States that the income is due to a liability of adjustment for Medicare/Medicaid due to offsets, other allowances, etc. that reduce the gross receipts reported by the payer. Include the following Special Paragraph in the closing letter (or with the recomputed notice, if there are other unresolved issues) "Items of income and expenses must be separately stated in the appropriate section of the return and should not be netted."

    Example:

    Company X submitted Medicare claims of $1,000 for payment. The claims were processed and approved for payment, however there is a prior year amount due the program of $300. The $300 amount is offset against the $1,000 due the provider, and a payment of $700 is authorized. Since the provider received benefit of $1,000 ($700 in cash and $300 reduction of a liability) the amount of payment that is required to be reported to the IRS on Form 1099 is $1,000. They should offset the $300 as an expense.

Net Investment Income Tax (NIIT) Form 1041 ONLY
  1. Adjustments to the Net Investment Income Tax (NIIT) must be considered when the taxpayer’s response includes changes to investment income and/or deductions on Form 1041.

  2. Select the correct Income Discrepancy Amount Types when preparing a recomputed/revised Letter 2030.

  3. Use the "Miscellaneous" options available in the Letter 2030 dropdown menu in the "Your income and deductions" field, when the underreported issue is other than a specific Amount Type (e.g., Interest, Dividends, Rent, Capital Gains, etc.).

    1. Miscellaneous Adjustment: Select this option from the dropdown menu when revising non-investment income that is not included in the dropdown menu.

      Example:

      When an adjustment to Business Income/Loss (Form 1040, Schedule C) or Farm Income/Loss (Form 1040, Schedule F) is needed.

    2. Miscellaneous Investment Income Adjustment: Select this option from the dropdown menu when revising investment income that is not included in the dropdown menu.

      Example:

      When an adjustment to Supplemental Income/Loss (Form 1040, Schedule E), Ordinary Gain/Loss (Form 4797) or pensions/annuities on Form 1099R (with COD D) is needed.

    3. Miscellaneous Deductions: Select this option from the dropdown menu when revising deductions on Form 1041 , lines 10 through 20.

      Note:

      Each "miscellaneous" option can only be listed once on the notice.

      Note:

      Always include a Special Paragraph explaining the adjustment whenever any of these options are selected.

Partnership/Trust/S-Corporation Conduit Income
  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ when the taxpayer:

    1. States that the income or loss amount was netted against other reportable items of expense or deduction/depreciation. Verify that the income was fully reported prior to netting and accept the explanation. Send a closing letter with a Special Paragraph "Items of income and expenses must be separately stated in the appropriate section of the return and should not be netted."

      Example:

      Taxpayer netted the Amount Type SECTION 179 DEDUCTION and reported the difference.

    2. Does not agree with the amount of income or loss adjustment and provides a copy of the original or amended K-1 document for reconciliation.

    3. The distributive shares reported on the return were adjusted by Form 6198, At-Risk Limitations.

    4. The Partner, Beneficiary or Shareholder filed Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), or uses terminology such as: "inconsistent treatment" or "administrative adjustment request (AAR)."

    5. Cites IRC 751 or IRC 754, or states the Sch K-1 (1065) was an "entire disposition", or the taxpayer states that they disposed of their entire ownership in the partnership.

    6. The Sch K-1 (1065) information return was from a Publicly Traded Partnership (PTP).

    7. States that the discrepancy is due to the Partnership, S-Corp or Estate/Trust filing a fiscal year Schedule K-1.

    8. The Partner or Shareholder filed a Form 8082 AND indicates an election under Rev. Proc. 2003-79 to apply a ratable 4-year spread to the share of the income attributable to a change in the annual accounting period or uses similar terminology.

    9. The income was reported on Form 8582, Passive Activity Loss Limitations.

    10. The rent was reported on Form 8825, Rental Real Estate Income and Expenses of a Partnership or an S Corporation, Passive Activity Loss Limitations.

  2. If the taxpayer provides a corrected/amended Schedule K-1:

    And Then
    The response IS accompanied by a letter from the payer ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

    The response is NOT accompanied by a letter from the payer Research IDRS and or MeF to determine if the payer filed an amended return (i.e., amended Form 1120S, 1041, or 1065).
    1. If the amended return is present, accept the amended document.

    2. If the amended return is not present, send Letter 4552C to the payer. See IRM 4.119.4.21.7.5, Third Party Contacts, for additional information.

Qualified Education Payment Program (QTP) Distributions Form 1041 ONLY
  1. Accept the explanation when the taxpayer states:

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

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

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

Qualified Personal Service Corporation (QPSC) Tax Rate Form 1120 ONLY
  1. A Qualified Personal Service Corporation (QPSC) is a Corporation that satisfies the function test and the ownership test.

  2. A Corporation meets the function test if 95% or more of the time spent by employees is devoted to the performance of services in one or more of the following qualifying fields:

    • Health (including ambulance services)

    • Law

    • Engineering (including surveying and mapping)

    • Architecture

    • Accounting

    • Actuarial science

    • The performing arts (excluding athletes)

    • Consulting (providing advice or counseling services, including financial planners but not brokerage)

    • Veterinary (per Rev. Rul. 91–30, as modified by Rev. Rul. 92–65)

  3. A Corporation meets the ownership test if at least 95% of the corporation’s stock is directly or indirectly owned by its employees, retired employees, the estate of those persons, or any other person who acquired such stock by reason of the death of an employee or retired employee (but only for the 2-year period beginning on the date of the death of date of such individual).

  4. A taxpayer is identified as a QPSC by checking the qualified personal service corporation box on Form 1120, Schedule J, line 2.

    Note:

    QPSCs are taxed at a flat 35% rate.

    Note:

    When the taxpayer checks this box the tax return is flagged and the following codes are uploaded to Masterfile: ABLM CD 400 and CONTROL GRP CD 2.

  5. Due to Original Processing errors, it is possible that the taxpayer indicated that they are a QPSC but did not use the 35% tax rate to calculate their base tax. Validate that the proper tax rate is used.

  6. If the taxpayer disputes the application of the 35% QPSC tax rate, consider the following when evaluating their response:

    1. Is the corporation’s trade or business a service activity that is described in the list of qualifying items?

    2. Did the owners/employees own, directly or indirectly, at least 95% of the stock of the corporation?

    3. Was 95% or more of the time spent by employees engaged in the performance of services of the corporation in one or more qualifying fields?

    4. Is the principal business at least 95% of all business activity for the corporation?

    Note:

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

    Reminder:

    If in doubt, consult with the Lead Tax Examiner.

Real Estate Sales
  1. Revise the U/R when the taxpayer provides the necessary documentation of basis to compute the gain or loss.

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

  3. Accept the explanation when the taxpayer states the cost of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

Rent/Royalty Form 1041 ONLY
  1. Accept the taxpayer explanation when:

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

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

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

Securities Sales and Cost Basis
  1. If the taxpayer provides broker statements or other information (in lieu of a revised Form 8949), use the information to determine the revised underreported securities sales amount. Use the cost basis provided by the taxpayer to adjust any U/R securities sales amounts.

    Caution:

    Capital losses are not allowed on Form 1120. Limit any additional cost basis to reduce overall net capital gain income to zero.

    Note:

    If issuing a recomputed notice ensure PARAGRAPH 13 is not sent.

  2. If the taxpayer provides a revised Form 8949 and/or, Schedule D compare securities sales amounts with entries on:

    1. Form 8949, Part I, line 1, column d.

    2. Form 8949, Part II, line 1, column d.

    3. Schedule D, Part I, lines 1a - 3, column (d).

    4. Schedule D, Part II, lines 8a - 10, column (d).

    Note:

    Use the cost basis provided by the taxpayer to adjust any U/R securities sales amounts.

    Caution:

    Capital losses are not allowed on Form 1120. Limit any additional cost basis to reduce overall net capital gain income to zero.

    Note:

    If issuing a recomputed notice ensure PARAGRAPH 13 is not sent.

  3. Issue a recomputed notice for the revised U/R amount and include PARAGRAPH 38 (unless the response meets agree or partial agree criteria). See IRM 4.119.4.21.5, Agreed Responses or IRM 4.119.4.21.6, Partially Agreed Responses, for further instructions.

    Note:

    If an adjustment to the TXI ONLY is necessary, see IRM 4.119.4.21.6, Partially Agreed Responses, for further information.

  4. When the taxpayer disagrees with the U/R securities sales, accept the statement when:

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

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

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

Schedule D Changes Form 1041 ONLY
  1. When the taxpayer responds with a new or revised Form 1041, Schedule D, determine the amount of capital gain or loss allocable to the Estate of Trust.

    1. Review to determine that all of the U/R issues are addressed.

    2. Accept any offsets (i.e., additional cost basis offsetting PROCEEDS U/R amounts).

  2. If the new/revised Form 1041, Schedule D is an overall gain, the amount from line 19, column 3 is reported on Form 1041, line 4.

  3. If the new/revised Form 1041, Schedule D is an overall loss, the amount (limited to $3,000) from line 20 is reported on Form 1041, line 4.

    Note:

    If the total capital loss is more than the total capital gains, the capital loss is allowed as a deduction but only to the extent of the smaller of the net loss or $3,000. Any additional losses are carried forward to the subsequent year.

  4. Compare the new/revised Form 1041, Schedule D amount to the original. The difference is the amount of additional income (or allowable loss) that impacts the TXI.

  5. Issue a recomputed notice for the revised U/R amount (unless the response meets agree or partial agree criteria). See IRM 4.119.4.21.5, Agreed Responses or IRM 4.119.4.21.6, Partially Agreed Responses, for further instructions.

    Note:

    If an adjustment to the TXI ONLY is necessary, see IRM 4.119.4.21.6, Partially Agreed Responses, for further instructions.

  6. If the new/revised Form 1041, Schedule D qualifies the taxpayer to compute their tax using the maximum capital gains rates (i.e., Part V is completed), manually verify the accuracy of the computation.

  7. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ when the taxpayer identifies that the U/R gains from PROCEEDS, CAPTL GAIN, REAL ES SL or Schedule D NONEMP COM income can be reduced by current unused Schedule D losses and states any of the following:

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

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

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

      Caution:

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

Withholding Overclaimed (O/C)
  1. Schedules K-1 may contain backup withholding (BUWH). Accept the taxpayer’s response if it includes a copy of the following:

    1. Form 1041, Schedule K-1 contains an amount in box 13, with code "B" .

    2. Form 1065, Schedule K-1 contains an amount in box 15, with code "O" .

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

  2. If the taxpayer responds to a notice issued solely for O/C questionable W/H and provides the necessary documentation:

    1. Close the case No Change.

    2. Input TC 925 with the applicable N/C Process Code using IDRS CC:REQ77/FRM77.

    3. Annotate DCI and case folder with the appropriate PC.

  3. If the taxpayer responds to a notice issued for O/C questionable W/H, provides SOME or NONE of the necessary documentation≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. If the taxpayer responds to a Letter 2030 that includes O/C questionable W/H and does not provide the necessary documentation, or ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ :

    If Then
    O/C W/H was the only issue
    1. Assess the undocumented O/C W/H amount. See IRM 4.119.4.21.10, Adjustments, for further information.

    2. Issue Letter 2893C. Inform the taxpayer that we have disallowed the undocumented additional W/H, they will receive an adjustment notice and they may file an amended return when the necessary documentation is obtained.

    3. Close the case with PC 4680.

    4. Input TC 925 with PC 4680 using IDRS CC:REQ77/FRM77.

    5. Annotate PC 4680 on the DCI and case folder.

    The notice contains other issues and the tax increase is above tolerance
    1. Ensure that the AGREE criteria is met before inputting the assessment. See IRM 4.119.4.21.5, Agreed Responses, for further information.

    2. Continue processing if the AGREE criteria is not met.

    The notice contains other issues and the tax increase is below tolerance.
    1. Input the adjustment for the O/C W/H only.

    2. Issue Letter 2893C. Inform the taxpayer that we have disallowed the undocumented additional W/H, they will receive an adjustment notice and they may file an amended return when the necessary documentation is obtained.

    3. Close the case with PC 4680.

    4. Input TC 925 with PC 4680 using IDRS CC:REQ77/FRM77.

    5. Annotate PC 4680 on the DCI and case folder.

    Note:

    A Letter 3219B, Statutory Notice of Deficiency, cannot be issued when there is no tax increase (or the tax increase is below tolerance). The taxpayer has no appeal rights concerning withholding.

Withholding Underclaimed (U/C)
  1. If the taxpayer responds to a Letter 2531 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 Then
    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:

    Taxpayer signs the Letter 2531 and makes no indication of disagreement.

    Fails to address/verify the U/C W/H.
    1. Close the case with PC 4400.

    2. Issue Letter 4551C to inform the taxpayer that we have concluded our investigation and they may file an amended return if they have any additional information they want us to consider.

    3. Input TC 925 with PC 4400 using IDRS CC:REQ77/FRM77.

    4. Annotate PC 4400 on the DCI and case folder.

    Only addresses SOME of the U/C W/H.
    1. Input the adjustment for the additional documented/acknowledged W/H ONLY.

    2. See (2) below for further instructions. Issue Letter 2893 to explain the W/H adjustment allowed and instruct the taxpayer to file an amended return if they have any additional information they want us to consider.

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

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

    3. Annotate the DCI and case folder with the appropriate PC.

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

    Exception:

    If the taxpayer responds with an acceptable amended return or provides revised figures, pursue all issues.

    1. Input the adjustment for the U/C withholding amount only. See IRM 4.119.4.21.10, Adjustments, for further information.

    2. Issue Letter 2893C to advise the taxpayer of the changes.

    3. Close the case with PC 4470 (Letter 2531), PC 4680 (Letter 2030) or PC 4880 (Statutory Notice).

    4. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    5. Annotate the DCI and case folder with the appropriate PC.

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.

    Caution:

    Prior to closing the case, ensure there is no other outstanding tax related issue(s) (e.g., NIIT tax not correct on original return, incorrect tax rate, etc.). See IRM 4.119.4.21.6, Partially Agreed Responses, for further information.

  2. Use the following Process Codes to indicate that the case is being closed No Change and that we are accepting the tax return as originally filed:

    • PC 4400 when the response is to a Letter 2531

    • PC 4600 when the response is to a Letter 2030

    • PC 4810 when the response is to a Letter 3219B, Statutory Notice of Deficiency

    Note:

    Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

  3. A TC 290 for .00 is required for all No Change cases. See IRM 4.119.4.21.10, Adjustments, for further information.

    Reminder:

    After the input of the adjustment, close the IDRS control base.

  4. Always send the taxpayer Letter 4551C to acknowledge the receipt of the correspondence and that we are accepting the tax return as originally filed.

  5. Include a No Change Reason Code on the DCI when appropriate. See Exhibit 4.119.4-4, No Change Reason codes (NRC), for further information.

Discrepancy Explained (No Change) - Analysis
  1. Use the following examples of acceptable explanations as a guide for evaluating taxpayer responses. These examples are not all inclusive.

  2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ when the taxpayer states that the income or loss amount was netted against other reportable items of expense or deduction/depreciation≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    See IRM 4.119.4.21.3.6, Form 1099-K Payment Card Transaction and Third Party Network Payments, when the taxpayer is claiming additional expenses related to underreported Form 1099-K IRs.

    1. Issue Letter 4551C and include the following Special Paragraph "Items of income and expenses must be separately stated in the appropriate section of the return and should not be netted."

    2. Close the case with the appropriate N/C Process Code.

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    4. Annotate the case folder and DCI with the appropriate PC and include NRC 5.

    Note:

    See IRM 4.119.4.21.7, Responses Needing Further Actions, when the ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

  4. Accept the explanation when Form 1120 entity section shows "FDIC" or similar wording and/or cites IRC 7507a (Exception of insolvent banks from tax).

  5. The income in question is nontaxable, and information sources (the Internal Revenue Code, etc.) confirm the nontaxability. No NRC is needed.

  6. The same issue was addressed in a prior year and was correctly closed No Change. Use appropriate NRC based upon research completed.

  7. If the taxpayer replies that the U/R income belongs to another recipient and provides: the name and/or TIN of the recipient and supporting documentation (e.g., letter from payer, billing agreement/arrangement, etc.) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  8. The taxpayer disclaims knowledge of the income and any of the following conditions are present:

    And Then
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    1. Issue Letter 4551C.

    2. Close the case with the appropriate N/C Process Code.

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    4. Annotate the case folder and DCI with N/C Process Code and include NRC 9.

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    1. Issue Letter 4551C.

    2. Close the case with the appropriate N/C Process Code.

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    4. Annotate the case folder and DCI with N/C Process Code and include NRC 8.

    Master File shows an indication of a mixed entity situation.
    1. Issue Letter 4551C.

    2. Close the case with the appropriate N/C Process Code.

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    4. Annotate the case folder and DCI with N/C Process Code and include NRC 6.

    1. Note:

      If the above conditions do not apply see IRM 4.119.4.21.7.5, Third Party Contacts, for further instruction.

  9. The income is erroneous and information on the Payer Agent list confirms the taxpayer's statement:

    1. Issue Letter 4551C.

    2. Close the case with the appropriate N/C Process Code.

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    4. Annotate the case folder and DCI with N/C Process Code and include NRC 7.

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

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

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

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

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

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

    Note:

    Check the Payer Agent listing; if the information is not present, route a copy of the documentation provided by the taxpayer/payer to the BUR Payer Agent Coordinator.

  12. The amount(s) in question is (are) reported on the return, and after reviewing the return, all proposed U/R income is located.

    1. Send Letter 4551C including the following Special Paragraph: "To avoid receiving similar notices from the Internal Revenue Service in the future, please report the specific income type with their corresponding line on your tax return."

    2. Close the case with the appropriate N/C Process Code.

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    4. Annotate the case folder and DCI with N/C Process Code and include NRC 1.

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

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

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

  14. Accept the taxpayer's explanation when ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. Issue Letter 4551C.

    2. Close the case with the appropriate N/C Process Code.

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    4. Annotate the case folder and DCI with N/C Process Code and include NRC 8.

  15. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ of U/R foreign income for: currency rates fluctuation-Income partially reported on the return and the taxpayer states that different currency rates caused the difference in the income.

    1. Issue Letter 4551C.

    2. Close the case with the appropriate N/C Process Code.

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    4. Annotate the case folder and DCI with N/C Process Code and include NRC 8.

Agreed Responses

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

    Note:

    If the only disputing comments are concerning interest, treat as an agreed response. The taxpayer does not have to consent to the assessment of interest as this is a statutory adjustment. Issue Letter 4551C to inform the taxpayer. See IRM 4.119.4.21.1.2, Abatement of Interest.

    1. Be full paid and posted to account, prior to issuance of the Letter 3219B, Statutory Notice of Deficiency, for tax and all penalties, except the following: ES Penalty, 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.

      Note:

      If full payment has refunded see IRM 4.119.4.4.10, Erroneous Refunds, for additional information.

      Note:

      If payment has unposted refer case to Lead Tax Examiner.

      Caution:

      Full payment received after issuance of the Letter 3219B, Statutory Notice of Deficiency, cannot be accepted as agreement to the tax increase. Attempt to contact the taxpayer by phone to request missing signature(s). See IRM 4.119.4.21.2.6, Out Calls.

    2. Be a signed Form 433-D, Installment Agreement, or Form 9465, Installment Agreement Request, attached to a notice with no taxpayer comments. See IRM 4.119.4.21.1.10, Installment Agreements, for further instruction.

    3. Contain signature on a Letter 2030 with no disputing comments.

      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.

    4. A signature on a Letter 2531does not meet agreed criteria for assessment of tax/penalties unless the taxpayer provides a computation of tax and penalty (if applicable).

  2. The signature of a third party is acceptable if a Power of Attorney has been filed authorizing the third party to sign.

  3. If a Form 1120 case has a proposed adjustment of $1,000,000 (or more) or a Form 1041 case has a proposed adjustment of $100,000 (or more), do not close the case with an agreed Process Code, even if the taxpayer has fully agreed. The case requires special handling. See IRM 4.119.4.21.1.15 , Large Dollar/Accounts Receivable Dollar Inventory (ARDI) Guidelines, for additional information.

  4. If the taxpayer agrees and indicates they would like to talk to someone:

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

    2. Take the appropriate action.

  5. If the taxpayer requests that the subsequent year's refund be applied to the deficiency:

    1. Close the case agreed.

    2. Issue Letter 4551C informing them that there may not be enough time to deduct the liability from this year's refund.

  6. If the taxpayer does not request an Installment Agreement, but indicates that they can pay the balance due within 120-days, forward the extension to pay to Collection for processing.

    1. Close the case agreed.

    2. Issue a Letter 4551C with the following Special paragraph "We referred your request for an extension to pay to the appropriate office."

    3. Leave a case note stating "Extension to Pay to Coll" or similar verbiage.

  7. Input assessments on all agreed responses from BT 510, 511, 710 or 711 within 30-days of the IRS received date. See IRM 4.119.4.21.10, Adjustments, for more information.

    Reminder:

    After the input of the adjustment, close the IDRS control base.

  8. Close the case with the applicable Agreed Process Code 4470, (Letter 2531 phase), 4670 (Letter 2030 phase), or 4870 (Stat phase). Annotate the DCI and case folder.

    1. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    2. Annotate the case folder and DCI with the appropriate PC.

Partially Agreed Responses

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

    Note:

    An amended return can be considered a partially agreed response.

    Note:

    Written managerial approval is required when the accuracy related penalty applies. See IRM 4.119.4.16, Penalties and Interest, for additional information.

  2. TCO approval is required when the taxpayer response includes additional expenses, deductions and/or allowances ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Refer these cases to the Lead Tax Examiner for additional review.

    Exception:

    TCO approval is ALWAYS required when the originally filed return was for zero income and the taxpayer is now claiming more income than the U/R.

    Note:

    See IRM 4.119.4.21.3.16, Securities Sales and Cost Basis, when the taxpayer is claiming additional Cost Basis.

    Note:

    See IRM 4.119.4.21.3.6, Form 1099-K Payment Card Transactions and Third Party Network Payments, when the taxpayer is claiming additional expenses related to underreported Form 1099-K IRs.

    Caution:

    Taxpayers may use an amended return to further support their explanation of how income was treated on the originally filed return (ex: netting, nominee recipient, income on another return, reported in a different tax year, etc.). Follow the instruction in the applicable IRM section when the taxpayer's explanation addresses these issues BEFORE considering a TCO referral.

  3. If the taxpayer responds to a Form 1041 notice, agreeing to the U/R income and allocating it to the beneficiaries:

    If Then
    They also provide amended Schedule K-1(s) for all the U/R income.
    1. Accept the explanation.

    2. Send Letter 4551C with the following special paragraph "Please advise the impacted beneficiaries to amend their tax return based on the amended Schedule K-1(s) you provided."

    3. Close the case with the applicable N/C Process Code.

    4. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    5. Annotate case folder and DCI with appropriate N/C Process Code and include NRC 10.

    If all the amended Schedule K-1(s) are not provided.
    1. Send Letter 4550C requesting the amended Schedule K-1(s).

    2. Update IDRS activity with the applicable Activity Code. See Exhibit 4.119.4-7, Activity Codes/Category Codes.

    3. Annotate DCI and case folder with appropriate IPC.

    4. Suspend and monitor. If no activity at the end of the suspense period, take the next action.

  4. When the response includes a calculation of the new tax liability, ALWAYS verify the correct tax figures.

  5. If the taxpayer's calculation of new tax matches the verified revised tax figures:

    If Then
    The "agree criteria" is met. See IRM 4.119.4.21.5, Agreed Responses, for additional information

    Reminder:

    Taxpayer must also agree to any remaining applicable penalties: (e.g., Accuracy Related penalty).

    1. Process the assessment based on the recomputed tax figures. See IRM 4.119.4.21.10, Adjustments, for additional information.

    2. Close the case using Process Code 4470 (Letter 2531 phase), 4675 (Letter 2030 phase) or 4875 (Stat Notice phase).

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    4. Annotate the DCI and case folder with the appropriate PC.

    The "agree criteria" is not met.
    1. Issue a recomputed Letter 2030 using PC 4520 (Letter 2030 after Letter 2531 phase), 4530 (Letter 2030 phase) or 4750 (Stat Notice phase).

    2. Update IDRS Activity Code as appropriate. See Exhibit 4.119.4-7, Activity Codes/Category Codes, for additional information.

    3. Input TC 925 with the applicable Process Code using IDRS CC: REQ77/FRM77.

    4. Annotate the DCI and case folder with the appropriate PC.

  6. If the taxpayer's calculation of the new tax does not match the revised tax figures, take the following action:

    If Then
    The taxpayer’s revised tax figures are ≡ ≡ ≡ ≡ ≡ of the verified revised tax calculation and the "agree criteria" is met. See IRM 4.119.4.21.5, Agreed Responses, for additional information

    Reminder:

    Taxpayer must also agree to any remaining applicable penalties (e.g., Accuracy Related penalty).

    1. Process the assessment using the taxpayer's figures as the new tax liability. See IRM 4.119.4.21.10, Adjustments, for additional information.

    2. Close the case using Process Code 4470 (Letter 2531 phase), 4675 (Letter 2030 phase) or 4875 (Stat Notice phase).

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    4. Annotate the DCI and case folder with the appropriate PC.

    The taxpayer’s revised tax figures are ≡ ≡ ≡ ≡ ≡ of the verified revised tax calculation and the "agree criteria" is not met.
    1. Issue a recomputed Letter 2030 with the taxpayer's figures using Process Code 4520 (Letter 2030 after Letter 2531 phase). 4530 (Letter 2030 phase) or 4750 (Stat Notice phase).

    2. Update IDRS Activity Code as appropriate. See Exhibit 4.119.4-7, Activity Codes/Category Codes, for additional information.

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    4. Annotate the DCI and case folder with the appropriate PC.

    The taxpayer's revised tax figures are ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ of the verified revised tax calculation.
    1. Issue a recomputed Letter 2030 with the corrected figures using Process Code 4520 (Letter 2030 after Letter 2531 phase), 4530 (Letter 2030 phase) or 4750 (Stat Notice phase).

    2. If necessary, include an explanation paragraph regarding the difference in the calculation.

    3. Update IDRS Activity Code as appropriate. See Exhibit 4.119.4-7, Activity Code/Category Codes, for additional information.

    4. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    5. Annotate the DCI and case folder with the appropriate PC.

    The verified revised tax calculation is LESS THAN the taxpayer’s calculation and the "agree criteria" is met. See IRM 4.119.4.21.5, Agreed Responses, for additional information

    Reminder:

    Taxpayer must also agree to any remaining applicable penalties (e.g., Accuracy Related penalty).

    1. Process the assessment based on the verified revised tax calculation. See IRM 4.119.4.21.10, Adjustments, for additional information.

    2. Issue Letter 4551C advising the taxpayer of the adjustment.

    3. Close the case using Process Code 4470 (Letter 2531 phase), 4675 (Letter 2030 phase) or 4875 (Stat Notice phase).

    4. Input TC 925 with applicable Process Code using IDRS CC:REQ77/FRM77.

    5. Annotate the DCI and case folder with the appropriate PC.

    The verified revised tax calculation is LESS THAN the taxpayer's calculation and the "agree criteria" is not met.
    1. Issue a recomputed notice with the corrected figures using Process Code 4520 (Letter 2030 after Letter 2531 phase), 4530 (Letter 2030 phase) or 4750 (Stat Notice phase).

    2. If necessary, include an explanation paragraph regarding the difference in tax calculation.

    3. Update IDRS Activity Code as appropriate. See Exhibit 4.119.4-7, Activity Codes/Category Codes, for additional information.

    4. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    5. Annotate the DCI and case folder with the appropriate PC.

  7. If the taxpayer's acceptable response results in no tax deficiencies (i.e., tax decrease), with or without a signed consent, take the following action:

    1. Input the adjustment on IDRS. See IRM 4.119.4.21.10, Adjustments, for additional information.

    2. Issue Letter 4551C advising the taxpayer of the adjustment and that they can expect a refund if they don’t owe any outstanding tax liabilities.

    3. Update IDRS Activity Code as appropriate. See Exhibit 4.119.4-7, Activity Codes/Category Codes, for additional information.

    4. Close the case using Process Code 4675 (Letter 2030 phase) or 4875 (Stat Notice phase).

    5. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    6. Annotate the DCI and case folder with the appropriate PC.

  8. If the recomputed net tax change (deficiency) is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and the taxpayer has not signed a consent to tax increase nor fully paid with no disputing comments, recompute the tax and issue a revised Letter 2030 (for taxpayer’s signature), even if the overall balance due ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . See IRM 4.119.4.21.6.1, Recomputed Notice/Supplemental Report, for additional information.

    Example:

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

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

    If Then
    An adjustment to prepayment credits and/or Total Income is NOT necessary.
    1. Close the case using PC 4400 (Letter 2531 phase), PC 4600 (Letter 2030 phase) or PC 4810 (Stat Notice phase).

    2. Issue Letter 4551C.

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    4. Annotate the DCI and case folder with appropriate PC.

    An adjustment to prepayment credits IS necessary.
    1. Close the case using PC 4470 (Letter 2531 phase), PC 4680 (Letter 2030 phase) or PC 4880 (Stat Notice phase).

    2. Send Letter 4551C include an explanation regarding the prepayments adjustment.

    3. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    4. Annotate the DCI and case folder with the appropriate PC.

    An adjustment to TXI ONLY is necessary and the tax change is zero (for example: the taxpayer agrees to unreported income and they have a negative TXI that remains negative).
    1. Input the TXI adjustment on IDRS. See IRM 4.119.4.21.10, Adjustments, for additional information.

    2. Close the case using with PC: 4420 (Letter 2531 phase), 4610 (Letter 2030 phase) or 4820 (Stat Notice phase).

    3. Send Letter 4551C to advise the taxpayer of the adjustment to TXI.

    4. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    5. Annotate the case folder and DCI with the appropriate PC and include NRC 10.

    Reminder:

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

  10. If the recomputed net tax change is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and the taxpayer or authorized representative acknowledges the existence of a remaining balance due/refund (e.g., submits a payment, a signed amended return or requests a "bill" or "notice" ) and;

    Note:

    If payment has refunded see IRM 4.119.4.4.10, Erroneous Refunds, for additional information.

    Note:

    If payment has unposted, refer to Lead Tax Examiner.

    If Then
    The recomputation is equal to or less than the payment amount (or the taxpayer did not submit a payment).
    1. Input the applicable changes on IDRS. See IRM 4.119.4.21.10, Adjustments, for additional information.

    2. Send Letter 4551C to advise the taxpayer of the adjustment.

    3. Close the case with the applicable PC.

    4. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    5. Annotate the DCI and case folder with appropriate PC.

    Exception:

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

    The recomputation is more than the payment amount.
    1. Consider the payment amount as the tax change and update IDRS accordingly See IRM 4.119.4.21.10, Adjustments, for additional information.

    2. Send Letter 4551C to advise the taxpayer of the adjustment.

    3. Close the case with the applicable PC.

    4. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

    5. Annotate the DCI and case folder with the appropriate PC.

    Exception:

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

  11. If there is a recomputed refund less than $1 and the taxpayer 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, Adjustments Guidelines.

  12. Whenever processing the assessment on a partially agreed response, issue closing Letter 4551C, acknowledging the taxpayer response. Advise the taxpayer of the adjustment and close the IDRS control base.

    Note:

    All case closures require a TC 29X (including a TC 290 .00 when closing the case No Change). See IRM 4.119.4.21.10, Adjustments, for additional information.

Recomputed Notice/Supplemental Report
  1. Rework the case and take the appropriate actions to:

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

    • Correct an erroneous Letter 2030 or Letter 3219B, Statutory Notice of Deficiency

    • Obtain the taxpayer's signature, if the taxpayer agreed to the notice but failed to sign (a letter may also be sent for this purpose)

  2. When a condition exists that requires a Recomputed Notice:

    1. There are two Recompute Letter 2030 and two Recompute After STAT Letter 2030 Master Letter templates based on tax return type. Use the appropriate version for the desired Letter Mailout date.

    2. Complete the template.

      Reminder:

      Refer any cases requiring a recalculation of: Schedule O, Schedule PH or Form 4626 to the Lead Tax Examiner.

      Reminder:

      Use the "FTF calculator tool" to calculate additional FTF penalty. However, if a TC 276 or TC 270 is posted on the account and a FTF penalty applies a manual calculation is required.

    3. On a case by case basis, include any additional explanation paragraph(s) that will assist the taxpayer to understand the underreported issue(s).

      Note:

      Written managerial approval is required when the accuracy related penalty applies. See IRM 4.119.4.16, Penalties and Interest, for additional information.

    4. When the taxpayer submits a payment subsequent to the initial contact notice, include PARAGRAPH 102.

      Note:

      When the taxpayer's response indicates a payment was made, research IDRS for payments previously made.

    5. Edit IRPTRW print IR's to only show the discrepant amount type on the IR using the advanced editing tool when creating the notice.

    6. Amount types that were not part of the IRPTRW print sent with the original Letter 2030 can be included on the Recomputed Notice for clarification.

      Reminder:

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

    7. See IRM 4.119.4.18.2, Letter 2030 Preparation, for additional instruction regarding all steps necessary to create and mail a recomputed Letter 2030 (including all enclosures).

    8. Input TC 925 with the applicable Process Code PC 4520 (Letter 2030 after Letter 2531), PC 4530 (recomputed Letter 2030) or PC 4750 (recomputed Letter 2030 after Stat Notice) using IDRS CC:REQ77/FRM77.

    9. Update IDRS Activity Code as appropriate. See Exhibit 4.119.4-7, Activity Codes/Category Codes, for additional information.

    10. Annotate the DCI and case folder with the appropriate PC.

  3. If a decrease to the tax deficiency is necessary after the Letter 3219B, Statutory Notice of Deficiency was mailed and:

    If Then
    There is sufficient time left on the Statutory Notice suspense period
    1. Issue the recomputed Letter 2030 for the lower deficiency amount using PC 4750.

    2. Update the IDRS Activity Code. See Exhibit 4.119.4-7, Activity Codes/Category Codes, for additional information.

    3. Input TC 925 with PC 4750 using IDRS CC:REQ77/FRM77.

    4. Update the DCI and case folder with Process Code 4750.

      Caution:

      A recomputed notice sent after the Letter 3219B has been issued cannot have a deficiency greater than the original deficiency amount.

    There is insufficient time remaining on the Statutory Notice suspense period
    1. Suspend the case until the statutory period has expired.

    2. Assess for the revised amount. See IRM 4.119.4.21.10, Adjustments, for additional information.

    3. Send Letter 4551C. Include an explanation advising the taxpayer of the revised figures.

    4. Close the case with Process Code 4840.

    5. Input TC 925 with PC 4840 using IDRS CC:REQ77/FRM77.

    6. Annotate PC 4840 on the DCI and case folder.

  4. The Clerical Function suspends the recomputed Letter 2030 for 60-days (90-days for foreign or APO/FPO address).

    Exception:

    Recomputed notices issued after a Letter 3219B are suspended back to the original Statutory Notice date. The taxpayer is allowed 90-days (150-days if the notice is addressed to a person outside the U.S.) to petition the Tax Court. The taxpayer cannot receive an extension of this statutory period.

Responses Needing Further Action

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

    • Correspondence with the taxpayer via a letter or Recomputed Notice

    • Correspondence with a payer

    • Research

    • Referral

    • Routing of information, including non-IRP related inquiries

    • Address updates

    • Extension of the Letter 2030 suspense period

    • Telephone contact

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

    • A response indicates the taxpayer does not understand the notice

    • The taxpayer requests further information regarding taxability

    • Further contact will help resolve the U/R issue

      Note:

      Document any telephone contacts.

      Caution:

      When making an outgoing call, you must ensure that you are speaking to an authorized individual. See IRM 4.119.4.21.2.2, Disclosure and IRM 4.119.4.21.2.6, Out Calls, for further information.

  3. Form 1120 Only: TCO approval is required when the taxpayer response states that the income or loss amount was netted against other reportable items of expense or deduction/depreciation ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Refer these cases to the Lead Tax Examiner for additional review.

    Note:

    See IRM 4.119.4.21.3.6, Form 1099-K Payment Card Transactions and Third Party Network Payments, when the taxpayer is claiming additional expenses related to underreported Form 1099-K IRs.

  4. If the taxpayer requests a copy of the tax return for the open BUR tax year, send a photocopy of the return to the taxpayer at no charge.

  5. If the taxpayer requests an explanation for the amount of time it took the IRS to notify them of the unreported income, issue a Letter 4550C. If issuing a recomputed notice, include PARAGRAPH 105.

  6. If the taxpayer states U/R income was reported on the tax return:

    1. Review the return and IDRS for applicable adjustments.

    2. The response may indicate that the U/R income is reported on another line of the tax return. As part of the review, consider IRs previously considered reported before determining that the U/R is resolved.

      Example:

      The taxpayer states that U/R Dividends were reported as Interest. Consider both Interest and Dividend IRs amounts when comparing to the tax return amount.

    3. Based on the review of the return, take the following actions:

      If Then
      If the U/R income cannot be found
      1. Send Letter 4550C.

      2. Include the following Special Paragraph "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 located."

      3. Update IDRS activity with 4XLTMMDD (X represents the phase). See Exhibit 4.119.4-7, Activity Codes/Category Codes.

      4. Annotate the DCI and case folder with 4XLT (X represents the phase).

      If the U/R income is found reported on an incorrect line and is completely accounted for
      1. Consider the issue resolved.

      2. Close the case with the applicable No Change Process Code.

      3. Send Letter 4551C including the following Special Paragraph: "To avoid receiving similar notices from the Internal Revenue Service in the future, please report the specific income type with their corresponding line on your tax return."

      4. Input TC 925 with the applicable Process Code using IDRS CC:REQ77/FRM77.

      5. Annotate the case folder and DCI with the appropriate PC and include NRC 1.

      If the U/R income is found reported on an incorrect line, but there is still an underreporter issue Pursue the outstanding underreported income issue(s). See IRM 4.119.4.21.6.1, Recomputed Notice/Supplemental Report, for further instruction.
  7. If a non-BUR related inquiry is included with the response:

    1. Photocopy the inquiry and route to the appropriate function. Include the Business name, address, TIN, and the Received Date.

    2. Send an acknowledgment letter to the taxpayer.

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

  9. If the taxpayer requests a copy of a 1099 series, Schedule K-1 or other payer documents, advise them to request a duplicate copy from the payer. If issuing a recomputed notice, include PARAGRAPH 106. Whenever possible, provide the taxpayer with the payer's name and address.

    Note:

    If the taxpayer states the income was not reported because they did not receive an income document, and a recomputed notice is being issued, include PARAGRAPH 103. If issuing a Correspondex Letter, ensure the letter includes wording similar to PARAGRAPH 103.

  10. If the U/R issue is resolved, but the taxpayer states that another amount was not claimed, underclaimed, or overstated on the original return, and the taxpayer provides sufficient information, make the adjustment. Use good judgment in determining if the taxpayer is entitled to this adjustment. If questionable issues are involved discuss with the Lead Tax Examiner.

  11. If the taxpayer replies that the U/R income belongs to another recipient and does not provide the name and/or TIN of the recipient and supporting documentation (e.g., letter from payer, billing agreement/arrangement, etc.):

    1. Accept the taxpayer's explanation if the U/R income in question ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , send a Letter 4550C to request the name and TIN of the recipient responsible for the income and supporting documentation.

    3. If the taxpayer responds to the Letter 4550C and provides the name or the TIN of the other recipient AND the supporting documentation, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    4. If the taxpayer responds to the Letter 4550C and does not provide the name or the TIN of the other recipient AND supporting documentation, contact the payer. See IRM 4.119.4.21.7.5, Third Party Contacts, for additional information.

  12. If the taxpayer indicates they received Form 1099 for amounts that belong to another entity/person because they acted as an intermediary, agent, or broker for that entity/person, see IRM 4.119.4.21.7.6, Nominee Income, for further instructions.

  13. If the taxpayer provides a corrected/amended Form 1099:

    And Then
    The response IS accompanied by a letter from the payer ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

    The response is NOT accompanied by a letter from the payer See IRM 4.119.4.21.7.5, Third Party Contacts, for additional information.
  14. If the taxpayer provides a corrected/amended Schedule K-1, see IRM 4.119.4.21.3.11, Partnership/Trust/S-Corporation Conduit Income, for additional information.

  15. If the taxpayer states that the U/R income was reported in another tax year, see IRM 4.119.4.21.7.9, Income Reported in a Different Tax Year, for further instructions.

  16. If the taxpayer replies that a payment was submitted, but there is no indication on the IDRS that the payment was received and at least three weeks have passed since the IRS Received Date:

    1. Research the payment on IDRS. The payment may show as 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 4550C to request a copy of the front and back of the canceled check.

    4. When the Taxpayer 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 Transaction Code, the MFT Code, the TIN, the Tax Period and the Posting Date.

    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.

  17. If the taxpayer replies that they submitted a payment electronically, but there is no indication on IDRS that the payment was received and at least 10-days have passed since the payment was made, research using IDRS CC:EFTPS:

    1. Use Definer T if the taxpayer provides payment date and payment amount or

    2. Use Definer E if the taxpayer provides the 15 digit EFT trace number.

    3. If the 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.

    4. Always research the account thoroughly including previous and subsequent tax years. If there is an EFTPS payment for $0.00 with the same payment date, refer to the Lead Tax Examiner for further research before contacting the taxpayer.

    5. If the payment is not found; issue Letter 4550C requesting a bank statement or other documentation that shows the withdrawal.

    6. When the taxpayer replies with the requested documentation, refer to the Lead Tax Examiner.

  18. If the taxpayer wants to talk to (or have their case reviewed by) a manager, refer the case to the Lead Tax Examiner. They will attempt to resolve the issue(s) by telephone contact.

  19. If the taxpayer wants their case sent to their local Area Office, attempt to resolve the issue(s) by telephone contact. If the telephone contact does not resolve the issue(s) consult with Lead Tax Examiner.

  20. See IRM 4.119.4.21.7.6, Nominee Income, when the response from an Oil and Gas Industry related corporation states that the income was distributed to other entities.

Discovered Remittance
  1. Discovered remittance is a response and/or correspondence with an original form of payment attached such as a personal check, money order or cashier’s check. Also, a loose check(s) discovered in an envelope or attached to a blank piece of paper.

  2. When a remittance is discovered, complete two copies of Form 3244, Payment Posting Voucher. Complete the following fields:

    • TIN

    • Form number/MFT

    • Tax Period

    • Transaction/Received date (IRS received date)

    • Taxpayer name, address, and ZIP code

    • Transaction Data - Enter the remittance amount next to code 640 (Advance Payment of Deficiency)

    • Remarks (the team manager’s phone number and Mail Stop)

    • Prepared by

  3. After completing Form 3244 take the following steps:

    1. Attach one copy (original) to the remittance and give it to the Manager/Lead Tax Examiner to be given to the Clerical Manager/Lead Clerk to put in a locked box (Lock Box).

    2. Attach the second copy of Form 3244 to the response.

    Note:

    Form 4287, Record of Discovered Remittance, is completed daily by the Clerical Function to log all discovered remittance when appropriate.

  4. IRS CHECKS - Returned IRS refund checks are handled differently than regular discovered remittance. If an IRS refund check is found, take it to the team Manager/Lead Tax Examiner to be routed to the Refund Inquiry Unit.

  5. VOIDED CHECKS - If the response has a "VOIDED" personal check attached, remove the check from the response and attach it to the Installment Agreement (IA) request. Route the "VOIDED" check with the IA to Collections.

Extension Requests
  1. When the taxpayer requests an extension to respond to the notice, or indicates they will obtain information and send it later, take the following action(s) using one of the following charts as appropriate:

    Written Response
    If Then
    The taxpayer requests an extension to respond to the Letter 2531:
    1. Issue a Letter 2030 (recomputed) using PC 4520. Include the following Special Paragraph "Based on your request for an extension we have issued this notice which allows you additional time to respond."

    2. Update IDRS activity with FCP30MMDD. See Exhibit 4.119.4-7, Activity Codes/Category Codes.

    3. Input TC 925 with PC 4520 using IDRS CC:REQ77/FRM77.

    4. Annotate the DCI and case folder with PC 4520.

    The taxpayer requests an extension to respond to the Letter 2030:
    1. Issue a Letter 4550C informing the taxpayer their request for an extension has been granted.

    2. Update IDRS activity with 45EXLTMMDD. See Exhibit 4.119.4-7, Activity Codes/Category Codes.

    3. Annotate the DCI and case folder with 45LT.

    Note:

    DO NOT grant multiple extensions, unless extenuating circumstances apply.

    The taxpayer requests an extension to respond to the Letter 3219B Statutory Notice of Deficiency:
    1. Issue a Lette