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5.18.1  Automated Substitute for Return (ASFR) Program (Cont. 4)

5.18.1.8 
Taxpayer Responses

5.18.1.8.2 
Taxpayer Responses, Returns and Correspondence

5.18.1.8.2.3 
Tax Examiner Procedures for Processing Taxpayer Responses

5.18.1.8.2.3.13 
Taxpayer Correspondence

5.18.1.8.2.3.13.3  (04-06-2016)
Deceased Taxpayer

  1. If correspondence states that the taxpayer is deceased and date of death is not present, research IDRS. If after research, date of death is not found, contact spouse, or legal representative for date of death.

    If Then
    Taxpayer died during or after ASFR tax year, Contact legal representative and advise them that a return should be filed.
    Date of death is present and the taxpayer died prior to the ASFR delinquent tax year, Do not pursue, process as not liable.

    Note:

    Do not forget to resolve any existing credits on the module if the ASFR will be closed as not liable.

  2. If correspondence states that income was reported on a Form 1041, follow instructions in IRM 5.18.1.8.2.3.13.1, Income Previously Reported. Also, input a TC 540 on the year during which the death occurred.

  3. On deceased cases, check IDRS and ASFR for all open ASFR modules. Work all modules open on ASFR.

  4. Additional information related to updating decedent accounts can be found in IRM 21.6.6.3.21, Decedent Accounts.

5.18.1.8.2.3.13.4  (04-06-2016)
No Knowledge of Income

  1. If the response from the taxpayer is that the income isn't theirs, do the following:

    1. Follow Third party Contact procedures. See IRM 5.18.1.8.2.3.11, Third Party Contact. Contact payer to verify income. Send appropriate correspondex letter (1901C).

    If the payer verifies that the income does not belong to the taxpayer, or if there is no response from the payer, and when income is deleted the tax is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Then
    and a 30 -Day Letter was issued
    • On IDRS, input a TC 590 CC 88, TC 290 for $.00 and TC 887 for .01-.

    • Resolve any existing credits on the module per IRM 5.19.2.5.7, Credit Balance Overview, including input of TC 971 with AC 296 if appropriate. See IRM 5.19.2.5.7.4, Input of TC 971 AC 296 - Credit Research Completed.

    • Update ASFR to Status 101.

    • Use the appropriate Correspondex letter to notify the taxpayer the case is resolved.

    • Close the case per AMS procedures and input the applicable AMS history.

    and a 90-Day Letter was issued
    • On IDRS, input a TC 590 CC 88, TC 290 for $.00 and TC 887 for .01- ,TC 495.

    • Resolve any existing credits on the module per IRM 5.19.2.5.7, Credit Balance Overview, including input of TC 971 with AC 296 if appropriate. See IRM 5.19.2.5.7.4, Input of TC 971 AC 296 - Credit Research Completed.

    • Updated ASFR to Status 101.

    • Use the appropriate Correspondex letter to notify the taxpayer the case is resolved, and include a statement that the Tax Court would still have jurisdiction if a timely petition is filed.

    • Close the case per AMS procedures and input the applicable AMS history.

    and there is a default assessment posted to IDRS,
    1. Zero out tax, penalties, credits, income, and SE amounts.

    2. Use credit reference 887 to reduce exemption to zero.

    3. Input Hold Code 4.

    4. Resolve any existing credits on the module per IRM 5.19.2.5.7, Credit Balance Overview, including input of TC 971 with AC 296 if appropriate. See IRM 5.19.2.5.7.4, Input of TC 971 AC 296 - Credit Research Completed. Do not release credits to the taxpayer. Taxpayers must claim refund by submitting a return or claiming a claim for refund.

    5. Notify taxpayer that case is resolved

    6. Close the case per AMS procedures and input the applicable AMS history.

    If the payer states that the income does belong to the taxpayer Then
    and a 30-Day Letter was issued
    • Contact the taxpayer to notify them that the payer confirmed they are the recipient of the income. Update ASFR to Status 030 if the follow-up date has not expired. If the follow-up date has expired, update ASFR to Status 030 using the expired follow-up date.

    • Per AMS procedures, close the case and input AMS history that ASFR processing will continue.

    • Use the appropriate Correspondex letter to notify the taxpayer that ASFR processing will continue.

    • If the taxpayer responds again that the income is not theirs, refer case to Examination Classification.

    and a 90-Day Letter was issued
    • Contact the taxpayer to notify them that the payer confirmed they are the recipient of the income. Continue ASFR processing. Update on ASFR is not necessary unless the module is in a failed condition status or any other status that suspends the module.

    • Per AMS procedures, close the case and input AMS history that ASFR processing will continue.

    • Use the appropriate Correspondex letter to notify the taxpayer that ASFR processing will continue.

    • If the taxpayer responds again that the income is not theirs, refer to Examination Classification.

    and there is a default assessment posted to IDRS
    • Contact the taxpayer to notify them that the payer confirmed they are the recipient of the income, and that collection activity will resume on any unpaid balance.

    • On IDRS, input a TC 290 for .00; per AMS procedures, close the case and input history that taxpayer's response was insufficient.

    • If the taxpayer responds again that the income is not theirs, refer to Examination Classification.

    If the payer responds that the income is not the taxpayer's, but when deleted the tax on the remaining income is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . Then
    and a 30-Day Letter was issued
    • Delete the income (case minor), update the major record and update ASFR to status 032 to re-issue the 30-day letter.

    • Per AMS procedures, close the case and input AMS history that ASFR processing will continue.

    • Use the appropriate Correspondex letter to notify the taxpayer we have corrected our records, but they are still liable to file a return.

    and a 90-Day Letter was issued
    • Update ASFR to Status 031

    • Per AMS procedures, close the case and input AMS history that ASFR processing will continue.

    • Notify Taxpayer that ASFR processing will continue. Send taxpayer a revised report, and explain that the statutory period for petitioning the Tax Court has not been extended.

    and there is a default assessment posted to IDRS
    • Recalculate tax and on IDRS, input a TC 291 for the appropriate amount. Resolve any credits. See IRM 5.19.2.5.7, Credit Balance Overview.

    • Notify taxpayer that the tax was recalculated based, and that taxpayer will receive a notice of adjustment.

    • Per AMS procedures, close the case and input applicable AMS history.

  2. When deleting wages, correct the taxpayer's SSA wage records by preparing IRS/SSA Wage Worksheet, Form 9409. Mail Form 9409 to the Social Security Administration (SSA) at the address below. Notate AMS Form 9409 was sent.
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5.18.1.8.2.3.13.5  (04-06-2016)
Identity Theft

  1. Identity theft occurs when someone uses an individual’s personal information, such as name, Social Security Number (SSN), or other identifying information without permission, to commit fraud or other crimes. Taxpayers may notify the IRS when they believe they may have experienced an identity theft incident. In these instances, taxpayers must provide documentation to establish that they are identity theft victims.

  2. In 2015, Identity Theft case processing was consolidated under W&I Accounts Management. IRM 25.23.6, Identity Protection and Victim Assistance for Campus Collection Identity Theft Processing, includes procedures for ASFR Case Processing in IRM 25.23.6.2. ASFR cases will be forwarded to the new IDT team in AM once identity theft documentation has been received. Substantiation documentation must be confirmed prior to referring a case to the AM Identity Theft function. Additional Identity Theft information can be reviewed in the following IRM sections:

    • IRM 25.23.1, Identity Protection and Victim Assistance - Policy Guidance

    • IRM 25.23.2, Identity Protection and Victim Assistance - General Case Processing

    • IRM 25.23.3, IMF Identity Theft Toll-Free and Identity Protection Specialized Unit - (IPSU) Paper

    • IRM 25.23.6, Campus Collection Identity Theft Processing

  3. Prior to corresponding for substantiation documentation , research CC ENMOD or CC IMFOLE to ensure the account has not already been marked for the same tax year/incident. IRM 25.23.2.16 , Tracking and Reporting Identity Theft Cases - Identity Theft Indicators, provides a list of TC 971 action codes used to track identity theft cases. TC 971 with action code 522 and literal "PNDCLM" indicates supporting documentation was received or another function has contacted the taxpayer.

  4. If the coding already exists, do not input a second code for the same tax year/incident. Advise the taxpayer the case or inquiry is being referred to the appropriate IDT function. Fax the issue with Form 4442 per paragraph 8 below.

  5. If an Identity Theft Indicator is not present on CC ENMOD and the taxpayer states he/she may be a victim of identity theft:

    • Send Correspondex Letter 5064C, to request documentation of Identity Theft.

    • Update the module to Status 086 if no 90-day letter has been issued, to suspend ASFR case action.

    • Update CC ENMOD with TC 971, action code 522 and literal "PNDCLM" . See IRM 25.23.2.17.1, IMF Identity Theft - Taxpayer Initiated Allegations of Identity Theft - TC 971 AC 522, for more information.

    • Suspend the case for 45 days, pending a reply.

  6. The following documentation is required for a taxpayer to substantiate Identity Theft:

    • Authentication of Identity - A copy of a valid U.S. federal or state government issued form of identification ( Examples include: driver's license, state identification card, social security card, passport)

      Note:

      IRS no longer accepts Puerto Rican birth certificates issued before July 1, 2010, due to new laws by the Government of Puerto Rico. Taxpayers with birth certificates issued before this date must get new documentation from the Puerto Rico Vital Statistics Record Office.

    • Evidence of Identity Theft - a copy of a police report or the IRS affidavit Form 14039, IRS Identity Theft Affidavit.

    • See IRM 25.23.2.18, Identity Theft Supporting Documentation - Overview, for information on necessary documentation.

    • See IRM 25.23.2.18.2, Complete and Legible Documents, for additional information.

  7. If the taxpayer submits the required documentation within 45 days, acknowledge Form 14039 and receipt of substantiation documentation within 30 days of receipt.

    • If the address on Form 14039 differs from the address on CC ENMOD, correspond to the address on Form 14039.

    • Acknowledge receipt via Letter 86C, and inform the taxpayer the issue is being referred to the appropriate AM IDT function.

    • Fax the documentation with Form 4442 to the appropriate area. See SERP, Who/Where tab for Accounts Management Sites under Form 4442 Referral Listing.

    • Update the history on AMS that substantiation documentation was received and forwarded to AM.

  8. If the taxpayer does not respond to a request for supporting documentation, or documentation is incomplete, continue ASFR processing.

    • Mark the taxpayer’s account with TC 972, AC 522 including the literal NORPLY or NOIDT. Include the appropriate tax year.

    • Advise the taxpayer the issue has been closed and processing will continue due to incomplete, or no receipt of IDT documentation.

    • Update AMS history to show IDT documentation was not received, or was incomplete.

  9. If the taxpayer calls the toll free line with an allegation of identity theft:

    1. Explain substantiation documentation is required on all allegations of Identity Theft and they have 30 days in which to provide the documentation. See paragraph 7, above for substantiation documentation.

    2. Warn of Enforcement Action (WOEA) and that ASFR processing will continue if the documentation is not received timely.

    3. Update ASFR to Status 086.

      Note:

      Do Not update to ST 086 if 90 day letter has been issued.

    4. Input required TC 971 AC 522 PNDCLM on CC ENMOD.

    5. If the taxpayer can fax the required documentation, forward the issue to the appropriate Accounts Management IDT team.

  10. Cases meeting TAS criteria 5-7 and involve ID Theft
    Identity Theft cases meeting TAS criteria 5-7 will now be referred to the AM IPSU Team.
    See IRM 25.23.2.5, Taxpayer Advocate.

5.18.1.8.2.3.13.6  (06-01-2015)
Request to Rescind Statutory Notice of Deficiency

  1. A request to rescind a 90-Day Letter pursuant to IRC 6212(d) may be made by taxpayer or internally on behalf of taxpayer. Request must:

    • Be made before the 90-day or 150-day period expires

    • Cover same period as notice

    • Reflect same deficiency and penalties as notice of deficiency

    • Be made to issuer of notice of deficiency

    If Then
    Service agrees that notice should be rescinded
    1. Form 8626 "Agreement to Rescind Notice of Deficiency" sent to the taxpayer requesting taxpayer's written consent to rescission.

    2. Signed Form 8626 (and Form 872, if appropriate) must be returned to originator prior to expiration of 90-day or 150-day restriction.

    3. After Form 8626 returned by the taxpayer and signed on behalf of the Commissioner, a copy will be furnished to the taxpayer, or his representative by mail.

    4. Effective date of rescission agreement is date Commissioner's delegate signs the Form 8626.

    Note:

    Revenue procedure 98-54, Section 5.08 requires taxpayers be provided written notification when the IRS denies their request for rescission of a Statutory Notice of Deficiency.

  2. The decision to rescind must always ensure protection of the Service's legal ability to assess tax. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. A statutory notice of deficiency may only be rescinded by issuer of notice. Therefore, the party with delegated authority to issue and sign the statutory notice of deficiency, must sign Form 8626 on behalf of the Commissioner.

  4. Statutory notices of deficiency do not have to be rescinded when the taxpayer files an acceptable return during 90-day period.

5.18.1.8.2.3.13.7  (04-06-2016)
Taxpayer Doesn't Understand Notices

  1. When response indicates taxpayer does not understand letter or notice, or is requesting more information on proposed liability, if the taxpayer cannot be contacted by telephone, correspond to answer any questions. Retain a copy of any handwritten correspondence in case file. All correspondex letters with open paragraphs must be reviewed by unit manager before mailing.

    Advise the taxpayer to file a return. If Then
    A 30-Day Letter was issued,
    • Continue ASFR processing. Update ASFR to Status 030 if the follow-up date has not expired. If the follow-up date has expired update ASFR to Status 030 using the expired follow-up date.

    • Per AMS procedures, close the case and input an AMS history that ASFR processing will continue.

    • Notify Taxpayer that ASFR processing will continue.

    A 90-Day Letter was issued,
    • Continue ASFR processing. Update on ASFR is not necessary unless the module is in a failed condition status or any other status that suspends the case.

    • Per AMS procedures, close the case and input an AMS history that ASFR processing will continue.

    • Notify Taxpayer that ASFR processing will continue.

    There is a default assessment posted to IDRS,
    • On IDRS, input a TC 290 for .00, and close your control.

    • Close the case and input history that the taxpayer’s response was insufficient, per AMS procedures.

    • Notify taxpayer that response was insufficient and that collection activity will resume.

5.18.1.8.2.3.13.8  (04-06-2016)
Taxpayer Agreed Response (30 or 90 Day)

  1. When the taxpayer submits a signed waiver of collection and assessment, the response is considered an "Agreed." An agreed response indicates that taxpayer agrees to proposed assessment on either the 30-Day Letter or the statutory notice of deficiency. (This includes agreement to the tax and all penalties.) A taxpayer may contest interest under limited circumstances. (See IRC 6404(e))

    If Then
    Taxpayer claims we have incorrectly calculated interest, Taxpayer must pay interest and file Form 843. See IRM 20.2.7, Abatement and Suspension of Debit Interest.
    Taxpayer claims interest is overstated due to an error or delay by Service in performing a ministerial or managerial act Taxpayer must file a Form 843. (Prepayment not required.)
  2. To be considered an agreed response taxpayer must:

    • Have a signature on an unaltered waiver or consent

    • Contain signature of a third party if there is a POA filed authorizing POA to sign. Check CFINK for the authorization, which should be an S "Modified to allow third party to sign for taxpayer."

    If Verified Then
    And a 30-Day Letter was issued,
    • Follow instructions in IRM 5.18.1.5.11.49, Status 100: CLOSED, Agreed Response Pre-30-Day Letter.

    • Pay close attention to instructions for dealing with Combat Zone cases

    And a 90-Day Letter was issued,
    • Follow instructions in IRM 5.18.1.5.11.59, Status 113: CLOSED, Agreed Response Post 90-Day Letter.

    • Pay close attention to instructions for dealing with Combat Zone cases

    And there is a default assessment posted to IDRS,
    • Input a TC 290 for .00 with the appropriate blocking series and hold code.

    • Input a TC 599 CC 13

    • Contact taxpayer and advise taxpayer that assessment was already made. Advise taxpayer that collection enforcement will begin if payment is not received.

  3. The taxpayer may no longer make changes to filing status, add spouse or dependents on a signed waiver, they must file a return. If they are divorced or separated and attempting to claim a dependent that "did not live with them" a Form 8332 must be attached to a valid tax return. See Exemptions in IRM 3.12.3-1, No Reply to Correspondence, and correspond for the form, if after ≡ ≡ ≡ period the form is not received, disallow.

  4. On an agreed response the Rate Reduction Credit should be applied if the taxpayer is eligible. All other credits; EIC, Child Tax Credit, Dependent Care Credit, must be claimed on Form 1040 return.

5.18.1.8.2.3.13.9  (04-06-2016)
Income Information

  1. Do the following

    If the taxpayer requests IRP information and, Send the IRP information
    If a 30-Day Letter was issued,
    1. Update ASFR to Status 030. If the follow-up date has expired on the 30-day letter update ASFR to Status 030 using the expired follow-up date. See IRM 5.18.1.5.15, ASFR Follow-up or Actions Dates.

    2. Close IDRS control. Per AMS procedures, close the case and input AMS history that ASFR processing will continue.

    3. Notify Taxpayer that ASFR processing will continue.

    If a 90-Day Letter was issued,
    1. Update on ASFR is not necessary unless the module is in a failed condition status or any other status that suspends the case.

    2. Close IDRS control. Per AMS procedures, close the case and input AMS history that ASFR processing will continue.

    3. Notify Taxpayer that ASFR processing will continue.

    And there is a default assessment posted to IDRS,
    1. On IDRS, input a TC 290 for .00, and close your control. Per AMS procedures, close the case and input a history that taxpayer’s response was insufficient.

    2. Notify taxpayer that response was insufficient and that collection activity will resume.

5.18.1.8.2.3.13.10  (07-15-2011)
Frivolous Filers

  1. Original returns and correspondence indicating Frivolous Filer should be sent to the Campus Frivolous Filer (FF) Coordinator. The Frivolous Filer Coordinator in turn will forward the return/correspondence to the Ogden Frivolous Filer Team if it meets Frivolous Filer criteria. Normal processing should continue. Photocopies of returns or correspondence should be associated with the case file.

    Note:

    ASFR will not receive a response back from either the FF Coordinator or Ogden FF Team if the case is accepted.

  2. If the case should be returned from either the FF Campus Coordinator or the Ogden FF Team as not accepted, the return or correspondence will be returned to the TE that worked the case. Associate the return/correspondence.

  3. The following types of responses should be forwarded to the Campus FF Coordinator:

    • Wages/Receipts Net Income — The individual argues that salaries and wages are not "income" within the meaning of the Sixteenth Amendment, which grants Congress the power to "lay and collect taxes on income, from whatever source derived. . ." The individual could also argue that the labor worth a certain amount is exchanged for money worth the same amount and therefore there is no income to tax.

    • Eisner v. McComber — The individual reports wages but deducts them as non-taxable "compensation/remuneration" referencing Eisner v. McComber. The individual may alter line items showing non-taxable compensation or nontaxable receipts to back out some or all of their income, generally resulting in a zero tax liability.

    • Zero Returns — The individual submits a return with zero money amounts. A statement is attached claiming there is no section of the Internal Revenue Code that establishes an income tax liability. The statement may also contain arguments regarding the definition of income.

    • U.S. v. Long — The individual submits a return with zero money amounts much the same as the "Zero" Return category. To explain the zeros inserted on the form, the individual refers to U.S. v. Long.

    • Not a citation/Free Citation/Not a resident of Federal Zone — The individual argues they are not a citizen of the United States and receives no income or benefits from sources within the United States. May file a Form 1040 NR to receive a refund of withheld income tax or claim citizenship of a "State Republic." Alternatively, the individual may claim that he or she does not live in a federal district or zone (District of Columbia, Guam, Puerto Rico, the Virgin Islands, the Northern Marianna Islands, and certain other "possessions, enclaves, and trust territories." )

    • Reparation Tax — The individual submits a return, an amended return, or correspondence referring to a reparation settlement based on the impact of slavery; or may refer to black taxes, reparations for African-Americans, or 40 acres and a mule.

    • Form 2555 Deduction — The individual submits a return showing income, then deducts that same amount ( or a large portion of that amount) by adding "Form 2555" to line 21. Form 2555, Foreign Earned Income, is usually attached showing the individual's foreign address in the United States. The individual also shows his income on Form 2555 as "foreign earned income" even though the employer's address is also in the United States. Correspondence may be attached arguing the term "income" and stating that each of the several states are foreign countries.

    • Not a Person or Individual — The individual argues he/she is not a "person" or "individual" within the meaning of Internal Revenue Code and are therefore not subject to income taxes.

    • Sixteenth Amendment Argument — The individual argues the Sixteenth Amendment was not properly ratified and therefore the federal government does not have the legal authority to collect an income tax without apportionment. Generally, the argument focuses on matters such as inconsistencies in versions ratified by the various states.

    • Fifth Amendment — The individual makes an improper blanket assertion of the Fifth Amendment right against self-incrimination as a basis for not providing any financial information.

    • Altered Jurat/UCC 1-207 — The individual submits a return that contains income and deductions but the jurat has been altered or stricken. May include reference to UCC 1–207 or a statement that the return was not signed under penalties of perjury. The alternation may be located elsewhere on the return and arrowed into the jurat.

    • Unsigned returns — The individual completes a return altering any or all line items with the intent of facilitating non-compliance with the tax laws.

    • Wages Deducted in Cost of Goods Sold — The individual submits a return with a Schedule C attached claiming a deduction which is equal, or nearly equal, to the amount reported as wage income. The deduction is usually included in the cost of goods sold but could appear under a different deduction category.

    • Valuation — The individual argues that income is not taxable because of the declining fair market value of the dollar, because the dollar is not backed by gold/silver because the value of services is offset by the value of the labor (barter income), etc.

    • In Lieu Of — The individual submits a document captioned "Statement in lieu of U.S. Income Tax Form 1040." Various other arguments may be used in the document.

    • Disclaimer — The taxpayer submits documentation, which contains a disclaimer. The disclaimer states the taxpayer "disclaims the liability for the tax due," making the liability on the return zero. This disclaimer may be a part of a return, on a return attachment, or in other documents.

    • Protest Against Government Action/Inaction — The individual argues that their refusal to file or pay is justified because they disagree with government policies or spending plans. The individual may claim deductions or credits because of an objection to having his/her taxes used to support various government activities.

    • Taxes Are Voluntary/Law Does Not Require — The individual submits a return, amended return, or correspondence that argues income taxes are voluntary.

    • Challenges to Authority/Title 26 or Law in Other Documents — The individual may argue that Title 26 of the United States Code is not law because it was never enacted as named. As a separate position, the individual may argue that other laws or documents prevent the IRS from assessing and collecting tax. This argument may reference the Bible, Bill of Rights, Declaration of Independence, Magna Carta, Northwest Ordinance, Declaration of Resolves, Federalist Papers, Mayflower Compact, Articles of Confederation of 1788, Declaration of Rights and 1765 and 1774, and possibly others.

    • IRS is a Private Organization/Collects Tribute, Not Taxes — The individual argues that the IRS is an entity named the Internal Revenue and Tax Service, Inc., which was incorporated in Delaware in 1933. The individual further argues that since the IRS deposits its revenues in the Federal Reserve Bank, it is a collection agency for the bank, which is in the business of making loans and conducting proprietary business, thereby removing the cloak of governmental immunity. Additionally, they argue the Department of Treasury is a part of the United Nations and is clandestinely leading the tax-paying public into a "new world order."

    • Alleged Churches/First Amendment — The individual receives income from non-religious sources, and may claim a vow of poverty. The individual submits a return where all, or substantially all, of the gross income is claimed as a contribution deduction on Schedule A of the return.

    • Amended Returns/Form 843 Claim — The individual files an amended return or a Form 843 to obtain a total refund on all taxes paid in prior years, based on a tax avoidance argument not supported by law.

    • Untaxed — The individual argues that he/she should be "untaxed" and attempts to drop out of the Social Security system. He/she will withdraw or rescind his/her SSN, claiming he or she is a sovereign citizen.

    • Federal Reserve Notes Are Not Legal Tender — The individual argues that their wages are not taxable because they were paid in federal reserve notes. He or she argues that notes are not valid currency or legal tender and thus, those who possess them cannot be subject to tax on them.

    • Service Not Taxable/Thirteenth Amendment/Form of Servitude — The individual argues that income results only from the sale of goods, and therefore the value of services is not taxable. This includes indentured servitude arguments and barter offsets. The individual may also argue that the Thirteenth Amendment outlawed slavery. He or she may claim to be "natural unfranchised and freemen" who are residents of states, and therefore nonresident aliens for the purposes of the Internal Revenue Code.

    • Obscene, Vulgar, Harassing — The individual submits documents or other materials indicating that non-filing is due to dissatisfaction with tax policies or taxation in general. Often, this argument is expressed with obscene, vulgar, or crude language and characters in an extremely demeaning manner. This includes individuals who, through repetitive correspondence, indicate a refusal to comply with their tax obligations.

5.18.1.8.2.3.13.11  (04-06-2016)
Requests for Penalty Abatement

  1. Taxpayers may submit requests for waiver or abatement of penalties. Requests may be made orally, See IRM 20.1.1.3.1, Unsigned or Oral Requests for Penalty Relief, for complete instructions on penalty abatement.

  2. If the taxpayer requests penalty abatement based on reasonable cause, but a determination on reasonable cause cannot be made because the taxpayer did not supply sufficient information, do not deny the abatement. Correspond with the taxpayer using the appropriate correspondex letter (ie: 1382C) and request that they resubmit the request with the missing information.

  3. You may use the Reasonable Cause Assistant (RCA) in AMS tools to help you determine when Reasonable Cause has been met.

    Note:

    Taxes do not have to be paid before penalties can be abated. However, if the FTP has not maxed, and the tax is unpaid, the penalty will continue to accrue, even if the FTP posted to IDRS was abated due to reasonable cause. See IRM 20.1.2.1.4.1, Penalty Abatements and Re-assessments, for complete information on abating the FTP when not maxed.

5.18.1.8.2.3.13.12  (04-06-2016)
Recovery Rebate Credit

  1. The Recovery Rebate Credit (RRC) was part of the Economic Stimulus Act of 2008. Eligible individuals were sent an Economic Stimulus Payment (ESP) giving them an advance payment of the 2008 Recovery Rebate Credit (RRC). The RRC is calculated in the same manner as the ESP except that the amounts are based on the Tax Year 2008 instead of Tax Year 2007. IRM 21.6.3.4.2.12, Recovery Rebate Credit (RRC), provides all necessary information required for researching, calculating and the input of the Recovery Rebate Credit. The RRC will need to be calculated on all 2008 Form 1040’s providing the taxpayer meets the qualifications per IRM 21.6.3.4.2.12.3, RRC Qualifications.

  2. The Credit Reference Numbers (CRNs) to be used on adjustments are as follows:
    CRN 338 – RRC computed based on tax liability.
    CRN 256 – RRC computed based on qualifying income.
    CRN 257 – RRC computed based on number of qualifying children.
    Refer to IRM 21.6.3.5.3, Economic Stimulus Payment (ESP) Computation, for a full explanation of the CRN’s, computation methods, and CRN determination.

    Note:

    Input REQ54 with the CRN for the Recovery Rebate Credit in the reference codes section of the REQ54. Reason Code 096 is required, but can be in any of the first three RC positions.

  3. The RRC is claimed on Line 70 of the 2008 Form 1040, Line 42 on the 2008 Form 1040A, and Line 9 on the 2008 Form 1040EZ. To verify the amount of the credit claimed by the taxpayer you will need to review the taxpayer’s 2007 account to see if they received an advance credit. The credit will be posted on their 2007 account with the same CRN’s as shown above. Once you know the amount of the advance credit you can use the RRC Calculator on the IRS Website to compute the credit. See IRM 21.6.3.4.2.12.2, Explanation of RRC, for the calculator and additional information on this credit.

5.18.1.8.2.3.13.13  (08-28-2013)
Making Work Pay and Government Retiree Credits

  1. The American Recovery and Reinvestment Act of 2009 provided a new refundable credit for working families and certain government retirees.

    1. Taxpayers complete Schedule M to claim the Making Work Pay Credit/and or Government Retiree Credit. If the taxpayer does not file Schedule M then the credit should not be given.

      Note:

      Taxpayer filing Form 1040EZ complete the worksheet on the back of Form 1040EZ to determine the amount of allowable Making Work Pay Credit.

  2. The Making Work Pay (MWP) Credit allows eligible taxpayers to claim up to $400 ($800 for filing status 2). This credit expired in 2011 and cannot be taken on TY 2011 returns. Additional instructions can be found in IRM 21.6.3.4.2.13, Making Work Pay Credit - Schedule M.

    Note:

    Receipt of the one-time Economic Recovery Payment and/or Government Retiree Credit reduces the allowable Making Work Pay Credit.

  3. The Government Retiree Credit allows eligible taxpayers to claim up to $250 ($500 for FS2)

  4. The MWP credit is based on earned income. If the earned income per return is less than $6,451 ($12,903 for Filing Status 2) and there is additional U/R earned income, the taxpayer may be entitled to additional MWP.

  5. The MWP credit begins to decrease (phase out) when the adjusted gross income (AGI) is:

    1. Between $75,000 and $95,000 for filing status 1, 3 and 4.

    2. Between $150,000 and $190,000 for filing status 2.

      Note:

      If the AGI exceeds $95,000 ($190,000 for filing status 2) the MWP is reduced to zero.

  6. Taxpayers who are non-resident aliens or can be claimed as a dependant on someone else's tax return do not qualify for the Making Work Pay Credit.

5.18.1.8.2.3.13.14  (04-06-2016)
Education Credit

  1. Taxpayer may claim an education credit for qualified tuition and related expenses paid to an eligible educational institution, including accredited colleges, universities, and vocational schools. Form 8863, Education Credits (American Opportunity, Hope and Lifetime Learning Credits) is used to claim this credit.

  2. A taxpayer can elect, for any year, only one of the credits for each student (American Opportunity, Hope and Lifetime Learning Credits).

  3. Taxpayers CANNOT claim Education Credits when:

    • They are claimed as a dependent on someone else's tax return.

    • The Filing Status is Married Filing Separately (FS 3 or FS 6).

    • A deduction for Tuition and Fees is claimed on Form 1040, line 34 for the same student.

    • They are a non-resident alien.

  4. See IRM 4.19.3.13.5, Education Credits, and IRM 21.6.3.4.1.5, Form 8863, Education Credits, for additional instructions in regard to claiming and adjusting the non-refundable credit.

  5. See IRM 21.6.3.4.2.14, American Opportunity Tax Credit, for additional instructions in regard to adjusting the refundable portion of the credit.

5.18.1.8.2.3.13.15  (06-20-2012)
Small Business Health Care Tax Credit

  1. As a result of the Patient Protection and Affordable Care Act, many small businesses and tax-exempt organizations that provide health insurance coverage to their employees now qualify for a special tax credit.

  2. Eligible small businesses can claim the credit as part of the general business credit starting in TY 2010.

  3. For tax years 2010 through 2013, the maximum credit is:

    • 35 percent of the health care premiums paid by the small business employer

    • 25 percent of the health care premiums paid by the small tax-exempt employer, such as charities.

    An enhanced version of the credit will be effective beginning January 1, 2014.

    To be eligible, the small business must:

    • cover at least 50 percent of the cost of single (not family) health care coverage for each of their employees.

    • have fewer than 25 full-time equivalent employees (FTEs). Those employees must have average wages less than $50,000 a year.

    • use Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the credit.

      Note:

      Because the eligibility formula is based in part on the number of FTEs, not on the number of employees, organizations will qualify even if they employ more than 25 individual workers. IRM 21.3.8.12.28, Tax Credit for Small Employers That Provide Health Insurance Coverage.

    The maximum credit goes to smaller employers- those with 10 or fewer FTEs - paying annual average wages of $25,000 or less. The credit may be reduced depending on the number of employees an organization has and the amount of wages it paid. The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more.

  4. The credit is non-refundable for the small business employer. A small business employer who did not owe tax during the year can carry the credit back for 1 year or forward for 20 years to other tax years. However, the credit cannot be carried back to a year before the effective date of the credit, which is TY 2010. Therefore, any unused credit amounts for taxable years beginning in 2010, can only be carried forward.

  5. For small tax-exempt employers the credit is refundable, so even if they have no taxable income, they may be eligible to receive the credit as a refund as long as it does not exceed their income tax withholding and Medicare tax liability.

  6. The amount of the credit is included as part of the general business credit on their income tax return.

  7. The small business employer and small tax-exempt employers must file F 8941 as the credit is calculated on Form 8941, Credit for Small Employer Health Insurance Premiums, and is claimed on Form 1040. Impacted IMF taxpayers could be Schedule C or F sole proprietors with employees.

    1. Action required:

    • Math verify Form 8941

    • Input TC 290 to decrease the credit, or TC 291 to increase the credit. In addition, input item reference number 870 along with the TC 290/291 when adjusting the Credit for small Employer Health Insurance Premiums.

    See Notice 2010-44IRB 2010-22 for specific information on figuring the phase-out credit.

5.18.1.8.2.3.14  (04-06-2016)
Returns

  1. There are two types of returns processed in ASFR:

    • ASFR Returns -Returns filed before default assessment

    • ASFR Reconsideration returns - Returns filed after an ASFR default assessment

  2. All ASFR returns and ASFR Reconsiderations must be manually screened and manually input as TC 29Xs to IDRS. Additionally, ASFR returns must be manually updated to ASFR. Input TC 599 with closing code 89 when processing all ASFR returns to close taxpayer delinquencies and set the ASED. Input TC 599 with closing code 89 on ASFR Reconsideration returns to set the ASED. All ASFR returns must be processed within 45 days of the IRS received date to minimize taxpayer impact and refund interest paid. If a TC 494 is present on the module, a TC 495 must be input. All ASFR Reconsideration returns must be worked within 60 days of the IRS received date.

    Note:

    Age criteria for receipt of return is calculated from the IRS received date.

  3. All ASFR and ASFR Reconsideration returns must be processed using the mandated IAT XClaim tool.

  4. All credits must be resolved when an ASFR module is closed for a filed return.

5.18.1.8.2.3.14.1  (09-05-2014)
Net Operating Loss (NOL), Carryback, Carryforward

  1. The taxpayer may have a Net Operating Loss (NOL), Net Capital Loss (NCL). Unused Credits, or a Claim -of-Right adjustment for a specific year if their losses from trade or business, work as an employee, casualty or theft losses, moving expenses or rental property are more than their income. An NOL year is the year in which a net operating loss occurs. Taxpayers may use this loss to reduce or eliminate their income in other years.

  2. Taxpayers may choose to claim a NOL year as a Carryback for a period of 2 tax years and/or a Carryforward for a period of 20 tax years.

  3. Taxpayers use Form 1045 and/or Form 1040X to Carryback the NOL. Taxpayers may also submit an Election Statement with a Carryback application or claim.

    • IRC 6411 (a) requires that the tax return generating the net operating loss, net capital loss, or unused business credit must be filed on or before the date a tentative carryback application, Form 1045, is filed.

    • Three legislative acts increased the potential carryback period from 2 years to up to 5 years. The American Recovery and Reinvestment Act of 2009 – Section 1211 (ARRA) allows for a 5-year NOL for TY 2008, The Worker, Homeownership, and Business Assistance Act of 2009 – Section 13 (WHBAA) allows a 5-year Net Operating Loss (NOL) Carryback for tax periods beginning or ending in TY 2008 or TY 2009 and the Small Business Jobs Act of 2010 – Section 2012 and 2013 (SBJA) allows for a 5-year carryback of eligible small business credits for tax periods beginning in TY 2010.

    • A Form 1040X that has been filed as a carryback can be identified by the checked box on page 2 of the amended return, indicating that the return has been filed as a carryback election and/or verbiage in the remarks section that indicates the taxpayer is filing an amended return as a carryback.

    • The Election Statement may include one of the following:

      • May specify the number of years of the Carryback election.

      • May state the taxpayer is revoking a NOL carryback waiver.

    • The taxpayer will Carryforward the NOL year by showing the deduction as a negative figure on the "Other Income" line (for most tax years that will be Form 1040/Form 1040NR, line 21). Taxpayers may provide an original return and an amended return as a response to the ASFR notice.

  4. Carrybacks will not be processed in the ASFR Program. When applicable, attachments in regard to NOLs, Carryback or Carryforward are to be forwarded to Accounts Management. See table below. There are specific timeframes in which these claims/applications should be processed and it is imperative that these claims/applications be identified and forwarded to Accounts Management in an expedite manner.

  5. Clerical should screen returns for a Negative AGI or a Negative amount on the “Other Income” line on Form 1040 /1040NR.

    • Segregate these returns upon identification and prior to batching to AMS

    • Forward to designated coordinator

  6. Coordinators will:

    • Screen to determine what actions need to be taken on each case.

    • Separate applicable documents and forward to AM in the following categories: Carryback (Form 1045), Carryforward, NOL (separate Form 3210 for each applicable category) i.e.: If TP claims Carryback and Carryforward then do not separate the documents, place in the Carryback category.

    • Leave a history on AMS, as applicable, to document the following:

    • TP has stated or indicated a NOL, Carryback, or Carryforward

    • State what documents were forwarded to AM. i.e.: Election Statement, Form 1040X, Form 1045

    • Case will be worked expeditiously.

    • Ensure case is processed expeditiously if applicable.

  7. Follow the IF/THEN table below for further processing guidelines:

    IF THEN
    Taxpayer submits an original return for a specific SFR year, and also includes:
    • an Amended return

    • and/or Form 1040X/Form 1045 showing Carryback/Carryforward, and/or an Election Statement

    1. Process the original return expeditiously following normal 5.18.1 procedures.

    2. If the taxpayer submits a Form 1040X indicating a carryback with the original return, forward a copy of page 1 and 2 of the original return and all other carryback related documents to Accounts Management.

    • Prepare Form 3210 for routing and indicate Net Operating Loss-Carryback- clearly notate Expedite on Form 3210.

    • Send taxpayer Correspondence to advise that the documents were forwarded to the appropriate area for consideration and processing.

      1. If the taxpayer submits a Form 1045 immediately forward a copy of pages 1 and 2 of the loss year return and all other carryback related documents to AM.

      2. Prepare Form 3210 for routing and indicate Net Operating Loss-Carryback- clearly notate Expedite on Form 3210.

      3. Send taxpayer Correspondence to advise that the documents were forwarded to the appropriate area for consideration and processing.

    1. If the taxpayer submits an Election Statement, forward a copy of pages 1 and 2 of the loss year return and all carryback related documents to AM.

      • Prepare Form 3210 for routing and indicate Net Operating Loss-Carryback- clearly notate Expedite on Form 3210.

      • Send taxpayer Correspondex letter to advise that the documents were forwarded to the appropriate area for consideration and processing.

    Taxpayer submits an original return for specific SFR year, indicating that their business related losses are more than their income and the result is their AGI is reported as a negative amount. Generally this indicates a NOL year has occurred.
    • And the taxpayer does not make an election statement to Carryback/Carryforward.

    1. Process the tax return expeditiously following normal IRM 5.18.1 procedures.

      Note:

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

    Taxpayer submits an original return for specific SFR year, indicating that their business related losses are more than their income and the result is their AGI is reported as a negative amount. Generally this indicates a NOL year has occurred.
    • And the taxpayer does make an election statement to Carryback/Carryforward

    • "Claim" for NOL has ended (3 years after the time for filing a return

    Note:

    Claim for NOL ends 3 years after the time for filing of the return. If 2007 return (due date 4/15/2008) was filed in 2012, net operating loss may NOT be claimed. The 3-year period ended 4/15/2011.

    1. Process the tax return expeditiously following normal IRM 5.18.1 procedures.

    2. Forward the Election Statement, a copy of pages 1 and 2 of the loss year return and all other carryback related documents to Accounts Management

      • Prepare Form 3210 for routing and indicate Net Operating Loss –Carryback – clearly notate Expedite on Form 3210.

      • Send taxpayer Correspondex letter to advise that the documents were forwarded to the appropriate area for consideration and processing.

        Note:

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

    Taxpayer submits an original return for specific SFR year, indicating that their business related losses are more than their income and the result is their AGI is reported as a negative amount. Generally this indicates a NOL year has occurred.
    • And the taxpayer does make an election statement to Carryback/Carryforward

    • "Claim " for NOL has not ended (3 years after the time for filing a return.

    1. Process the tax return expeditiously following normal IRM 5.18.1 procedures.

    2. Forward the Election Statement, a copy of pages 1 and 2 of the loss year return and all other carryback related documents to Accounts Management

      • Prepare Form 3210 for routing and indicate Net Operating Loss –Carryback – clearly notate Expedite on Form 3210.

      • Send taxpayer Correspondex letter to advise that the documents were forwarded to the appropriate area for consideration and processing.

      Note:

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

    Taxpayer submits an original return to a specific SFR year and the taxpayer adjusts the Adjusted Gross Income (AGI) with a Carryback (Other Income line),
    • And attaches a Form 1040X and/or Form 1045 and/or Election Statement

    • Do not consider the Carryback claim

    • Process the return expeditiously following normal IRM 5.18.1 procedures

    • Expedite the appropriate attachments including pages 1 and 2 of the loss year return to AM.

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

    Taxpayer submits an original return to a specific SFR year and the taxpayer adjusts the Adjusted Gross Income (AGI) with a Carryback (Other Income line),
    • And does NOT attach a Form 1040X, Form 1045 or amended return

    • Do not consider the Carryback claim

    • Process the return following normal IRM 5.18.1 procedures

    • Send letter 916C advising the taxpayer to file Form 1040X with Form 1045.

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

    Taxpayer submits an original return to a specific SFR year and the taxpayer adjusts the Adjusted Gross Income (AGI) with a Carryforward (Other Income line),
    • Taxpayer states loss year

    • And Taxpayer's loss year return was not filed by the due date (including extensions)

    • Do not consider the Carryforward claim

    • Process the return following normal IRM 5.18.1 procedures

    • •Send Letter 105C informing the taxpayer that the election to waive the carryback period was not timely filed; therefore, the NOL must be carried back to any applicable gain year before it can be carried forward.

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

    Taxpayer submits an original return to a specific SFR year and the taxpayer adjusts the Adjusted Gross Income (AGI) with a Carryforward (Other Income line),
    • Taxpayer states loss year

    • And Taxpayer's loss year return was filed by the due date (including extensions)

    • Process the return following normal IRM 5.18.1 procedures

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

    Taxpayer submits an original return to a specific SFR year and the taxpayer adjusts the Adjusted Gross Income (AGI) with a Carryforward (Other Income line),
    • Taxpayer does NOT state loss year

    Process the return following normal IRM 5.18.1 procedures.
    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

5.18.1.8.2.3.14.2  (08-09-2012)
-L Freeze - AIMS Indicator

  1. This master file freeze code is on an account that has been selected for audit. The freeze is set by the posting of a TC 420/424 to the account.

  2. If the –L Freeze posted to the account after ASFR started the case then adjust the account to the figures on the taxpayer's return (AGI, TXI, tax, credits, etc)

    1. Use hold code 4 when inputting adjustments

    2. Input Priority Code 1

    3. Process the tax return and route the tax return per AMDISA

5.18.1.8.2.3.14.3  (04-06-2016)
- W Freeze - Litigation

  1. This literal is on an account identified as being in Litigation. The TC 520 and appropriate closing codes define the type of Litigation. Definitions can be found in Document 6209, IRS Processing Codes and Information, Section 11.8, H, TC 520 Closing Code Chart.

  2. Complete thorough research of the account and modules to identify a -W (Litigations) Freeze status.

    Caution:

    Do not take any action on the module or account without contacting the litigation identified function (refer to the IF/THEN chart in IRM 21.5.6.4.46, -W Freeze.

    1. Refer to IRM 21.5.6.4.46, -W Freeze, to identify actions for specific closing codes.

    2. Suspend the case (including the tax return) or route the tax return per the instructions from the person contacted.

5.18.1.8.2.3.14.4  (04-06-2016)
-Y Freeze - Offer in Compromise

  1. This -Y master file freeze code is on an account that has been identified as being in Offer Status. The Transaction Code 480 defines the pending offer. The ASFR case can continue as long as the Offer is pending.

    Caution:

    IF there is a TC 780 on the module, the amount of the assessment cannot be changed and we cannot work the case.

    1. Refer to IRM 21.5.6.4.50, -Y Freeze, for additional information.

    2. If the reconsideration cannot be worked, send correspondence to the taxpayer explaining we cannot change the amount of assessment on a tax period where an Offer-In-Compromise has been accepted.

    3. Send the return to files.

5.18.1.8.2.3.15  (04-06-2016)
Statute of Limitation

  1. All returns must be reviewed to ensure protection of all statutes of limitation. See IRM 25.6, Statute of Limitations, for specific instructions on statute protection. See IRM 25.6.1.6.15 , When a Document is Treated As Filed Under the IRC, to determine the return received date, and to determine the date the return is considered filed under the IRC.

    Note:

    Per IRM 3.11.154.3.6 , Statute Returns, - No review for statute clearance is necessary for original returns secured by Compliance employees because Compliance employees perform the statute review. Do not route to the Statute Control Unit any original return secured or any returns prepared under the authority of IRC 6020(b). Forward returns to files after input of adjustment.

5.18.1.8.2.3.15.1  (04-06-2016)
Refund Statute Expiration Date (RSED)

  1. The RSED is generally three years from the Return Due Date (RDD) for prepaid credits if a return was filed, or two years from the payment date for other payments whichever is later. See IRM 25.6.1, Statute of Limitations Processes and Procedures, for further explanations.

  2. ASFR Returns and Reconsiderations are original returns. Generally, prepaid credits must be claimed within 3 years of the due date of the return with regard to extension. Therefore, if an ASFR return or Reconsideration is received more than three years from the due date with regard to extensions, a refund of prepaid credits should not be made. There are conditions that extend the RSED, see IRM 25.6.1 .

  3. Generally, the amount to be credited or refunded is limited to the tax paid during the three years immediately preceding the filing of a claim, plus the period of any extension of time to file. Therefore, even if prepaid credits are barred, available credits paid within three years of the received date of ASFR returns and ASFR Reconsiderations, are not barred.

  4. Do not allow any overpayment of prepaid credits or subsequent payments to refund or offset if the RSED has expired.

    Note:

    Do not solely rely on the RSED posted to CC TXMODA to determine if credits should be offset or refunded.

    Follow disallowance procedures in IRM 25.6.1 .

  5. When barring a refund, take the following actions:

    • Use Hold Code 4 on the ADJ54 on IDRS- Hold Code 4 will hold the credit on the module and suppress the Notice of Adjustment.

    • Input a separate TC 290 for $.00 with a blocking series of 98/99 per IRM 25.6.1.5, Basic Guide for Processing Cases with Statute of Limitations Issues.

    • Use CC REQ77 to input TC 971 AC 296, indicating all necessary research was completed. See IRM 25.6.1.7.3.1, Transferring Credit To XSF, for additional instructions on transferring credits to XSF.

    • Send 105C letter with Appeal Rights- The 105C explains the refund cannot be released.

    • Prepare Form 8758, Excess Collection File Addition with as much information as possible at the time the adjustment is input per IRM 3.17.220.2.1.1, Preparation of Form 8758. Form 8758 is used to transfer the barred credit from the module to Excess Collections.

      Note:

      The XClaim tool will auto-populate the form and create the mandatory monitoring control base on IDRS. Use the following XClaim fill-ins: Activity = RFNDBARRED; Status = M; Category code = SFRR for ASFR and SFAR for Reconsideration.

    • A copy of the prepared Form 8758 must be included in the closed case released for PAS review.

    • Form 8758 must be submitted for processing within five (5) business days of the adjustment posting.

      Note:

      In the instance of a balance due return, where subsequent payments are barred, it will not be possible to complete box #7 until the adjustment has posted.

    • Form 3210 must be prepared when routing Form 8758 to the Accounting function.

    • If the final amount of credit is unavailable due to interest and penalties needing to be computed, delay sending the 105C letter until the return has posted with the final credit amount. Notate the reason for the delay on your history sheet.

  6. Resolve any remaining, refundable credit on the module once the RSED credit has moved to XSF:

    • Initiate a Manual Refund per IRM 21.4.4.4, Preparation of Manual Refund Forms, with the Integrated Automation Technologies (IAT) tool.

      Note:

      Research must be done to identify any outstanding balance (OBL) prior to initiating a manual refund. Follow instructions in IRM 21.4.4.4 and input a credit transfer if an OBL exists.

    • Report hours and volume under 62427 for an ASFR return.

    • Report hours and volume under 62467 for a Reconsideration return.

5.18.1.8.2.3.15.2  (04-06-2016)
Assessment Statute Expiration Date (ASED)

  1. The general rule is that an assessment of tax must be made within three years from the date a return is filed. Generally, this means that tax must be posted or journalized to Master File within 3 years of the date the return was filed. Additionally, the Service has three years to assess additional tax due. See IRM 25.6.1, Statute of Limitations Processes and Procedures, for exceptions to assessing additional tax within three years from the received date or due date of a return whichever is later. See IRM 25.6.1 for a more thorough explanation of the ASED, and the conditions that extend the ASED.

  2. ASFR default assessments and the ASFR dummy TC 150 do not start the running of the ASED. Therefore, the ASED must be set when processing ASFR returns and ASFR Reconsiderations.

  3. Additional review is necessary when a joint return is filed, and at least one spouse previously filed a return. See IRM 25.6.1.9.4.4, Joint Return After Separate Return, for limitations to processing separate to joint returns and if it meets the criteria, resolve ASFR issues and route to adjustments.

  4. ASFR Reconsiderations that are tax increases and ASFR Returns must be posted to Master File within three years of the received date.

  5. If a return is received with an imminent ASED, see paragraph 2) of IRM 25.6.1.9.9.2, After Hours and Imminent Assessments. Imminent ASEDs are when the ASED is within 90 calendar days.

  6. When processing ASFR returns and reconsiderations, determine the ASED. If the ASED is not posted on IDRS or the ASED is not correct on IDRS, input the ASED on IDRS. Generally, the ASED is set three years from the received date of the return. See IRM 25.6.1 to determine the date the return is considered filed under IRC when the return received is not valid.

    Note:

    No review for statute clearance is necessary for original returns secured by Compliance employees, because Compliance employees perform the review. Do not route to the Statute Control Unit any original return secured or any returns prepared under the authority of IRC 6020(b). Forward returns to files after input of adjustment.

  7. To set the ASED input a TC 599 CC 89 using CC FRM49 with the received date of the return.

  8. To correct an ASED posted to IDRS, input a TC 560 using CC REQ77. The required fields for input are:

    • TC 560

    • The ASED (the correct received date plus 3 years)

    Note:

    When TC 976 is posted, the ASED is systemically set on IDRS. It is not necessary to input TC 560 in these cases unless the generated ASED is incorrect on IDRS.

5.18.1.8.2.3.15.3  (10-01-2005)
Collection Statute Expiration Date (CSED)

  1. The CSED is a time period established by law to collect taxes. The CSED is normally ten years from the date of assessment.

  2. All ASFR assessments, including default assessments, start the CSED.

    Note:

    Do not extend or re-compute the CSED on ASFR Reconsiderations.

  3. ASFR Reconsiderations should be processed even if the CSED which is based on the default has expired.

5.18.1.8.2.3.16  (04-06-2016)
Penalties

  1. The Failure to File (FTF), and Failure to Pay (FTP), penalties are assessed on all balance due ASFR and Reconsideration returns, unless the penalties are waived or abated due to establishment of Reasonable Cause, First Time Abatement, Statutory Exceptions, Administrative Waivers or Correction of Service Error. See 20.1.1, Introduction and Penalty Relief, for complete instructions on Penalty Relief. See IRM 20.1.2, Failure to File/Failure To Pay Penalties, for complete explanations of the FTF and the FTP.

  2. The Estimated Tax Penalty (ES Penalty) is assessed where there is an underpayment of prepaid credits or required installment(s) of estimated income tax liabilities. IRM 20.1.3, Estimated Tax Penalties, for complete explanations of the Estimated Tax Penalty.

  3. Manual computation of the FTF and FTP is required on ASFR Reconsideration returns when:

    • the amount of the tax is increased based on the taxpayer filed tax return

    • where there are multiple TC 290 adjustments

    • a tax account contains restricted modules

      Note:

      Restricted modules are modules where the FTF and/or FTP have been manually assessed, or restricted by a -C or G- freeze.

  4. For ASFR returns:

    If Then
    The module does not contain a -C freeze, Use a Priority Code 2 on ADJ54. Do not manually calculate the FTF or the FTP penalties. The Priority Code 2 will direct IDRS to systemically calculate the penalties.
    The module contains a -C freeze, The FTF and the FTP penalties must be manually calculated. IRM 20.1.2.2.8 , Failure to Pay Tax - RC 6651 (a)(2) and (3), for FTP information.
  5. For ASFR Reconsiderations:

    If Then
    The module is restricted Manually calculate the FTF and the FTP penalties.
    The module is not restricted, and the reconsideration results in an increase in tax Manually compute the FTF and FTP penalties.
    The module is not restricted, and the reconsideration results in a decrease in tax Do not manually compute the FTF and FTP penalties.
    The reconsideration results in a tax decrease No manual calculation of Failure to File (FTF) and Failure to Pay (FTP) penalties is needed, unless the account is restricted.
    The reconsideration results in an increase in tax Manually compute the FTF and FTP penalties.

    Note:

    Input Priority Code (PC) 2 on any reconsideration if it wasn't present on the default assessment.

  6. The ES Penalty is always manually verified or calculated on ASFR and Reconsideration returns. The Estimated Tax penalty must be input with the assessment. IDRS will not calculate the Estimated Tax penalty on ASFR or Reconsiderations.

5.18.1.8.2.3.16.1  (04-06-2016)
Failure to File

  1. The Failure to File (FTF) penalty applies on the amount due from the return due date (or extended due date) until paid or until the 25% maximum penalty is applied. The FTF penalty rate is 5% a month. When the FTF penalty under IRC 6651(a)(1) and the Failure to Pay FTP penalty for failure to pay tax shown on the return under IRC section 6651(a)(2) both apply for the same months, the FTF penalty under IRC 6651(a)(1) is reduced by the amount of the FTP penalty under IRC 6651(a)(2). See IRM 20.1.1, Introduction and Penalty Relief, and IRM 20.1.2, Failure to File/Failure to Pay Penalties.

  2. When systemically assessed, the Failure to File posts as a TC 166. When manually assessed, the FTF posts as a TC 160.

    Note:

    Whenever there is a TC 160 posted to a module, see IRM 5.18.1.8.2.3.16, Penalties, instructions regarding a TC 160 that requires manual calculation. Failure to address the Failure to File when a TC 160 has posted will cause the adjustment to unpost.

  3. IDRS will systemically calculate the FTF when the assessment is input with a priority Code 2.

  4. To manually calculate the FTF on ASFR returns when the FTF and FTP apply to the same months, multiply the tax due per return by 22.5%. The tax due per return is the tax minus all pre-paid credits and payments received on or before April 15th in the year the return was due.

    Note:

    Never manually input the (FTF) unless necessary. Manual input of the (FTF) will restrict the module, and cause manual review until the module is paid in full, including all interest accruals.

5.18.1.8.2.3.16.2  (04-06-2016)
Failure to Pay

  1. The Failure to Pay penalty (FTP) is assessed for failure to pay amounts shown on the return. It is calculated on the amount due from the return due date to the date paid at one-half of one percent (.005), not to exceed 25%. The FTP penalty on an ASFR increases from one-half of one percent (.005) to 1% after notice of intent to levy (CP 504) is issued. TC 971 with AC 069 or 035 also indicates that the 1% rate has been triggered. If the taxpayer files his own return after the 1% FTP penalty rate has taken effect on the assessment, the FTP penalty is recalculated on the amount showing due on the taxpayer's return by using the .5% rate for the same period.

  2. When systemically assessed, the FTP posts as a TC 276. When manually assessed, the FTP posts as a TC 270.

    Note:

    Whenever there is a TC 270 posted to a module, see IRM 5.18.1.8.2.3.16, Penalties, for instructions regarding when the TC 270 requires manual calculation. Failure to address the FTP when a TC 270 has posted will cause the adjustment to unpost.

  3. IDRS will systemically calculate the FTP when an ASFR assessment is input as long as the adjustment is reducing the amount of the tax.

    Note:

    Updating the ASFR default assessment with a Reconsideration requires manual penalty computation when the amount of the tax is increased. The requirement for manual penalty computations is also required whenever there are multiple TC 290s.

  4. To manually calculate the FTP on ASFR and Reconsideration returns:

    • Determine the amount due for each month the tax remains unpaid from the due date of the return. IRM 20.1.2.1.5, Manual Penalty Adjustments, and IRM 20.1.2.2.8.1, Computing the Penalty for further explanations.

    • On IDRS, use CC COMPAF to calculate the FTP.

    • Input the trigger date for assertion of the FTP to 1% on the CC COMPAF screen when applicable. When inputting an assessment via ADJ54, input the FTP as a TC 270.

    Note:

    Never manually input the FTP unless necessary. Manual input of the FTP will restrict the module, and cause manual review until the module is paid in full, including all interest accruals.

5.18.1.8.2.3.16.3  (04-06-2016)
Estimated Tax Penalty

  1. The Estimated Tax (ES) Penalty must be manually calculated/verified if the taxpayer files a Form 2210 to ensure the taxpayer's calculations are correct. If the taxpayer does not file a Form 2210, the penalty must be manually calculated. See IRM 20.1.3, Estimated Tax Penalties, for complete instructions on calculating the ES penalty.

  2. Determine the amount underpaid for each quarter. On IDRS, use COMPAE to calculate the ES penalty. Input TC 170 to assess any ES penalty. See IRM 20.1.3.2.1, Assertion Criteria, for assertion of the ES penalty tolerances.

  3. When processing Reconsiderations:

    If Then
    a TC 170 was posted with a default assessment,
    1. Manually adjust the penalty based on correct tax amount. Increase the penalty by inputting a TC 170. Decrease or eliminate penalty by inputting TC 171. See IRM 20.1.3.3.2.1, Evaluating Claims for Abatement or Waiver of Estimated Tax Penalties, for further explanations.

5.18.1.8.2.3.16.4  (04-06-2016)
Negligence Penalty

  1. The Negligence Penalty for Non-filers was repealed in 1990. It still applies to returns with due dates between July 18,1984 and December 31, 1989. If some of the tax is abated, then only the penalty that applies to the tax should be abated (NOT ALL). See IRM 20.2.5.3, Interest on Penalties and Additions to Tax.

5.18.1.8.2.3.17  (04-06-2016)
Underpayment Interest

  1. See IRM 20.2, Interest, for how interest is computed, and the start dates for interest assertion.

  2. Computer generated interest posts as a TC 196/197 on IDRS.

  3. Manually compute interest on modules where interest has been restricted. In processing ASFR returns and reconsiderations, restricted modules would have a —I freeze. See IRM 20.2.7, Abatement and Suspension of Debit Interest, for instructions on manually calculating interest. See IRM 20.2.7 for determining the interest to date on modules with -C freezes. Manually calculated interest is input using TC 340/341 on CC ADJ54. Whenever interest is manually calculated, a source document with COMPA prints delineating how the interest was calculated, is required. See IRM 5.18.1.8.2.3.29, Assembly of Source Documents.

    Note:

    Do not input a TC 342 for .00 to un-restrict interest, unless the restriction was input in error.

  4. Generally, interest is not abated. See IRM 20.2, Interest, for complete explanations and procedures on interest abatement.

5.18.1.8.2.3.18  (10-01-2005)
SBSE Fraud Referrals

  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 payment of taxes known to be due and owing.

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

    1. Identify cases with potential fraud.

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

    3. Refer potential fraud cases to Field Exam and/or Collection for further development.

    Note:

    These procedures are for SBSE ASFR only.

5.18.1.8.2.3.18.1  (10-01-2005)
Identifying Fraud

  1. Fraud identification begins with the compliance employees and their ability to recognize the affirmative indications and acts of fraud by taxpayers. It is essential to detect and report any potential fraudulent activities.

  2. Generally, compliance must show tax due and underpayment of tax due to deliberate intent to evade tax or willful and material submission of false statement or false documents in connection with an application and/or return.

  3. Avoidance of tax is not a criminal offense. Taxpayers have the right to reduce or avoid their taxes by legitimate methods. It does not involve concealment or misrepresentation, but works within the legal parameters to shape events to reduce tax. Fraud may exist where a taxpayer willfully attempts to illegally underreport taxes, not pay taxes or both.

  4. When a potential fraud indicator is found, fraud development must be considered, even though further consideration may find that a referral may not be warranted or may not be accepted by the Fraud Coordinator. The Fraud Coordinators can assess the fraud development potential and determine an appropriate action plan.

  5. Below are examples of fraud indicators. The lists are not all-inclusive and are only indicative of the types of actions taxpayers may take to deceive or defraud. See IRM 25.1.11, Campus Collection Fraud Procedures, for additional information

    INDICATORS OF FRAUD
    Expense/Deductions Related: Substantial excess of personal expenditures over available resources or deducted as business expenses.
    Example: No apparent explanation is available for how the taxpayer is living each month with a high negative income.
    Income Related: Bank deposits from unexplained sources substantially exceeding reported income or concealment of bank accounts, brokerage accounts, and other property.
    Example: The income reported by payers to the IRS and other revenue on the returns do not account for amount of bank deposits, or no bank account or investments reported, but the payers reported interest paid to the taxpayer to the IRS.
    Conduct of the Taxpayer: Patterns of consistent failure over several years to file or to report income fully exist, although substantial amounts of taxable income were received.
    Example: Payers reported substantial income to the IRS for the taxpayer; however, no returns were filed those tax years.
    Methods of Concealment: Assets placed in other’s names or close relationship between parties to the transfer.
    Example: No real property reported, but lenders report mortgage interest paid by the taxpayer to the IRS, or taxpayer maintains control of assets or income but claims not to be the owner.
  6. When processing ASFR TP responses, be alert for the following:

    Suspicious or unusual patterns on tax returns:
    • Identical names on different returns

    • Numerous or similar Post Office Box addresses

    • Suspicious looking or similar handwritten documents

    • Similarities on multiple returns, e.g., refund amount, withholding amount, credits, losses, dependents, etc.

    • Taxpayers or practitioners who allegedly commit fraud often mail several returns in the same envelope

    False W-2s:
    • Excessive withholding in comparison to wages

    • Typewritten

    • Inconsistent typing format

    • "Applied For" annotated in lieu of EIN

    • EIN/Company name mismatch

    • Computerized W-2s in different format

    • Erasures or white-outs

    • Substitute W-2

    • Sloppy typing

    • Upper and lower case typing

    • Missing information such as EIN, SSN, FICA, address, State EIN, etc.

    1040:
    • Questionable dependent information, e.g., relationship, dates of birth, dates of death

    • Occupation in relation to income

    • Refund amounts

    • Age and income inconsistencies

    • Excessive itemized deductions (50% or more) in comparison to AGI

    • Unusual deductions in relation to the taxpayer’s occupation

    • Multiple returns with similar deductions

    Schedule C:
    • Business income with little or no expenses

    • Unreported self-employment tax

    • No paid preparer

    • EITC claimed

    • Multiple returns with similar characteristics

    • Unrealistic occupation

    Unscrupulous Return/Preparer Patterns
    • Same/similar deductions, credits, expenses, etc., on multiple returns causing refunds

    • Same filing status (IMF)

    • Same occupation (IMF)

    • Same child care provider (IMF)

    • Excessive deductions/losses

    • Different businesses at the same address

5.18.1.8.2.3.18.2  (08-28-2013)
Case Referral

  1. Once a TE identifies possible Fraud, they must elevate the case to the Team Leader.

    Ensure that the case is complete and properly documented. The history sheet should include:

    • All case actions

    • All documents received

    • All contacts written and oral, including all third party contacts

      Note:

      Returns and/or correspondence may be referred.

  2. The Team Leader reviews the case for possible Fraud.

    IF THEN
    The Team Leader concurs that possible Fraud exists,
    1. Continue processing the return and hold refunds. (See NOTE below)

    2. Prepare Form 13549, Campus Fraud Lead Sheet

    3. Annotate Team Leader's initials on Form 13549.

    4. Forward the Form 13549 and the case to the Operational Functional Fraud Coordinator.

    The Team Leader does not concur that possible Fraud exists, Continue normal processing.
  3. The Functional Fraud Coordinator (FFC) reviews the case for possible Fraud.

    IF THEN
    The FFC concurs that possible Fraud exists,
    1. Load case onto the Fraud Tracking Report

    2. Annotate Initials, and any additional research performed on Form 13549.

    3. Forward the Form 13549 and the case to the Campus Collection Fraud Coordinator.

    The FFC does not concur that possible Fraud exists,
    1. Load case onto the Fraud Tracking Report

    2. Annotate on Form 13549 the reasons for declination.

    3. Return case to Team Leader for normal processing.

  4. The Campus Collection Fraud Coordinator (CFC) reviews the case to determine if the case will be accepted by Fraud or not. Review must be completed within 21 days of receipt.

    IF THEN
    The CCFC concurs that possible Fraud exists,
    1. the case is accepted into the Field FTA review and not returned to ASFR.

    The CCFC does not concur that possible Fraud exists,
    1. Annotate on Form 13549 the reasons for declination.

    2. Return case to FFC for normal processing.

  5. Field FTA reviews the case..

    IF THEN
    The Field FTA concurs that possible Fraud exists,
    1. the case is accepted, assigned to the proper Field Office and not returned to ASFR.

    The Field FTA does not concur that possible Fraud exists,
    1. Annotate on Form 13549 the reasons for declination.

    2. Return case to CCFC for normal processing.

    Note:

    All questionable refunds will be held. The employee who completed the case will be responsible for resolving the refund once Fraud review is complete. For example: Cases returned to ASFR by the Fraud Department will have the refund hold released in ASFR versus cases moving forward to the Fraud Department or the Field where resolution of the case will include the refund hold.

5.18.1.8.2.3.18.3  (06-21-2013)
Potential ASFR Fraud Cases in Field Collection (FC)

  1. Modules in 8000 may be potential Fraud cases in FC. Revenue Officers will contact the ASFR FC Fraud Coordinator, when they have a potential Fraud case assigned to ASFR.

  2. The ASFR Collection Fraud coordinator will research ASFR and do the following:

    IF THEN
    The module is unstarted,
    • Close the module off ASFR. Input a TC 596 88 and update to Status 063.

    The module is started,
    • Control module on IDRS to coordinator.

    • Input comments on IDRS and ASFR that the module is a potential Fraud module.

    • Secure RO contact information.

    A response is received,
    • Ensure that the response is assigned to the coordinator.

    • The coordinator must contact RO and fax copies of the response to the RO.

    • The coordinator should not process the response until contact is made with the RO and the RO advises that the response should be processed.

    • The coordinator must notify the Operation Fraud Coordinator that a potential Fraud case for CFf has been identified.

    No response is received,
    • Take no action.

    • Continue ASFR processing.

5.18.1.8.2.3.19  (04-06-2016)
Math Errors

  1. All ASFR returns and ASFR reconsiderations must be reviewed for math errors.

  2. Math errors are:

    • An addition, subtraction, multiplication or division error on a return

    • An apparent incorrect use or selection of information for the return from tax tables and schedules

    • An entry on the return of an item inconsistent with an entry on a schedule, form, statement, or list filed with the return

    • Missing schedule, when schedule is needed to verify 1040 amount.

    • Missing or invalid TINs to substantiate exemptions, child care credit, and EIC

    • IRC 6213(g)(2) describes the term "mathematical or clerical error" .

  3. All math errors where the change in tax is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ must be corrected prior to processing the return. Use Package X and/or Pub 17, Your Federal Income Tax (For Individuals), instructions in reviewing line items of the return to ensure that all changes for the tax year return are considered.

    Note:

    When processing a tax return involving math errors and computation of the Estimated Tax Penalty, the penalty must be computed on the lesser of the tax per the taxpayers return or the corrected tax. See the Note in paragraph 7 of IRM 20.1.3.2.1.7, Determining the Penalty Amount.

5.18.1.8.2.3.19.1  (04-06-2016)
Math Errors Requiring No Taxpayer Contact Prior to Correction

  1. Certain math errors require no taxpayer contact prior to making the correction to the return and processing the return.

  2. Math errors that require no taxpayer contact are:

    • An addition, subtraction, multiplication or division error on a return

    • An apparent incorrect use or selection of information for the return from tax tables and schedules

    • An entry on the return of an item inconsistent with an entry on a schedule, form, statement, or list filed with the return

    • An entry on a return of a deduction or credit in an amount which exceeds a statutory limit, if such a limit is expressed as a specific monetary limitation, percent ratio, or fraction

    Exception:

    If an entry on the return shows payments were made which are not on the tax period, annotate on the return the amount of tax due and that a CP Notice was sent to the taxpayer. The change is not considered a math error which requires additional correspondence to the taxpayer.

  3. Review the return, schedules and attached forms for no contact math errors.

    If Then
    There is a no contact math error and it results in a tax change of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    1. Correct the math error

    2. Annotate the return without deleting the taxpayer's figures.

    3. Send a 474C letter with the applicable paragraphs. If the math error results in a tax increase, include Pub 1, Pub 5 (Appeal Rights), and Pub 746 (Explanation of Penalties and Interest).

    There is a no contact math error and it results in a tax change of less than ≡ ≡ ≡ ≡ ≡ ≡
    1. Process the return as filed

    Note:

    Refundable credits do not change tax, however these credits are considered Math Errors if not substantiated. Disallow per Math Error procedures.

5.18.1.8.2.3.19.2  (04-06-2016)
Math Errors Requiring Taxpayer Contact Prior to Correction

  1. Certain math errors require taxpayer contact to secure information to process the return.

  2. Math errors that require taxpayer contact are:

    • Missing schedule or form, when schedule or form is needed to verify 1040 amount which reduces the tax.

    • Missing or invalid TINs to substantiate exemptions, child care credit, child tax credit, and EIC

      Note:

      Research IDRS before contacting the taxpayer for missing or invalid TIN.

  3. Review the return, schedules and attached forms for contact math errors.

    If Then
    There is a contact math error and it results in a tax change of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    1. Contact the taxpayer for the TIN or missing schedule or form.

    2. Suspend case for 45 days.

    3. If taxpayer responds with the necessary information or form or schedule, process the return.

    4. If there is no response, or if the response is not sufficient, correct the math error. Annotate the return with the correction. Send a 474C letter with the applicable paragraphs. If the math error results in a tax increase, include Pub 1, Pub 5 (Appeal Rights), and Notice 746 (Explanation of Penalties and Interest).

    There is a contact math error and it results in a tax change of less than ≡ ≡ ≡ ≡
    1. Process the return as filed

    Note:

    Refundable credits do not change tax, however these credits are considered Math Errors if not substantiated. Disallow per Math Error procedures.

5.18.1.8.2.3.19.3  (10-03-2012)
Married Filing Separate

  1. Taxpayers filing Married Filing Separate have special rules that apply. Per Pub 17 Married Filing Separate individuals must use the same method of claiming deductions. If one taxpayer itemizes deductions, the other should itemize because he or she will not qualify for the standard deduction. It does not matter which return was filed first. Refer to the table below to assist with determining how deductions are allowed.

    IF: the ASFR taxpayer filed Spouse Filed THEN give ASFR taxpayer:
    Standard deduction Standard deduction Standard deduction
    Itemized deduction Itemized deduction Itemized deduction
    Itemized deduction Standard deduction Process return
    Standard deduction Itemized deduction Correspond with the ASFR taxpayer, if there is no response or if the taxpayer refuses to amend his/her return to claim itemized (with a separate set of Schedule A deductions), then process the return.

5.18.1.8.2.3.20  (04-06-2016)
Under/unreported Income

  1. Verify that all income reported to the IRS is reported on the return.

    • Use the ASFR case minors to verify income reported on the return. Review case minors for comments, which may contain information on which case minors were filed by businesses on the Payer Agent List. Update modules as appropriate. See IRM 5.18.1.5.11, ASFR Statuses.

    • If a joint return is filed, use CC IRPTR to verify that all spousal income has been reported.

  2. Do the following:

    If Then
    Addition of under/unreported income results in a net tax increase of ≡ ≡ ≡ ≡ ≡

    Note:

    Always credit the tax for unreported W/H when determining tax due to under/unreported income.

    Note:

    Multiple issues may be used to comprise the tax increase.

    1. Contact the taxpayer regarding the under/unreported income. Request that the taxpayer file a corrected return.

    2. Suspend case for ≡ ≡ ≡ ≡ ≡

    3. If taxpayer responds with a corrected return or a sufficient explanation as to why the income was not reported, process the return.

    4. If there is no response, or if the response is not sufficient, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ See IRM 5.18.1.8.2.3.28, Examination Classification.

    Addition of under/unreported income results in a net tax increase of less than ≡ ≡ ≡ ≡ ≡ Process return as filed.
  3. The following sections contain information on how to determine if income is under/unreported. ASFR processes returns from a number of tax years, therefore, numbered lines cannot be included, due to specific tax year changes. Employees must use Package X and Pub 17 for specific year tax instructions. Prior year forms and instructions are also available on the internet through electronic publishing.

  4. Always look through all attachments to determine if income is not reported.

  5. Always verify that income reported on all Forms, Schedules and attachments is properly carried over to the Form 1040/1040A.

5.18.1.8.2.3.20.1  (04-06-2016)
Wages

  1. Verify that all W-2 case minors are reported on the return.

  2. Compare W-2 income with entries on:

    1. Form 1040, 1040A, 1040 EZ, Wages, salaries tips, etc. line,

      Note:

      If the TP enters "SNE" on the dotted line portion of Form 1040/1040A, line Wages, salaries, tips, etc., reduce the under/unreported wages by the amount reported on Form 8839, Taxable benefits line.

    2. Schedule C or Schedule F - If wages are reported here, see IRM 4.19.3.7, Analysis of Each Income Type for additional information on Statutory Employees.

    3. Form 2106, Employee Business Expenses, Part 1, Other than Meals and Entertainment column, Reimbursements line- Give credit for these amounts if the payer name on the case minor is related to the occupation box on Form 2106. If the occupation box on Form 2106 is blank, consider the case minor(s) fully unreported unless amounts match within $1. If Other than Meals and Entertainment column, Reimbursements are greater than Total Expenses, in Column A of Form 2106, the excess reimbursements must be included as income on page 1 of Form 1040,

    4. Form 1040, 1040A, Taxable Pensions line ,

    5. Form 1040, 1040A, Other Income line,

    6. Attachments to the return,

    If the amount matches within $1.00 consider the wages reported.

  3. Consider any two W-2 case minors, for the same taxpayer, that contain identical income information, as duplicates even if the payer names and EIN's are different.

  4. Allow taxpayers (i.e., police officers, firefighters, etc.) who have sustained injuries in the line of duty to reduce Form W-2, box 1 Wages, by amounts indicated as line of duty injury payments when ALL of the following conditions are present:

    1. The taxpayer is under age 65.

    2. The payer statement is attached indicating the taxpayer was injured while on duty and provides a specific amount of excludable income. If the attached payer letter does not provide a specific amount, allow the exclusion if the taxpayer includes a worksheet providing a breakdown of excludable income.

    3. The amount has not been excluded from Box 1 Wages as shown on the attached Form W-2.

  5. Retired/non-active status members of the military employed as Junior ROTC instructors receive allowances for uniforms, housing, subsistence, etc. However, unlike active duty military personnel, these taxpayers CANNOT exclude these allowances.

    Note:

    Reserve component members can claim the deduction for overnight travel expenses.

  6. Taxpayers must include Form W-2, Box 1, Wages, on their return and cannot reduce their wages by amounts shown on Stock Option statements. Consider the reduction underreported income.

  7. Whenever wages are under/unreported, compute withholding (W/H) or consider W/H to determine if the under/unreported income meets the ≡ ≡ ≡ ≡ ≡ ≡ ≡ tax tolerance.

  8. The taxpayer may exclude certain types of income. Wages reported on Form W-2, box 1 are generally reduced by the amount of excluded income. Some of these exclusions are:

    • Tax sheltered amounts

    • Elective deferrals to a 401(K) or 403(B). This is generally tax-deferred annuities for teachers and employees of 501(c)(3) organizations and/or plans. See Form W-2 — Box 12 Codes, for a complete list of the elective deferral codes found in box 12 of Form W-2.

    • Dependent Care Assistance Benefits (DCB) for limitation of excludable income

    • "IOD" (Injury on Duty) or "LODI" (Line of Duty Injury) payments.

    • Survivor annuity received by the spouse, former spouse, or child of a public safety officer killed in the line of duty or a chaplain killed in the line of duty after September 10, 2001 while responding to a fire, rescue, or emergency as a member or employee of a fire or police department will generally be excluded from the recipient's income regardless of the date of the officer's death.

    • Cost of living allowances paid to federal employees working abroad

    • Minister's Housing Allowances (This amount may be the difference between net Schedule C income and income subject to self-employment tax on Schedule SE.)

    Since the amount reported on Form W-2, box 1 should reflect these exclusions from income, the taxpayer should not subtract the above items from the amount reported as wages.

  9. If wages are underreported, check the attached Form W-2 and/or any attachments to determine if the taxpayer excluded the amount as sick pay.

    1. Accept the exclusion if there is an indication that the taxpayer paid the premiums (an amount present on Form W-2, box 12, with code "J" that matches the excluded amount) and per attached pay-stubs or other documentation, the payer incorrectly included employee paid sick pay on Form W-2, box 1. Form W-2, box 1 matches box 3, SSWAGE, or attached payer documentation. If there is no justification, consider the sick pay underreported.

      Note:

      Payers are instructed to indicate the amount of sick pay not included in income (and not shown in boxes 1, 3, and 5) in box 12 of Form W-2 with Code "J" when the employee contributed to the sick pay plan.

  10. If the taxpayer attaches a substitute Form W-2 and reports a lesser amount than shown on the case minor from the same payer, consider the difference underreported.

  11. If there are two Form W-2 case minors for the same taxpayer, from the same payer (payer name and EIN match) take the following action:

    1. If the taxpayer fully reports one of the case minors, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. If the taxpayer does not fully report one of the Form W-2 case minors, add the wages together and consider the difference what is underreported.

  12. If wages are under/unreported, determine if the taxpayer makes any reference to repayment of supplemental unemployment benefits. If the taxpayer correctly reported net wages after repayment of supplemental unemployment benefits, consider the wages reported.

  13. If the taxpayer is a minister and has reported Form W-2 wages on a Schedule C:

    1. If the Form W-2 shows that SST has NOT been deducted, allow the expenses. The net income will be subject to self-employment tax UNLESS the taxpayer has a Form 4361 or Form 4029 exemption annotated on the SE tax line of Form 1040.

    2. If the Form W-2 shows SST has been deducted, consider the expenses under/unreported income.

    3. Excluded minister housing allowance is subjected to SE Tax, unless: the TP notates "Exempt Form 4361" or "Form 4029" on Form 1040, SE tax line or the housing allowance is for a retired minister. A Minister SE Tax Exempt Code of 1 or 4 on CC ENMOD indicates Form 4361 or Form 4029 were approved. See IRM 2.3.15, Command Code ENMOD, for CC ENMOD information. If not excluded, considered the SE tax unreported.

5.18.1.8.2.3.20.2  (04-06-2016)
Other Income Types

  1. IRM 4.19.3.7, Analysis of Each Income Type, provides additional information on the review of various income types.

  2. The following IRM sections include some income types commonly found on ASFR returns:

    • IRM 4.19.3.7.3, Interest - General

    • IRM 4.19.3.7.4, Dividends and Capital Gain Distributions

    • IRM 4.19.3.7.5, State and Local Income Tax Refunds (SITR) - General

    • IRM 4.19.3.7.6, Nonemployee Compensation (NEC) - General

    • IRM 4.19.3.7.7, Merchant Card and Third Party Network Payments MERCH - General, includes instructions for Form 1099-K income that will be included in ASFR proposed tax calculations for Tax Year 2014 and subsequent

    • IRM 4.19.3.7.10, Retirement Plans

    • IRM 4.19.3.7.16, Unemployment Compensation - General

    • IRM 4.19.3.7.23, Securities Sales - General

5.18.1.8.2.3.21  (04-06-2016)
Withholding

  1. If Withholding is claimed, but not supported by IRP or the taxpayer does not attach any supporting income documents, do the following:

    If Then
    The following items occur:
    • Unsupported withholding is equal to or greater than, ≡ ≡ ≡ ≡ ≡ ≡

    1. If a telephone number is available, attempt telephone contact with the taxpayer prior to corresponding in writing. Notate telephone actions on history sheet and/or AMS.

    2. If unable to contact by telephone, send appropriate correspondex letter requesting documentation to substantiate the claim.

    3. If the taxpayer supplies supporting documentation, allow withholding.

    4. If the taxpayer does not reply or supply supporting documentation- disallow unsupported withholding. Correct return. Send 474C letter with Pub 1 , Pub 5 , and Notice 746 .

    Note:

    If unsupported withholding is less than ≡ ≡ ≡ ≡ then process the return as filed.

5.18.1.8.2.3.22  (04-06-2016)
Excess Social Security

  1. Social Security Tax/Tier 1 Railroad Retirement Taxes (SST/RRT) are reported by payers on Form W-2.

  2. Refer to paragraphs 1 and 2 of IRM 21.6.3.4.2.4, Excess Social Security and RRTA Tier I Tax Credits, for information on wage limitations.

  3. Refer to paragraphs 3-5 of IRM 21.6.3.4.2.4 if excess social security is claimed on the back of Form 1040.

  4. If the taxpayer is claiming additional Excess Social Security and attaching a Stock Option Transaction statement to support the additional amount(s) claimed, take the following action:

    1. The W/H and/or FICA shown on these documents are already included in the Form W-2 and cannot be claimed again.

    2. DO NOT accept any Stock Option Transaction Statements as documentation to account for the Excess Social Security.

  5. Refer to paragraph 6 of IRM 21.6.3.4.2.4 if an adjustment to Excess Social Security is required.

5.18.1.8.2.3.23  (04-06-2016)
Telephone Excise Tax Refund (TETR)

  1. TETR refers to the Telephone Excise Tax Refund. This is a refundable credit for Tax Year 2006. Taxpayers may request a standard amount, actual amount, or estimation.

    Note:

    Math error procedures do not apply to the TETR credit claimed on the income tax return.

  2. Do not allow a claim for TETR credit. The statute for requesting TETR Credit expired on July 27, 2012 and cannot be accepted after that date.

5.18.1.8.2.3.24  (04-06-2016)
First Time Homebuyer Credit (FTHBC)

  1. Eligibility requirements for FTHBC claims will be determined by the purchase date on Form 5405 and whether claim requirements are under HERA, The Housing and Economic Recovery Act of 2008, ARRA, The American Recovery and Reinvestment Act of 2009, or WHBAA, The Worker, Homeownership and Business Assistance Act of 2009.

  2. Carefully review any claims received to ensure credits are claimed properly. Ensure future returns properly include any appropriate repayments.

  3. HERA (PL 110-289), enacted on July 30, 2008, allows a taxpayer who is a first time home buyer a refundable tax credit of the lesser of $7,500 ($3,750 for Married Filing Separate) or 10% of the purchase price. The law is effective for qualifying homes purchased on or after April 9, 2008, and on or before December 31, 2008.

    Note:

    See IRM 21.6.3.4.2.11.1, The Housing and Economic Recovery Act of 2008 (HERA) and the American Recovery and Reinvestment Act of 2009 (ARRA), for additional HERA information.

  4. ARRA (PL 111-5), enacted on February 17, 2009, allows a refundable tax credit of the lesser of 10% of the purchase price of the residence or $8,000. The credit is available for first time home buyers who purchased a home after December 31, 2008 and before December 1, 2009.

    Note:

    See IRM 21.6.3.4.2.11.1, The Housing and Economic Recovery Act of 2008 (HERA) and the American Recovery and Reinvestment Act of 2009 (ARRA), for additional HERA information.

  5. WHBAA (PL 111-92), enacted on November 6, 2009, extends the eligibility period for the first time homebuyer credit to purchases made before May 1, 2010. Taxpayers who have entered into a written binding contract before May 1, 2010, must close on the home before July 1, 2010 to qualify. This bill also establishes special rules for long-time residents and members of the Armed Services, Foreign Service officers and the intelligence community.

    Note:

    See IRM 21.6.3.4.2.11.2, Worker, Homeownership and Business Assistance Act of 2009 (WHBAA), for additional WHBAA information.

  6. Review and include recapture amounts appropriately. The following IRM sections include additional information on FTHBC and updating modules with FTHBC recapture amounts:

    • IRM 21.6.4.4.18, First-Time Homebuyer Credit

    • IRM 21.6.4.4.18.1, Recapture of First-Time Homebuyer Credit

    • IRM 21.6.4.4.18.4, Manually Adjusting the Recapture Amount

  7. Follow instructions in IRM 21.6.3.4.2.11.7, First-Time Homebuyer Adjusting Accounts, when adjusting all types of FTHBC. Use Credit Reference Number (CRN) 258 to allow/increase the credit and CRN 258 with a minus sign (-) to decrease the credit when adjusting an account for the FTHBC . The CRN converts to TC 766/767 Reference Number 258 at Master File. Enter only one of the following reason codes:

    • Use RC 109 (First Time Homebuyer Credit) when the home was purchased in 2008.

    • Use RC 110 (First Time Homebuyer Credit) when the home was purchased in 2009 or 2010.

    • Use RC 125 (First Time Homebuyer Credit) when the home was purchased by a long time resident (up to $6,500).

    • Use RC 126 (First Time Homebuyer Credit) only for homes purchased by first time home buyers that are military using their one year extension.

    • Use RC 127 (Requirement to repay the First Time Homebuyer Credit Waived) only for military forgiveness.

    • Use RC 128 (First Time Homebuyer Credit) - for homes purchased by first time homebuyer WITHOUT binding contract documentation attached.

    • Use RC 129 (First Time Homebuyer Credit) - for long time residents WITHOUT binding contract or 5 out of 8 year documentation attached.

      Caution:

      It is imperative to use the correct reason code when adjusting the 2008 accounts. This code will be used to identify homes purchased in 2008 that require repayment.

      Note:

      If the required documentation is missing treat the case as a Contact Math Error and request the missing documents from the taxpayer. See IRM 5.18.1.8.2.3.19.2, Math Errors Requiring Contact Prior to Correction.

    • If no response is received, the credit can be disallowed. Send a letter to the taxpayer explaining the reason the credit was disallowed. All Homebuyer credits of $5,000 or more where documentation is included will be referred per IRM 5.18.1.8.2.3.28, Examination Classification.

  8. Follow procedures in IRM 21.6.4.4.18.1, Recapture of First-Time Homebuyer Credit, to ensure appropriate repayments are made for FTHBC.

5.18.1.8.2.3.25  (04-06-2016)
Unsigned Returns

  1. A return is not valid without valid signatures. If the filing status is joint, both signatures must be present. The received date of the return is the date the complete return (including signatures) is received at IRS.

    Exception:

    Decedent Joint Returns

  2. Consider signatures on faxed and/or photocopied returns valid.

  3. The taxpayer signature is required below the jurat (perjury statement) in the "Sign Here" area of the return.

    Note:

    Accept the taxpayer's signature if the taxpayer has arrowed their signature to the appropriate area.

  4. If any signature appears to be altered or there is reason to believe that the signature is not the taxpayer’s or a party authorized to sign on behalf of the taxpayer, follow Fraud Referral procedures. See IRM 5.18.1.8.2.3.18, SBSE Fraud Referrals.

  5. IF THEN
    There is no signature The tax return is unprocessable and will not be accepted by the service. The tax return is to be mailed back to the taxpayer.
    • Do not date stamp the return with an operation received date.

    • Clerical will prepare Form 3531 “Request for Missing Information or Papers to Complete Return”

    • Clerical will update AMS history with USR (unsigned return) - and the site abbreviation (F, AU or BSC) to indicate that an unsigned return was received. For example USR-BSC.

      Note:

      The Form 3531 that ASFR will use is a pink version of the form.

    1. The form is to be attached to the unsigned return and mailed back to the taxpayer after technical screening for all issues.

    2. Once screened the Form 3531 can be used to identify all issues by checking the applicable box (es).

    3. Mail the Form 3531 and the return to the taxpayer’s address shown on the return envelope, the return may reflect a prior address. If there is no envelope then use the address of record from IDRS CC ENMOD.

    Exception:

    If the return was received from a tax preparer use the taxpayer’s address not the tax preparer address when mailing the return back to the taxpayer.


    Use local clerical procedures for processing returns to be mailed back to the taxpayer.
    IF There is an electronic filing PIN in the taxpayer signature box under the jurat Then Check IDRS CC TRDBV for an electronically filed return for that specific TY.
    • If there is a TRDBV for that TY a signature is not required, the return can be processed.

    • If there is NO TRDBV for the TY - a signature is required on the return and the Form 3531 and return must be sent to the taxpayer for signature. Ensure all outstanding issues are addressed on the Form 3531 to limit the number of times taxpayer contact is required. Box # 27 has been added to the Form 3531 addressing this issue.

  6. If the Form 3531 is returned without a signature on the return continue the ASFR process.

    IF The return is received back and it is still unsigned THEN
    and there is a default assessment input TC 290 for .00; update history on AMS.
    and there is no default assessment continue ASFR processing, wait for default; update history on AMS.
    the Form 3531 and the return come back undeliverable follow undeliverable mail procedures; continue ASFR processing; update history on AMS.

    Note:

    A new Policy for Use of Fax and Signature Stamps (fax policy) has been revised to increase the threshold amount for acceptance of consents to assess additional tax and taxpayer closing agreements by fax. Consents to assess additional tax of ≡ ≡ ≡ ≡ ≡ ≡ ≡ or less can be accepted by fax if the taxpayer contact has been made and case history documents the date of contact and the desire of the taxpayer to submit consent by fax.

5.18.1.8.2.3.26  (04-06-2016)
IDRS Adjustment Fields

  1. All ASFR adjustments are input on IDRS using CC REQ54 through the input on IAT XClaim. The terminal response to REQ54 is the ADJ54 screen. See IRM 4.13.7-10, Adjustment Items Job Aid.

  2. Before transmitting your adjustment, verify the data input on the ADJ54 screen. Verify entries against figures transcribed on the case history sheet.

5.18.1.8.2.3.26.1  (04-06-2016)
Blocking Series

  1. The Blocking Series appears as the 9th and 10th digit of the DLN. When adjustments post, the blocking series identifies the type of adjustment. Additionally, certain blocking series direct association of related documents. See Document 6209 for a complete list of Blocking Series.

  2. When inputting an adjustment on an ASFR module, do the following:

    Use blocking series: When:
    54 Inputting an ASFR assessment on modules when a 30-Day Letter was issued.
    32 Inputting an ASFR assessment on modules when a 90-Day Letter was issued.

    Note:

    Mid year 2007 change to IDRS command code ADJ54 prompts the requestor to remember to use Block 32 for MFT 30 (tax class 0 and 2).

  3. When inputting an adjustment on an ASFR Reconsideration do the following:

    Use blocking series: When:
    00 Inputting a Reconsideration assessment and the source document is an original return.
    05 Inputting a Reconsideration assessment without an original document as the assessment source document.
    18 Inputting a Reconsideration assessment without an original return as a source document and the default assessment posted prior to June 2005.
  4. When inputting an adjustment and part or all of the refund is barred by statute (RSED expired), use the appropriate blocking series for the secondary TC 290 transaction:

    Use Blocking Series: When:
    98 Completing a claim disallowance without the original return.
    99 Completing a claim disallowance with the original return.

5.18.1.8.2.3.26.2  (04-06-2016)
Date Fields

  1. Certain Date fields are required on ASFR adjustments. See the chart below to determine when a date should be input

  2. Identifying Date Fields - The table below lists the required date fields in the ADJ54 format and explains the purpose of each field.

    Date Field Purpose
    CORRESP-DT Used when the adjustment is in response to taxpayer correspondence. The date used is the date of the correspondence. If the taxpayer did not date the correspondence, use the postmark date. If the postmark date is unknown, use the date which is three days prior to the IRS received date. This date is shown in the generated response to the taxpayer.
    IRS-RECD-DT Used on all ASFR adjustments. The date used is the earliest IRS received stamped date on the case, or the date the return became processable when an invalid return is received. Refer to IRM 25.6.1.6.15, When a Document is Treated As Filed, and IRM 25.6.1.6.16, Processable - Unprocessable Returns, to determine the date the return is considered filed under IRC. This date is shown in the generated response to the taxpayer.
    RET-PROC-DT Used for all ASFR adjustments where a refund will be issued to the taxpayer.

    Note:

    Take all payments on the module into consideration. A balance due return may result in a refund if there are prepaid credits on the module.

    Normally, the date is the IRS received date. However, IRM 25.6.1.6.16, Processable - Unprocessable Returns, (when a return is processable for payment of overpayment interest to the taxpayer) and IRM 25.6.1.8.5, Processing Original Delinquent Returns Claiming An Overpayment, (when a delinquent original return claiming a refund is treated as filed using the postmark rule) to determine the date used.
    RFSCDT Used on ASFR adjustments when the RSED has expired. The date used is normally the earliest received date. RFSCDT and override indicator must be input for the adjustment to post. However, IRM 25.6.1.8.5, Processing Original Delinquent Returns Claiming An Overpayment, (when a delinquent original return claiming a refund is treated as filed using the postmark rule) and IRM 25.6.1.6.15, When a Document is Treated as Filed Under the IRC, (effect of submission of additional information) to determine the date to use.
    DB-INT-TO-DT Used on restricted Interest adjustments.
    AMD-CLMS-DT Used on ASFR and Reconsideration adjustments. An amended claims date is now required on every adjustment regardless of the 45 day period (See IRM 3.11.6.9.7, Amended Claims Date). The date used is normally the earliest IRS received date. See IRM 20.2.4.7.5.4, 45-Day Rule and Master File (Amended Returns and Claims), to determine the date to use.

    Note:

    All dates are input in month, day, year (MMDDYYYY) format.

5.18.1.8.2.3.26.3  (04-06-2016)
Source Code

  1. Source Codes generate a literal that appears on the "Notice of Adjustment to Your Account" , CP 21/22, that the taxpayer receives after an adjustment is posted on IDRS. See Document 6209 Chapter 8 for more information on Source Code, including the actual literals that appear on the Notice.

  2. Source Codes (SC) must be entered when processing ASFR returns and Reconsiderations. The following SCs are normally used for ASFR returns and Reconsiderations:

    Source Code: Literal Used When
    0 Does not generate a literal.
    • Inputting a TC 290 for $ .00 amount with no reference number

    • Releasing a freeze, or

    • Associating documents with a filed source document.

    • No literal should appear on the Notice.

    1 As you requested, we changed your account for (YYYYXX) to correct your (RC). See IRM 5.18.1.8.2.3.26.4, Reason Codes. Use when inputting an ASFR or ASFR Reconsideration adjustment based on a filed return
    2 We changed your tax year account to reflect your Use when processing a return with a math error
    4 We changed your tax account for (YYYYXX) to correct an error we made. We apologize for any inconvenience we caused. The change will correct your (RC). See IRM 5.18.1.8.2.3.26.4, Reason Codes. Correcting an error made by an IRS employee

    Note:

    See Document 6209 , Chapter 8 for a complete list of Source Codes.

5.18.1.8.2.3.26.4  (04-06-2016)
Reason Codes

  1. Reason Codes should be input on all adjustments based on a filed return. The reason code appears in the source code literal on the Notice. There are four reason code positions on the ADJ54 screen.

    Note:

    See Document 6209 Chapter 8 for more information on Reason Codes, including the actual literals that appear on the Notice.

  2. For ASFR returns and ASFR Reconsiderations use at least one reason code and up to three reason codes on the ADJ54 screen.

  3. The fourth position is reserved for penalty reason codes. See Document 6209 Chapter 10 for a complete list of penalty reason codes. See IRM 5.18.1.8.2.3.13.11, Requests for Penalty Abatement, and IRM 20.1.1.3, Criteria for Relief From Penalties, for complete instructions on penalty abatement.

5.18.1.8.2.3.26.5  (04-06-2016)
Priority Code

  1. Use Priority Code 2 per IRM 5.18.1.8.2.3.16, Penalties.

  2. When a J- freeze is present, due to an excess estimated tax credit freeze (taxpayer claimed less credit than what is available on IMF), the freeze is released with input of TC 290 for $.00 and a Priority Code 8.

  3. For additional instructions on priority codes Document 6209, Section 8C Master file codes.

5.18.1.8.2.3.26.6  (04-06-2016)
TC Fields

  1. Transactions are input in the TC fields with the applicable money amounts. Unless penalties and interest are manually calculated, the only TCs input are TC 290 and TC 170. Common transaction codes are listed below:

    Transaction Code Definition
    TC 290 Additional Tax Assessment - May include:
    • Self Employment Tax - Schedule SE

    • Social Security/Medicare Tax - Form 4137

    • Tax on Qualified Plans - Form 5329

    • Advanced Earned Income Credit

    • Household Employment Tax - Schedule H

    • Alternative Minimum Tax - Form 6251

    TC 160 Manually computed Failure to File penalty. Use only when manual computation is required.
    TC 170 Estimated Tax Penalty.
    TC 270 Manually computed Failure to Pay penalty. Use only when manual computation is required.
    TC 190 Manually computed interest. Use only when manual computation is required.

5.18.1.8.2.3.26.7  (02-24-2015)
Reference Fields

  1. Input the following credit reference numbers and money amounts, when applicable:

    1. Ref 764 to post earned income credit.

    2. For adjusting accounts where the original return posted December 31, 2006 and prior, input credit reference number (CRN) 806 to allow the excess Social Security or RRTA Tier I tax withheld. Input CRN 807 with a minus (-) to reduce the previously allowed excess Social Security or RRTA Tier I tax. Use Reason Code 055, and the appropriate SC and blocking series.

    3. For adjusting accounts where the original return posted January 1, 2007 and subsequent, input Credit Reference Number (CRN) 252 to allow the excess Social Security or RRTA Tier I tax withheld. Input CRN 252 with a minus (-) to reduce the previously allowed excess Social Security or RRTA Tier I tax. The CRN 252 will generate a transaction code (TC) 766 or TC 767. Use appropriate Reason Code , source code, and SC blocking series.

    4. Ref 878 to post self-employment income, assess only if the income results in SE tax, Schedule SE on a taxpayer return, or from the total self-employment income from the Proposed Individual Income Tax Assessment, Letter 2566.

    5. Ref 879 to post self-employment income on a secondary TIN. Assess if the income results in SE tax only. (Ensure secondary TIN posted to entity for specific year 879 will post.) Take this amount from Schedule SE on taxpayer's return.

    6. Ref 885 to post an advanced earned income credit allowed.

    7. Ref 886 to post amount of taxable income. This amount is total income less adjustments, exemptions and deductions as shown on taxpayer return. On the Proposed Individual Income Tax Assessment, Letter 2566, this is income less exemptions.

    8. Ref 887 to post correct number of exemptions. Input reference number with number of additional exemptions indicated.

    9. Ref 888 to post adjusted gross income when TC 150 posted after 1/1/86. This amount is income less adjustments before any exemptions are subtracted

    10. Ref 889 to post any self-employment tax adjustments.

    11. Ref 891 to post allocated tip income (primary).

    12. Ref 892 to post allocated tip income (secondary).

    13. Ref 895 to post primary TIN medicare income.

    14. Ref 896 to post secondary TIN medicare income.

    15. Ref 898 to post primary medicare TIP income

    16. Ref 899 to post secondary medicare TIP income

    17. Ref 999 - The secondary account based on a primary Account filing

5.18.1.8.2.3.26.8  (04-06-2016)
Source Documents

  1. Source Documents are the case files that are sent to Submission Processing Files for association with Forms 5147. A Form 5147 generates for all adjustments input on IDRS. Form 5147 contains the DLN, and all data input on the ADJ54 screen. Files staples the Form 5147 to the source document and files the source document per the DLN. The ADJ54 contains a required field that notifies Files if a source document is associated with the Form 5147. Valid values for the source document field on the ADJ54 screen are:

    • "Y" - indicates there is a source document, and it will be sent to Files in an "A" folder.

    • "N" - indicates there is no source document.

    • "R" - indicates that there is a source document, but it has been retained by the employee.

    See IRM 5.18.1.8.2.3.29, Assembly of Source Documents.

5.18.1.8.2.3.26.9  (10-01-2005)
Remarks on ADJ54

  1. The remarks field is a required entry on the ADJ54 screen. Input a remark that indicates why the assessment was input. When used, the IAT tool will populate the remarks field. See examples of other possible remarks below:

    • ASFR Refund Return

    • ASFR Statute Barred Return

    • ASFR Bal Due Return

    • Request for Penalty Abatement denied.

5.18.1.8.2.3.26.10  (06-21-2013)
Lien Fee

  1. A lien fee (TC 360) is assessed by the Service for costs associated with filing a notice of lien. TC 360 is also used to assess other collection costs such as those incurred while conducting a seizure. Regardless of the tax liability, do not reverse the TC 360 unless directed by the Field or Advisory.

    Note:

    If TC 360 has not been addressed when an abatement in full is received from the Field, contact the Field RO to determine if the fee should also be abated.

    Exception:

    If it is determined that an ASFR assessment was processed on an ID Theft case, and if when reversed the tax liability is zero, and there is a TC 360 (lien fee assessment) posted, abate the fee.

  2. If a return is received that results in an abatement of all tax liability then review the account for a TC 360. If a fee is present send the TP correspondence advising them they are responsible for the fee. If the taxpayer wishes to pursue abatement of the fee they must contact Advisory to request having the fee removed.

  3. If telephone contact or written correspondence is received from the TP or third party requesting abatement of the fee the TP should be advised that they are responsible for the fee. If the taxpayer wishes to pursue abatement of the fee they must contact Advisory to request having the fee removed.

    Note:

    The Advisory office where the taxpayer currently resides would handle the request.

5.18.1.8.2.3.26.11  (10-03-2012)
Re-initiating Collection on Reconsiderations

  1. ASFR Reconsiderations in TDA status should have a TC 470 input to halt collection enforcement. Take the following actions:

    IF THEN
    The action taken results in a zero or credit balance Input a TC 472.
    The action taken results in a remaining balance due Input a TC 472.
    The action taken results in the case being closed on the 1st day it is worked, there is NO requirement to input TC 470/TC 472. Document history/AMS to indicate the case was worked and closed on the same day.

    See Document 6209 conditions

5.18.1.8.2.3.27  (01-25-2008)
Entity Update

  1. Update MF entity information per any return being processed manually.

  2. Use CC ENREQ to update the address, name line and filing status when the MF entity information differs from the return.

5.18.1.8.2.3.28  (12-30-2011)
Examination Classification

  1. All ASFR Returns and ASFR Reconsiderations meeting local SFR Screening Matrix Criteria must be referred to Classification after the return has been processed and the adjustment posted to IDRS.

  2. When Examination Classification referral is needed:

    1. Input assessment.

    2. Retain source document (Taxpayer's Return).

    3. Use IDRS CC ESTAB (T) to recharge to Exam.

    4. Use Form 5101 or locally approved referral form to route cases to Exam.

    5. Close any open ASFR control base on IDRS.

    6. Attach IRPTR print for both primary and secondary taxpayers when under and unreported income is an issue

  3. Forward the closed case file to Exam Classification by use of Form 3210, document Transmittal. Copy of Form 3210 must be retained for one year.

  4. International returns Form 1040 and Form 1040NR with Form 2555 or Form 2555EZ attached should be sent to Philadelphia Service Center based upon the "Processed International Return Procedures" identified below.

    Processed International Return procedures:

    • Forward on Form 3210 the processed delinquent International Returns that contain a Form 2555 or Form 2555EZ to Philadelphia Service Center.

    • Use a separate Form 3210 for each of the three programs: ASFR, ASFR Reconsiderations, and Non-Filer (HINF).

    • Send return to:

      Internal Revenue Service

      4–E08.141

      Examination Classification

      2970 Market St.

      Philadelphia, PA 19104

5.18.1.8.2.3.29  (04-06-2016)
Assembly of Source Documents

  1. When adjustment is completed, assemble source documents in the order below:

  2. ASFR cases must have the following documents:

    • Taxpayer return if present, with envelope attached

    • Any taxpayer correspondence and envelope attached

    • Any returned statutory notice, with envelope attached. Do not include unclaimed or refused statutory notice when TC 971 with AC 520 is present on IDRS.

    • A copy of LPAGE for all correspondex letters generated to the TP by the TE.

    • Attach a copy of the IAT XClaim Form 12249

    Note:

    All other ASFR documentation will be stored on the ASFR Archive database.

  3. Reconsiderations must have the following documents:

    • Taxpayer return if present, with envelope attached

    • Any taxpayer correspondence and envelope attached

    • A copy of LPAGE for all correspondex letters generated to the TP by the TE.

    • Attach a copy of the IAT History Sheet if used.

  4. Based on the value input on the ADJ54 screen source document field, do the following: (See IRM 5.18.1.8.2.3.26.8, Source Documents).

    If on the ADJ54 screen Then
    A "Y" was input in the Source Document field. Place source documents in an "A" folder and route to Files per local procedures.
    An "R" was input in the Source Document field. The source document has been retained and is considered charged out to the employee who input the adjustment. The source document should either be filed or re-charged.

5.18.1.8.2.3.30  (04-06-2016)
Updating ASFR When A Filed Return is Assessed on IDRS

  1. When the taxpayer files a return and an assessment is input to IDRS based on the return, update ASFR as follows:

    • Update ASFR to Status 101 if there is $ .00 tax per the return and a TC 290 was $.00 was input on IDRS. See IRM 5.18.1.5.11.50, Status 101: CLOSED, No ASFR Assessment (TC 290 zero).

    • Update ASFR to Status 103 or Status 105 if the tax was greater than $ .00 and a TC 290 for an amount greater than $ .00 was input on IDRS. See IRM 5.18.1.5.11.52, Status 103: Closed Post 30-Day Letter, return secured, or IRM 5.18.1.5.11.54, Status 105: Closed Post 90-Day Letter, return secured.

    • If a TC 494 is present on the module, a TC 495 must be input.


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