This table shows the fields displayed.

Error Code 258 generates when Section 33 is present and either:

Error Code 258 generates when Section 33 is present, Form 8615 Tax Verified (Field 3318V) is not present and either of the following exist:

Error Code 558 generates when a math error is not present and any of the allowable Carryover Statutory Credits differ from their respective computer generated amounts.

Take the following correction procedures first:

DLSEC 33 if EC 258 displays because of a previous math error (i.e., the difference between Taxable Income and Taxable Income Computer is $500.00 or more). If EC 265 displays, assign TPNC 220 if applicable.

Check the name area, page 1 of Form 1040, and the signature area, page 2, to ensure if an entry belongs in Field 01NL2.

Use the following table if EC 258 displays (TY98 and later) because Taxable Income Computer is present and Form 8615 Tax (Field 3318) is not present:

SSPND 410 to the Lead Tax Examiner anytime Form 8615 has to be manually computed.

Use the following table when a tax return has a Form 8615 (unique situations will exist):

Take the following actions when the taxpayer indicates that they will pay the MAXIMUM tax rate or sends in an incomplete return and he/she requests the IRS to compute the tax on Form 8615, even if the Form 8615 is not present:

≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ writes "Estimated" on certain lines of Form 8615.

This field is for ERS input only. It is to be used when the taxpayer has used a special computation and the computer cannot arrive at the correct taxable income.

Use the following table to correct Field 3301:

Delete any negative entries on this line.

Research return attachments for the parent's Taxable Income amount. If not located, research the parent's return, on RTVUE, to see if the parent's Taxable Income can be located.

If an amount is not present on line 6, if located, enter the parents' taxable income computer amount into Field 3306. If you cannot locate the parents' taxable income amount, SSPND 211.

This field is transcribed from line 18 of the Form 8615.

The computer's amount for Form 8615 Tax will be set equal to the taxpayer's figure for Form 8615 Tax.

This field is to be used whenever the computer cannot correctly compute the Form 8615 Tax.

Correct coding and transcription errors and misplaced entries on displayed fields.

Refer to all instructions for the error code.

Enter C in the Clear Field if there are no corrections to be made.

TY87 through TY98 — ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

If the taxpayer indicates that they will pay the MAXIMUM tax rate or sends in an incomplete return and they request IRS to compute the tax, Form 8615, even if the Form 8615 is not present, do the following:

This table shows the allowable Taxpayer Notice Codes for Error Code 258.

If you are processing a conversion (a return converted to a Form 1040) you must assign TPNC 111 if a math error exists. This is in addition to other applicable notice codes.

The following fields are displayed:

Error Code 259 generates when all of the following are present:

Error Code 559 generates when all of the following are present:

Correct coding and transcription errors and misplaced entries on displayed fields.

If Form 8889 is incomplete (lines 18 thru 21 must be completed) SSPND 211.

The taxpayer's income from line 21, Form 8889 must be reflected in the taxpayer's income on line 21 Form 1040. Make corrections as follows:

Refer to all instructions for the error code.

Correct coding and transcription errors and misplaced entries on displayed fields.

Enter C in the Clear Field if there are no corrections to be made.

This table shows the allowable Taxpayer Notice Codes for Error Code 259.

If you are processing a conversion (a return converted to a Form 1040) you must assign TPNC 111 if a math error exists. This is in addition to other applicable notice codes.

The following fields are displayed:

Error Code 260 generates when Computer Condition Code Y is present in Field 01CCC.

Correct coding and transcription errors and misplaced entries on displayed fields.

Any Form 1040/A with the literal "Stimulus Payment" , "Stimulus Plan" , "ESP" , "Payment" , "Rebate" or any similar statement will be forced to ERS by Code & Edit to be processed when there are more than 4 dependents and/or Form 8901 is attached. See IRM 3.12.3.3.16 and follow the procedures.

For a Form 1040-EZT that was converted to a Form 1040EZ and CCC "Y" is present, then do the following:

Tax Examiners are to manually verify Tax, Credits, Other Taxes, and Refundable Credits utilizing verified fields or CC GTSEC, as necessary. The verified fields must be utilized whenever the computer cannot compute the correct Total Tax Liability. Refer to IRM 3.12.3.72.1.18 before doing a manual computation.

CCC Y is edited by Code and Edit or generated by the computer on certain returns to force them to ERS. Code and Edit will also leave an Action Trail when editing CCC Y. These returns require special handling and/or special tax computation because the computer is not programmed to compute the correct tax assessment. Some of the most common Y Coded cases are listed here with correction procedures following.

Manual Refunds —Any return hand walked by a W & I SP liaison for Taxpayer Advocate Service (TAS) as a manual refund should be processed by a Lead Tax Examiner or designated tax examiner using the following procedures in the order listed:

Ensure that any taxpayer "write-in" amounts are entered in the appropriate fields. Refer to EC 330 for "write-in" amounts.

Delete CCC Y when edited incorrectly by Code and Edit.

Enter C in the Clear Field after all corrections have been made.

This field is for ERS input only. It is to be used when the taxpayer has used a special computation or when the computer cannot arrive at the correct taxable income. Refer to Prior Year Job Aid, 2515–014.

The computer is programmed to compute tax for Tax Periods ending 200612 through 200812. Therefore, a manual computation will be required on all returns prior to TY05.

Code and Edit will edit CCC Y if a prior year Form 1040/A has a BMF Form 940/EZ or 942 attached. SSPND 430 to Rejects for determination of Household Employment Tax liability.

All other instructions for correcting prior year returns will be found under the appropriate error codes.

A fiscal year return is a twelve month period that ends on the last day of any month other than December.

Special computations are necessary for the following:

Tax computation may be different for the two calendar year periods within the fiscal year.

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

The taxpayer will file a Short Year Tax Return when changing an accounting period. Except in situations where an automatic change is available, the taxpayer must then apply for and receive permission before a change of the tax period can be accepted. Be sure CCC Y is present to change the Accounting Period at the Master File. SSPND 211 if one of the following is not attached to the return:

It is not necessary to change Accounting Period for Bankruptcy (IRC Section 1398 Election) returns; therefore Form 1128 is not necessary. If a return is identified as a "Bankruptcy" return, verify the taxpayer's amount of tax and enter in Field 0444V. Then enter C in the Clear Field. Do not delete CCC Y.

The tax for Short Year Tax Returns must be computed on the basis of Annualized Income (except for a Short Year FINAL return, see note). See IRM 3.12.3.71.5.8.

Itemized Deductions must be used in computing annualized net income or the tax on such income. If No Reply or "No Itemized Deductions" is indicated, use zero itemized deductions to compute the tax. (No Standard Deduction is allowed.)

Withholding credit are only allowed on returns for periods which contain the month of December because Form(s) W-2 are written for calendar years. For Example: If a taxpayer files a Short Year return for January 14 through September 30, they cannot claim the withholding shown on their Form(s) W-2 for that tax period. The withholding credit will be allowed on the taxpayer's return for the filing year beginning October 1 because December will be included in this tax period.

When the taxable income is based on the Annualized Basis, the Credits are also limited in the same manner. The credit to be allowed must be computed using the same percentage used to prorate the Exemption amount and entered separately, then the computer will allow the credit against the tax on the basis of annualized taxable income.

A net operating loss for a Short Year Taxable Return is to be computed in the regular manner, by reference to the actual income and deductions for the Short Taxable Year without placing them upon an annualized basis. Code Section 441(a) provides that only "Taxable Income" is to be annualized. The same rule would apply in computing a net operating loss carryover where one of the intervening years is a Short Taxable Year. The amount of the loss allowable would be determined by the actual net loss income of the short year without annualization.

For Self Employment Quarters Covered on Schedule SE, determine the entry in Field 17QC using the following:

Total Annualized Income is:

Determine the Taxable Income on a Short Year Tax Return as follows:

To compute the tax, use the Total Annualized Income and appropriate tax rate table or schedule, then use the same percentage used to prorate the exemption amount to prorate the tax.

The following is another formula to determine the tax on a Short Year Tax Return. Both of these formulas will give the same result:

When a taxpayer changed to a 52–53 week fiscal year, the tax is annualized in the same manner except the computation is done on a daily basis, rather than a monthly basis. If the taxpayer used total days in a year instead of months (12), you can use the same formula. Substitute 365/366 days for 12 months and divide by the number of days in the period covered to get your prorated percentage.

On other than a Joint Return if the taxpayer died after December 31, 2008 and the return for 200912 is early filed, process by using the tax period for the month and year the death occurred. The Code and Edit examiner will Y Code Early Filed other than Joint Decedent Returns. The Y Code also serves the purpose of changing the accounting period at MCC; therefore leave the Y code whether or not it is needed for tax computation. Taxpayers are entitled to 2008 computations. 2008 SE Tax Computation and 2008 Tax Rate Schedules can be found in the Form 1040ES Tax Packet.

If a joint return is filed early and both taxpayers are not deceased SSPND 480 until January. Wait until January to request any missing information since you cannot process the return any sooner.

If both the primary and secondary taxpayer died during the tax period of the return, enter CCC A.

If the taxpayer is deceased and the date of death is not present, SSPND 211.

If the taxpayer claims a fractional exemption and Code and Edit has not edited Unallowable Code 56, enter Unallowable Code 56 in Field 02CD1 and the fractional portion of $3,500 claimed in Field 02AM1. Refer to IRM 3.12.3.5.3.

Unallowable Code 70 is edited by Unpostables on returns when the taxpayer has claimed FSC 5 for more than two years. They will Y Code these returns and change the FSC to 4. Take the following actions:

Unallowables identified on an Electronically Filed Return (ELF) will generate Y in Field 01CCC for manual verification of the unallowable condition. Initiate the following action:

Taxpayers who reside in a community property state may allocate their income, deductions, etc., on their tax returns. Taxpayers may file as FSC 1, 3, or 4. Depending on the method of proration used, the computer may not always agree with the taxpayer. Manually verify all community property returns.

The community property states are:

If there are Forms W–2G, gambling winnings, (or similar statement) but the taxpayer did not give an exact breakdown of winnings and losses, (netted to zero on line 21), Code and Edit will Y code the return and leave a "working trail" on the bottom right margin, indicating "Gambling" . This is an indication to ERS that there are Forms W–2G attached and you should add these together and include in the Other Income field as follows:

When a return is a joint Non-Compute, a CCC Y will be assigned if both of the following conditions exist:

When the combined total tax for Married Filing Separate computes less than the tax using Married Filing Joint computation, adjust the return (if Form 1040EZ, SSPND 610). GTSEC the appropriate sections for the PRIMARY taxpayer and adjust the following fields:

Prepare a Non-Compute return for the SECONDARY taxpayer by taking the following actions:

Enter C in the Clear Field, when Married Filing Separate computation total is more than the Married Filing Joint computation.

When the preceding procedures have been followed, enter C in the Clear Field when no further corrections are needed to the record.

This is an ERS Input Only field. When the computer cannot arrive at the correct tax, the Tentative Tax is entered in this field. On returns prior to TY05, ensure Form 8814 Tax and Form 4972 Tax are correctly computed (if present), before entering tentative tax verified.

This is an ERS Input Only field. It is used when the taxpayer has used a special computation and the computer cannot arrive at the correct total tax. The total tax is manually computed and entered in this field.

Code and Edit will edit CCC Y for any combat zone or military return that has either of the following:

If an unsupported "write-in" exclusion amount is present (i.e. shows an exclusion of wages for serving in an area other than the ones listed in IRM 3.12.3.3.9):

Returns Identified as KITA by Technical will be coded for processing and walked through pipeline for processing.

KITA returns will be coded by Technical as follows:

Error Code 260 displays because the total tax taxpayer (line 61/37) will not match IMF Total Tax Computer amount. Use the following correction procedures listed to process these returns.

The following fields are displayed:

Error Code 261 generates when all of the following exist:

Error Code 561 generates when both of the following exist:

Correct coding and transcription errors and misplaced entries on displayed fields.

If the taxpayer checks the box on 44a Form 1040 and Form 8814 is incomplete or missing, SSPND 211.

If the taxpayer has an entry on line 3, Form 8814, the taxpayer must file Schedule D. SSPND 211 if Schedule D is not present, or if Schedule D is present and it can be determined that the taxpayer has failed to include the line 3, Form 8814, income on Schedule D.

If more than three Forms 8814 are attached:

The taxpayer's income from line 12, Form 8814, must be reflected on line 21, Form 1040. Make corrections as follows:

If Field 4004> differs from the entry on line 4, Form 8814, Assign TPNC 100 with the following literal:
"We changed the amount of tax on page 2 of your tax return. This change resulted because of an error figuring the tax amount on Form 8814, Parents' Election To Report Child's Interest and Dividends."

Taxpayer cannot file Form 8814 if line 4, Form 8814 is $9,000 ($8,500 for TY 07 and TY06, $8,000 for TY05) or more, then do the follow:

DLSEC 40 and enter 1 in Field 01DSI if all of the following exist:

Assign TPNC 100 with the following literal: If the taxpayer made an error figuring the tax amount on Form 8814:"We changed the amount of tax on page 2 of your tax return. This change resulted because of an error figuring the tax amount on Form 8814, Parents' Election To Report Child's Interest and Dividends" .

Correct coding and transcription errors and misplaced entries on displayed fields.

Refer to all instructions for the error code.

Enter C in the Clear field if there are no corrections to be made.

TY97 and prior — The taxpayer may have indicated Prior Year "CGD" to the left of lines 5 or 6 on Form 8814. This indicates a Capital Gains Distribution amount that the taxpayer should carry over to Schedule D. If the taxpayer indicates "CGD" , ensure that Schedule D is present and the amount has been included in Field 1215.

If Field 4004> differs from the entry on line 4, Form 8814, Assign TPNC 100 with the following literal:
"We changed the amount of tax on page 2 of your tax return. This change resulted because of an error figuring the tax amount on Form 8814, Parents' Election To Report Child's Interest and Dividends."

The taxpayer cannot file Form 8814 if line 4 is equal to or exceeds the amounts listed in the following table for the tax period of the return.

This table shows the allowable Taxpayer Notice Codes for Error Code 261.

If you are processing a conversion (a return converted to a Form 1040) you must assign TPNC 111 if a math error exists. This is in addition to other applicable notice codes.

This table shows the fields displayed.

Error Code 262 generates when all of the following exist:

Error Code 562 generates when both of the following exist:

Correct coding and transcription errors and misplaced entries on displayed fields.

If the taxpayer checks the box on 44a Form 1040 and Form 8814 is incomplete or missing, SSPND 211.

If the taxpayer has an entry on line 3, Form 8814, the taxpayer must file Schedule D. SSPND 211 if Schedule D is not present, or if Schedule D is present and it can be determined that the taxpayer has failed to include the line 3, Form 8814, income on Schedule D.

If more than three Forms 8814 are attached:

The taxpayer's income from line 21 Form 8814, must be reflected on line 21, Form 1040. Make corrections as follows:

If Field 4004> differs from line 4, Form 8814 amount, then assign TPNC 100 with the following literal:
"We changed the amount of tax on page 2 of your tax return. This change resulted because of an error figuring the tax amount on Form 8814, Parents' Election To Report Childs Interest and Dividends."

The taxpayer cannot file Form 8814 if line 4 of Form 8814 is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , then do the following:

DLSEC 41 and enter 1 in Field 01DSI if all of the following exist:

If the taxpayer made an error figuring Form 8814, assign TPNC 100 with the following literal:
"We changed the amount of tax on page 2 of your tax return. This change resulted because of an error figuring the tax amount on Form 8814, Parents' Election To Report Child's Interest and Dividends."

Refer to all instructions for the error code.

Verify that transcription errors, omissions, or other conditions have been corrected.

Enter C in the Clear Field if there are no corrections to be made.

TY97 and prior — The taxpayer may have indicated Prior Year "CGD" to the left of lines 5 or 6 on Form 8814. This indicates a Capital Gains Distribution amount that the taxpayer should carry over to Schedule D. If the taxpayer indicates "CGD" , ensure that Schedule D is present and the amount has been included in Field 1215.

If Field 4004> differs from line 4, Form 8814 amount, then assign TPNC 100 with the following literal:
"We changed the amount of tax on page 2 of your tax return. This change resulted because of an error figuring the tax amount on Form 8814, Parents' Election To Report Childs Interest and Dividends."

The taxpayer cannot file Form 8814 if line 4 is equal to or exceeds the amounts listed in the following table for the tax period of the return.

If the taxpayer made an error figuring Form 8814, assign TPNC 100 with the following literal:
"We changed the amount of tax on page 2 of your tax return. This change resulted because of an error figuring the tax amount on Form 8814, Parents' Election To Report Child's Interest and Dividends."

This table shows the allowable Taxpayer Notice Codes for Error Code 262.

If you are processing a conversion (a return converted to a Form 1040) you must assign TPNC 111 if a math error exists. This is in addition to other applicable notice codes.

The following fields are displayed:

Error Code 263 generates when all of the following exist:

Error Code 563 generates when both of the following exist:

Correct coding and transcription errors and misplaced entries on displayed fields.

If the taxpayer checks the box on 44a Form 1040 and Form 8814 is incomplete or missing, SSPND 211.

If the taxpayer has an entry on line 3, Form 8814, the taxpayer must file Schedule D. SSPND 211 if Schedule D is not present, or if Schedule D is present and it can be determined that the taxpayer has failed to include the line 3, Form 8814, income on Schedule D.

If more than three Forms 8814 are attached:

The taxpayer's income from line 21 Form 8814, must be reflected on line 21, Form 1040. Make corrections as follows:

If Field 4004> differs from line 4, Form 8814 amount, then assign TPNC 100 with the following literal:
"We changed the amount of tax on page 2 of your tax return. This change resulted because of an error figuring the tax amount on Form 8814, Parents' Election To Report Childs Interest and Dividends."

The taxpayer cannot file Form 8814 if line 4 is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , then do the following:

DLSEC 42 and enter 1 in Field 01DSI if all of the following conditions exist:

If the taxpayer made an error figuring Form 8814, assign TPNC 100 with the following literal:
"We changed the amount of tax on page 2 of your tax return. This change resulted because of an error figuring the tax amount on Form 8814, Parents' Election To Report Child's Interest and Dividends."

Refer to all instructions for the error code.

Verify that transcription errors, omissions, or other conditions have been corrected.

Enter C in the Clear Field if there are no corrections to be made.

TY97 and prior — The taxpayer may have indicated Prior Year "CGD" to the left of lines 5 or 6 on Form 8814. This indicates a Capital Gains Distribution amount that the taxpayer should carry over to Schedule D. If the taxpayer indicates "CGD" , ensure that Schedule D is present and the amount has been included in Field 1215.

If Field 4004> differs from line 4, Form 8814 amount, then assign PNC 100 with the following literal:
"We changed the amount of tax on page 2 of your tax return. This change resulted because of an error figuring the tax amount on Form 8814, Parents' Election To Report Childs Interest and Dividends."

The taxpayer cannot file Form 8814 if line 4 is equal to or exceeds $9,000 ($8,500 for TY07 and TY06, $8,000 for TY05) then do the following:

This table shows the allowable Taxpayer Notice Codes for Error Code 263.

If you are processing a conversion (a return converted to a Form 1040) you must assign TPNC 111 if a math error exists. This is in addition to other applicable notice codes.