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Part 4. Examining Process

Chapter 4. AIMS Processing

Section 3. Adjustments—Miscellaneous

4.4.3  Adjustments—Miscellaneous

4.4.3.1  (03-01-2003)
Introduction

  1. This chapter contains instructions for processing miscellaneous adjustments.

    1. Refunds to anyone other than the taxpayer in whose name the tax was paidSee IRM 4.4.3.6.

    2. Erroneous Refunds See IRM 4.4.3.9.

    3. Reprocessing Returns See IRM 4.4.3.10.

  2. For related information see IRM 4.4.8, Credit Transfers and Miscellaneous Adjustments Chapter.

4.4.3.2  (03-01-2003)
Crediting Overpayments to Related Taxpayer

  1. Examination of related taxpayers by Examination sometimes results in adjustments increasing tax for one and decreasing tax for the other. This usually occurs between parent and subsidiary corporations or between trusts and beneficiaries. Often the taxpayer will agree that the refund on one (related taxpayer) should be applied to the additional tax of the other (primary taxpayer). This agreement is documented in the form of a consent signed by the related taxpayer and made part of the case file. It is in the interest of IRS to honor this offset.

  2. The Technical Support Staff function will attach Form 3198 to the related case file. The "other" box at the bottom of Form 3198 will be checked, and the primary taxpayer’s name, EIN or SSN, and tax period of additional tax will be shown. The case file of the primary taxpayer, including the Form 5344 or 5403 reporting additional tax, will be associated with the related taxpayer’s file.

  3. Prior to processing either Form 5344 or 5403, secure a transcript of the module to be adjusted for the related taxpayer.

4.4.3.2.1  (02-08-1999)
Debit Module Balance

  1. If the module balance is debt, notify the Technical Support Manager that the consent amount cannot be offset because the related taxpayer owes money on the account. Request a determination of whether to return the entire case for a new consent or process the case without making the offset.

4.4.3.2.2  (02-08-1999)
Zero/Credit Module Balance

  1. If the module balance is zero (as it will be in most cases) or credit, prepare Form 2424 for transfer from MF to MF or from MF to NMF and Form 3809 with Document Code 58 for those from NMF to MF. Interest is computed to the schedule date on an overpayment applied to a deficiency of another taxpayer. If either portion relates to a NMF account, follow the instructions for combination NMF and MF cases in Text 4.4.3.4 or 4.4.3.5 except, in this case, the schedule date will be the transaction date. Also, if both the overpayment and allowable interest are being transferred from MF to NMF, the debit document will carry both TC 820 and TC 850 with their respective amounts and the credit copy will carry only the total amount of the two items. If the transfer is from one MF account to another, follow the instructions below.

4.4.3.2.2.1  (02-08-1999)
Debit portion (overpayment account)

  1. Enter the taxpayer’s name, EIN or SSN, MFT code, tax period and transaction date (schedule date).

  2. Enter TC 820 as the first transaction and enter the amount of overpayment credit being applied. Do not include allowable interest.

  3. Enter TC 570 as the second transaction and "BLANK" for the amount if more than one transfer document is to debit the same tax module.

  4. Enter TC 850 as the third transaction and the amount of allowable interest if such interest is also being transferred to the same tax period.

4.4.3.2.2.2  (02-08-1999)
Credit portion (account receiving credit)

  1. Enter the taxpayer’s name, EIN or SSN, MFT code, tax period receiving credit, and transaction date (schedule date).

  2. Enter TC 700 as the first transaction and enter the amount of overpayment credit being applied (not including allowable interest).

  3. Enter TC 570 as the second transaction and "BLANK" for the amount unless the deficiency has already been assessed and is outstanding.

  4. Enter TC 730 as the third transaction with the amount of allowable interest. This should agree with the amount of TC 850 on the debit portion.

4.4.3.2.2.3  (02-08-1999)
Process Form 5344 or 5403

  1. If the offset is to be made as described above, follow these instructions in addition to routine processing.

    1. Related taxpayer—Use Hold Code 1 to prevent a refund. Input the document immediately.

    2. Input Form 2424 or 3809 to post four cycles after the related or overpaid Form 5344 or 5403. Input Form 5344 or 5403 to the primary or additional tax module one cycle after Form 2424 or 3809 to assure that the credit is available at the time of settlement

4.4.3.3  (02-08-1999)
Crediting NMF Overpayments Against MF Deficiency as the account number.

  1. Prepare Form 1331; enter the overpayment in the credit column and enter the taxpayer’s EIN or SSN

  2. Prepare Form 3809 to transfer the credit from NMF to MF. Hold the MF Form 5344 or 5304 for two cycles.

4.4.3.3.1  (02-08-1999)
Debit Portion

  1. Enter the taxpayer’s name and address, return form number and tax period with overassessment; check the NMF block, and leave the account number and transaction code blank.

  2. Enter the transaction date (due date of overpaid return, paid date or date of restricted interest overpayment, whichever is latest).

  3. Enter the debit amount (total overpayment credit applied). Prepare a separate Form 3809 if allowable interest is being applied, using the schedule date as the transaction date.

4.4.3.3.2  (02-08-1999)
Credit Portion

  1. Enter the name control, EIN or SSN, MFT code, tax period receiving credit, TC 700, the amount of overpayment credit from NMF (not including interest) and check the MF block.

  2. Enter the transaction date (due date of return receiving credit, paid date of overpayment, or restricted interest date, whichever is latest).

  3. Enter TC 570 for the second transaction and "BLANK" for the amount. Prepare a separate Form 3809 if allowable interest is being applied (using the schedule date as the transaction date)

4.4.3.4  (02-08-1999)
MF Overpayment Credited Against NMF Deficiency

  1. Code and edit Form 5344 or 5403 for Master File processing, using Hold Code 1. If allowable interest is due, compute the amount and enter it with TC 770. If no interest is due, enter TC 770 with a zero amount.

  2. Prepare Form 2424 to transfer the credit to the NMF account. See Text 4.4.3.4.2 below.

  3. After a DLN is assigned to the deficiency, enter the DLN and the 23C date in the "Remarks" section of Form 2424.

  4. Release Form 5344 or 5403 (to abate tax from MF). Release Form 2424 (to dispose of the credit) to NMF.

4.4.3.4.1  (02-08-1999)
Debit Portion

  1. Enter the name and address, SSN or EIN, MFT code, the tax period with the overpayment credit, and TC 820.

  2. Enter the transaction date (due date of return with overpayment, date paid, or restricted interest overpayment date, whichever is latest).

  3. Enter the amount of credit being transferred not including interest. If interest is to be transferred prepare separate Form 2424 with the schedule date or 23C date as the transaction date, ad enter TC 850 with the interest amount.

  4. Enter TC 570 as the second transaction with "BLANK" entered for the amount if more than one document is prepared to debit the same tax module.

4.4.3.4.2  (02-08-1999)
Credit Portion

  1. Enter the taxpayer’s name and address, the TIN to be credited (use suffix "N" to indicate Non-Master File Account), the form number of the deficiency return, tax period, and transaction date; leave the first, second and third transaction codes and the second and third credit amounts blank. When an advance payment on deficiency (TC 640) is used, the credit portion of Form 2424 must include the TC 640.

  2. Enter the first credit amount without allowable interest. Prepare a separate Form 2424 if there is allowable interest.

4.4.3.5  (02-08-1999)
Overpayment Transfers Between MF Accounts

  1. Credit will be transferred between accounts only if there is a statement from the taxpayer requesting such application; exception: credit may be transferred from an individual’s IMF account to the same individual’s (or his or her partnership’s) excise or employment tax account without a statement.

  2. Any interest allowable should be manually computed and entered with TC 770 on Form 5344 or 5403. For transfers between IMF and BMF accounts, use Form 2424. If the accounts are for different taxpayers TC 850 and TC 730 may be entered on the same Form 2424 carrying the overpayment.

4.4.3.6  (02-08-1999)
Refunds to Other Taxpayers

  1. These procedures should be followed when a refund is to be issued to someone other than the taxpayer in whose name the tax was paid.

4.4.3.6.1  (02-08-1999)
Examiner’s Responsibilities

  1. Provide documentary evidence to permit refunds to be made to, on behalf of, or in care of any of the following:

    1. Deceased taxpayers. Refunds due on joint returns when one spouse has died and no executor or administrator has been or will be appointed may be made payable to the surviving spouse regardless of the amount. Documentary evidence is not required by the surviving spouse if the taxpayer was deceased prior to filing the joint return; however, indicate on Form 3198 manual refund-deceased taxpayer.

    2. Trustees or estates (both living and deceased taxpayers)

    3. Guardians, minors, and incompetents

    4. Dissolved corporations

    5. Assignment, receivership and bankruptcy cases

    6. Reorganizations

    7. Corporate change of name or successorship

    8. Trusts and certain other cases

  2. Attach Forms 56, court certificates, affidavits, letters testamentary or of administration, Forms 1310 and similar documents to the related return. If more than one return for the same taxpayer is involved, attach the evidence to the return for the most recent taxable period for which a refund is scheduled.

  3. Keep copies of wills, trust instruments or amendments and other similar documents with the return to which they relate.

4.4.3.6.2  (02-08-1999)
Closing Function Responsibility

  1. Make sure that the name entered on the allowance document is that of the person in whose name the check should be drawn. Refund checks are drawn by the Disbursing Center directly from the allowance documents.

4.4.3.6.3  (02-08-1999)
Quality Assurance Responsibility

  1. Refer any questionable or controversial claim to SB/SE Division Counsel.

4.4.3.7  (02-08-1999)
Evidence Requirements Waived

  1. The evidence requirements (see Text 4.4.3.6.1) are waived and no evidence is required when the entire amount allowable is credited to other taxes due from the same taxpayer, or when a fiduciary signed the return (or a claim containing a statement that the return was filed by the same fiduciary) within one year before the refund was made.

4.4.3.8  (02-08-1999)
Refund $100 or Less

  1. When the amount to be paid is $100 or less (including allowable interest) it may be paid to the fiduciary who signed the return (or claim) without regard to the one year period. If the file indicates the estate has been distributed, evidence will be required even though the amount is $100 or less and the return was signed by the fiduciary within the year. In each instance note the allowance document "Return (or claim) filed (date) by the fiduciary." Initial and date the notation.

  2. If there is an indication that more than one fiduciary signed the return (or claim) as co-executors, the refund may be made to the executor who signed, without evidence as to any other fiduciary.

4.4.3.9  (02-08-1999)
Recovery of Erroneous Refunds

  1. See IRM 21.4.5 for additional information on erroneous refunds.

4.4.3.9.1  (02-08-1999)
Group

  1. Flag case files involving erroneous refunds with Form 3198.

  2. Include following Information on the form:

    1. the name, address and TIN of the taxpayer from whom the erroneous refund is to be recovered,

    2. the tax period,

    3. the tax return form number, and

    4. the amount of refund to recovered.

4.4.3.9.2  (02-08-1999)
Closing Function

  1. Prepare a 2-Way memo to request that the erroneous refund be recovered. Enter the information from the Form 3198.

  2. Include a transcript of the account from which the erroneous refund was issued.

  3. Forward the request to the campus Accounting Branch.

4.4.3.10  (02-08-1999)
Reprocessing Returns

  1. This section contains instructions for Case Processing Support when a request is received to reprocess a return to a correct TIN or a correct tax year.

4.4.3.10.1  (02-08-1999)
Reprocessing to Correct TIN

  1. When it is definitely determined that a return has posted to a different taxpayer’s account, See Exhibit 4.4.3-1. to determine what action to take.

  2. The following instructions are in addition to those contained in the chart.

    1. Abate all tax and penalty previously assessed on the wrong account. Abate interest ONLY if restricted interest was previously assessed; computer generated interest will be abated automatically. Use Disposal Code 03 and Hold Code 2.

    2. On IMF accounts, reduce the net withholding credit using Reference Number 807 in Item 15 of Form 5344 for the amount of the unrefunded withholding credit.

    3. Prepare Form 2424 to transfer each separate cash payment (including estimated tax payments, Federal tax deposits and payment with return) to the correct account. Enter a secondary TC 570 to prevent an improper refund.

4.4.3.10.2  (02-08-1999)
Reprocessing to Correct Tax Period

  1. When it is necessary to change the tax period as a result of the Examination determination of because of an error in the original processing of the return take the following steps:

    1. Prepare Form 2363 to change the filing requirements; this will correct future mailing of return packages.

    2. Process a Form 5344 using TC 301 to reduce the tax on the established (incorrect) module to zero. Use Hold Code 2 to prevent any credits from refunding.

    3. If there are cash credits, ES (estimated tax) payments, or cash remittance, prepare Form 2424 to transfer the credits from the established tax period to the corrected tax period.

    4. Reprocess a copy of front page of the return for the corrected tax period, using the original DLN. Attach Form 3198, Special Handling Notice, noted "Reprocess to correct tax period Expedite-Examination adjustment pending" to copy of front page of return and forward to service center for processing.

    5. Once the correct tax period has posted to Master File, input TC 424 to establish the correct period on AIMS.

    6. When the correct period is established, process final Form 5344.

    Note:

    As an alternative, Form 3893, may be used to reprocess the original return to the correct tax period. Retain a copy of the return for closing purposes.

Exhibit 4.4.3-1  (02-08-1999)
MF Return Posted to Wrong EIN/SSN

(Reference: Text 4.4.3.11.1)    
     
Return Posted to Correct Account
(Taxpayer A) 		Return Posted to wrong Account
(Taxpayer B) 		Action
Sequence
Examined, posted first Examined, posted second 1, 5, 4, 6
Examined, posted first Not examined, posted second 1, 5, 7
Not examined, posted first Examined, posted second 1, 8, 4, 6
Examined, posted second Examined, posted first 1, 2, 10, 5, 4, 3, 6
Examined, posted second Not examined, posted first 1, 2, 10, 5, 7, 3
Not examined, posted second Examined, posted first 1, 2, 3, 9, 4, 6
Action
Reference
Code 		Action
1 Secure transcripts for both numbers. If necessary, requisition the second taxpayer s return.
2 Prepare Form 5344 to abate Taxpayer B’s tax and/or penalty and reduce withholding credit if necessary, process using partial agreement procedures through terminal.
3 Prepare Form 2424 if necessary to transfer any payments made by Taxpayer B.
4 Reprocess Taxpayer B’s original return to the correct number and retain a copy for processing the adjustment. See Text X.3, #4.
5 Prepare Form 5344 for Taxpayer A, process the adjustment with the return following normal procedures, and number in the 000 blocking series.
6 When Taxpayer B’s original return has posted to the Master File, establish the account on the TIF, prepare Form 5344 and process the adjustment using copy of return numbering in the 900 blocking series.
7 Reprocess Taxpayer B’s original return to the correct number. See Text X.3, #4.
8 Prepare Form 5351 for Taxpayer A and close through terminal with Disposal Code 32.
9 Prepare Form 5344 to assess the tax and post any credit appearing on Taxpayer A’s original return. Process with the return using Disposal Code 12 and zero audit results. Number in the 000 blocking series.
10 Prepare Form 5344 to assess the tax and post any credit appearing on Taxpayer A’s original return, process using partial agreement procedures
NOTE—In all instances where the return of Taxpayer A posted second, prepare and process Form 2363 to correct the name, address, and marital status (if appropriate).

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