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Part 4. Examining Process

Chapter 19. Liability Determination

Section 3. IMF Automated Underreporter

4.19.3  IMF Automated Underreporter

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4.19.3.1  (09-01-2008)
Overview of IMF Automated Underreporter

  1. This manual provides instructions for Automated Underreporter (AUR), the automated analysis and processing of potential underreported and/or over-reported issues identified through information return (IR) matching.

  2. AVOID "AUDITING" RETURNS. All returns in the AUR inventory were previously screened for unallowable items and audit potential. They were not selected for action in either event.

    1. When evaluating a taxpayer's explanation for unreported income, it is not necessary to verify everything the taxpayer says. As a general rule, the issue of questionable items (those not clearly unallowable) will not be raised.

    2. The taxpayer's explanation will generally be taken at face value, including schedules of expenses submitted by the taxpayer to offset unreported income. The screener/examiner should consider the reasonableness of the explanation.

    3. If Exam issues are discovered during AUR processing, consult with the Team Leader. Then, if necessary, consult with an Exam representative to decide the appropriate action(s) to take.

  3. Underreporter cases are built from two primary sources:

    • The Individual Master File (IMF) which contains information reported to IRS by taxpayers.

    • The Information Returns Master File (IRMF).

  4. The IMF file contains information reported on:

    • Form 1040, U.S. Individual Income Tax Return.

    • Form 1040A, U.S. Individual Income Tax Return.

    • Form 1040EZ, Income Tax Return for Single or Joint Filers with No Dependents.

  5. The IRMF information is matched with the IMF information to verify all income is reported. An AUR case results when computer analysis detects a discrepancy between the two data sources. Examples (not all inclusive) of the information in the IRMF file are:

    • Form W-2, Wage and Tax Statement.

    • Form 1099-INT, Interest Income.

    • Form 1099-DIV, Dividends and Distributions,

    • etc.

  6. The information documents in the W-2 series (and Forms 1099 if tax was withheld) should be attached to the tax return when it is filed.

  7. Taxpayers need not attach information documents in the 1099 (except as noted above), K-1, 1098, and 5498 series to the return when it is filed.

  8. Discrepant cases are then categorized by type (wage, dividend, interest discrepancy, etc.) and underreported range (i.e., $200-499.99 tax change). These categories provide a logical system of criteria to select cases from the available inventory. See Exhibit 4.19.3-3, AUR Category Code Descriptions/Chart.

  9. After cases are selected from the inventory, they are worked according to procedures in this IRM.

  10. AUR Operations at six Campuses compile and control selected cases.

    1. Martinsburg Computing Center (MCC) sends tape information from the IRMF, Return Transaction File (RTF), Taxpayer Information File (TIF), and Payer/Agent file. See IRM 4.19.3.5 for additional information on the Payer/Agent file. This information downloads to the AUR system.

      Note:

      Data from the TIF and Payer/Agent file is updated weekly.

    2. A computer tape containing Form 4251 (Return Charge-Out) data prints on a Campus printer. Each Form 4251 contains a Social Security Number (SSN), tax year, and other case identification information, represented in a bar code and numeric format.

      Note:

      Beginning with TY 2007, a Form 4251 will not be printed for Electronically Filed Returns (ELF) or Form 1040EZ.

    3. Federal Records Center (FRC) pulls and forwards returns to the Campus Files function for routing to Underreporter.

    4. Returns are controlled into the AUR system by scanning the bar code.

  11. The tax examiner performs an in-depth analysis of each case. The tax examiner determines if the discrepant income or deduction(s) in question are satisfactorily identified on the tax return. If so, close the case. If reasonable doubt remains that the discrepant income or deduction(s) was included on the return, send the taxpayer either:

    • An AUR Notice, CP 2000 or

    • An Initial Contact Letter, CP 2501

    Note:

    Since TY 2003, the system auto generates CP 2000 Notices for select income categories.

  12. For TY 2007 AUR will issue Soft Notices (CP 2057) to certain taxpayers that appear to have underreported income. As the impact to Compliance and the AUR program has not yet been determined, instructions for handling these cases will be made available at a later date.

  13. Process Codes (PC) are used to provide an audit trail for AUR case processing. IDRS reflects PCs as pending actions until they post to the Master File.

    1. PC 0X (except 09) is computer generated to designate how and by which organization the case has been selected. PC 09 establishes an Integrated Data Retrieval (IDRS) control base and reflects CP 2000 interest as pending.

    2. PC 20 adjusts Withholding and Excess Social Security/Railroad Retirement Tax only. A 2893C Letter is sent to advise the taxpayer, as outlined in See IRM 4.19.3.15.1.2.

    3. PC 30 updates cases on the IDRS control base whenever a CP 2501 is generated.

    4. PC 55 updates an IDRS control base when a CP 2000 is generated. An amended CP 2000 Notice also updates the existing IDRS control base.

    5. PC 75 and 77 updates the IDRS control base when a Statutory Notice of Deficiency (A 3219 Letter and the waiver, Form 5564) is issued/generated.

    6. Other PCs are input during AUR processing. For a complete list of PCs that can follow the current PC, reference the Case Analysis screen, Reference Tools, and PC Lookup UR.

  14. Internal Process Codes (IPC) are codes used in AUR processing and do not post to IDRS. See Exhibit 4.19.3-4, AUR Internal Process Codes.

  15. For a list of abbreviations and definitions used in AUR processing, See Exhibit 4.19.3-1., Abbreviations. See Exhibit 4.19.3-2, Glossary.

4.19.3.1.1  (09-01-2008)
Taxpayer Advocate Service (TAS)

  1. Even though the IRS strives to improve its systems and provide better service, some taxpayers still have difficulty in getting solutions to their problems or appropriate responses to their inquiries. The purpose of the Taxpayer Advocate Service (TAS) is to give taxpayers someone to speak for them within the Service - an Advocate.

    Exception:

    If the problem can be resolved or steps taken to resolve the problem within 24 hours, do not refer the case to TAS, unless the taxpayer asks to be referred.

4.19.3.1.2  (09-01-2008)
Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order) (Form 911)

  1. For additional information on Form 911,Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order), refer to IRM 13, Taxpayer Advocate Service. Form 911 may be initiated by an IRS employee on behalf of the taxpayer to request that an account be reviewed because:

    1. The taxpayer is experiencing or about to experience a significant hardship, and

    2. The non-TAS employee dealing with the problem cannot or will not relieve that hardship immediately.

4.19.3.1.3  (09-01-2008)
Statute Awareness Program

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

  2. Although a report will generate by the system to alert management to statutes in danger of expiring, employees must be personally knowledgeable of the rules that govern the Assessment Statute Expiration Date (ASED). These rules are outlined in IRM 25.6.5, Assessments.

    Note:

    The ASED can be found in the STATUTE EXP DATE field on the Tax Account screen, but the date should be verified.

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

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

4.19.3.1.4  (09-01-2008)
Related IRMs and Publications

  1. IRM 21.1.3.2.3, General Disclosure Guidelines - before disclosing any tax information, you must be sure you are speaking with the taxpayer or authorized representative. See the Taxpayer Authentication guidelines in IRM 21.1.3.2 for further information.

    • See IRM 11.3.2.6.1, Disclosure of Official Information, for proper disclosure protocols before leaving messages on a taxpayer's answering machine.

    • See IRM 11.3.1.10, Disclosure of Official Information, for proper disclosure protocols before faxing confidential information to the taxpayer.

  2. The following additional IRMs and publications/documents are listed as a convenience when AUR determines that in-depth research is required to resolve unusual technical issues not covered in AUR instructions, 1040 instructions and various publications. When reference to one of the related IRMs is required for AUR processing, the complete IRM reference will be stated in this IRM.

    Note:

    Technical issues that occur frequently should be brought to the attention of the IRM 4.19.3 author for consideration for inclusion in this IRM.

    • IRM 4.19.2, IMF Automated Underreporter (AUR) Control

    • IRM 4.19.7, IMF Automated Underreporter (AUR) Technical System Procedures

    • IRM 4.13.1, Audit Reconsiderations, Introduction

    • IRM 13.1.7, Taxpayer Advocate Service Case Processing

    • IRM 21.1.1, Accounts Management and Compliance Services Overview

    • IRM 21.1.3.18, Taxpayer Advocate Service (TAS) Guidelines

    • IRM 21.3.3, Incoming and Outgoing Correspondence/Letters

    • IRM 21.4.4, Manual Refunds

    • IRM 21.5, Account Resolution

    • IRM 21.6, Individual Tax Returns

    • IRM 25.6, Statute of Limitations

    • IRM 25.15, Relief from Joint and Several Liability

    • IRM 5.9 , Bankruptcy

    • IRM 2.3, IDRS Terminal Responses

    • IRM 2.4, IDRS Terminal Input

    • IRM 20.1, Penalty Handbook

    • IRM 20.2, Interest

    • IRM 3.13.62, Media Transport and Control

    • IRM 8.20, Appeals Case Processing Manual

    • Publication 17, Your Federal Income Tax (For Individuals)

    • Document 6209, IRS Processing Codes and Information

4.19.3.1.5  (09-01-2003)
Balanced Measurement System

  1. The Balanced Measurement System provides guidance for all functions of the Internal Revenue Service and contributes to the focus for work performed in the AUR function.

  2. The Balanced Measures are described below:

    1. Provide accurate and professional services to internal and external customers in a courteous, timely manner.

    2. Create an enabling environment for employees by providing quality leadership, adequate training, and effective support services.

    3. Generate a productive quantity of work in a quality manner and provide meaningful outreach to all customers.

4.19.3.1.6  (09-01-2003)
AUR Security

  1. The AUR system design protects both taxpayer data and the individual AUR users. ALL users are responsible for protecting taxpayer information. Users should access ONLY the data needed to perform their duties, and not divulge taxpayer information to any employee who does not have an official "need to know" . Users will report infractions to their managers immediately.

4.19.3.1.7  (09-01-2008)
Electronic Filing System

  1. Returns are filed electronically by electronic transmitters or from a home computer through a third party vendor (On-Line Filing). Individual electronic returns are transmitted to Andover (ANSC), Atlanta (ATSC), Austin (AUSC), Brookhaven (BSC), Cincinnati (CSC), Fresno (FSC), Kansas City (KCSC), Memphis (MSC), Ogden (OSC) and Philadelphia (PSC) Submission Processing Centers.

  2. Identify all electronically transmitted returns by a unique Document Locator Number (DLN). Use the File Location Codes (FLC) shown below for the electronic filing of individual income tax returns. The second number listed is the rollover FLC used when a site exhausts the regular FLC for a given processing date.

    • ANSC - 16; 14

    • ATSC - 65

    • AUSC - 76; 75

    • BSC- 22

    • CSC - 38; 35

    • FSC - 80; 90; 99

    • KCSC - 43; 70; 79

    • MSC - 72; 64

    • OSC - 93; 92

    • PSC - 30; 32 (and sometimes 66 - U. S. Possessions and 98 - International)

      Note:

      The system will not allow a user to order a TC 150 document with the above FLC codes.

  3. Electronic return information may be secured from the Tax Return Data Base (TRDB). The TRDB stores tax information submitted through the Electronic Filing System, which includes ELF, Electronic Transmitted Documents (ETD), Digest, and Online. AUR user-friendly TRDB screens provide on-screen displays of tax return information from Electronic Filing. If an ELF case is not displayed on TRDB or any schedule or form is missing from the display, use IDRS Command Code (CC) TRDBV (Tax Return Data Base View) to request a display of the missing information in transcript format. If a paper copy is required, use CC:TRPRT to request a print in graphic format. CC:RTVUE may be used to secure missing information. For additional information, see IRM 2.3,IDRS Terminal Responses.

  4. The TRPRT print is not considered the original return and will be labeled "TRPRT PRINT DO NOT PROCESS" .

  5. Information such as loose forms, schedules, and correspondence CANNOT be attached to an ELF return. Do not use an attachment or association form.

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

    Caution:

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

4.19.3.2  (09-01-2003)
Controlling Work

  1. Underreporter cases to be analyzed by AUR tax examiners are assembled into batches, which are then divided into work units. See Exhibit 4.19.3-9, Batch Types and See Exhibit 4.19.3-8, Batch Status Codes. See IRM 4.19.7, IMF Automated Underreporter Technical System Procedures for the following Windows used to control cases:

    • Assign Work Unit Window

    • Release Work Unit Window

    • Transfer Work Unit Window

    • Accept Transfer Window

    • Assign Case Window

    • Release Batch Window

    • Transfer Case Window

    • Request Case Window

4.19.3.2.1  (09-01-2006)
Viewing Cases

  1. Each user may have clearance to view any case on the system. This function is necessary for any user answering taxpayer phone inquiries.

  2. To view any case,

    1. Select View Case from the Review menu.

    2. Input the SSN to be viewed.

    3. Click on the PHONE CONTACT field if viewing the case due to a taxpayer phone contact. The AUR program will extract telephone contact data based on this entry.

  3. The only entries that can be updated on the cases are:

    • Telephone number and contact hours on the Tax Account screen

    • Case notes on the Case Note screen

    • Update address

    • Update third party contact

    • Update POA

    • Action Required (Universal case) box

      Note:

      Any other changes will not save to the database.

  4. The Print menu option may be accessed when the user selects View Case from the Review menu.

4.19.3.2.2  (09-01-2007)
Lost Cases

  1. When an SSN is assigned to a batch, but the corresponding case is missing, the case is considered a "lost case" .

  2. When a lost case (other than an ELF) is identified:

    1. Select the Process Code window. See IRM 4.19.7, IMF Automated Underreporter Technical System Procedures, Process Code window.

      Note:

      If the work unit contains both copies of Form 4251, it is not a lost case. Input IPC "0A" (Return Request).

    2. Input IPC LC (Lost Case).

    3. The AUR system moves the SSN to Batch Type (BT) 98XXX (immediately).

  3. If the missing case is:

    1. A 1040EZ, use the 1040EZ information at the bottom of the Case Analysis screen to work the case.

    2. An ELF return, See IRM 4.19.3.1.7(3).

      Note:

      The system will not allow a user to input IPC LC when the case is a 1040EZ or an ELF return.

  4. Some cases are found to be missing after the work unit has been released by the tax examiner and is being disassembled by the Control Function. The Control Function notates "Lost Case" on a case transfer sheet and routes the case to the Lead. The Lead contacts the tax examiner who released the case.

    1. If the case is found, the tax examiner accepts and reworks the case on the system.

    2. If the case is not found, the tax examiner accepts and attempts to rework the case on the system, using a substitute Form 4251. If the case file contents are necessary to work the case, input IPC LC on the Process Code window and discard the case history/transfer sheet.

4.19.3.2.3  (09-01-2008)
Wrong Pulls in Screening (WP)

  1. If the original tax return DLN and the 4251 DLN do not match leave the Form 4251 attached to the return, input IPC " WP" and notate "WP" on the Form 4251. Leave the return in the work unit. The return will be sent to Federal Records center (FRC) after the batch is disassembled.

  2. If the DLN's match, but the taxpayer's name is different, close the case with PC 29. This group includes mixed entity, scrambled SSN's and fiscal filer cases.

  3. If the tax return is for the incorrect tax year (the DLN's match, but the TY is different), close the case with PC 29 and route the return to be processed to the correct tax year.

4.19.3.2.4  (09-01-2003)
Case History

  1. To determine the location or status of a particular case:

    1. Select the Unit Case History window from the Case Analysis menu to view the history of a case assigned to your unit.

    2. Select the Case History window (Analyzation) using the Review option on the Main menu to view the history of a case assigned anywhere on the AUR system.

    Note:

    See IRM 4.19.7, Case History window.

4.19.3.2.5  (09-01-2008)
Archived Cases

  1. For TY 2000 and subsequent years, access the case data using View Case in the appropriate tax year on the system.

  2. For TY 1999 and prior, use the archive window.

    Note:

    The user does not have to access the archived data from the current AUR tax year. It can be accessed from any of the tax years located on the AUR system.

4.19.3.3  (09-01-2003)
Case Information

  1. Each AUR case contains information for one tax account.

4.19.3.3.1  (09-01-2008)
Underreporter Cases

  1. A case where a Form 1040 or Form 1040A was filed has an individual income tax return present in the case. If the Form 4251 is batched without an original tax return, order the TC 150 return on the Tax Account screen.

    Note:

    If Form 1040EZ or an ELF return was filed, there will be NO individual income tax return present in the case file. Beginning with TY 2007 a Form 4251 will not be generated for Form 1040EZ or ELF returns. These must be viewed on line.

  2. Some cases may have an amended return, Form 1040X, attached to the original individual tax return.

    1. If the amended return was not processed, include it in the resolution of the case. Leave the amended return attached to the original return when the case is closed.

    2. If the amended return was processed, consider it in the AUR case resolution.

  3. All cases have online data which displays in a series of screens. See IRM 4.19.7, for more information.

  4. An action trail MUST be made part of the case data whenever significant actions are taken. Use either the IR Note window or the Case Note window. See IRM 4.19.7, Case Note window.

    Note:

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

  5. Form 4251 is attached to a return when it is pulled from the files at the Federal Records Center. Beginning with TY 2007 all Form 1040EZ and ELF returns will have an individual work unit listing rather than a Form 4251.

    1. Form 4251 MUST remain attached to the return when the case is closed.

    2. Notate the applicable PCs and IPCs on Form 4251.

    3. Keep the Form 4251 in the front of the case file with the bar code visible.

      Exception:

      Tax examiners will notate the applicable PC/IPC next to the corresponding SSN on the work unit listing for EZ/ELF returns.

4.19.3.3.2  (09-01-2006)
Case Analysis Screen

  1. The Case Analysis screen is the main screen used by tax examiners for the analysis of AUR cases. See IRM 4.19.7, Case Analysis screen.

  2. Certain Transaction Codes, Freeze Codes, or Indicators may require research, referral, or other specific actions. When these conditions are present, the Message window displays on the Case Analysis screen when the SSN of the case is entered. If this window displays, review the information on the Tax Account screen to determine the appropriate action to take.

  3. Within the Case Analysis screen various windows display, dependent upon the issues involved on an individual case. You must work certain windows in the proper order if two or more of them are present. The twelve windows and their proper sequence are:

    1. Misc Adjust/Sch C Exp

    2. FICA Tax

    3. SST on Tips

    4. SE Tax -

    5. SEP/KEOGH/SIMPLE

      Note:

      HSA/AMSA Contribution/Deduction. Although there is no HSA/AMSA window, this income type must be worked in the proper order. See IRM 4.19.3.8.2(10).

    6. SSA/RRB

    7. IRA (CONTR)

    8. Savings Bond Exclusion

    9. EPAB

    10. Student Loan Interest Deduction (SLID)

    11. Tuition and Fees

    12. Domestic Production Activity Deduction

    Example:

    The SE Tax window has been worked. Subsequently, the SST on Tips window is worked. The system displays a warning message describing the proper sequence. You must access the SE Tax window again to complete the proper sequence before going to the Return Value screen.

4.19.3.3.3  (12-22-2004)
Tax Account Screen

  1. The Tax Account screen displays posted information from the taxpayer's Master File account. It contains the name and address, Date of Birth (DOB), return amounts, transactions, and other current data (including Reason Codes). The data is downloaded to the AUR system from MCC. The taxpayer's phone number and hours of contact can be entered. This screen is used to order a return if the related adjustment has posted to the account. See IRM 4.19.7, Tax Account screen.

  2. Compare the Adjusted Gross Income (AGI) and Taxable Income (TXI) on the return with the AGI/TXI on the Tax Account screen. A mismatch could be due to a taxpayer and/or processing error. The AUR Function is responsible for issuing a CP 2000 to correct these types of errors.

    Note:

    If the processing error resulted in an erroneous refund, follow Campus directions.

  3. If the AGI on the return and the AGI on the Tax Account screen do not match, the taxpayer/processing error may be found on page 1 of the return.

    1. The system displays the AGI as determined from Master File.

    2. Verify the AGI on the Tax Account screen.

    3. If appropriate, use the MISC ADJUSTMENT/SCHEDULE C EXPENSE window to account for the discrepancy. See IRM 4.19.3.4.9 (1).

  4. If the Tax Account screen displays an asterisk in the NEW TRANS field, a new Transaction Code has been added since the case was last analyzed. When an asterisk displays:

    1. Review the Transaction Code to determine if any action is required.

    2. Click on the asterisk and press ENTER to indicate the Transaction Code has been considered while working the case.

      Note:

      The system automatically totals TC 640 payments and displays a prompt: " Should amount be entered in Return Value Screen?" .

  5. If the Tax Account screen displays the Indicator KITA (Killed in Terrorist Action) or HSTG (Hostage in Terrorist Action) in the KITA IND field, or if the system displays the message " KITA/HSTG indicator present. Close case." , use PC 18 to close the case.

    1. Note:

      Because taxpayer contact has not been made, no further actions are needed.

4.19.3.3.3.1  (09-01-2003)
Power of Attorney (POA)

  1. A POA is on file when an indicator is displayed in the Centralized Authorization File (CAF) Indicator field. The indicator is either alpha or numeric. See Document 6209 for the applicable POA indicators. A Transaction Code (TC) may also be present.

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

    • TC 961 reverses the CAF Indicator (POA revoked)

    • TC 962 updates the CAF (POA revised)

  2. Prior to the issuance of a CP 2000/2501 or Recomputation Notice, the CAF is automatically researched for the valid POA's name and address.

  3. If issuing a notice, and there is a valid POA on file:

    1. A copy of the notice is automatically created for the POA. (If there are multiple POA's, the notice is only created for the first two POA's authorized to receive notices per the CAF.)

    2. PARAGRAPH 178 automatically generates on the CP 2000/2501 and Recomputation Notice to inform the taxpayer that a copy is being sent to the POA.

  4. If the DLN of the TC 960 or 962 indicates that the POA was filed at another Campus, continue to work the case as usual. There is now a CC:CFINK file; there is no need to contact the other Campus for the necessary POA information.

  5. If an original POA is found attached to the tax return (not detached during processing), See IRM 4.19.3.20.1.20 and IRM 21.3.7, Processing Third Party Authorizations onto Centralized Authorization File, for instructions on determining validity.

  6. Disregard invalid POA's.

  7. Consider "valid" POA's approved.

    1. Make a photocopy for the AUR case file.

    2. Forward the original to the CAF Unit for processing.

    3. Input the POA information on the Update Address window (POA). See IRM 4.19.7, Update Address window.

      Note:

      A foreign address requires a period " ." in the first position of the State field.

4.19.3.3.3.2  (09-01-2008)
Exam and Criminal Investigation (CI) Criteria

  1. If certain Freeze Codes are present on the tax module, a message window displays on the Case Analysis screen when the SSN of the case is entered. Access the Tax Account screen to determine the proper action.

  2. Freeze Code "-L" (Audit Indicators TC 420 or 424, not reversed by TC 421, 424R or 425) indicates the return is currently being audited by Exam. During case analysis (screening phase), take the following action:

    1. Research IDRS CC:TXMODA for a pending TC 421/424R/425 that will reverse the "-L" freeze. If there is a reversal, continue normal processing.

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

    3. If the conditions in 4.19.3.3.3.2 (2) 1 and 2 above are not met, input PC 13 (Case Analysis phase) to transfer the case to Exam.

  3. If the Freeze Code "- L" open TC 420/424 is present after an AUR notice has been issued, take the following actions:

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

    2. Access the following website: http://sbse.web.irs.gov/AIMS/docs/EGCbyPBC.xls and use the PBC, SBC and EGC information from AMDISA to locate the correct Exam contact.

    3. If Exam wants the case, input PC 38 (CP 2501), PC 64 (CP 2000) or 85 (Statutory Notice).

    4. If Exam does not want the case, leave a Case Note and continue normal processing. If an assessment is needed See IRM 4.19.3.20.10.

  4. If a TC 421 is present on the Tax Account screen, and no -L Freeze, and there is U/R income, determine the Disposal Code.

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

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

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

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4.19.3.3.3.3  (09-01-2008)
Transaction Codes Reflecting Tax Liability

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

  2. TC's 290/291 and 300/301indicate an account has been adjusted after the original return was filed.

    Note:

    A TC 300-0 with a corresponding TC 764, TC 768, or TC 765 indicates Exam adjusted EIC with no change to AGI or TXI. See IRM 4.19.3.15.3 for further instructions on EIC.

  3. TC's 290 and 300indicate that additional tax was assessed. The system adds these amounts to the TC 150 amount to determine the total tax per return.

    Caution:

    Certain modules where an overstatement of estimated tax payments or W/H credits resulted in a refund, offset, or a credit elect may show as assessed using TC 290, RC 051, for the amount of the overstatement. These accounts will generally not contain a TC 807.

  4. TC's 291 and 301 indicate that a portion or all of a previously assessed tax was abated. The system subtracts these amounts from the TC 150 amount to determine the total tax per return. If the AGI/TXI on the Tax Account screen:

    1. Differs from the tax return, order the TC 291/301 document without screening for income discrepancies.

    2. Matches the tax return, screen for income discrepancies and see (6) below.

  5. If the TC 290/291 or TC 300/301 source document is present, determine if the adjustment source document (Form 5147, Form 5344, amended or duplicate return) resolves the U/R issue(s).

  6. When to order: If the adjustment source document is missing from the case file, order the TC 290/291 or TC 300/301 prior to either the issuance of a Notice or PC 20 action. TC 290-0 adjustment source documents should be ordered when one of the following is present:

    1. Corresponding TC 976/977

    2. TC 971 AC 010 or 012 through 016

    3. TC 806/807 with the TC 290-0

    4. TC 764/765/768

      Exception:

      Do not order the TC 290-0 adjustment source document for changes to EIC and no change to AGI or TXI.

    5. TC 766/767 with Credit Reference Number 336.

    6. TC 766/767 with Credit Reference Number 252.

    7. ELF return and the Blocking Series of the TC 290-0 is " 05" or "15"

  7. Research IDRS CC:TXMODA or IMFOLA to determine if the adjustment source document is a CIS document, identified by an indicator "1" next to the CIS field. If it is determined that the adjustment is:

    • a CIS document, follow Campus directions to order the CIS print

    • not a CIS document, follow the instructions in IRM 4.19.3.3.3.3 (8) below.

  8. Request an amended return to resolve the case, if necessary.

    1. To request an amended return, enter an " X" in the ORDER RTN field for the applicable DLN on the Tax Account screen. During the screening phase, use IPC 0A.

      Exception:

      The system will not accept an "X" for any DLN where the DLN indicates the return is ELF or Form 1040EZ.

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

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

    1. The difference between the AGI/TXI on the return and the AGI/TXI shown on the Tax Account screen matches the discrepant amount within ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . Consider the amount in question reported and close the case if there are no other related issues (i.e., SET, 10% tax, etc.)

      Note:

      To calculate the taxpayer's reported self-employment income, divide the amount shown in the SE INCOME fields on the Tax Account screen by .9235 (92.35%).

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

    3. Withholding or excess Social Security Tax (SST)/Railroad Retirement Tax (RRT) is the only issue (PC 20 criteria) and the adjustment does not have a TC 806/807 or TC 766/767 with Credit Reference Number 252 present.

    4. A TC 806/807 or a TC 766/767 with Credit Reference Number 252 is the only change (there is no change to the AGI or TXI) and withholding or excess SST/RRT is not an issue.

      Caution:

      Certain modules where an overstatement of estimated tax payments or W/H credits resulted in a refund, offset, or a credit elect may show as assessed using TC 290, RC 051, for the amount of the overstatement. These accounts will generally not contain a TC 807.

    5. The adjustment is a TC 290-0 with a corresponding TC 971 AC 071. These are injured spouse claims for which the refund was released.

    6. The adjustment is a TC 290-0 and the TC 150 and the TC 846 have the same DLN with blocking series 92X ( example: 18221-046-92337-5). These are also injured spouse claims for which the refund was released.

    7. The adjustment is a TC 290-0 with a corresponding TC 971 AC 270. These are cases where the amended return was sent back to the TP.

    8. The adjustment is a TC 290-0 in the 98 blocking series (adjustment made without the original return) and there is a RC 062 or 065. These are penalty abatement request disallowances and have no impact on our AUR case.

    9. The adjustment is a TC 290-0 with a corresponding TC 971 AC 142. This is a true duplicate return.

    10. The adjustment is a TC 290-0 with a Reference number 338, 256, or 257. These represent the Economic Stimulus Payments.

  10. Review all adjustment documents to determine if the U/R amount has already been taken into consideration. If so, close the case using PC 21. If a document has been requested, refile it separately when the case is closed.

  11. Consider all previous changes to income, deductions, refundable/non-refundable credits, taxes, and penalties when a CP 2000 is to be issued.

  12. When a TC 300/301 is present, a Disposal Code displays on the Tax Account screen. See IRM 4.19.3.3.3.2 (4) for instructions.

  13. When a TC 896 with the literal " OFF to IRA" is present, the taxpayer has paid additional tax on excess contributions on Form 5329. This tax is posted to the taxpayer’s MFT 29 account and is not included in the TC 150 amount. The system adds this amount to the TC 150 amount to arrive at total tax per return.

    Note:

    TC 892 offsets a TC 896.

  14. An entry on Form 1040, line 61, or Form 1040A, line 36, Advanced Earned Income Credit (AEIC), is included in the TC 150 amount. AEIC shows as a memo entry on the Tax Account screen.

  15. If a duplicate/amended return is filed, a CP 20002501, PC 20 is to be issued, a TC 290/291 is present, and the duplicate or amended return is not in the case file:

    1. Order the duplicate/amended return by requesting the TC 290/291 DLN unless the conditions in (8) above apply.

    2. Close the case using PC 29 if the duplicate/amended return is not available.

  16. If a duplicate/amended return is posted (TC 976/977 or TC 971 AC 010 or 012 through 016), a CP 2000/2501, PC 20 is to be issued, a TC 290/291 is NOT present, and the duplicate/amended return is not in the case file:

    1. Transfer the case to the Unit Suspense batch.

    2. Monitor the case for 45 days from the TC 976/977 or the TC 971 date for the pending/posting of the TC 290/291.

    3. If the TC 290/291 posts, order the adjustment source document.

    4. If the TC 290/291 does not post, continue processing the case.

      Note:

      Underreporter functions that work their own Accounts Maintenance Research (AMRH) Transcripts should forward these cases to the appropriate unit after the batch has been disassembled.

  17. TC 295 indicates a tentative allowance from Form 1045 was input on the taxpayer's account by Adjustments. TC 299 indicates an abatement of the original tax. If there is a TC 295 or 299 unreversed, or only partially reversed by TC 294 or 298, and there is U/R income, issue a notice.

    Note:

    The TC 295 or 299 amount should be entered as a Miscellaneous Credit on the AUR system.

  18. TC 305indicates a tentative allowance from Form 1045 was input on the taxpayer's account by Exam. TC 309indicates an abatement of the original tax. If there is a TC 305 or 309 unreversed, or only partially reversed by TC 304 or 308, and there is U/R income, issue a notice.

4.19.3.3.3.4  (09-01-2008)
Other Transaction Codes, Freeze Codes and Math Error Codes

  1. Other TC's shown on the Tax Account screen may require additional action.

  2. TC 160 or 166 indicates a Delinquency/Failure to File Penalty was assessed. TC 161 or 167 means a portion or all of the penalty has been abated. When a U/R issue exists, the system computes or recomputes the Delinquency/Failure to File Penalty when required. See IRM 4.19.3.16.1 for additional information.

  3. TC 170 or 176 indicates that an Estimated Tax (ES) Penalty was assessed. TC 171 or 177 means a portion or all of the penalty has been abated. When a U/R issue exists, a recomputation of the ES penalty may be required. See IRM 4.19.3.16.3 for instructions.

  4. TC 270 or 276 indicates a Failure to Pay Penalty (FTP) was assessed. TC 271 or 277 means a portion or all of the penalty is abated. See IRM 4.19.3.16.2 for additional information.

  5. TC 460 indicates a request for extension of time to file was approved. The extension date appears in the Remarks column.

  6. TC 540 indicates that the taxpayer is deceased. See IRM 4.19.3.4.5 for further instructions.

  7. TC 604 indicates close-out of the MFT 30 module in preparation of mirroring to MFT 31. During screening, close the case using PC 27. During responses, refer to either the local Bankruptcy or Innocent Spouse Coordinator. See (16) below for additional information on Bankruptcy.

  8. TC 764 or 768indicates Earned Income Credit (EIC) was allowed. TC 765 indicates the credit was fully or partially reversed. If TC 764, 765, or 768 is present, EIC may need to be computed or recomputed. See IRM 4.19.3.15.3 for instructions.

  9. TC 766 with:

    1. Credit Reference Number 336 indicates Additional Child Tax Credit was allowed. TC 767 (with Credit Reference Number 336) indicates the credit was fully or partially reversed. If TC 766/767 (with Credit Reference Number 336) is present, Additional Child Tax Credit may need to be computed or recomputed. See IRM 4.19.3.15.4 for instructions.

    2. Credit Reference Number 252 indicates excess SST has been adjusted (TY 2006 and subsequent tax years only). TC 767 (with Credit Reference Number 252 indicates the credit was fully or partially reversed. If TC 766/767 (with Credit Reference Number 252) is present, Excess SST/RRT may need to be computed or recomputed.

  10. TC 806/800credits the tax module for the amount of withholding tax (W/H) claimed on a tax return. TC 807/802 reverses the TC 806/800 credit in whole or in part. Withholding may need to be adjusted because of AUR processing. Before proposing a change to W/H, be certain that the adjustment has not been previously allowed. See IRM 4.19.3.15.1 for instructions.

    Note:

    Certain modules where an overstatement of estimated tax payments or W/H credits resulted in a refund, offset, or a credit elect will show as assessed using TC 290, RC 051, for the amount of the overstatement. These accounts will generally not contain a TC 807.

  11. TC 971with Action Code 501 indicates documented Identity Theft and the following actions must be taken:

    1. During screening, close the case using PC 28.

    2. During responses, See IRM 4.19.3.20.1.23 for further guidance

  12. TC 972 with Action Code 501 indicates Identity Theft has been reversed.

  13. If there is a Freeze Code "-A" , the case is worked by AUR. See IRM 4.19.3.3.3.3 (15) and (16) for further instructions.

  14. A Freeze Code"-C " on the account indicates the taxpayer was involved in a military operation in a designated combat zone and is entitled to special tax treatment. Assign PC 15.

  15. If a Freeze Code "-I" is present on Tax Account screen, and/or the NET CHANGE field on the Return Value screen is less than the TC 846 with a corresponding TC 776 that is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ on the Tax Account screen, then a Manual Interest computation is required. If there is U/R income, input IPC MI (Manual Interest) only if a CP 2000 is being issued. If the case results in a refund, do NOT use IPC MI. Enter "0" in MANUAL INTEREST field of the Return Value or the Summary Screens, and continue processing. Input PC 30, if issuing a CP 2501. See IRM 4.19.3.16.10.

    Note:

    If a Manual Interest computation is required, and the tax examiner attempts to input Process Code 55, 57, 59, or 95 or IPC RN or SR, the system alerts the tax examiner that IPC MI is required. Cases with CP 2000 Notice Indicator 8 do not require an IPC MI.

  16. A Freeze Code "L-" identifies that an Innocent Spouse claim (Form 8857) has been filed and is set by input of TC 971 AC 065. The TC 971 AC 065 also generates a TC 130 freezing the entire account for the non-requesting spouse.

    1. During the Screening phase, close the case using PC 28.

    2. During the Response phase, refer to See IRM 4.19.3.20.1.18. for more information.

  17. A Freeze Code "-O" on the Tax Account screen, is a Disaster Indicator set by TC 971 AC 086 or 087. See IRM 4.19.3.4.6 for more information.

  18. A Freeze Code "-S" replaces the assignment of Computer Condition Codes to identify tax returns filed within a declared disaster area and is set with a TC 971 AC 688. The -S freeze does not suppress notices. Continue normal case processing.

  19. During Case Analysis (i.e., pre-notice contact), if ANY of the following BANKRUPTCY conditions are present on the TAX ACCOUNT screen, assign PC 27.

    • Freeze Code "- V" and/or unreversed TC 520.

    • Freeze Code "- W" and/or an unreversed TC 520 with CC 60 through CC 67, or CC 81, CC 84, or CC 89.

    • TC 604 has posted. The bankruptcy has been discharged/revoked. No further action may be taken on the case if TC 604 is posted.

    Note:

    If none of the bankruptcy indicators are present on the Tax Account screen, continue normal processing. See IRM 4.19.3.20.1.10, if there is an indication of bankruptcy AFTER the taxpayer has been issued an AUR notice.

  20. If there is a Freeze Code "-U" follow Campus Direction. Freeze Code " -U" indicates the Erroneous Refund area is monitoring a case for available credits and a closure may release needed credits.

  21. A Freeze Code "-Y " on the account indicates that the taxpayer filed an Offer-in-Compromise with the service. See IRM 4.19.3.3.3.5 for further instructions.

  22. If a Freeze Code or Transaction Code other than those explained in See IRM 4.19.3.3.3.2., See IRM 4.19.3.3.3.3., and See IRM 4.19.3.3.3.4. are indicated on the Tax Account screen, refer to Document 6209.

  23. If there is a math error code in a case, the math error code number displays in the MATH ERROR CODE field of the Tax Account screen. If there are multiple math error codes, they display up to a maximum of five (5) codes in this field.

4.19.3.3.3.5  (09-01-2008)
Collection Cases Relating to AUR

  1. Collection and AUR may simultaneously have a case in process.

  2. A Freeze Code "-Y" remains on the account while an Offer-in-Compromise is being considered.

  3. TC 480 (not reversed by TC 481 or 482) on a case indicates the taxpayer has filed an "Offer in Compromise" (OIC) with the Service.

  4. If a TC 480 is present on the Tax Account screen, continue normal AUR processing. A TC 29X may be input on these types of cases. Send copies of the case data to Collection OIC function upon their request.

  5. If a TC 780 has been fully reversed by a TC 781 or 782, continue normal AUR processing.

  6. If an unreversed TC 780 is present on the Tax Account screen, a warning message will display to close the case. Close the case by:

    1. Using Process Codes 21 - 28, 52, 71, or 96 as appropriate.

    2. Leaving a Case Note stating that this is an OIC closure.

    3. Issuing an 1802C Letter, if closing the case with PC 52, 71 or 96.

4.19.3.3.4  (09-01-2003)
Information Return Window

  1. The Information Return window displays the complete IR. See IRM 4.19.7, Information Return window.

  2. Payer address information, as shown on the Information Return window, displays on the CP 2000/2501.

4.19.3.3.5  (09-01-2003)
Income Comparison Screen

  1. The Income Comparison screen displays a comparison of amounts reported by payers on IRs and the amount the taxpayer reported on his/her tax return. Access this window when it is necessary to view RETURN and IRP amounts or to determine the discrepant income type. See IRM 4.19.7, Income Comparison screen.

  2. The OFFSET field displays codes describing how matched return and IRP amounts were offset for identification of potential discrepancies.

  3. When attempting to offset income, make sure the income to which it is being offset has not already been used. However, if you can determine that offsets were applied incorrectly, analyze that issue as well.

4.19.3.4  (09-01-2008)
Analysis Procedures

  1. The following instructions are for use by AUR tax examiners. They are to be used in conjunction with training materials and the IRM 4.19.7.

    1. An UNDERREPORTED (U/R) condition exists when there is income shown on the IR(s) that was not reported by the taxpayer on Form 1040, Form 1040A, or Form 1040EZ. Proposed tax adjustments are based on these U/R amounts, as well as on reported income amounts for which the taxpayer failed to include the required additional taxes (e.g., Self-Employment tax (SET))

    2. An OVER-DEDUCTED (O/D) condition exists when the taxpayer claims more of a deduction than is substantiated by IR(s) and/or allowed by law (e.g., Mortgage Interest Deduction or Individual Retirement Account (IRA) Deduction).

    3. An UNDER-CLAIMED (U/C) condition exists when the taxpayer fails to claim all the payments to which he/she is entitled (e.g., W/H)

    4. An OVER-CLAIMED (O/C) condition exists when the taxpayer reduces his/her tax liability by an amount that either exceeds the amount shown on the IR's, and/or the amount cannot otherwise be substantiated (e.g., Early Withdrawal Penalty (EWPEN)).

  2. Computer identified income/deduction discrepancies of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ are displayed in the LIST OF DISCREPANCIES field on the Tax Account screen. If the category is a combination type, all appropriate discrepancies are displayed.

  3. The IR(s) contributing to the discrepancies are listed first on the Case Analysis screen, and the specific income type is identified with an asterisk.

  4. Cases involving U/R and Earned Income Tax Credit (EITC) are identified in Subfile E. An EITC discrepancy can occur when there is unreported: interest, dividends, capital gain net income (including securities), rents, royalties or income from certain passive activities and the taxpayer claims less than $2,900 in investment income. If the taxpayer’s total investment income exceeds $2,900 (regardless of overall AGI), the EITC is disallowed.

    1. Due to the investment income limitation for EITC, cases have been created with small amounts of apparent U/R investment income. These investment income discrepancies are not asterisked, (in either Case Analysis or the Income Comparison screens) to alert the tax examiner of where the discrepancy lies. The system does not display a warning message.

    2. When accessing cases in Subfile E, screen ALL IRs.

    3. If there is any U/R (regardless of amount), complete the Return Value screen.

  5. If the Case Analysis screen does not contain any asterisked items, a message appears and tells the tax examiner to go to the Income Comparison screen to determine the discrepancy and screen the case accordingly.

  6. Discrepant income types are identified with an asterisk on the Income Comparison screen and Information Return window.

    Note:

    Because of computerized offsets, some APPARENT W/H discrepancies are not asterisked. Follow procedures in See IRM 4.19.3.15.1 for these cases.

  7. The Case Analysis screen may contain IRs that HAVE NOT been identified as discrepant. These IRs were added after the case creation and must be analyzed. These IRs are listed along with the discrepant IRs and are identified with an indicator in the AMENDED INDICATOR field. IRs containing the same income types, MUST BE screened and an applicable IR Code assigned to each element of the IR. The indicators are shown as follows:

    • N - New

    • AN - Amended New

    • RN - Replace New

    • DN - Duplicate New

    • XN - Delete New

  8. Initially analyze the asterisked elements on the IR(s) related to the computer identified discrepancies. Also analyze other issues related to the income on the discrepant IR.

    Note:

    Beginning in TY 2006, the AUR system identifies potential SE tax discrepancies on reported income from Form 1040, lines 12, 18 or 21 where no Self-Employment tax was paid. The system alerts the user that a discrepancy exists when there are no IRs to mark. An asterisk displays in the SELF EMPLOYMENT TAX field on the Income Comparison window. Follow IRM procedures for specific income types and See IRM 4.19.3.14.1 to determine when SE Tax needs to be considered.

    Exception:

    For cases in Subfile E with no asterisked elements see (8) above.

    Example:

    Consider adjustments to: Child Care Credit when the DCB element is asterisked; consider SE Tax when NEC, MED, FISH, etc. elements are asterisked (or when the system identifies a potential SE Tax issue); consider the 10% tax when Form 1099-R element is asterisked and the IR contains a COD, " J" , "L" , "1" , " 5" or "7" (with a PGR Indicator of 1), etc.

    Caution:

    Always screen Withholding element(s) when the asterisked IR is discrepant and it contains withholding.

    1. If the asterisked element(s) is/are fully reported on the line(s) designated for that income on the tax return (i.e., discrepant wages are fully reported on line 7), then check the INCOME COMPARISON screen for a possible misplaced data entry. Screen the income type related to the misplaced data entry.

    2. If the asterisked element is identified as being included in another type of income, analyze all related IRs. (i.e., Pensions are identified as discrepant but are found reported on the wage line - analyze both pensions and wages.)

    3. If the asterisked element results in above tolerance U/R, screen the remaining non-asterisked items.

  9. If the discrepant IR(s) element(s) is/are reported and/or the system identified SE tax discrepancy is resolved, close the case PC 21.

  10. When there is U/R income or if related tax/credit adjustment issues are involved, proceed to Return Value.

    Note:

    It is no longer necessary to mark non-asterisked IR(s) to access the Return Value screen.

    1. AUR multiplies the CHANGE TO AGI field amount by the highest tax rate for the tax year. If this calculation does not result in either ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Note:

      If Schedule A Mortgage Interest, AEIC, Self-Employment Tax, Federal Insurance Contributions Act (FICA), W/H, Dependant Care Benefit (DCB), Child Care Credit, Employer Provided Adoption Benefits (EPAB), EIC, and/or 10%, 15%, or 25% Tax on Early Distributions are an issue, complete the Return Value screen before closing the case. Ignore the Case Analysis screen system prompt to close the case.

    2. Complete all applicable windows.

    3. If the dollar tolerance for issuing a notice is not met, the system displays a message to close the case. Use PC 22 to close below notice tolerance cases.

  11. Proposed adjustments on the CP 2000/2501 require an explanation to the taxpayer. There is only one set of explanation paragraphs for both the CP 2000/2501. Some PARAGRAPHs are automatically generated when the related condition applies and these paragraphs can be viewed. All automatic PARAGRAPHs are automatic toggle. Non-automatic PARAGRAPHs may be viewed, selected, deleted, and/or added.

    Note:

    Beginning in TY 2006, there is a single Notice Summary screen. This is to facilitate automatically generating a CP 2000 from a CP 2501 no-response. Paragraphs are either manually selected or automatically generated based on the case condition. All applicable paragraphs display in the SELECTED PARAGRAPH field(s) on the Notice Summary screen. If a CP 2501 Notice is selected (PC 30), the system prevents any non-CP 2501 paragraphs from printing on the notice. If issuing a CP 2501 do not"toggle off " apparent inappropriate CP 2501 paragraphs.

    Note:

    The programming that automatically selects paragraphs occurs in different screens (Case Analysis, Return Value or Notice Summary) depending on the conditions needed to set the paragraph. To reduce the instances of paragraphs resetting, the tax examiner should only"toggle off" or "toggle on" paragraphs from the Select Notice Paragraph window accessed in the Notice Summary screen.

    • CP 2000/2501 automatic and non-automatic paragraphs are notated in this IRM as "PARAGRAPH XX" .

    • Miscellaneous Letter paragraphs are notated as "Special Paragraph" .

    There are 40 numbered paragraphs for local use by AUR. In situations where the numbered paragraphs are not applicable, a Special Paragraph may be written on the Special Paragraph window.

    Note:

    Special paragraphs MUST BE reviewed by a manager or lead tax examiner. See IRM 4.19.7, Select CP 2000 Paragraph screen.

  12. Twelve different income types can be marked as underreported. If there are more than twelve U/R income types, an error message displays. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  13. When issuing a notice for underreported issues, send the applicable element(s) of the IR. The entire IR will not be sent unless all elements (income types) on an IR are marked with a "S" . This includes modified and created IRs. When an IR is marked with a "U" , the system automatically enters the Send Indicator. If it is determined that the IR should not be sent, remove the Send Indicator.

    Note:

    The Send Indicator must be manually entered on any created or modified IR that the tax examiner wants to include on the Notice.

  14. Close short year returns with PC 28.

4.19.3.4.1  (11-08-2005)
Information Returns - Review

  1. The initial review of IRs is accomplished from the Case Analysis screen. See IRM 4.19.7, Case Analysis Screen.

    Note:

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

    Caution:

    Be aware of Payer/Agent information.

  2. Delete EIN IRs as invalid if any of the following apply.

    1. The payer EIN or name on Form W-2 or Form 1099 matches the payee EIN or name on the IR in question.

    2. Schedule E contains a Partnership or Small Business Corporation with the same EIN or name as the payee EIN or name on the IR(s) in question, UNLESS the payer on the IR is the partnership or small business corporation shown on Schedule E.

  3. Delete the EIN IR when the payee name line(s) is obviously not the taxpayer. For example, the name line(s) contains any of the following groups:

    • Government agencies - federal, state, or local

    • School - private, public, colleges, universities, etc.

    • Charitable and tax-exempt organizations - hospitals, churches, medical centers, etc.

    • Pension Profit Sharing Plan name line(s) with the words "trustee" , "trustee for" , etc.

  4. Consider the EIN IR valid (as belonging to the taxpayer) when ANY of the following conditions are present:

    1. Either the primary or secondary taxpayer's name is the only payee name on the IR.

    2. Either the primary or secondary taxpayer's name appear in the first or the second name lines on the IR.

    3. The payee address on the EIN IR is the same address as shown on the tax return, Form W-2 or Form 1099 attached to the tax return, or other SSN IRs.

    4. The payee name on the IR implies a sole proprietorship type business, or the taxpayer's occupation as shown on Form 1040, Form 1040A, Form 1040EZ, or Schedule C or F is typically operated as a sole proprietorship or small business.

    5. The payee EIN on the IR matches the EIN on the Schedule C or F.

    Note:

    If it appears the EIN listed on the Schedule C or F does not belong to the taxpayer (i.e., the listed EIN matches a payer EIN on another IR), use IDRS CC:INOLES to determine the validity of the EIN.

  5. Compare all valid EIN IRs to amounts on the tax return and related schedules. Use instructions for the particular type of income involved.

  6. Assert self-employment tax (SET), as appropriate, only on the issues that are normally subject to self-employment tax. See IRM 4.19.3.14.1 for further instructions.

  7. EIN IRs do not display with an Income Identify Code in the INCM CODE field. If SET applies, enter an Income Identify Code. If it cannot be determined which Income Identify Code to enter, See Exhibit 4.19.3-17, Income Identify Codes, and enter the value from the "Displayed Codes " column. If the IR has a Status Code of "U" , it is necessary to remove the "U" before an Income Identify Code can be entered.

  8. Delete IRs when:

    1. Payer/Agent Indicator "Y" is present and the Payer/Agent window contains instructions to delete the IR. See IRM 4.19.3.5.

      Note:

      Close the case with PC 24, if all U/R income is from identified Payer/Agents and the Payer/Agent window contains instructions to accept or delete the IR.

    2. The payee entity contains the words " Estate of" .

    3. The taxpayer's name is preceded by the word "by" .

    4. The payee(s) name is obviously different from the tax account names and does not contain obvious business words, even though the SSN matches.

    5. EIN 99-9999999, foreign income, is present and another EIN is present for the same payer. IR dollar amounts may vary due to currency exchange rates.

      Note:

      Delete the 99-9999999 IR ONLY when both are present. Foreign Source IRs are treated the same as domestic source IRs.

    6. The literal is "DELET" .

    7. The Filing Status is "3" or "6" and the SSN on the IR is for the spouse.

    8. The IR contains non-select term(s) and you determine that the payee is NOT the taxpayer. See Exhibit 4.19.3-19, Non-Select Table.

    9. The money amount is $99,999,999, unless the taxpayer's AGI supports this amount.

  9. Consider IR's with the following conditions valid and pursue any U/R amounts:

    1. The payer's name is garbled, missing, or incomplete. See IRM 4.19.3.4.2(11) c).

    2. The payee's first and last name are in a different order on the IR.

    3. The payee name is a foreign version of an English name (i.e. Peter listed as Pedro or Pierre).

    4. The payee name line includes the taxpayer's title (MD, DDS, CPA, etc.).

    5. Only a name control is showing as the payee name and it matches the taxpayer's name.

    6. The payee second name line includes " c/o" (or a variation) followed by the taxpayer's name.

    7. The payee name line contains obvious business words and you determine that the payee is the taxpayer.

    8. The literal is "AMEND" and the document does not match the original documents. See (11) below for further instructions.

    9. The payee name is followed by "and " or "or" without other names.

    10. The IR payee name is a maiden name. If the payee's first name or initial on the IR are the same as the tax account name, pursue the IR.

    11. The word "rollover" is present on either the payee or payer side. See IRM 4.19.3.7.9.4 (1) for further information.

  10. The payee entity name line of the IR may contain terms or variations of terms. See Exhibit 4.19.3-19 , Non-select Table.

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ for that document type unless you determine that the payee is the taxpayer.

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ present of the same document type NOT containing a non-select term.

  11. Amended IRs are identified on the Case Analysis screen by Indicator "A" , " R" ,"D" or "X" in the AMD IND field. Amended IRs are identified on the Information Return window by the literal "AMEND" , "REPLC" , " DUPLE" , or "DELET" . If the computer has pre-identified amended IRs that are used to replace the original IR, the amended IRs have the literal "REPLC" and the literal on the original is "DELET" . PARAGRAPH 47 automatically generates when Amended IRs are included on the notice. Delete original IRs if amended IRs match an original. The amended and original IR must have:

    • The same payer name and/or EIN.

    • The same account number (if present).

    • The same type of income if the money amount changes or different income types when the money amount stays the same i.e. amending a Form 1099-MISC from NEC to OTINC).

    Note:

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

    Caution:

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

    Note:

    A blank in the amount field of an amended IR represents $0 (zero). Amended IRs with $0 amounts appear on the Case Analysis screen only if there is another IR with at least one money amount or the IR is for a Form W-2.

  12. If all elements (SSN/EIN, name, amount, account number, income type, etc.) on any two IRs are identical:

    1. Including the source, delete one of the IRs.

    2. Except the source, delete the paper source IR.

  13. If all elements on any two IRs are identical except that one does not contain an account number, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  14. If all elements (except the account numbers) of any two IRs are the same and it can be determined that the account numbers of both IRs contain the same sequence of numbers or characters, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  15. Do not consider IRs as duplicates when the account numbers are obviously different, even though all other elements are identical.

  16. Do not consider duplicate any two Form 1099-B or Form 1099-S IRs unless the sales date is the same.

  17. If a Form 1099-MISC and Schedule K-1 (PTK-1, SBK-1 or TRK-1) are present for the same taxpayer, from the same payer AND for an identical money amount, See IRM 4.19.3.7.11.1 (9) for further information.

4.19.3.4.2  (05-04-2007)
Comparison of IRP Information Returns With Return Information

  1. Different income types may be combined on one information document, (e.g., Form W-2 may include ordinary wages, allocated tips, withholding, etc.). On the Case Analysis screen, each income type is displayed separately and can be assigned a Status Code.

    Note:

    If an IR with multiple income elements is U/R, input Status Code "U" ONLY for the income element that is actually U/R. If necessary, enter Status code "R" or "N" for any remaining income elements that are not U/R.

  2. An Income Identify Code in the INCM CODE field of the Case Analysis screen and the Information Return window identifies certain income types to the system so that U/R income is included in related calculations (i.e., earned income qualifying for earned income credit, income subject to self-employment tax, etc.). See Exhibit 4.19.3-17 , Income Identify Codes. The tax examiner may change or delete this code if information on the taxpayer's return indicates that the displayed code for U/R income types is inaccurate.

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

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

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

    3. Allow a tolerance of $1 (rounding) for each IR. In those processes which do automatic calculations and grouping (e.g., SS/RR, IRA Deduction, etc.), the system considers the (rounding) tolerance.

      Note:

      The system does not consider a rounding tolerance during automatic calculations that apply to Withholding. Follow the taxpayer's intent as to rounding, dropping cents, etc. when working this issue.

    4. Consider Payer/Agent criteria when evaluating IRs. See IRM 4.19.3.5 for further instructions regarding Payer/Agent data.

  4. Misplaced entries on the tax return are frequent causes of U/R discrepancies. Taxpayers report income on their returns in a variety of places. It is important to thoroughly review the ENTIRE return before identifying income as being underreported.

    Caution:

    BE SURE THAT INCOME IDENTIFIED ON AN ATTACHMENT IS CARRIED FORWARD AND INCLUDED IN THE ADJUSTED GROSS INCOME.

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

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

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

  6. When payer documents are attached (Form W-2, Form 1099-MISC, etc.) to a paper return, consider them more accurate than the IR UNLESS:

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

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

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

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

  7. For ELF returns, the ELF payer documents displayed in the TRDB window are considered more accurate than the IR when:

    1. The taxpayer includes an ELF payer document for which there is no IR. Create an IR if necessary.

    2. The ELF payer document shows more income than the IR. Assume the taxpayer is reporting correctly per an amended document. All elements on the ELF payer document are considered more accurate than the IR elements.

  8. For ELF returns, consider the IR more accurate than the ELF payer document when the ELF payer document shows less income than the IR. All elements of the IR are considered more accurate than the ELF payer document elements.

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

    1. Allow credit against IRs for wages, W/H, interest, and dividends reported on the return unless there is an indication the return amounts are not from the same payer(s) on the IR(s).

    2. For all other types of income, do not allow credit against IRs unless the return amount matches an IR within $1.

    3. Do not make any changes in the calculation windows (e.g., Child Care Credit, Schedule A, Alternative Minimum Tax), but allow the system to compute if the necessary supporting schedule or form is missing.

  10. The Create Information Return window creates a new IR. See IRM 4.19.7, Create Information Return window.

  11. Create an IR if:

    1. The taxpayer reports income/deductions for which there is no corresponding IR, and the reported amount is needed by the system to perform related calculations. (The corresponding information document may or may not be attached to the return.)

    2. There is an attached information document with no corresponding IR, and the income is not reported. Send PARAGRAPH 139 ( See Exhibit 4.19.3-12).

    3. The payer's name is garbled, missing or incomplete. Use the EIN to research IDRS for the proper payer name. If the income is U/R, recreate the IR as shown on the Case Analysis screen, including the correct payer name. Include the created IR on the notice.

      Caution:

      In order for a created IR to be considered valid for inclusion on the notice, it must contain: a payer name, payer EIN, and an income amount greater than zero (in addition to other required entries). The Send Indicator must be manually entered on the IR by clicking in the SEND INDICATOR field on the Case Analysis screen.

      Note:

      The tax examiner may determine other conditions that require creation of an IR.

  12. The Modify Information Return window modifies an existing IR. See IRM 4.19.7, Modify Information Return.

  13. Modify an IR if:

    1. The COD/PGR Indicator is incorrect.

    2. The Payee Indicator is incorrect.

    3. One or more IR(s) belongs to both taxpayers and the income/deduction amount needs to be allocated (e.g., the taxpayers divided nonemployee compensation from one IR between two Schedules C, and self-employment tax is an issue).

    4. One or more IR(s) is reported on more than one schedule or form (e.g., mortgage interest on Schedule A and Schedule E), and the income must be allocated in order to reflect the correct Income Identify Code.

      Reminder:

      After an IR is modified the system marks the original amount with an "X" . To include the modified IR on the notice, click the SEND INDICATOR field next to the original amount.

    Note:

    The tax examiner may determine other conditions that require modification of an IR.

  14. Use the SEARCH option to view only those IRs that fit specific criteria (e.g., payer name, income type, etc.). See IRM 4.19.7, Search function.

  15. Use the SCROLL IR option to view multiple IRs on the Information Return window, without returning to the Case Analysis screen. See IRM 4.19.7, CA Tools.

  16. Use the GROUP option when the taxpayer has not provided a breakdown and it is necessary to compare a total money amount for related IRs with a single line entry on the taxpayer's return. See IRM 4.19.7, Grouping IRs.

    1. If the group total amount is larger than the single line entry on the return, assign Status Code "U" to the group.

    2. If the group total amount is smaller than the single line entry on the return, assign Status Code "R" to the group.

    Note:

    All IRs of the same income type are grouped together, regardless of the Income Identify Codes. After grouping, it may be necessary to remove an IR(s) from the group because of the Income Identify Code.

  17. If a Form 1099-MISC IR has two identical money amounts (e.g., NEC is $500 and MED is $500) and the taxpayer reports one of the amounts, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  18. A photocopy of a prior year CP 2000 response may be attached to the return. Consider the information in the previous year's response. This information may result in resolving the U/R issue(s).

  19. When a U/R issue for the same type of income from the same payer was resolved per a copy of a 2625C Letter response from a prior year attached to the return, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    Note:

    If a prior year AUR closure letter (CP 2005, 1802C, etc.) is attached to the return, research the prior year to see if the resolved issue(s) corresponds to the current AUR year discrepancy. If so, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ See Exhibit 4.19.3-13, for the wording of the notice CP 2005.

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

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

    2. Pursue the U/R issue.

    3. Send an appropriate paragraph to advise the taxpayer of the error.

  21. If the discrepancy is resolved, close the case using PC 2X.

  22. Foreign source income IRs are identified by:

    • A payer TIN of "99-9999999"

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

    • Foreign country abbreviation in the State field

    • Account Code Type "T"

      Note:

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

4.19.3.4.2.1  (09-01-2008)
Service Center Recognition/Image Processing System (SCRIPS)

  1. The following procedures apply to the analysis of Service Center Recognition/Image Processing System (SCRIPS) IRs.

  2. The system displays a warning message when STATUS CODE " U" is assigned to a SCRIPS IR(s). When this message is received, the tax examiner should screen the related IR with EXTREME care.

  3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ :

    1. Obvious decimal point errors. An option to identifying decimal errors is to multiply the U/R amount by 1.1111. If the result equals one of the IRs in question (within $1).

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

      Example:

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

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

      Example:

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

    4. Duplicate money amounts for both income and withholding.

  4. If a SCRIPS IR is asterisked and is deleted due to one of the conditions in IRM 4.19.3.4.2.1 (3) above and the other asterisked item(s) are reported or, below tolerance, close the case. If the other asterisked item(s) are U/R, continue processing.

  5. If a SCRIPS IR is U/R and none of the conditions in IRM 4.19.3.4.2.1 (3) above are present, consider the IR correct and pursue the issue using normal procedures.

    Note:

    Do not send SCRIPS IR's with erroneous information to the taxpayer. Create an IR to reflect the correct information and include it on the notice.

  6. Do not send information regarding erroneous SCRIPS IR's to the AUR Payer/Agent Coordinator, unless some other payer agent condition exists.

4.19.3.4.3  (04-05-2005)
Jointly Owned Income

  1. Joint ownership is indicated when there are two or more names on the IR, or one payee name is on the IR followed by "and" or "or" . This situation occurs primarily when working with interest, dividend and/or securities income.

  2. When the taxpayer reports the appropriate percentage of ownership from a jointly owned IR, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Exception:

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

  3. See IRM 4.19.3.4.4 for further instructions if the taxpayer resides in a Community Property state.

  4. If the Filing Status is 3 (Married Filing Separately), the spouse's name appears on the IR, the taxpayer does not report all of the income in question and does not include a statement that ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , research IDRS using Command Codes (CC) INOLE, TRDBV (for ELF returns), RTVUE, ENMOD, etc. for the spouse's return.

    Note:

    If the IR is solely for the spouse, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. If the spouse did not file a return, issue a CP 2000.

    2. If the spouse filed a return, it may be possible to determine if the spouse reported the jointly owned income. If the difference between the spouse’s IRPTR data and his/her reported per return amount (from CC:RTVUE, IMFOLR or TRDBV) for the related income type equals the U/R amount (within tolerance) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . If not, issue a notice for the full U/R amount to the AUR taxpayer.

  5. If the Filing Status is 6 (taxpayer claiming an exemption for spouse not filing), issue a notice as appropriate to the primary taxpayer for the U/R issue.

    Reminder:

    If the Filing Status is 6 and the IR is for the spouse, ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

4.19.3.4.4  (09-01-2003)
Community Property States

  1. Taxpayers who reside in a Community Property state must follow the individual state's community property laws to report their community/separate income on a Federal Tax return.

  2. The Community Property states are:

    • Arizona

    • California

    • Idaho

    • Louisiana

    • Nevada

    • New Mexico

    • Texas

    • Washington

    • Wisconsin

  3. Married taxpayers can elect to file either a joint return or separate returns (to get a greater tax advantage). If the taxpayers meet certain conditions, they may be eligible to file a non-joint return using either FS 1 (single) or FS 4 (head of household), as opposed to FS 3 (married filing separate).

  4. Community income is generally income from:

    • Community property (i.e., a jointly owned savings account)

    • Salaries, wages or pay for services that either spouse performed during their marriage

    • Real estate that is treated as community property under the laws of the state where the property is located

  5. Separate income is generally income from separate property. Separate income belongs to the spouse who owns the property.

    Note:

    Contribution limits on IRAs are applied without regard to community property interests.

  6. When married taxpayers choose to file separate tax returns, they should use an allocation worksheet to list their income, deductions and withholding. Each taxpayer is instructed to attach the allocation worksheet or a photocopy of the other spouse's payer documents (Form W-2, 1099, etc.) to each of their individual tax returns.

  7. On the allocation worksheet, community income is generally equally divided between both spouses and each spouse would report their separate income.

    1. Earned income (i.e., wages, nonemployee compensation, etc.) is generally considered community income and the taxpayers would divide their combined income equally between them.

      Note:

      The amount of W/H would also be combined and divided between both spouses.

    2. Jointly held savings accounts are treated as community property. Individual savings accounts that earn either interest or dividends are generally considered separate property.

      Exception:

      The Community Property laws for those taxpayers who reside in Idaho, Louisiana, Texas or Wisconsin stipulates that income from separate property is generally treated as community income. For example, interest earned on an individual savings account would be considered community income.

  8. On an individually filed tax return, if there is partially reported income/deductions and the taxpayer resides in a community property state as listed in (2) above, determine if the AUR condition is the result of the income allocation.

    1. Consider the information return fully reported if attached statements/worksheets identifies that the income was allocated between both spouses.

    2. If the discrepant information return is not addressed in the attached statement/worksheet, pursue the full amount of the income.

4.19.3.4.5  (09-01-2003)
Deceased Taxpayers

  1. If there is an indication on the original tax return that the primary or secondary taxpayer is deceased, follow the procedures listed below to evaluate the case:

    Note:

    When one of the taxpayers is deceased, See IRM 4.19.3.7.16.1(4) for procedures to resolve SS/RR discrepancies on jointly filed returns.

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

      Caution:

      If the decedent's income is reported on the return, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Exception:

      If the surviving spouse's U/R income causes a change in the taxable portion of a decedent's reported SS/RR, Student Loan Interest Deduction, IRA Contributions and/or Tuition and Fees, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

    3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Send PARAGRAPH 129 ( See Exhibit 4.19.3-12. ).

    4. Issue a notice if the U/R IR(s) show ownership for the surviving spouse.

  2. If taxpayer is deceased per the return, but the Tax Account screen does not reflect this, and the case is not being closed No Change, input the current information in the Update Address window. See IRM 4.19.7, Update Address window.

    1. Update the first name line.

    2. For joint returns, enter DECD after the given name of the deceased taxpayer.

    3. For other than joint returns, enter DECD after the taxpayer's last name, including suffix.

      Note:

      The first name line is limited to 35 characters. If DECD will not fit on this, input the deceased taxpayer's name and DECD on the second name line.

    4. Enter the second name line, if present.

    5. Enter "D" in the Split Code field.

4.19.3.4.6  (09-01-2008)
Declared Disaster Areas

  1. AUR Coordinators input Zip Codes for specific declared disaster area situations as necessary based on IRS Disaster Relief Memos. Follow system prompts to ensure proper handling of declared disaster area cases. Disaster types with case impact:

    1. Type 2 - suppresses CP 2000/2501 and Statutory Notices.

    2. Type 3 - prevents cases from defaulting (notices continue to be issued).

    3. Type 4 - suppresses CP 2000/2501 and Statutory Notices AND prevents cases from defaulting.

4.19.3.4.7  (10-30-2006)
Frivolous Return Program (FRP)

  1. A frivolous return is defined as noncompliance with filing and/or paying tax based on unfounded legal or constitutional arguments per IRM 4.10.12. If in doubt about whether the return is frivolous, consult with your lead or manager. If it is determined during screening that the return is frivolous, close the case with PC 13, notate the case for clerical "FRP to Ogden" .

    Note:

    See IRM 4.19.3.4.9 (5) if the taxpayer is quoting an IRC.

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

  3. If FRP requests an AUR case after taxpayer contact, close the case with the appropriate PC (64 or 85), notate the case for clerical " FRP to Ogden" .

4.19.3.4.8  (09-01-2004)
Fraud Referral Program

  1. The primary objective of the National Fraud Program is to foster voluntary compliance through the recommendation of a criminal investigation and/or civil penalties.

  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 for further development.

4.19.3.4.8.1  (09-01-2005)
Identifying and Developing Fraud in AUR

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

    • Altered Documents.

    • False deductions/adjustments to income.

    • False/overstated W-2 for EITC purposes (may be preparer/promoter).

    • False Schedule C for EITC purposes.

    • Identity theft (sale or purchase).

    • False basis in assets.

    • False transaction date for asset disposition.

    • False statements made by taxpayer.

    • False exemptions.

    • Use of decedent’s SSN.

    • False business, rental, or farm expenses.

    • False or overstated refundable credits.

    • Amended returns with any of the above.

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

  3. See IRM 25.1.1.3, Indicators of Fraud.

4.19.3.4.8.2  (10-30-2006)
AUR Tax Examiners Fraud Responsibilities

  1. Identify indications of fraud that are uncovered through regular case processing. Use the list in 4.19.3.4.8.1.

  2. Discuss the indicators of fraud with the group manager or lead. If the group manager or lead concurs:

    1. Assign the appropriate Internal Process Code 0D, 3F, 6F, or 8F.

    2. Complete Sections I, II and III of Form 13549, Campus Fraud Lead Sheet (information and indicators of fraud).

    3. Secure the group managers initials and date.

    4. Forward the case and the sheet to the AUR Fraud Coordinator for consideration.

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

    1. All case actions.

    2. All documents received.

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

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

4.19.3.4.8.3  (09-01-2004)
AUR Fraud Coordinator Responsibilities

  1. The AUR Fraud Coordinator is responsible for the following:

    1. Monitoring and managing the Fraud Referral Program within the AUR Operation.

    2. Conducting preliminary screening of Form 13549, Campus Fraud Lead Sheet to determine if the referral should be forwarded to the Campus Fraud Coordinator (all cases in IPC 0D, 3F, 6F, and 8F).

    3. Making a determination to accept (forward the case to the Campus Fraud Coordinator) or decline the referral within 10 (ten) days of receipt.

    4. Maintaining a copy of each Form 13549, Campus Fraud Lead Sheet.

    5. Tracking all AUR fraud leads, including those declined/returned to AUR and those accepted for further Fraud development. AUR will use a combination of the IPC listing and Forms 13549, Campus Fraud Lead Sheets to track Fraud referral cases. Information on Fraud referral/accepted/declined cases will be submitted to Headquarters by the fifth day of each month.

  2. If the AUR Fraud Coordinator declines the fraud lead he/she will:

    1. Annotate the reason for the declination on the Form 13549, Campus Fraud Lead Sheet.

    2. Return the annotated Form 13549, Campus Fraud Lead Sheet to the initiator through the initiator’s manager.

    3. Reassign the case to the initiator's User Identification Number (UID).

  3. If the AUR Fraud Coordinator accepts the fraud lead, he/she will:

    1. Annotate the acceptance on the Form 13549, Campus Fraud Lead Sheet.

    2. Return a copy to the initiator through the initiator’s manager.

    3. Forward the fraud lead (case and Form 13549, Campus Fraud Lead Sheet) to the Campus Fraud Coordinator for a final fraud determination.

    Note:

    The Campus Fraud Coordinator is required to make a determination to accept or decline a lead within 21 days of receipt.

  4. If the Campus Fraud Coordinator accepts the fraud lead for further development, he/she will request the case be reassigned and ensure the case is established on AIMS. The AUR Fraud Coordinator will:

    1. Close the case using Fraud Closing PC 14, 44, 72 or 84, as appropriate.

    2. Annotate the Form 13549, Campus Fraud Lead Sheet and keep a copy for the AUR records.

    3. Make and send a copy of the Form 13549, Campus Fraud Lead Sheet to the initiator through the initiator's manager.

    4. Ensure the entire case contents are forwarded.

  5. If the Campus Fraud Coordinator declines the fraud lead, he/she will return the Form 13549, Campus Fraud Lead Sheet with a written explanation to AUR. The AUR Fraud Coordinator will:

    1. Return the Form 13549, Campus Fraud Lead Sheet to the initiator through the initiator’s manager.

    2. Transfer the case to the initiating tax examiner's UID.

4.19.3.4.9  (09-01-2006)
Miscellaneous

  1. Initial processing errors, or additions to the AGI are corrected by entering the appropriate amount(s) in the MISCELLANEOUS ADJUSTMENT fields on the MISC ADJUSTMENT/SCHEDULE C EXPENSE window. See IRM 4.19.7, Miscellaneous Adjustment/Schedule C Expense window. The amount computed in the changed amount field is included in the AGI by the system and is considered in all calculations. This amount is included in the U/R Amount on the Return Value screen and displays on the CP 2000 Summary as Miscellaneous Adjustment.

    Reminder:

    When any amount is entered in this window send a Special Paragraph explaining the adjustment.

    Caution:

    Do not use this window for situations where a specific income/deduction type has its own window for the required adjustment. Also, the entry for the return field can be a negative or a positive amount, depending on the line entry being changed.

  2. If Form 6781, Gains and Losses from IRC 1256 Contracts and Straddles, is attached to the return, or if Form 1040, line 44, indicates that the tax is from Form 6781, continue normal processing.

  3. A net operating loss (NOL) is identified by a negative entry on Form 1040, line 22 caused by negative amounts on lines 12, 14, 17 other than Schedule E Part I, 18, or the indication of a carryover NOL on line 21.

    Note:

    A NOL is indicated by a negative amount on Form 1040, Line 22. A NOL does not exist simply because there are negative entries on lines 12, 14, 17, 18, or 21.

    1. Verify that the correct amount is displayed in the NET OPERATING LOSS AMT field of the Return Value screen.

    2. If a NOL is caused by negative entries on Form 1040, lines 14 or 21, an amount does not display on the Return Value screen. Input the amount of the NOL in the NET OPERATING LOSS AMT field.

    3. The NET OPERATING LOSS AMT field displays an amount that is just a negative figure, not an actual NOL. If a displayed amount is not a NOL, delete the incorrect amount.

    4. If Form 1040 shows a net operating loss, consider locally established tolerances. Cases below Area Office tolerance are closed with PC 27.

  4. If IRC 6501(d), Request for Prompt Assessment, is noted on the tax return, or there is a statement requesting a prompt assessment, AND there is a U/R amount, the case MUST BE WORKED EXPEDITIOUSLY. Prompt Assessment cases have an 18 month statutory period for the assessment of additional tax.

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

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ use the following guidelines:

    3. Enter "Y" in the IRC 6501(d) field on the Tax Account screen.

    4. Enter the irregular statute of limitation date in the IRREG DATE field on the Tax Account screen.

    5. Control the case and continue processing.

  5. If an attachment indicates the income in question is nontaxable and the taxpayer cites an IRC section, determine the validity of the taxpayer's statement by researching the IRC. If the IRC submitted by the taxpayer(s) is not valid, send a Special Paragraph to inform him/her that the explanation is not acceptable.

  6. Erroneous refunds caused by IRS error require special processing; follow Campus direction.

  7. If a Form 8857, Request for Innocent Spouse Relief or an attachment indicates a taxpayer is claiming Innocent Spouse, See IRM 4.19.3.3.3.4(13) and See IRM 4.19.3.20.1.18.1.

    Caution:

    Do not confuse Innocent Spouse cases with Injured Spouse cases, which are worked in Accounts Management.

    Caution:

    If the taxpayer's claim for Innocent Spouse relief does not relate to the tax year of the open AUR case, send only the Innocent Spouse claim to CSC. Do not send the AUR case to CSC.

4.19.3.4.9.1  (09-01-2008)
Economic Stimulus Payments

  1. Beginning in May 2008 and extending through 12/31/2008, the IRS sent qualified taxpayers an Economic Stimulus Payment. These payments are based on Filing Status, Tax, and Number of Qualifying Dependents. See IRM 4.19.3.3.3.3 (9) for additional information. During screening the AUR program will not adjust these payments.

4.19.3.5  (09-01-2004)
Payer/Agent

  1. The Payer/Agent file is a compilation of Employer/Payer Information Return (IR) documents (W-2, 1099, 1098, etc.) which have been verified as erroneously filed or processed. The AUR Payer/Agent file is tax year specific.

  2. Payer/Agent (P/A) Indicator "Y" in the PA field of the Case Analysis screen indicates that the Payer/Agent file contains data for the IR in question.

  3. Taxpayers and/or Employer/Payers may contact/notify AUR that a discrepancy with documents or the filing of IRs for a tax year has occurred. Tax examiners are encouraged to request that the taxpayer and/or Employer/Payer forward the information to the site AUR Payer/Agent Coordinator.

4.19.3.5.1  (05-04-2007)
Tax Examiner - Instructions

  1. Access the Payer/Agent window for all IRs showing Payer/Agent Indicator "Y" . The Payer/Agent window lists the payer's name, EIN, document type, source, and a synopsis of the reporting problem. See IRM 4.19.7, Payer/Agent window.

    Note:

    If all U/R income is from identified Payer/Agents and the Payer/Agent window contains instructions to accept or delete the IR, close the case with PC 24. If U/R issues remain, continue normal processing (the P/A closing PC would NOT apply).

  2. During the screening phase, the tax examiner may identify questionable IRs, which appear to be erroneous but are not marked with a Payer/Agent code "Y" . When IRs appear to be questionable and the tax examiner determines the IRs should be investigated, take the following steps:

    1. Print the Case Analysis screen and the Info Return (IR) screen.

    2. Forward both screen prints and any additional supporting information documents to the site AUR Payer/Agent Coordinator.

    3. Continue normal processing.

  3. During the response phase, the examiner may receive information from the payer or the taxpayer indicating the proposed U/R is the result of a payer reporting error, or a payroll processing mistake. Take the following action to forward the information to the site Payer/Agent Coordinator:

    1. Photocopy the TP statement or payer letter and a copy of the Case Analysis screen and the Info Return (IR) screen.

    2. Forward these photocopies and any additional supporting information documents to the site AUR Payer/Agent Coordinator.

    3. Continue normal processing.

4.19.3.5.2  (09-01-2004)
AUR Site Payer/Agent Coordinator - Instructions

  1. The AUR Site Payer/Agent Coordinator will perform the following tasks.

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

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

      Note:

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

    3. Create a Payer/Agent record when a Payer/Agent record does not currently exist, and the information available leads to a determination that the Payer/Agent should be added to the Payer/Agent File.

    4. Update payer name and text lines, when required. There may be more than one type of income or source code for each Payer/Agent EIN entered. Verify by scrolling both type and source fields; P=Paper and T=Tape (magnetic media).

    5. Input the EIN to search/query the Payer/Agent File.

    6. View and/or print Payer/Agent reports from the Payer/Agent Coordinator menu.

    Note:

    A Payer/Agent cannot be created if a Payer/Agent record already exists for the EIN, document type, source code or tax year. If this condition exists, the system displays a message.

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

4.19.3.5.3  (09-01-2004)
National Designated AUR Payer/Agent Coordinator - Instructions

  1. Employer/Payer identified IR filing discrepancies are submitted through the Martinsburg Computing Center (MCC) Management and Technology Information Returns Division. Documentation received from Employers/Payers is reviewed at MCC and copies are provided to WI AUR National Headquarters in Atlanta and to the HQ (national) designated AUR Payer/Agent Coordinator (currently located in Ogden). The HQ (national) designated AUR Payer/Agent Coordinator has access to the national AUR Payer/Agent File and is responsible for the input of all Employer/Agent Information Return documents received from MCC.

    Note:

    IR documents are identified as tape source or a combination paper/tape source.

  2. Query the Payer/Agent File to determine if the Payer information received should be established or needs to be updated.

    Note:

    A Payer/Agent cannot be created if a Payer/Agent record already exists for the EIN, document type, source code or tax year. If this condition exists, the system displays a message.

    To Update/Create a Payer/Agent record:

    1. Enter the EIN of the identified Payer/Agent.

    2. Select the appropriate document type from the list displayed.

    3. Enter the appropriate Source Code: "P" for Paper or "T" for Tape (magnetic media).

    4. Enter the payer name.

    5. Select or enter new instructions for the tax examiners.

  3. The AUR Payer/Agent Program is automatically invoked during the weekly run process. The program updates the Payer/Agent File for all sites during the weekly process with the new and updated records.

    Note:

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

4.19.3.6  (09-01-2008)
Determination of CP 2501 Issuance

  1. Issuance of a CP 2501 (assignment of PC 30) is required for the conditions listed below. In certain other situations, issuance of a CP 2501 may provide better customer service since it is an inquiry instead of a proposal of assessment. If in doubt, consult your lead or manager for guidance.

    • The U/R income is $100,000 or more, including U/R Security Sales, Category 31 and 39.

    • Cases involving partially reported K-1 IRs when the discrepant amount is $50,000 or more per income type, per payer.

      Exception:

      Partially reported INT, DIV, STCG, and ROYAL discrepancies do not require a CP 2501.

    • Cases involving questionable under-claimed W/H that result in an overall refund. See IRM 4.19.3.15.1.2(3) for further information.

    • Cases involving U/C excess SST on ELF returns - See IRM 4.19.3.15.2 (15)c.

    • Cases involving Form 8615, and the parent or child used the Qualified Dividends and Capital Gains Worksheet, Schedule D or Schedule J tax methods. See IRM 4.19.3.12.1.

4.19.3.7  (09-01-2003)
Analysis of Each Income Type

  1. These instructions are used to process the various U/R income amounts by each income type.

4.19.3.7.1  (09-01-2003)
Wages - General

  1. Wages are compensation for employee services and are not subject to self-employment tax.

    Note:

    Settlements or awards under the ADEA (Age Discrimination in Employment Act) cannot be excluded from income and should be pursued as U/R if excluded.

  2. Wages are identified on the Case Analysis screen by the literal "W-2" in the DOC TYPE field and the literal "WAGES" in the INCOME TYPE field.

4.19.3.7.1.1  (09-01-2007)
Wages - Analyzation

  1. Compare WAGES amount with entries on:

    1. Form 1040, line 7.

    2. Form 1040A, line 7.

      Note:

      If wages are U/R and the TP enters "SNE" (Special Needs Exclusion) on the dotted line portion of Form 1040, line 7, compare the U/R amount with Form 8839, line 31. If the Form 8839, line 31 amount matches the U/R amount within $1, accept wages as reported. If the amount is not equal to the U/R wages, consider the difference U/R.

    3. Form 1040EZ, line 1.

  2. Wage comparisons for the following entries must match within $1 or be CLEARLY IDENTIFIED as wages:

    1. Form 1040, line 16b.

    2. Form 1040A, line 12b.

    3. Form 1040, line 21.

    4. Schedule C or Schedule F - If wages are reported here, See IRM 4.19.3.7.1.3 for instructions regarding Statutory Employees.

    5. Attachments to the return.

    6. Form 2106, Employee Business Expenses, Part 1, line 7 - Give credit for these amounts if the payer name on the IR is related to the occupation box on Form 2106. If the occupation box on Form 2106 is blank, consider the IR(s) fully U/R unless amounts match within $1. If line 7 is greater than line 6, in Column A of Form 2106, the excess reimbursements must be included as income on page 1 of Form 1040.

  3. When comparing reported wages to IRs, do not allow partial credit for unidentified amounts UNLESS the return is missing supporting Form(s) W-2. Returns that were processed through OCR or ELF may not have Form(s) W-2 attached. DO NOT request the Form(s) W-2 from FRC. Allow the taxpayer credit for amounts on Form 1040, line 7, Form 1040A, line 7, or Form 1040EZ, line 1. Issue a CP 2000 for discrepancies.

  4. If the taxpayer reports the same amount of Form W-2 income as shown in the IR, but under a different payer name, consider the IR reported.

  5. Consider any two WAGE IR's, for the same taxpayer, that contain identical income information, as duplicates even if the payer names and EIN's are different. Take the following action:

    1. If the taxpayer failed to report either WAGE IR, consider only one of the IR's U/R (mark all components of the other IR with status code "D" or "N" ), and show both of the IR's on the notice.

    2. If the taxpayer reported one of the IRs, delete the IR the taxpayer did not report (mark all components of the IR with status code " D" or "N" ). If there are no other U/R issues, enter PC 24.

  6. If there are two WAGE IRs 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 IRs, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    2. If the taxpayer does not fully report one of the WAGE IRs, group them together and consider the difference U/R.

  7. 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.

      Note:

      When pursuing excluded amounts because the above condition is not met, send a Special Paragraph requesting payer documentation to support the taxpayer's claim.

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

      Note:

      If the taxpayer has double excluded the amount (Social Security Wages are more than the Wages shown on Form W-2, Box 1), send PARAGRAPH 46 ( See Exhibit 4.19.3-12).

  8. Retired/non-active status members of the military employed as Junior ROTC (Reserve Officers Training Corps) instructors receive allowances for uniforms, housing, subsistence, etc. However, unlike active duty military personnel, these taxpayers CANNOT exclude these allowances. Disallow any excluded amounts and send PARAGRAPH 154 ( See Exhibit 4.19.3-12 ).

  9. When wages or Social Security wages are U/R, and the taxpayer paid self-employment tax, or is now subject to self-employment tax, input/verify the appropriate entries in the SET SHORT/LONG SCHEDULE section of the Self-Employment Tax window.

  10. Use Status Code "R" in the SSWAG literal when screening valid Wage IRs. Do not use Status Code "N" or "D" . Status Code "N" or "D" may result in an incorrect excess SST/RRT calculation.

  11. The system automatically enters Status Code "R" on MCWGE and MCTXW. The Status Code can be changed to "D" if necessary.

  12. If there are two or more fully U/R WAGE IRs with an out-of-state address beyond the reasonable commuting area of the taxpayer (for example, taxpayer lives in Pennsylvania and U/R IRs are for Georgia, etc.), send PARAGRAPH 167 ( See Exhibit 4.19.3-12).

    Note:

    Many WAGE IRs involving the potential illegal use of SSNs are from agricultural, farming, food processing, or wholesale/retail employers.

  13. When taxpayers exercise statutory (qualified) employee stock options, the amount is generally excluded from ordinary income and the gain is reported as a capital gain on Schedule D.

    1. Taxpayers may reduce Form W-2, Box 1, Wages by the amount shown in Box 14 (identified as: stock, incentive stock options (ISOs), employee stock purchase plan (ESPP), etc.) and report the difference as a gain on Schedule D, column (f).

      Note:

      If the stock option was not held a minimum of 2 years, the employer may not identify the exercised amount on the Form W-2, Box 14. If the balance of the WAGE IR is found on Schedule D, column (f), consider the issue resolved.

    2. Review Form 1040, line 7, and Schedule D before determining any U/R WAGE amount.

    3. If the taxpayer did not report the full WAGE amount, send PARAGRAPH 164 .( See Exhibit 4.19.3-12 )

      Note:

      When the option is exercised, Form 1099-B (Proceeds From Broker and Barter Exchange Transactions) may also be issued to show the value of the stock. Since the STOCK IR relates to the exercise of the statutory employee stock option, allow credit for amounts reported on Schedule D, column (d) against STOCK IRs.

  14. When taxpayers exercise non-statutory (non-qualified) employee stock options, the gain is reported as ordinary income. Employers include the exercised amount on Form W-2, Box 1 and identify the stock option amount in Box 12 using code "V" .

    Note:

    The " V" Code displays on WAGE IRs with the literal "V" CODE .

    Caution:

    Taxpayers may reduce Form W-2, Box 1, wages by the amount shown in Box 12 (Code "V" ) and report the difference as a gain on Schedule D, Part 1, column (f).

    1. Review Form 1040, line 7 and Schedule D, Part 1 before determining any U/R WAGE amount.

      Caution:

      If the taxpayer reports the non-statutory option gain as a long term capital gain (Schedule D/Part II) AND a notice is being sent for other U/R issues, remove the non-statutory option gain from the LONG TERM GAIN(LOSS) field in the Sch D/8814/ECR window. Send PARAGRAPH 165 ( See Exhibit 4.19.3-12 ) .

    2. If the taxpayer did not report the full WAGE amount, send PARAGRAPH 164 ( See Exhibit 4.19.3-12 ).

      Note:

      When the option is exercised, Form 1099-B (Proceeds From Broker and Barter Exchange Transactions) may also be issued to show the value of the stock. Since the STOCK IR relates to the exercise of the non-statutory employee stock option, allow credit for amounts reported on Schedule D, column (d) against STOCK IRs.

  15. Whenever wages are U/R, compute withholding (W/H) or consider W/H.

    1. If there is an U/R wage IR with no W/H amount, there are no other IRs with W/H, and there is a TC 806, 807, or TC 290 with Reason Code 51 on the Tax Account screen, complete the Withholding window.

    2. If there is an U/R wage IR with no W/H amount, and there are no other IRs with W/H, the system automatically generates a W/H amount of zero (0) on the Summary screen.

  16. See Exhibit 4.19.3-16 , Form W-2 - Box 12 Codes, for a list of the codes found in Box 12 of Form W-2.

4.19.3.7.1.2  (05-04-2007)
Attached Forms W-2 - Analyzation

  1. Consider wages U/R if wage amounts from attached Form W-2 are:

    • Omitted.

    • Added incorrectly when there are multiple Forms W-2 involved.

    • Transposed.

    • Taken from the wrong box(es) on Form(s) W-2. Send PARAGRAPH 2 ( See Exhibit 4.19.3-12).

  2. If it appears that the taxpayer reduced Form W-2 box 1 Wages by the amount in box 11 (Nonqualified Plans), pursue the difference as U/R wages and send PARAGRAPH 50 ( See Exhibit 4.19.3-12) .

    Note:

    Before considering the amount U/R, check to see if the taxpayer reported the amount as pension income.

  3. An O/R situation exists if the taxpayer's entry on Form 1040, line 7, Form 1040A, line 7, or Form 1040EZ, line 1 is greater than the total WAGE IR(s). Consider wage income O/R if you determine that the taxpayer:

    • Made a double entry (math error).

    • Transposed figures.

    • Used Social Security Wages from Form W-2, Box 3. Send PARAGRAPH 2 ( See Exhibit 4.19.3-12).

  4. 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 favored amounts.

    • Elective deferrals to a 401(K) or 403(B). These are generally tax-deferred annuities for teachers and employees of 501(c)(3) organizations and/or plans. See Exhibit 4.19.3-16, 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). See IRM 4.19.3.7.2.1 for limitation of excludable income.

    • "IOD" (Injury on Duty) or "LODI" (Line of Duty Injury)payments. See IRM 4.19.3.7.1.1 (7) for further information.

    • 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.

    • Ministers Housing Allowances (This amount may be the difference between net Schedule C income and income subject to self-employment tax on Schedule SE.) See IRM 4.19.3.7.1.5 (4).

    • ExercisedEmployee Stock Options. See IRM 4.19.3.7.1.1 (13) and (14) for further instructions.

    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.

  5. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ :

    • The Form W-2 attached to the return appears to be altered, AND

    • There is a W/H discrepancy, AND

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

      Note:

      Use the IR as the most correct information, if the case does not meet referral criteria or if the referral is returned.

  6. If wages are U/R, 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, SSWAG, or attached payer documentation.

    2. If there is no clear indication per 4.19.3.7.1.2 (6)a. above, consider the amount U/R and issue CP 2000. Send PARAGRAPH 25 ( See Exhibit 4.19.3-12).

      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.

  7. If the taxpayer attaches a substitute Form W-2 and reports a lesser amount than shown on the IR from the same payer, consider the difference U/R.

  8. Consider W-2 IRs fully reported when Wage or W/H amounts on the IRs are exact multiples of the amounts reported by the taxpayer.

  9. If the taxpayer participates in a nonqualified deferred compensation plan that does not meet all requirements as specified in IRC Section 409A, the employer must report the deferred compensation as income and the amount is subject to an additional tax.

    1. The employer identifies income under IRC section 409A on Form W-2 in box 12 with Code Z.

      Note:

      The amount in Form W-2 box 12, Code Z is already included in box 1 (WAGES). If WAGES are U/R and the difference corresponds to the NQDC amount, pursue the discrepancy as WAGES and include the following Special Paragraph: "Income recognized due to participation in a nonqualified deferred compensation plan that did not meet the requirements of Internal Revenue Code Section 409A is considered taxable. You cannot reduce your wages or nonemployee compensation by this amount." .

    2. Income subject to IRC Section 409A regulations is identified on the Case Analysis screen by the literal "W-2" in the DOC TYPE field and the literal "NQDC" in the INCOME TYPE field.

      Note:

      Enter Status Code "R" on the "NQDC " element(s).

    3. The "NQDC" amount is subject to an additional tax. See IRM 4.19.3.14.7 for further instructions.

      Reminder:

      Mark the NQDC IR element(s) with Send Indicator "S" when adjusting the additional tax.

4.19.3.7.1.3  (10-30-2006)
Wages Paid to Statutory Employees

  1. Statutory employees are self-employed independent contractors, for purposes of reporting income and expenses on their tax returns, who are treated as employees for FICA tax purposes.

  2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and consider him/her a statutory employee if his/her occupation is listed in See IRM 4.19.3.20.3.1.1. (2). Do not make any adjustments to the Schedule C/C-EZ and/or SE tax.

  3. Statutory employees should receive a Form W-2 with the statutory employee box checked in Box 13. If the Statutory Employee box was checked, the SEI literal has a value of "1" displayed on the IR. If it was not checked, the SEI literal has a value of " 0" (zero).

  4. Statutory employees report their Form W-2 Wages on Schedule C or C-EZ, line 1, along with business expenses. This income is NOT subject to self-employment tax and business expenses are not subject to the 2% limitation for miscellaneous itemized deductions. This income is subject to social security and Medicare taxes that should be withheld at the source by the payer and shown on Form W-2 as SS/Medicare Tax Withheld, SS Wages, and Medicare Wages and Tips.

    Note:

    Follow the taxpayer's intent, do not refund self-employment tax computed on wages paid to statutory employees.

  5. Performing artists are not statutory employees, but, they may report Form W-2 income on Schedule C (instead of Form 2106), if during the tax year ALL of the following conditions apply:

    1. They perform services in the performing arts for at least two employers,

    2. They receive at least $200 each from any two of these employers,

    3. Their related performing arts expenses are more than 10% of their gross income from the performance of those services, AND

    4. Their adjusted gross income is not more than $16,000 before deducting these business expenses.

  6. Cases involving wages of statutory employees are created when:

    1. Wages received by an individual other than a statutory employee were reported on the Schedule C or C-EZ, and the individual incorrectly deducts expenses on Schedule C or C-EZ.

      Note:

      Only statutory employees may deduct expenses on Schedule C or C-EZ.

    2. The statutory employee did not report the wages on Schedule C or C-EZ, line 1 nor as wages on Form 1040, Form 1040A, or Form 1040EZ.

  7. There is a discrepancy if there is a difference between the total of all wages (but not allocated tips) on all Forms W-2 when the statutory employee indicator in Box 13 of Form W-2 is checked and the wages per return, Schedule C or C-EZ, line 1.

  8. Input IncomeIdentify Code "SW" in all U/R wages from Statutory Employee IRs if wages are U/R.

  9. Consider wages from Statutory Employees U/R and send PARAGRAPH 115 ( See Exhibit 4.19.3-12) if the Wage amounts from attached Form(s) W-2 are:

    • Omitted

    • Added incorrectly when there are multiple Form(s) W-2 involved

    • Transposed

    • Taken from the wrong box(es) on Form(s) W-2 (send PARAGRAPH 2 ( See Exhibit 4.19.3-12) ).

  10. If the taxpayer combines non-statutory wages with statutory wages or self-employment income (i.e., NEC, OTINC, MED, etc.) on the same Schedule C,≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  11. If the taxpayer includes only non-statutory wages on the Schedule C or C-EZ, disallow the expenses from Schedule C line 28 (or Schedule C-EZ line 2) and the amounts on Schedule C, lines 2, 4, and/or 30.

    1. Input the amount of disallowed expenses in the PRIM/SEC SCH C EXPENSE PER RETURN field(s).

    2. Enter a zero (0) in the PRIM/SEC SCH C EXPENSE NOW field(s) on the MISC ADJUSTMENT/SCHEDULE C EXPENSE window.

      Note:

      These amounts display on the CP 2000 Summary as a changed item (changes to the Primary and/or Secondary Schedule C expenses will display as a single item on the Summary screen).

    3. Send PARAGRAPH 116 ( See Exhibit 4.19.3-12).

    Note:

    When disallowing expenses on Schedule C or Schedule C-EZ due to the conditions above, do not adjust any SE Tax claimed. Manually access the SETAX window to suppress the change. See IRM 4.19.3.14.1.

4.19.3.7.1.4  (09-01-2003)
Fellowships, Grants, and Stipends

  1. If an explanation attached to the return indicates the fellowship, grant, or stipend was used for tuition, fees, books, supplies, and equipment required for the course, AND:

    1. The expenses equal or exceed the IR, consider the income fully reported.

      Note:

      The taxpayer cannot deduct or exclude expenses that exceed the IR. (i.e. enters a negative amount.)

    2. The expenses are less than the IR, pursue the difference if not reported on the return.

    3. The taxpayer excludes expenses not shown above, then pursue the unallowable expenses. Send PARAGRAPH 124 ( See Exhibit 4.19.3-12).

  2. If the taxpayer enters "SCH" next to Form 1040, line 7, accept as fully reported.

  3. If no explanation is attached and the IR is not fully reported, pursue the amount not reported. Send PARAGRAPH 124 ( See Exhibit 4.19.3-12).

4.19.3.7.1.5  (05-04-2007)
Wages Miscellaneous

  1. If Wages are U/R and the taxpayer has Form W-2 wages, 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.

  2. If wages are U/R and the taxpayer is claimed as a dependent on another person's return, See IRM 4.19.3.11 (4) for further instructions.

  3. If wages are U/R, the system requires that you analyze W/H. See IRM 4.19.3.15.1 for further instructions.

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

    1. If the Form W-2 and/or WAGE IR 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 line 58 of Form 1040.

    2. If the Form W-2 and/or WAGE IR shows SST has been deducted, disallow the expenses. Do not adjust any SET claimed. Manually access the SETAX window to suppress the change. See IRM 4.19.3.14.1. Send PARAGRAPH 45 ( See Exhibit 4.19.3-12) .

    3. Ensure excluded minister housing allowance is subjected to SE tax, unless: the TP notates "Exempt Form 4361" or "Form 4029" on Form 1040, line 58 or the housing allowance is for a retired minister.

  5. If the taxpayer computes Social Security Tax on Tips on Form 4137, but did not include the tip income in the AGI, consider the tip income U/R.

    1. If necessary, create a W-2 IR with an A-TIP element for the amount of allocated tips for which Social Security Tip Tax was reported but was not included in income. See IRM 4.19.3.14.2 (3).

    2. The system computes a 50% Social Security Tip Tax Penalty when the taxpayer uses Form 4137. PARAGRAPH 15 automatically generates.

  6. If Wages are U/R, enter the return amount in the RETURN field on the Summary screen.

4.19.3.7.2  (09-01-2003)
Other W-2 Income

  1. In addition to wage income, Forms W-2 can contain information relating to Dependent Care Benefits (DCB), Employer Provided Adoption Benefits (EPAB), etc.

4.19.3.7.2.1  (09-01-2008)
Dependent Care Benefits (DCB)

  1. A taxpayer whose employer excludes earnings from taxable wages designated to pay for child care and/or care for a dependent(s) who is unable to care for himself/herself can exclude the amount of this benefit (within certain limits). The excluded amount is limited to the smaller of the taxpayer's earned income, the spouse's earned income, or $5,000 ($2,500 if married filing separately).

    Note:

    For each month, or part of a month, a spouse was a full-time student or was unable to care for himself/herself, he/she is considered to have worked and earned income. His/her income for each month is considered to be at least $250 ($500 if more than one qualifying person was cared for).

  2. The Case Analysis screen displays this benefit with the literal "W-2" in the DOC TYPE field and the literal "DCB" in the INCOME TYPE field.

    Note:

    Screen ONLY system identified discrepant DCB amounts (i.e.: those marked with an asterisk). If the case is open because of other income discrepancies, mark any non-asterisked DCB amounts on the WAGE IRs with Status Code"N" or " D" .

  3. The gross benefit amount shows separately on Form W-2, Box 10. The wage amount on Form(s) W-2, Box 1 SHOULD NOT INCLUDE the DCB for the tax year.

    Note:

    The employer includes any DCB over ≡ ≡ ≡ in the taxpayer's wages as shown on Form W-2, Box 1.

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

  5. Taxpayers MUST complete Form 2441 or Schedule 2, Parts I, II, and III in order to compute the correct amount of Child Care Credit and excludable DCB.

    1. Form 2441, line 15, and Schedule 2, Part III, line 15 contain the TOTAL BENEFIT AMOUNT less the amount forfeited.

    2. Form 2441, line 28, and Schedule 2, Part III, line 22 contain the TAXABLE BENEFIT AMOUNT. This taxable amount should be included with wage income on Form 1040/1040A, line 7 with "DCB" noted on the dotted line next to line 7. Verify that the correct amount of DCB is actually reported on line 7.

    3. See IRM 4.19.3.13.2 (5) for further instructions regarding Child Care Credit.

  6. The system computes the correct taxable amount of DCB. Input/verify the appropriate entries on the Dependent Care Benefits window. See IRM 4.19.7, Dependent Care Benefits.

    Note:

    On married filing separately (FS 3) cases, enter the taxpayer's income in the secondary taxpayer's income field of the DCB Window if the Spouse's income is not provided.

  7. If the taxpayer did not file Form 2441 (Schedule 2) and/or did not fully report DCB, the taxable portion is the DCB IR amount up to ≡ ≡ ≡ ≡ per payer and per taxpayer. If there is an indication that the taxpayer participated in one of the following Cafeteria Plans: flex plan, flex credits, or flex dollars (pre-tax deduction) for Dependent Care Benefits and the taxpayer IS NOT claiming Child Care Credit, consider the DCB reported. Take the following action to determine if DCB is U/R:

    1. Select the Dependent Care Benefits window.

    2. Enter zero (0) in the REPORTED DEP CARE BENEFITS field.

    3. Enter the total of all DCB reported by payer(s), but no more than ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , on the IR(s). Input/verify all other fields per the IRM 4.19.7, Dependent Care Benefits IR.

    4. PARAGRAPH 156 automatically generates when DCB is U/R.

  8. If the taxpayer filed Form 2441 (Schedule 2) and Part III is blank or incorrectly completed, take the following action:

    1. Review the taxpayer's entries in Part III, lines 12 through 28 and prepare a mock Form 2441 (Schedule 2, Part III, lines 12 through 22) to correct any errors and/or complete any omitted entries. Use the total expenses shown in Part II, line 2, column c, to determine the line 16 (qualifying expenses) amount.

    2. Access the DCB window and use the information from the mock Form 2441 or Schedule 2 to input all appropriate entries.

    3. Send PARAGRAPH 66 ( See Exhibit 4.19.3-12).

  9. Taxpayers who receive DCB generally do not qualify for Child Care Credit. If the taxpayer claimed Child Care Credit, take the following action:

    1. If the DCB IR(s) is reported, click on the Send Indicator to show these IRs on the notice.

    2. Complete screening of ALL remaining IRs in the Case Analysis screen, following normal procedures.

    3. Access the Return Value screen. Ignore any system prompt to close the case below tolerance.

    4. See IRM 4.19.3.13.2 (5) to determine the correct entry in the QUALIFYING EXPENSES field in the Child Care Credit window.

  10. If the taxpayer reduced his/her wages by the DCB IR amount, pursue the issue as an U/R wage issue.

4.19.3.7.2.2  (09-01-2008)
Employer-Provided Adoption Benefits (EPAB)

  1. Employer-provided adoption benefits (EPAB) is available for taxpayers who adopt a child(ren) who is a U.S. citizen or resident or who adopt a foreign child(ren) if the adoption becomes final.

  2. EPAB is reported on Form W-2.

  3. Taxpayers may receive a cash allotment of up to $11,390 for each child in an adoption, including a Special Needs child adoption.

  4. Employer-provided adoption assistance payments are shown on Form W-2, Box 12 and are identified with a code " T" .

  5. The wage amount on Form(s) W-2, Box 1 does not include the EPAB payments for the tax year.

  6. Taxpayers mustcomplete Form 8839, Qualified Adoption Expenses, Part I, II and III in order to compute the correct amount of taxable or excludable EPAB. If no Form 8839 is filed, consider the EPAB fully U/R.

  7. Taxpayers should include this taxable benefit amount with wage income on Form 1040, line 7. They also write " AB" on the dotted line next to line 7.

  8. The Case Analysis screen displays this benefit with the literal "W-2" in the DOC TYPE field and the literal "EPAB" in the INCOME TYPE field.

  9. If Form 8839, line 31 is not reported on Form 1040, line 7, create a wage IR for that amount. Send PARAGRAPH 191 ( See Exhibit 4.19.3-12).

    Caution:

    EPAB should not be claimed on a Form 1040A, however; taxpayers might report EPAB on line 7.

  10. Access the EPAB window by entering a " U" in the IR CODE field.

    Note:

    Screen EPAB IR(s) after analyzing all other potentially discrepant income types. After any subsequent analysis that changes the TOTAL AGI CHANGE field, reselect the EPAB window. Recompute all changes to adjustments to income before selecting this window.

    Exception:

    Compute taxable EPAB amount BEFORE Student Loan Interest Deduction (SLID), Tuition and Fees and/or Domestic Production Activities Deduction (DPAD). See IRM 4.19.3.3.2 (3) for the proper sequence when these issues are present on the same case.

  11. Input/verify the appropriate entries on the EPAB window. See IRM 4.19.7, Employer-Provided Adoption Benefits window.

  12. If it can be determined the taxpayer reduced his/her wages by the EPAB payment, pursue the issue as U/R wages. Also pursue EPAB as a separate issue. Send PARAGRAPH195 ( See Exhibit 4.19.3-12).

    Reminder:

    If " SNE" is noted on line 7, Form 1040 or 1040A, See IRM 4.19.3.7.1.1(1) Note.

  13. PARAGRAPH 190 automatically generates when EPAB is U/R.

4.19.3.7.3  (04-05-2005)
Interest - General

  1. Interest is reported by payers on Form 1099-INT, Form 1099-OID, and on Schedules K-1 from Forms 1065, 1041, and 1120S.

  2. Interest is identified on the Case Analysis screen by the literal "99INT" in the DOC TYPE field and the literal "INT" in the INCOME TYPE field.


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