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Part 4. Examining Process

Chapter 19. Liability Determination

Section 14. EITC/Revenue Protection Strategy

4.19.14  EITC/Revenue Protection Strategy

This section provides specific information to develop and resolve examination cases. All code references are to the Internal Revenue Code (IRC).

4.19.14.1  (02-24-2006)
EITC/Revenue Protection Strategy (RPS)

  1. This section provides information on specific programs worked in Wage and Investment Examination Operations and Small Business/Self Employed Campus Examination Operations.

  2. In 1997, Campus Examination Operations actively began working the Revenue Protection Strategy. Exam receives its work from the Fraud Detection Center (FDC), projects developed through Research and Development and the Dependent Data Base (DDb). On most cases, the taxpayer’s refund is delayed pending the outcome of the examination. To work these cases, tax examiners should have knowledge of the seven auditing standards See IRM 4.19.13.2 and the eight main audit issues which are listed below.

    • Earned Income Credit

    • Exemptions

    • Filing Status

    • Schedule C Gross Receipts

    • Child Tax Credit

    • Child Care Credit

    • Education Credit

    • Adoption Credit

4.19.14.2  (01-01-2009)
Program Description

  1. For Program Description See LEM 4.19.1 section 4.19.14.2

  2. Cases listed above will be covered under Faxed Signature. See IRM 4.19.13.9.3, General Case Development and Resolution.

  3. The examination can include all EITC children, all Dependent Exemptions, Filing Status, Child Care Credit, Education Credit, Child Tax Credit, Schedule C, and Adoption Credit, and Student Loan Interest Deduction. However the Tax Examiner should use the Project Code to determine the initial issues. Examiners are required to identify and pursue any other questionable issues on the return, as outlined in the IRM 4.19.13.3.2 Seven Auditing Standards.

  4. In some cases Exam will choose to do single issue audits.

  5. Action 61 will apply to all cases. Procedures for Action 61 See IRM 4.19.13.10, Monitoring Overaged Replies, AIMS will systemically issue interim letters.

4.19.14.3  (01-01-2009)
RPS Casework Procedures

  1. The examination begins with case selection from DDb, research extracts, CI files and prior audit activity.

  2. Refunds/credits will generally be frozen with the following transaction code:

    • TC 810 (DDb/Unsubstantiated Pickups and Recertifications)

    • TC 570 on CI referral and Math Error

  3. Beginning in processing year 2004, a TC 971 with AC 135 will allow Examination to track the allowed child on an EITC assessment when one of the two questioned qualifying children is allowed. Using CC REQ77 input a TC 971 with AC 135 and SSN of the allowed child, only when making a partial assessment.

  4. Overview of the EITC Process:
    Generally the CP 75 Notice series of letters is the Initial Contact letter for EITC cases selected for exam.

    • CP 75 letter is used for pre refund cases to inform the taxpayer that we are delaying the EITC part of his/her refund.

    • CP 75 A letter is used for post refund, balance due and cases with no refund.

    • CP 75 D used for Pre-refund QRP cases in PC 0173 and 0584 which informs the taxpayer that we've delayed sending their full refund.

    • The CP75 and CP75A will contain specific paragraphs that explain the issues being examined. These paragraphs are designated by project code; see below. The CP 75 and CP75A will include the related attachments (886H’s), and 886L to the specific issues being examined.

    • The CP75C is issued for 2/10 Year Ban cases. They are centralized in Austin and Brookhaven. CP 75C is used to inform the taxpayer their refund is frozen. the next letter is SNOD.

    • Once the CP75/75A/75D is generated by master file, dated and mailed, the case will be updated to status 10, which is the trigger to start cycle time.

    • The taxpayer will know the specific issue being examined and will have the option to provide the information needed to substantiate the EITC claimed or he can also agree that he is not entitled

    • As the case ages through the batch process, the CP75/75A/75D Notices will be followed by L525 which will include the report, F4549EZ outlining the proposed changes. This will provide another opportunity for the taxpayer to send in the documentation needed or agree to the changes. The taxpayer is asked to respond within 30 days

    • The case will continue to age through the Batch process for the issuance of Statutory Notice of Deficiency and eventual closing.

    The following fill-ins will appear on the CP 75/75A/75D based on the AIMS project code:

    • 0261, 0291, 0292, 0623, 0289, 0259, 0260, 0621, 0652, 00061, 0906, 0909

      Filing Status - The enclosed Form 886-H-HOH, Supporting Documents for Head of Household Filing Status, explains the tests. It also explains the information you can send to us to show you’ve met the tests or if you claimed a Head of Household filing status on your return, you must meet three qualifying tests..

    • 0173, 0584, 0261, 0623, 0624, 0289, 0621, 0652, 0586, 0587, 0061, 0906, 0909

    Earned Income Credit - Your child must meet three tests to be your qualifying child for EIC. The enclosed Form 886-H-EIC, Supporting Documents for Taxpayers Claiming EIC, explains the tests. It also explains the information you can send to us to show you’ve met the tests.

    • 0291, 0292, 0293

    Earned Income Credit - Your child must meet three tests to be your qualifying child for EIC. The enclosed Form 886-H-EIC, Supporting Documents for Taxpayers Claiming EIC, explains the tests. It also explains the information you can send to us to show you’ve met the tests. You can also use the enclosed Form 13588, Native Americans and the Earned Income Credit.

    • 0261, 0291, 0292, 0623, 0289, 0097, 0259, 0098, 0260, 0621, 0652, 0061, 0906, 0909

    Dependents - You must meet five tests to claim a dependent. The enclosed Form 886-H-DEP, Supporting Documents for Dependency Exemptions, explains the tests. It also explains the information you can send to us to show you’ve met the tests.

    • 0694, 0257, 0903, 0907, 0027, 0028

    EIC Recertification - You must show you qualify for EIC because we denied your EIC during a prior year examination. You need to send us information to show you’ve met three tests to claim a qualifying child. The enclosed Form 886-H-EIC-2008 Supporting Documents for Taxpayers Claiming EIC, explains the tests.

    • 0603

    Earnings While an Inmate - Our records show you used amounts earned while you were an inmate to figure your EIC. These amounts don’t qualify as earned income for EIC. Please send us documents that show your earnings were not for work performed while in a penal institution, a work release program, or a halfway house.

    • 0584

    The amount claimed on the Wages and Withholding line of your tax return appears incorrect. If the amount is correct, please review the enclosed Form 886L Supporting Documents, to find out what documents you need to prove the amount claimed. If you did not file the return, please complete and return the enclosed Form 12483, Declaration Statement, along with the documents it requests. If you are expecting a refund, we regret that we cannot release it until the audit is complete.

    • 0288, 0623, 0257, 0908

    Schedule C - You must have earned income to claim the EIC. Please compute and send us the enclosed Form 11652, Questionnaire - Form 1040 Schedule C (Profit or Loss From Business), to help us determine if you have the right amount of earned income.

    • 0173

    Schedule C - You must have earned income to claim the EIC. Please compute and send us the enclosed Form 11652, Questionnaire - Form 1040 Schedule C, to help us determine if you have the right amount of earned income. If you did not file the return, please complete and return the enclosed Form 12483, Declaration Statement, along with the documents it requests. If you are expecting a refund, we regret that we cannot release it until the audit is complete.

4.19.14.3.1  (01-01-2009)
RPS Examination Process

  1. Cases must move to the next status based on established time frames. The chart below explains this process:

    1st exam letter 2nd Letter 3rd letter - if needed 4th Letter 5th letter - if needed
    566, 566E, CP75, CP75A, CP75D

    • Suspense period 30 days

    • Aims Status 10

    		 525

    • Suspense period 45 days

    • AIMS Status 22

    		 692

    • Suspense Period 15 days

    • AIMS Status 23 if the Form 4549 has been changed

    • AIMS Status 25 if the Form 4549 remains the same

    		 3219

    • Suspense period 105 days , 165 if the address is out of the country

    • AIMS Status 24

    		 555

    • Suspense period is balance of time left on the 3219

    • AIMS Status does not change from status 24
    CP75C

    • Suspend 30 days

    • AIMS Status 10

    		 3219

    • Suspend 105 days

    • AIMS Status 24

    		      
    566D - 1040X with no additional tax

    • Suspense period 30 days

    • AIMS Status 10

    		 569

    • Suspend 45 days

    • AIMS Status 22

    		 105C

    • Suspense period none

    • AIMS Status 90

    		    
    566D - 1040X with additional tax

    • Suspend 30 days

    • AIMS Status 10

    		 525

    • Suspend 45 days

    • AIMS Status 22

    		 3219

    • Suspend 105 days or 165 if foreign address

    • AIMS Status 24

    		 105C

    • Suspense period none

    • AIMS Status 90

    		  

4.19.14.4  (10-01-2007)
Evaluating EITC Taxpayer Responses

  1. Judgment must be used based on the facts and circumstances in each case to make a substantially correct determination. Workpapers must contain determinations, facts, and circumstances pertaining to the cases obtained either by telephone or written correspondence. For help see: http://dst.web.irs.gov/DST/JobAids/80_20%20for%20DSTv2.pdf

  2. When allowing Earned Income Credit based on a qualifying child, the child must meet all three tests: Relationship, Age, and Residency. See IRC Section 32.

  3. Research DUPOL, AIMS, TXMOD, IMFOL, DDBOL, DDBKD and INOLE for each taxpayer and qualifying child. See IRM 4.19.13.3, Researching Cases.

  4. The Internal Revenue Code requires a taxpayer (both husband and wife in the case of a joint return) to have a valid Social Security Number (SSN) issued by the Social Security Administration (SSA) to claim the Earned Income Tax Credit (EITC). Any qualifying child listed on Schedule EIC must also have a valid SSN. Check DDBKD for Citizen Indicator:

    A = US Citizen
    B = Legal Alien — Authorized to Work
    C = Legal Alien — Not Authorized to Work
    D = Other
    E = Alien Student —Restricted Work Authorized
    F = Conditionally Legalized Alien — If the application was submitted prior to November 1980, this item will be blank.

    If Citizenship Indicator is not A or B, continue researching to determine if the TP is entitled to EIC based on a "Valid for Work" Social Security number.

    • "Not Valid" for Employment Social Security cards are issued to two groups of aliens: (1) lawfully admitted aliens who are not permitted to work in the United States, but who need an SSN for a reason unrelated to work, and (2) aliens who are not lawfully admitted to the United States, but who need an SSN to obtain a benefit that is paid for in part or in full with federal funds.

    • When analyzing an EITC claim, check the Social Security Cards for the primary and secondary taxpayers, as well as qualifying children listed on Schedule EIC, for the words Not Valid for Employment. If these words appear on any of the applicable Social Security cards, you will need to find out whether the card holder is now a citizen or permanent resident. If the cardholder is either a citizen or resident, he or she is entitled to receive a Social Security card without the legend (same number, but no legend). The cardholder may already have the new card. If the cardholder’s immigration status has not changed, you will need to find out whether the cardholder received the SSN to obtain a federally funded benefit, or for another reason. Take the following actions: Contact the taxpayer to find out whether the cardholder is now a citizen or permanent resident of the United States. If the cardholder is a citizen or permanent resident, ask the taxpayer to furnish a new Social Security card without the legend.

    If and Then
    The cardholder is now a citizen or permanent resident A new Social Security Card without the legend is furnished by the taxpayer The SSN is a valid SSN for the EITC
    The cardholder’s immigration status has not changed TP states the reason for needing an SSN and it is other than to obtain a federally funded benefit The SSN is a valid SSN for the EITC
    The cardholder’s immigration status has not changed The taxpayer is unable to furnish a reason for needing an SSN other than to obtain a federally funded benefit The SSN is a valid SSN but not valid for the EITC

    Note:

    If the taxpayer (and spouse if any) and one qualifying child have valid SSNs for the EITC, but the second qualifying child does not, allow the EITC for a taxpayer with one qualifying child.

    Note:

    Before 1996, the taxpayer or child might have needed an SSN for tax purposes, and the SSN might have been obtained at an embassy. Before 2002, the taxpayer or an older child might have needed an SSN to get a driver's license or to register a vehicle in certain states.

    Note:

    A common reason for getting a Social Security card may be for Medicaid benefits.

4.19.14.4.1  (10-01-2001)
EITC Schedule C Responses

  1. For guidance with Schedule C responses See LEM 4.19.1 section 4.19.14.4.1.

4.19.14.4.2  (01-01-2008)
The Decision Support Tool (DST) Introduction

  1. The Decision Support Tool (DST) is a web-based application developed for use by tax examiners. It supports a more efficient work process in Correspondence Exam by:

    • Providing tax-law based decision logic for commonly examined tax return items,

    • Providing quick and easy access to the resource material needed to evaluate taxpayer responses and,

    • Creating output statements that contain consistent and comprehensive language explaining proposed adjustments.

  2. The features of the DST were developed to assist tax examiners in performing evaluations of taxpayer correspondence. The DST:

    • Provides easy access to the information that tax examiners need to evaluate taxpayer correspondence,

    • Increases consistency in responses to taxpayers by having the same information available to all examiners,

    • Documents the decision-making process,

    • Reduces the number of times the tax examiner needs to correspond with the taxpayer for additional information, by providing informative explanations to taxpayers,

    • Enhances the quality of examination work papers,

    • Streamlines the work process, and,

    • Provides accurate information that can be used by tax examiners to explain the rules and regulations about tax return items to taxpayers.

  3. There are two versions of the DST:

    1. Stand-alone

    2. Integrated (IDST)

4.19.14.4.2.1  (01-01-2008)
Accessing the Stand-alone DST

  1. To use the stand alone DST, users must have access to the Intranet. The stand-alone DST can be accessed in one of two ways:

  2. Stand-alone DST Main Menu Screen will consist of:

    • Tool bar/Menu bar

    • Examination Issues

4.19.14.4.2.2  (01-01-2009)
The DST Toolbar

  1. In both the stand-alone DST and the IDST, the toolbar is available on the top and bottom of all issue screens and on entry screens for other DST features. Users may need to scroll down to see the toolbar at the bottom of some screens. The toolbar provides access to:

    • Main Menu

    • Publications

    • Forms and letters

    • Job Aid

    • IRMs

    • Help

  2. The publications screen can be selected by choosing Publications from the or the IDST toolbar. The first Publications screen displays years for which the publications are available; 2006, 2007 and 2008 currently linked. Click on the year you wish to research to view a list of publications for that year.

  3. Forms for tax year 2006, 2007 and 2008 are available in PDF format and can be printed and filled in. Current year letters can be accessed by clicking the Letters button.

  4. Job Aid feature provides information about various topics, such as states that recognize common law marriage, community property states, and Internal Revenue Code sections that provide the authority for exam adjustments.

  5. The DST provides hyper-links to pertinent sections of the IRM 4.19.14, (EITC/Revenue Protection), IRM 4.19.15 (Discretionary Programs) and IRM 21.6 (CAS Individual Tax Returns) and a section of IRM 20.1 that addresses the 2/10 - year ban and other penalties.

  6. Online Help/Training materials are available at any time for more information or additional training on all aspects of using the DST.

4.19.14.4.2.3  (01-01-2008)
Using DST Issue Screens To Evaluate Issues

  1. Using the DST, tax examiners can:

    • Evaluate only the tax return issue(s) that need to be evaluated,

    • Identify the correct answer,

    • Save the answers from the first qualifying person evaluated if the taxpayer claimed a tax benefit based on more than one qualifying individual.

  2. The DST issue screens allow the user to:

    • Evaluate exam issues for tax years 2006, 2007 and 2008.

    • Identify the information the taxpayer provided.

    • Identify the exemption, child, or person for whom the taxpayer provided documentation.

    • Answer questions about the issue based on internal data and the information provided by the taxpayer.

    • Enter dollar amounts for some expenses, credits, and deductions.

    • Record details about the information the taxpayer provided in a 600 character text field

    • Create a determination statement based on the answers by clicking < Submit >.

    • Create taxpayer appropriate language for the F886-A

    • Retain the answers after the determination statement is generated by clicking < Hide >, eliminating the need to re-answer all the questions for the next qualifying person.

    • Clear all answers, the determination box, and the F886-A box by clicking < Clear >.

    • Access resource material for the issue by clicking on (??).

  3. Upon completion of the evaluation, the DST provides:

    • A determination statement that can be copied and saved to a case record.

    • A series of statements that are based on the answered questions; these statements can be copied to the F886-A as an explanation to the taxpayer.

4.19.14.4.2.4  (01-01-2008)
Format of DST to Evaluate Issue and Use of Judgment

  1. Format of the DST questions are based on tax law. The following section discusses the format as well as the use of judgment.

    1. Format of DST questions
    Each question on an issue page addresses a tax law requirement that the taxpayer must meet in order to be entitled to the item under examination. The questions are formatted in various ways

    • ‘yes’ and ‘no’ questions.

    • multiple choice questions

    • multiple choice questions with dollar amount or text fields
    2. Answering the questions and using judgment
    In order to reach the correct determination you should

    • read the questions carefully

    • understand the tax law

    • base the answer on the internally available and taxpayer-provided information

    • select the answer that reflects whether or not the taxpayer met the requirement.
    3. Not applicable ('N/A')
    Some questions have ‘N/A’ as an answer option.
    Select ‘N/A’ when the requirement in question does not apply to the taxpayer or the qualifying person.
    4. Tool Tips and Error Messages
    ‘Tool tips’ are displayed on some answers when you rest the cursor on the answer. These brief statements are helpful in answering the question. An example of a tool tip is "If only one SSN is entered in Q1" , the answer to this question must be ‘N/A’.
    5. Order Of Evaluation
    The rules for EITC are divided between two screens:

    • Rules the qualifying child must meet

    • Rules the taxpayer must meet

    Although you can evaluate each exam issue independently, you should evaluate the issues in an order that recognizes the interdependencies between tax return items.
    For multi-issue EITC cases, regardless of the tax year, evaluate the issues in the following order by selecting the correct issue page from the DST Main Menu

    • Exemptions

    • Filing Status

    • Qualifying Child Rules for EITC

    • Schedule C

    • Taxpayer Rules for EITC

4.19.14.4.2.5  (01-01-2008)
Using the Integrated DST (IDST)

  1. The integrated DST pages will be saved so that they can be retrieved if the taxpayer sends additional information during the course of the examination or if the taxpayer files a claim or requests reconsideration.

  2. The audit trail will remain intact because determination statements from subsequent evaluations of the same issue will be saved to the RGS file below the existing determination statement.

  3. The Table 7-2 IDST Issues below shows the integrated pages and their related issues:

    RGS Issues Categorization Integrated DST page(s)
    Filing Status
    Single
    MFS
    MFS-Living with Spouse
    Head of Household     		Head of Household
    Exemptions Exemptions

    • Exemptions for qualifying children

    • Exemptions for qualifying relatives
    EITC EIC-Qualifying Children EIC-Net Credit Adjustment

    • Taxpayer rules for EITC

    • Qualifying child rules for EITC

    • EITC without Qualifying Child
    Schedule C Sch C Income-Primary
    Sch C Income-Secondary     		Schedule C validation for EITC

  4. Other features:

    • IDST pages will be associated with issues based on the RGS/Batch categorization of the issue.

    • The integrated pages reflect the tax laws and policy guidance for processing tax year 2005 and later returns only.

    • There are no integrated pages for prior tax years

    • Information from the RGS file will be passed to the IDST, such as Tax Year, SSN, RGS number etc.,

    • IDST pages contain the same questions and commands as the stand-alone pages for the issues, however, there are added features such as
      Save Work in Processbutton allows to save an incomplete IDST page,
      Get Previously Saved Answers button allows the user to get answers previously saved
      Save and Write to Workpapers button sends the determination statement, 886 language and per exam values to RGS file button that allows the user to get ed

    • The IDST determination statement and other data will be systemically sent from the IDST to the RGS file

    • Determination statements and the F 886 language can be edited in the IDST in the same way as in the stand-alone DST

    • Additional commands to make integration work are available on the IDST pages.
      Link to Qualifying Relative (QR) issue page , while working Exemption for Qualifying Child
      Link to QC issue page , while working Exemption for QR
      Link to QC EIC page , while working EITC
      Link back to TP EIC Page while working QC EIC

4.19.14.4.2.6  (01-01-2008)
Overview on Sending IDST Information to RGS

  1. Answer the questions on the IDST page based on the information the taxpayer provided; indicate the type of documents the taxpayer provided and enter details in the text field.

  2. After obtaining a determination statement and 886 language, take the following steps to send the IDST information to RGS

    Click the < Save and Write to Workpapers > to systemically send data to RGS as shown in the screens that follow.
    1 The corrected filing status and issue categorization will go to the ‘per exam’ amount of the filing status issue
    2 The corrected number of exemptions or qualifying children for EITC will be sent to the ‘per exam’ amount of the exemptions or EITC issue
    3 The IDST determination statement will go to the ‘Conclusion Comments’ section of the RGS workpapers and to Form 4700 - CEAS/4700 under the name of the issue
    4 The taxpayer - appropriate language will be sent to Form 886-A, however this language can be edited to meet the taxpayer's information.
    5 Standard paragraphs will be sent to Form 886-A when available.
    6 AIMS aging reason code 13 will be sent to Form 5344
    Click on the < X > in the upper right corner of the IDST screen to exit the IDST
    Click < OK > on the RGS screen to accept the changes to the RGS record.

    Caution:

    The system will recognize when an available IDST page has not been used.

4.19.14.4.2.7  (01-01-2008)
Order of Evaluation in IDST

  1. The order in which the issues are evaluated is critical when using the IDST. For multi-issue EITC cases, evaluate the issues in the following order:

    • Exemptions

    • Filing status

    • Schedule C

    • EITC

4.19.14.4.2.8  (01-01-2008)
Steps for evaluating issues with one associated IDST page

  1. Follow the steps below to evaluate HOH filing status and Schedule C validation for EITC:

    1 Select the issue in RGS and click the < Edit > button
    2 Click the < IDST > button in the Adjustments screen
    3 The integrated page is opened
    4 Answer all the questions and make necessary entries for documents provided and clarity
    5 Click < Submit > to obtain a determination statement and 886 language.
    6 Review the determination statement and 886 language
    7 Click < Save and Write to Workpapers > to transfer data to RGS
    8 Close the IDST issue page by clicking the < X > in the upper right hand corner
    9 Click < OK > on the RGS adjustments screen to accept the changes in the RGS record

4.19.14.4.2.9  (01-01-2008)
Steps for evaluating issues with more than one associated IDST page

  1. Follow the steps below to evaluate Exemptions. Associated IDST pages are Exemptions for qualifying children and Exemptions for qualifying relatives.

    1 Select Exemptions in RGS and click the < Edit > button
    2 Click the < IDST > button in the Adjustments screen
    3 The integrated Exemptions for Qualifying Child page will be presented with exemption per return data filled in (SSNs and Name Controls for all exemptions claimed). This page is always presented first.
    4 Select a dependent qualifying child to evaluate
    5 Answer all the questions and make necessary entries for documents provided and clarity
    6 Click < Submit > to obtain a determination statement and 886 language
    7 Review the determination statement and 886 language
    8 Click <Save and Write to Workpapers > to transfer data to RGS, this will also hide the determination statement and 886 language for the first dependent qualifying child.
    9 Select the next dependent qualifying child to evaluate
    10 Click < Get Previously Saved Answers > only if you have previously saved answers for this dependent
    11 Change any of the answers and other information that needs to be changed
    12 Repeat steps 6 through 8 for the second exemption

  2. After you have evaluated the last dependent qualifying child, close the IDST issue page by clicking the < X > in the upper right hand corner of the screen.

  3. If an exemption fails qualifying child tests or you are evaluating a person claimed as a dependent qualifying relative (i.e. the taxpayer’s parent) use the IDST page for exemptions for qualifying relatives.

    1. Click the button for < Link to QR Issue Page > that is on the Exemptions for Qualifying Child page.

    2. The SSNs and name controls for exemptions who were not evaluated as exemptions for qualifying children or who failed an evaluation as an exemption for qualifying child will be populated to the Exemptions for Qualifying Relative page

    3. Select an exemption to evaluate and follow the steps 5 through 9 above

    4. When you have finished evaluating the last exemption for qualifying relative, close the page by clicking the < X > in the upper right hand corner of the screen.

4.19.14.4.2.10  (01-01-2008)
Document Submitted "Other" and "Examiner's comments" Box

  1. The purpose of the "Other" check box is to list documents received that is not listed as a choice of selection in the "Document Received Area" . When this box is checked, examiner must add a description in the space provided.

  2. The "Examiner's comments" has 600 character space to record a detailed description of the documents reviewed and examiners notes on the issues considered, the Text Box is located on the bottom of the DST/IDST issue page. Examiner must enter the comments, failure to do so will cause an error message to display when <Submit> button is clicked.

  3. If a 1040X or amended return is received as a reply from the taxpayer, the examiner can address the form in the "Examiner's comments" and provide detailed information.

4.19.14.4.2.11  (01-01-2008)
Summary For Telephone Assistors

  1. When a reply is received from the taxpayer, the specific information entered in the test box under Examiner's Comments will be populated and displayed IDST View page for contact employees.

    Note:

    If no information is recorded, IDST View page will not be available to contact employees.

  2. The Summary for Contact Employee shows which issues were evaluated using IDST, whether the taxpayer was denied or allowed the issues and documentation provided. This information should be used in conjunction with researching the Case File Documents on CEAS.

  3. To view this page, access CEAS Summary Page and click on IDST button.

  4. "Summary for Contact Employee" on RGS. The following information is suggested to be included:

    • Description of documents received

    • Tax benefits allowed or disallowed

    • Additional information needed, if any

    • Brief research information in support of the conclusion reached

4.19.14.4.2.12  (01-01-2008)
Evaluating EITC

  1. Follow the steps below to evaluate EITC. Associated IDST pages are Taxpayer Rules for EITC and Qualifying Child Rules for EITC.

    1. Select EITC in RGS and click the Edit button.
    2. Click the < IDST > button in the Adjustments screen.
    3. The integrated Taxpayer Rules for EITC page will be presented with tax return data filled in. This page is always presented first.

    1. If HOH filing status was evaluated using the IDST, Question 3 on the Taxpayer Rules page will be answered based on the results of the HOH evaluation

    4. Answer all the questions through Step 6 and make necessary entries for documents provided and clarity.
    5. Click on the button for the < Link to QC EIC Issue Page > to evaluate the qualifying children claimed on the return

    1. Select an EITC qualifying child to evaluate. SSNs and name controls of qualifying children claimed on the return will be on the page

    2. Answer all the questions and make necessary entries for documents provided and clarity

    3. Click < Submit > to obtain a determination statement and 886 language for the evaluated qualifying child.

    4. Review the determination statement and 886 language

    5. <Save and Write to Work Paper> to transfer data to RGS, this will also hide the determination statement and 886 language for the first EITC qualifying child

    6. Select the next EITC qualifying child to evaluate

    7. Click <Get Previously Saved Answers> only if you have previously saved answers for this child

    8. Change any of the answers and other information that needs to be changed

    9. Repeat steps c through e for the second EITC qualifying child
    6 After you have evaluated the last dependent qualifying child, Click the < Link back to TP EIC Page > button to return to the Taxpayer Rules page. Click Save button to save your answers.
    7 Question 7 (The taxpayer has one or more qualifying children) on the Taxpayer Rules page will be systemically answered based on the results of the evaluations performed on the Qualifying Child Rules for EITC page.
    8 Click < Submit > to obtain a determination statement as to the taxpayer’s overall entitlement to EITC and 886 language
    9 Review the determination statement and 886 language
    10 Click <Save and Write to Workpapers > to transfer data to RGS
    11 Click the < X > in the upper right hand corner of the screen to close the IDST screen

4.19.14.4.2.13  (01-01-2008)
No Change Cases

  1. If a case results in No Change, ("per" return amount equals "per" Exam amount), then the issue will not be included in RAR report and the 886-A language will not be generated in IDST.

4.19.14.4.2.14  (01-01-2008)
No Documentation Cases

  1. If no documentation is provided by the taxpayer, make the required entry in the check box No Documentation.

  2. Hit < Submit > to get a determination statement disallowing the issue

  3. < Write to Workpapers> to transfer to RGS.

4.19.14.4.2.15  (01-01-2008)
Agreed Cases

  1. To close an Agreed Case, access Pre Audit and Conclusion in RGS and write in that it is a closed agreed case under the Conclusion Comment section,

  2. Open Audit Issue tab in RGS and verify that Return Amount and Adjustment amount agree and Save actions.

4.19.14.4.2.16  (01-01-2008)
Quality Review Of IDST Cases

  1. Cases closed with Aging Reason Code 13 on Form 5344 may be identified by QR as IDST cases and reviewed for meeting the auditing standards.

4.19.14.4.3  (01-01-2007)
EITC - Problem Correction Reports

  1. The following reports allow the sites to identify EITC cases that appear to be processed incorrectly. Examination personnel will follow these procedures for correct resolution of these cases. These lists are to be worked within fourteen days of posting to Control "D" ensure that taxpayer refunds are issued timely.

    REPORT # 1 TC 810 TC 811 and TC 421 Credit or Debit balance Completed audit and Refund freeze from another area Route to that area for resolution.
    REPORT # 2TC 810 TC 421 and No TC 811 Credit balance and TC 300 for 0, DC 02 Release refund with TC 811
      Credit balance and DC other than 02 Determine if TC 810 should be released. (Case file may need to be pulled and reopened if closed in error).
    REPORT # 3 TC 810, TC 811, TC 420, and No TC 421 Been reviewed and it is determined that account had a refund released in error (Pull case file if necessary) Continue the audit.
      Been reviewed and it is determined that the account has been properly resolved (Pull case file if necessary) Input TC 421.
    REPORT # 4 TC 150 and TC 810 - NO TC 811 or TC 424/420 Credit or debit balance Research prior year to determine how the case was closed.
      If research shows  
      a prior year no change input TC 811.
      a prior year TP agreed, defaulted or case still open determine if repeat behavior exists.
      there is repeated behavior by TP input TC 424, conduct audit.
      TP did not repeat behavior input TC 811.
    REPORT # 5 TC 150 and TC 810-3 (posting the same cycle as the TC 150) TC 300 - DC02 A recertification indicator present on ENMOD, and a determination can be made to release the recertification indicator Input TC 971 action code 056, Input TC 811.
      A recertification indicator present on ENMOD, and a determination has been made that an incorrect disposal code was used. Do not release recertification indicator.  

    Note:

    Annotate the 810 listing with action taken. Retain listing for six (6) months.

4.19.14.4.4  (10-01-2001)
EITC Taxpayer Replies — Closing Actions

  1. The following chart shows how to work taxpayer replies.

    If Then
    Taxpayer replies to any letter and provides enough documentation and verification to no change the case Close case as No Change. Complete 5344 with DC 02, technique code 02 and N/C issue codes

    • Input TC 300

    • Reverse recertification indicator 1 if taxpayer verified qualifying child(ren) and was previously denied EITC with qualifying children

    • Reverse Recertification indicator 9 if taxpayer verified questionable income/expenses and was previously denied EITC because of questionable income/expenses

    • See IRM 4.19.14.5, Recertification, for more information

    • The No Change letter 3581 will be systemically generated by case closure.
    Taxpayer agrees by signing report and/or full paying deficiency.

    Note:

    For agreement on joint return cases, both signatures must be secured or the deficiency is full paid prior to issuance of a Statutory Notice. If only one signature is received, Statutory Notice of Deficiency procedures must be used for the unagreed spouse.

    		Close case as Agreed. Complete 5344 as follows

    • Prior to Statutory Notice Issuance - DC 04, Reference/Transaction Codes for changed items, Technique Code 02, and agreement date.

    • After Statutory Notice Issuance – DC 09, Reference/Transaction Codes for changed items, Technique Code 02, and agreement date.

    • Input TC 30X
    Taxpayer does not agree and does not file a petition with Tax Court after issuance of Statutory Notice. Close case as Default after 105 days has expired from the date of Statutory Notice (165 days if Taxpayer is outside country). Complete 5344 as follows:

    • Taxpayer replied during examination - DC 10, Technique 02.

    • Taxpayer did not reply during examination - DC 10, Technique Code 06.

    • Undeliverable Statutory Notice - DC 13, Technique Code 07.

    • Input TC 30X
    TC 30X posted and AIMS 90 closed

    • TC 811 will be systemically generated, and the TC 570 –R freeze will be released by case closure.

    • CP 79 will systemically generate by case closure on all disallowed EITC cases.

    Note:

    Additional closing instructions can be found in IRM 4.4.12.

4.19.14.4.5  (01-01-2008)
EITC Qualifying Child (DQC)

  1. The following table is for use with the EITC with Qualifying Children:

    EITC (DQC) Acceptable Documentation
    Relationship Same as dependent QC 32(c)(3)(A) 4.19.14.4.7 Same as dependent QC 4.19.14.4.7
    Residency More than 1/2 year in the US 32(c)(3)(C) Same as dependent QC 4.19.14.4.7
    Age Same as dependent QC 32(c)(3)(A) 4.19.14.4.7 Same as dependent QC 4.19.14.4.7
    Support N/A 32(c)(3)(A) Support is not as issue with EITC
    Citizenship N/A for qualifying child unless the QC is married (32(c)(3)(B)  
    Married Child Joint Return Yes, (32(c)(3)(B)  
    Tie Breaker Rule Yes, 32(c)(1)(c)  
    Requirements and Special Rules Valid SSN for QC 32(c)(3)(D)(i)
    TP cannot be QC for EITC of anyone else 32(c)(1)(B)
    Married child must be claimed as a dependent or not claimed as a dependent under rules of divorced or separated parents. IRC 32(c)(3)(B)

    • IDRS research

    • Copy of social Security card
    Do Master File research of anyone on list (DUPOL).
    Do Master File research. (DUPOL) Birth Certificate or baptismal certificate showing relationship does not exist.
    Do INOLE research for age verification, statement from doctor or SSI letter.
    Proof of separate residence from the person claiming the taxpayer as qualifying child, such as rent receipts, school records, property tax bill, or utility receipts.

  2. For tax year 2005, certain taxpayers whose 2004 earned income was greater than their 2005 earned income can choose to figure their 2005 EIC using their 2004 earned income. Qualified individuals are those whose principal place of abode -

    • On August 25, 2005, was either in the Gulf Opportunity (GO) Zone, or in the Hurricane Katrina disaster area outside the Katrina GO Zone, and the individual was displaced from that abode because of Hurricane Katrina;

    • On September 23, 2005, was either in the Rita GO Zone, or in the Hurricane Rita disaster area outside the Rita GO Zone, and the individual was displaced from that abode because of Hurricane Rita (note: an individual described in the bullet above is not described in this bullet); or

    • On October 23, 2005, was either in the Wilma GO Zone, or in the Hurricane Wilma disaster area outside the Wilma GO Zone, and the individual was displaced from that abode because of Hurricane Wilma.

    In the case of a joint return, this special rule applies if either spouse is a qualified individual. The earned income for the preceding taxable year is the sum of the earned income of each spouse for the preceding taxable year.
    For more information see Publication 4492 Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma.

4.19.14.4.6  (01-27-2007)
EITC - No Qualifying Children

  1. Taxpayers are allowed to claim EITC even though they do not have a qualifying child if they meet the following requirements.

    If And Then
    Earned Income Tax Credit is disallowed because the taxpayer does not have a qualifying child

    1. TP is at least 25 but under 65 years of age,

    2. TP does not qualify as a dependent of another person,

    3. TP is not a qualifying child of another person and,

    4. TP lived in the U. S. for more than half the tax year.

    • Research INOLE or RTVUE for date of birth OR

    • Allow based on accepted proof of birth certificate or baptismal certificate
    Taxpayer was disallowed EITC with qualifying children under the tiebreaker rule   Do not allow EITC for TP with no qualifying children either.

  2. Form 886H-EIC has a feature for taxpayers who are denied EITC with Qualifying Child(ren). The Taxpayer can receive EITC without Qualifying Child(ren), if they appropriately answer the questions on the 886 H-EIC and sign the affirmation. If you receive an acceptable affirmation and no other documentation, prepare a 4549EZ to reflect the lower EITC amount, however the taxpayer must sign the 4549EZ for the reduced EITC amount. If a signed affirmation is received with other documentation, evaluate the documentation and respond accordingly.

  3. If the taxpayer is married filing a joint return, either taxpayer must be at least 25 but under 65 at the end of the tax year. It does not matter which spouse meets the age test, as long as one of spouses does. For example, Joe and Jane are married and file a joint return. Joe is 23 and Jane is 27. The taxpayers meet the age test because Jane is at least 25 but under age 65.

4.19.14.4.7  (01-27-2006)
Personal Exemptions and Dependents

  1. Requirements for claiming exemption for dependents prior to tax year 2005 see Publication 501.

  2. Requirements for claiming exemption for dependents for tax year 2005 and subsequent see below :

  3. The Working Families Tax Relief Act of 2004 amended section 152, effective for taxable years beginning after December 31, 2004. As amended, section 152 defines a dependent, as a qualifying child (QC) or a qualifying relative (QR). The five dependency tests that applied for past years continue to apply to determine whether an individual is a QR. The tests for determining whether an individual is a QC are different. An individual that is a QC of any taxpayer can not be a QR of a taxpayer. The definition of a qualifying child may also be relevant for determining whether a taxpayer may claim HOH filing status, the CTC, CDCC, and the EIC.
    Overview of the Rules for claiming an Exemption for a Dependent, (for complete details see Publication 501).

    Dependent Qualifying Child (QC) - Military Acceptable Documentation
    Relationship Son, daughter, adopted child, step child, eligible foster child, sibling, step sibling, descendent of any, 152(c)(2) Birth certificate, baptismal certificate, court documents, school records.


    Military Personnel Acceptable proof of status
    Defense Enrollment Eligibility Reporting System (DEERS), which provides a list of authorized dependents whose relationship, has been verified. Leave and Earnings Statement (LES), which verifies if the taxpayer is paying a voluntary allotment for Basic Housing Allotment (BHA) payable to the dependents or custodial parent, or if the taxpayer is having child support payments garnished.

    Note:

    An individual legally adopted by the taxpayer or an individual who is lawfully placed with the taxpayer for legal adoption by the taxpayer is treated as a child of the taxpayer by blood. An eligible foster child is an individual who is placed with the taxpayer by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. The terms "brother" and "sister" include a brother or sister by the half blood.

    Residency More than 1/2 year 152(c)(1)(B)
    Temporary absences count as timed lived together; birth or death during the year count as entire year if QC lived with TP the entire time alive 152(f)(6)(B)(ii).
    Exceptions apply for children of divorced or separated parents 152(e)

    • School records,

    • Lease (from apartment, house, residence) if children are listed on document,

    • Statement from child care provider (if the taxpayer provides a statement from a relative who provides the child's day-care, they must have additional collaborative evidence to support the residency requirement.)

    • Statement from health care provider

    • Taxpayer’s statement listing person who lived with the child.
    Age Under 19 at end of year / Full time student under 24 at end of year / any age if permanently or totally disabled at any time during the tax year 152(c)(3)

    • IDRS Command Code INOLE

    • School records or college transcript,

    • Verification from health care provider or Social Security Records.

    Note:

    See definition of "student" in section 152(f)(2) and definition of "permanently and totally disabled" in section 22(e)(3) of the Code.

    Support QC cannot provide greater than 1/2 of their own support 152(c)(1)(D) Receipts for food, clothing, rent, medical, dental, schooling, recreation, and personal items. If two people are claiming the same dependent receipts may be needed from both.
    Citizenship Citizen/national/ resident of US, Canada or Mexico / adopted child exception 152(b)(3) Birth certificate, driver's license, school records, library card, "green card" or other DHS documents.
    Married Child Joint Return Yes 152(b)(2)) No other return filed with dependent's SSN. If joint return filed, verify that the return was filed as a claim for refund and that if the spouses had filed separate returns, no tax liability would have existed on either return.
    Tie- Breaker Rule Yes 152( c )(4)  
    Requirements and Special Rules TP cannot be dependent of a Taxpayer 152 (b)(1) If the taxpayer is claimed as a dependent on another Taxpayer's return, and the taxpayer says he/she should not be claimed on the other Taxpayer's return but is self-supporting, taxpayer needs to provide documentation showing self-support. Some examples are:
    utility bills,
    rent or mortgage
    receipts, property tax bills. These items can be used as proof of self-support and residence. [if housing is an item of support, then its value is the rent paid or the fair rental value of the housing]
    Do Master File research of anyone on list (DUPOL)

    • Do Master File research. (DUPOL) Birth Certificate or baptismal certificate showing relationship does not exist.

    • Do INOLE research for age verification, statement from doctor or SSI letter.

    • Proof of separate residence from the person claiming the taxpayer as qualifying child, such as rent receipts, school records, property tax bill, or utility receipts.

    .

    Dependent Qualifying Child (QR) Acceptable Documentation
    Relationship Child (son, daughter, adopted, step, eligible foster) or descendents. Sibling or son or daughter of. Step-sibling or step-parent.
    Parent, ancestor or sibling of. In-laws (mother, father, brother, sister, son, daughter).
    Non-relative household member who was not a spouse at any time during the year if the relationship is not in violation of local law IRC 152(d)(2)

    • Birth Certificate(s) showing relationship, adoption papers, court documents, school records or baptismal certificates.

    • IDRS Research.

    • To show that a non-related member of the taxpayer's household lived in taxpayer's household for the whole year, the taxpayer must provide proof that the QR lived there. Examples include driver's license, school or medical records or other governmental documents showing common address. Mail addressed to QR showing common address.

    Note:

    Any of the relationships listed above that were established by marriage are not ended by death or divorce. A person related to a taxpayer in any of the ways listed above does not have to live with the taxpayer to meet this test.

    Residency N/A except non relative member of household for entire year 152(d)(2)(H)
    Temporary absences count as timed lived together; birth or death during the year count as entire year if QR lived with TP the entire time alive 152(f)(6)(B)(ii)
    Exceptions apply for children of divorced or separated parents 152(e)     		 
    Age N/A  
    Support TP must provide over 1/2 support of QR 152(d)(1)(C).
    Multiple support applies.
    Divorced or separated parents exception applies 152 (e) Kidnapped child exception applies 152(f)(6)( c)     		Receipts for food, clothing, rent medical, dental, schooling, recreation, and personal items. If two Taxpayers are claiming the same dependent receipts may be needed from both.
    Citizenship Same as Dependent QC 4.19.14.4.7 Same as Dependent QC 4.19.14.4.7
    Married Child Joint Return Yes, 152(b)(2)  
    Tie- Breaker Rule Does not apply  
    Requirements and Special Rules QR Cannot be qualifying child of another Taxpayer, 152(d)(1)(D)
    QR gross income cannot exceed exemption amount excluding qualified income for permanently disabled QR 152(d)(1)(B), 152(d)(4)
    TP cannot be a dependent of another Taxpayer 152 (b)(1)     		Verify that there is no return filed showing income by the dependent. Review CC IRPTR to verify income and/or type reported by dependent.

    Note:

    The following statements apply to the definition of "student" in section 152 of the Code.

    1. A taxpayer may treat as a student an individual who enrolled in school before August 25, 2005, and who is unable to attend classes because of Hurricane Katrina, for each month of the enrollment period that individual is prevented by Hurricane Katrina from attending school as planned.

    2. A taxpayer may treat as a student an individual who enrolled in school before September 23, 2005, and who is unable to attend classes because of Hurricane Rita, for each month of the enrollment period that individual is prevented by Hurricane Rita from attending school as planned.

    3. A taxpayer may treat as a student an individual who enrolled in school before October 23, 2005, and who is unable to attend classes because of Hurricane Wilma, for each month of the enrollment period that individual is prevented by Hurricane Wilma from attending school as planned.


    [Alternatively, refer to Publication 4492 for the modified definition of student if an individual was prevented from attending school as planned because of a Gulf Coast hurricane.]
    For tax years 2005 and 2006, a taxpayer may claim a special $ 500 exemption for housing an individual displaced by Hurricane Katrina. See LEM 4.19.1 section 4.19.14.4.7. Also See Publication 4492 and Form 8914 for more information.

    Government or charitable assistance the taxpayer received because of their temporary relocation due to a 2005 Gulf Coast hurricane is not included in total support computation.

  4. Additional information regarding Personal Exemptions and Dependents can be found in Publication 501 and 17.

  5. When exemptions are disallowed, remember to disallow all related credits.

  6. For tax years 2005 and subsequent if more than two taxpayers claim the same dependents see the tie-breaker rule. For taxable years beginning after December 31, 2004, if two or more taxpayers with a qualifying child claim the same child as a qualifying child under section 152(c) of the Code, see the tie-breaker rule.

  7. Special rule for children of divorced or separated parents.
    The custodial parent is the parent having custody for the greater part of the calendar year; the noncustodial parent is the parent who is not the custodial parent

  8. This rule also applies to parents who never married. A child will be treated as the QC of the noncustodial parent if all of the following applies:
    If the parents

    • Are divorced or legally separated under a decree of divorce or separate maintenance,

    • Are separated under a written separation agreement, or

    • Lived apart at all times during the last six months of the calendar year.


    The child received over half of his or her support for the calendar year from the parents. In the case of the remarriage of a parent, support received from the parent's spouse shall be treated as received from the parent.
    The child is in the custody of one or both parents for more then half of the calendar year.
    The custodial parent signs a written declaration (Form 8332 or similar statement) that he or she will not claim the child as a dependent for any taxable year beginning in the calendar year, or a qualified pre -1985 instrument provides that the noncustodial parent is entitled to the dependency deduction for the child and the noncustodial parent provided at least $600 for the support of the child during the calendar year.

  9. The following tests must also be met:

    Citizen, National, or Resident Test: The taxpayer’s dependent must be a U.S. citizen, National, or resident, or a resident of Canada or Mexico, for some part of the calendar year in which the tax year begins. Verifying Information: Birth certificate, driver’s license, school records, library card, green card, or INS documents
    Joint Return: Generally, the taxpayer is not allowed an exemption for a dependent if he or she files a joint return. (An exception applies if the dependent and spouse file a joint return merely as a claim for refund and no tax liability would exist for either spouse on separate returns). Verifying Information: No other return filed with dependent’s SSN. If joint return filed verify that no tax liability existed
    Support Test: additionally: If the support of a child is not determined under a multiple support agreement and if all the following are met:
    1. The parents are divorced or legally separated under a decree of divorce or separate maintenance, or separated under a written separation agreement, or lived apart at all times during the last 6 months of the calendar year.
    2. One or both parents provide more than half of the child’s total support for the calendar year.
    3. One or both parents have custody of the child for more than half of the calendar year.
    4. The custodial parent releases a claim to an exemption for the child by a written declaration, as prescribed by the regulations, and the noncustodial parent attaches the release to his or her tax return.     		Verifying Information: Divorce or separation agreement. Form 2120 if provided by taxpayer. The US Tax Court issued a decision on the use of Form 8332 in King V Commissioner (121 TC 12) September 26, 2003. Under the ruling, the use of Form 8332 applies to never married parents of minor children, if they have lived apart at all times during the last 6 months of the calendar year. The Form 8332 was revised to delete all references to the requirement that the custodial and noncustodial parents must be or have been married to each other before the special support tests apply.
    For Examination, if a signed Form 8332 is attached to the return, the noncustodial parent is treated as providing more than half the support for the year, and is entitled to the exemption if the other 4 dependency tests are met (relationship/member of Household, citizen, national, or resident, gross income; joint return) provided that one or both parents furnish over half of the child’s total support for the year . This applies whether or not the parents of the child were ever married. This also means, that under section 152(e)(1) IRC, the never married custodial parent living apart from the child's other parent is entitled to a presumption of greater than 50% of support on the same basis as the custodial parents who are divorced or legally separated under a written agreement.
    then  
    The noncustodial parent may claim an exemption for the child. See above


    Additionally

    A personal exemption is allowed for taxpayer and his/her spouse if: neither the taxpayer nor the taxpayer's spouse is a dependent of another taxpayer. This is true even if the other taxpayer did not claim an exemption.

    Exception:

    The other taxpayer need not claim an exemption for the taxpayer or the taxpayer's spouse for the taxpayer or the taxpayer's spouse to be a dependent of the other taxpayer.

    See Exception in the Joint Return Test of Personal Exemptions and Dependents, Pub.17.     		Accepted proof of status:If the taxpayer is claimed as a dependent on another taxpayer's return, and the taxpayer says he/she should not be claimed on the other taxpayer’s return but is self-supporting, taxpayer needs to provide documentation showing self-support. Some examples are: utility bills, rent or mortgage receipts, property tax bills. These items can be used as proof of self-support and residence.
    or  
    If married filing joint, one exemption may be taken for taxpayer and one for spouse. Marriage certificate
    or  
    If taxpayer is filing separate return, the taxpayer may claim one exemption for self (if above test is met) and one for spouse if spouse has no gross income and was not a dependent of another Taxpayer. Proof of spouse is a marriage certificate. If spouse is claimed as dependent on another taxpayer’s return, taxpayer needs to prove he/she was living on own and self-supporting. Utility bills, rent or mortgage receipts, property tax bills. These items can be used as proof of self-supporting and residence.
    or  
    If the taxpayer’s spouse died during the year and the taxpayer did not remarry by end of year, an exemption may be claimed for spouse. Death certificate and, if remarried, marriage certificate showing new marriage after last day of tax year.

4.19.14.4.8  (01-01-2007)
Filing Status

  1. Following are guidelines to determine if the taxpayer qualifies for "Single" filing status:

    If: Accepted proof of status:
    The taxpayer was never married. No prior history of filing "Married Filing Jointly" or "Married Filing Separately" .
    or  
    The taxpayer was unmarried or legally separated from his/her spouse under a divorce or separate maintenance decree, and the taxpayer does not qualify for another filing status. Copy of divorce decree or separate maintenance. If decree or agreement is dated any day prior to the last day of the year, the taxpayer is considered single for the entire year.
    or  
    The taxpayer was widowed before January 1 of the tax year, and did not remarry during the year. Copy of death certificate for spouse.`

  2. Following are guidelines to determine if the taxpayer qualified for "Married Filing Jointly" filing status:

    A Taxpayer's filing status is "Married Filing Jointly" if: Accepted proof requirement
    The taxpayers are legally married on the last day of the year and both agree to file under this status. Taxpayers must be either living together as husband and wife, or living apart but not legally separated under a decree of divorce or separate maintenance. Both signatures on the return verify consent of both parties. If prior year’s return shows single or head of household, request proof of marriage; the taxpayers bear the burden of proof.
    or  
    Taxpayers are living together in a common law marriage that is recognized in the state where they live or in the state where the common law marriage began. (See SERP/databases/job aids/Chapter6/Common Law). Proof of living in the same residence such as: Utility bills, bank accounts, mortgage agreements, or property tax bills.
    or  
    The taxpayer’s spouse died during the year. Death certificate of spouse.

  3. Following are guidelines to determine if the taxpayer qualifies for "Head of Household" filing status:

    HOH-Unmarried TP Acceptable Documentation
    Relationship Meets QC or QR minus non relative household member 2(b)(1)(A)(i)&(ii) and 2(b)(3)(B)(i).
    TP is considered not married if spouse is a non resident alien 2(b)(2)(B)     		Same as Dependant QC or QR 4.19.14.4.7
    Residency More than 1/2 year except parents 2(b)(1)(A)&(B) Same as Dependant QC 4.19.14.4.7
    Age N/A  
    Support Pay for more than 1/2 cost of keeping up a home 2(b)(1).
    If dependent parents, must be main home for the entire year 2(b)(1)(B)     		Proof of living in the same residence such as: Utility bills, bank accounts, mortgage agreements, or property tax bills.
    Citizenship A married child who fails the citizenship test cannot be a qualifying person for HOH 2(b)(1)(A)(i)(I) Birth certificate, citizenship papers, Social Security Card. School Records
    Married Child Joint Return A married child who fails the joint return test cannot be a qualifying person for HOH 2(b)(1)(A)(i)(I) Receipts for food, clothing, rent, medical, dental schooling, recreation, and personal items. If two people are claiming the same QC receipts may be needed from both.
    Tie- Breaker Rule Yes 2(b)(1)(A)(i)  
    Requirements and Special Rules QC must meet QC age and QC support tests 2(b)(1)(A)(i)
    QR must be dependent 2(b)(1)(A)(ii) Multiple support QR does not apply 2(b)(3)(B)(ii)     		Same as Dependant QC 4.19.14.4.7

    HOH-Considered Unmarried TP Acceptable Documentation
    Relationship Child, adopted child, step child, eligible foster child 703(b)(1) Same as Dependant QC or QR 4.19.14.4.7
    Residency More than 1/2 year 7703(b)(1) 4.19.14.4.7 Same as Dependant QC
    Age N/A  
    Support Pay for more than 1/2 cost of keeping up a home 7703 (b)(2) Same as HOH - Unmarried TP 4.19.14.4.8(3)
    Citizenship A married child who fails the citizenship test cannot be a qualifying person for HOH 2(b)(1)(A)(i)(I) Same as HOH - Unmarried TP 4.19.14.4.8(3)
    Married Child Joint Return A married child who fails the joint return test cannot be a qualifying person for HOH 2(b)(1)(A) (i)(I) Receipts for food, clothing, rent, medical, dental schooling, recreation, and personal items. If two people are claiming the same QC receipts may be needed from both.
    Tie Breaker Rule Yes 2(b)(1)(A)(i)  
    Requirements and Special Rules Child must be dependent QC or QR without regard to exceptions for divorced or separated parents 7703(b)(1)
    Other rules re residence of spouse for last six months of the year apply.     		 
         

  4. Following are guidelines to determine if the taxpayer qualifies for "Qualifying Widow(er) with Dependent Child" filing status:

    A Taxpayer’s filing status is "Qualifying Widow(er) With Dependent Child" if: and Accepted proof
    The taxpayer is filing within two years of the year that the spouse died the taxpayer did not marry before the end of the current filing year Death certificate.
      The taxpayer has a child, stepchild, adopted child, or child lawfully placed with the taxpayer for legal adoption by the taxpayer for whom he/she can claim an exemption. Birth certificate, school records, adoption records
      The taxpayer paid more than half the cost of keeping up a home that is the main home for him/her and that child for the entire year. Receipts and bills for rent, mortgage interest, property taxes, utility charges, upkeep and repairs, property insurance, food consumed in the residence.

  5. Additional information regarding filing status can be found in Publication 501, Publication 519 and Publication 555.

  6. Taxpayers whose filing status is married filing separate or deemed to be married filing separate are not entitled to EITC with or without Qualifying Child(ren).

4.19.14.4.9  (06-19-2007)
Child Tax Credit

  1. Per IRC Sec. 24 taxpayers who have qualifying children are entitled to Child Tax Credit. Use the following guidelines to determine if the taxpayer has a qualifying child:

    CTC (DQC) Acceptable Documentation
    Relationship Same as dependent QC 24(c)(1) 4.19.14.4.7 Same as dependent QC 4.19.14.4.7
    Residency Same as dependent QC 24(c)(1)
    Exceptions apply for children of divorced or separated parents     		Same as dependent QC 4.19.14.4.7
    Age Under age 17 at end of the year 24(c)(1) Same as dependent QC 4.19.14.4.7
    Support Same as dependent QC 24(c)(1) Same as dependent QC
    Citizenship Citizen/national/resident of US 24(c)(2)

    1. The child must be a U.S. Citizen or National or a Resident of the U.S.

    2. Birth certificate, citizenship papers, Social Security Card. Sch
    Married Child Joint Return Does not apply  
    Tie-Breaker Rule Yes  
    Requirements and Special Rules Does not apply  

  2. Age of Attainment- Revenue Ruling 2003-72 applies a uniform method of determining when a child attains a specific age for the purposes of child tax credit, dependent care credit, adoption credit, earned income credit, dependent care assistance programs, foster care payments, adoption assistance programs and dependency exemptions. The ruling provides that a child attains a given age on the anniversary of the date that the child was born. For example, a child born on Jan. 1, 1987 attaining the age of 17 on January 1, 2004. Previously IRS treated a child as obtaining an age on the day before his birthday. Math error notices may have been issued disallowing the credit. For all tax years, where the above credits were disallowed because the age of attainment was considered to be the day before the birthday of the child, adjust and allow the credit if all other qualifying criteria are met.

  3. Large, Unusual, or Questionable Items - During the audit of the Child Tax Credit and related issues, if a material issue is identified on the return, that issue should be questioned/audited with the approval of your manager.

  4. Related Audit Issues and Statutory Adjustments - When you disallow the Child Tax Credit, based on

    If Taxpayer Fails Then Disallow
    Relationship Test

    • Dependent Qualifying Child (DQC)

    • Dependent Care Credit (CDCC)

    • EITC
    Residency Test

    • DQC

    • Child Dependent Care Credit
    Age Test

    • CDCC unless Child physically or mentally incapable
    Support Test

    • DQC

    • CDCC unless spouse physically or mentally incapable

    • Education Credit if person paid more than 1/2 of this own support

    • Qualifying Relative if person paid more than 1/2 support

    • Head of Household
    Tie Breaker Rule EITC

    • DQC

    • EITC

  5. Standard Paragraphs - 6503, 6505, 6506, 6508, 6510, 6514, 6515, 6516, 6517, 6518

  6. Additional Paragraphs- 886 Suggestions -

    Dependent Qualifying Child (DQC)
    Since we have disallowed your Child Dependent Care Credit due to the qualifying child failing to meet the relationship requirements, the child does not qualify as your dependent, therefore, we have disallowed the exemption related to this child.
    Since we have disallowed your Child Dependent Care Credit due to the child failing the residency test, the child does not qualify as your dependent. We have disallowed the exemption related to this child.
    Since your Child Dependent Care Credit was disallowed due to the Tie Breaker Rule for support, we have disallowed the dependency exemption for this child.
    Child Tax Credit
    We have disallowed the Child and Dependent Care Credit which has the same relationship requirements as the Child Tax Credit. Therefore, we have disallowed the Child Tax Credit.
    We have disallowed the Child Dependent Care Credit because the child did not meet the residency test and was not physically or mentally incapable. Since the residency test is the same for the Child Tax Credit, we have disallowed this credit as well.
    We have disallowed the Child Dependent Care Credit since you did not provide over half the support for this child or the child paid more than 1/2 of his/her own support. Since the requirements for the Child Tax Credit are the same, we have disallowed this credit also.
    EITC
    Since the individual did not meet the requirements for the Child Dependent Care Credit he/she also failed the requirements for EITC.
    Head of Household
    Since the individual did not meet the requirements for the Child Care Credit as it relates to the support test, you do not qualify for the Head of Household test. Therefore, we have disallowed that filing status.
    Multiple Disallowances
    Since we have disallowed your Child Dependent Care Credit, we have disallowed the related credits for the Child Tax Credit, Education Credit, and EITC. You also do not qualify for the Dependent Qualifying Child or Qualifying Relative exemption and the Head of Household Filing status.
    Large, Unusual, or Questionable Items
    During the audit of the Child Tax Credit and related issues, if a material issue is identified on the return, that issue should be questioned/audited with the approval of your manager.

4.19.14.4.10  (06-19-2007)
Child and Dependent Care Credit (CDCC)

  1. Following are guidelines to determine if the taxpayer qualifies for the Child and Dependent Care Credit: The limit on the amount of the qualifying expenses is $3000 for one individual and $6000 for two or more. The credit percentage can be as much as 35% of the qualified expenses. Refer to Form 2441 for computations.

    A qualifying person is: Verifying information:
    the taxpayer’s dependent who was under age 13 when the care was provided and for whom the taxpayer can claim an exemption. Birth certificate, school records, or baptismal certificate.
    Military Personnel Acceptable proof of status
    Defense Enrollment Eligibility Reporting System (DEERS), which provides a list of authorized dependents whose relationship, has been verified. Leave and Earnings Statement (LES), which verifies if the taxpayer is paying a voluntary allotment for Basic Housing Allotment (BHA) payable to the dependents or custodial parent, or if the taxpayer is having child support payments garnished.
    or  
    The taxpayer’s spouse who was physically or mentally not able to care for himself or herself. Marriage certificate (proof of spouse). Proof of disability: Doctor’s note or State certification.
    or  
    The taxpayer’s dependent who was physically or mentally not able to care for himself or herself, and for whom you can claim an exemption (or could claim an exemption except the person had $3,200 for tax year 2005 or $3,300 for tax year 2006. Proof of keeping up home: Rent receipts, mortgage documents, property tax bills, utility bills. Proof of person’s claimed residency: School records, official mail. Doctors’ note or state certification verifying disability.

    Eligibility Requirement Tests Verifying information:
    The taxpayer (and spouse if married) must have earned income during the year. (However, there are exceptions for student-spouse or spouse not able to care for self) W2s and/or 1099s
    and  
    The taxpayer must pay child and dependent care expenses so that he/she (and spouse if married) can work or look for work. Proof of payments to child care provider. Receipts and/or cancelled checks. If looking for work, a calendar showing interviews and dates. If no log or calendar available, statement from the taxpayer that the taxpayer was looking for work and the types of places the taxpayer was applying
    and  
    The taxpayer must make payments for child and dependent care to someone he/she (or spouse) cannot claim as a dependent. If payments made to child, he/she cannot be the taxpayer’s dependent and must be age 19 or older by the end of the year. Name on receipts or cancelled checks. if same surname, determine if claimed as a dependent on return. If not claimed, verify age via: driver’s license, birth certificate, or school records.
    and  
    The filing status must be single, head of household, qualifying widow(er) with dependent child, or married filing jointly. If married, a joint return must be filed.

    Note:

    This is an exception under the Joint Return Test.

    		  
    and  
    The identity of the care provider must be provided on the tax return. Must include name, address, and TIN/EIN. If an individual, then SSN. Proof can be: Copy of provider’s SSN card, copy of provider’s driver’s license (if SSN on it), a copy of provider’s completed W-4 if household employee, copy of statement from employer if part of employer’s dependent care plan, or a letter or invoice from the provider with the needed information.
    and  
    Adjustments must be made for any dependent care assistance benefits provided by employer. Review W-2 Box 1 for employer provided benefits and ensure the excluded benefits are not used to compute the credit. See Part III of Form 2441.

    Note:

    If the taxpayer cannot claim the child as a dependent, the child may still be a qualifying person for the CDCC if:

    • The child was under age 13 or was physically or mentally not able to care for himself or herself.

    • The taxpayer is the child's custodial parent (the parent with whom the child lived for the greater part of the year).

    • The noncustodial parent is entitled to claim the child as a dependent under the special rules for a child of divorced or separated parents.

    If this applies, the noncustodial parent cannot claim the child as a qualifying person for the CDCC.
    If more then two taxpayers claim the CDCC (or the same qualifying children) see the tiebreaker rules.

  2. If the above conditions are met, allow the deduction up to allowable credit.

  3. If expenses are for first or a higher grade then they are deemed to be educational and do not qualify for the dependent care credit. Expenses for kindergarten almost always will be educational, in which case they should be disallowed.

  4. Additional information regarding the Child and Dependent Care Credit can be found in Publication 503.

  5. For situations in which there is a duplicate dependent used to obtain the child and dependent care credit:

    1. Letter 566B (combo letter) with Form 4549/4549EZ will be sent if after initial research (DUPOL DDKDB) it appears that a duplicate dependent was used to obtain child and dependent care credit.

    2. Request documentation applicable to the duplicate condition (TP must certify that he has a qualifying child per the rules as shown in the (1) table of this section).

    3. Follow normal examination procedures to work case.

    4. If your taxpayer is allowed the credit, you must open the other duplicate dependent case and disallow the credit.

  6. Rule summary:

    CDCC (DQC, DQR)
    Relationship Same as dependent QC, physically or mentally incapable dependent QR spouse 21(b)(1) 4.19.14.4.7
    Residency Same as dependent QC 21(b)(1)(A), or physically or mentally incapable dependent QR or spouse who lived with Taxpayer more than 1/2 year 21(b)(1)(B) and 21(b)(1)(C) 4.19.14.4.7
    Age Expenses paid up to age 13 or for physically or mentally incapable dependent or spouse 21(b)(1)
    Support Same as dependent QC, physically or mentally incapable dependent QR 21(b)(1)(A) or N/A for incapable spouse 4.19.14.4.7
    Citizenship Same as dependent QC, physically or mentally incapable dependent QR N/A for incapable spouse 4.19.14.4.7
    Married Child Joint Return Does not apply
    Tie Breaker Rule Does not apply
    Requirements and Special Rules Must be dependent QC or physically or mentally incapable spouse / dependent QR; except divorced / separated parents IRC 21 (e) (5); except kidnapped child 152(f)(6)(A)

4.19.14.4.10.1  (10-01-2004)
Statutory Requirement – Married Filling Separate

  1. Generally, married couples must file a joint return to take the credit.

  2. However, if taxpayers are legally separated or living apart from the spouse, they may be able to file a separate return and take the credit if they are not considered married.

  3. Taxpayers are not considered married if all the following apply:

    1. He/she files a separate return.

    2. He/she provides a home for a qualifying person for more than half the year.

    3. He/she pays more than half the cost of keeping up your home for the year.

    4. The spouse did not live in the home for the last 6 months of the Year.

4.19.14.4.11  (10-01-2003)
Education Tax Credits - Hope and Lifetime Learning

  1. See IRM 4.19.15.5, Education Tax Credits - Hope and Lifetime Learning for explanation and procedures

4.19.14.4.11.1  (10-01-2003)
Above the Line Deduction for Qualified Higher Education Expenses

  1. See IRM 4.19.15.5, Above the Line Deduction for Qualified Higher Education Expenses for explanation and procedures.

4.19.14.4.12  (06-26-2001)
Qualified Adoption Expenses

  1. See IRM 4.19.15.7, Qualified Adoption Expenses for explanation and procedures.

4.19.14.5  (01-01-2008)
Recertification

  1. After December 31, 1997 where EITC was denied for taxable years beginning after December 31,1996, the recertification indicator will be set at the National Accounts Profile (NAP) when a TC 30X and TC 765 post to the account. Effective FY05, Recertification will be EITC single issue audits:
    PC 0694 - EITC only
    PC 0257 - Schedule C and EITC,
    PC 0027 - EITC with 2 year ban proposed
    PC 0028 - Schedule C and EITC with 2 year ban proposed
    See IRM 4.19.13.2.1(3)b,Auditing Standard 1, for more information on audit scope expansion.

  2. See LEM 4.19.1 section 4.19.4.5 (2) for additional information.

  3. Regulations issued in 2001 permitted the IRS to change its recertification procedures. For TY 2002 and forward - examined tax returns and the EITC disallowed or reduced, a recertification indicator will remain until the taxpayer recertifies on the type of EITC previously denied.

    • EITC reduced or disallowed for tax year 2002 and forward. If the taxpayer is denied EITC because a claimed child(ren) is not qualifying child(ren), and the TP files the subsequent year’s return claiming EITC with no qualifying child(ren), the EITC will be allowed and the Recertification Indicator IS NOT REMOVED.

      Example:

      The taxpayer is denied EITC with a qualifying child for TY 2002. For TY 2003, the taxpayer claims EITC with no qualifying child(ren). The taxpayer will be allowed the EITC with no qualifying child(ren), and the Recertification Indicator will not be removed. The taxpayer will be required to recertify for the next year for which EITC with a qualifying child(ren) is claimed.

    • EITC reduced or disallowed for any other reason. If EITC is reduced or not permitted for any other reason such as an adjustment to taxpayer’s income or expense(s), then the taxpayer will be required to recertify on his/her next return claiming EITC. When closing a case, that either reduces or does not permit EITC, Examination personnel will be required to: input TC 971 with action code 156. This will place a new recertification indicator on the taxpayer's account. The new Recertification indicator will appear as 9 on the Master File. If the taxpayer has either a Recertification indicator of 1 or 9 on the Master File and claims EITC with qualifying child(ren) they will be required to attach Form 8862 to their tax return.

      Example:

      The taxpayer’s EITC is decreased because of unreported Alimony in tax year 2002. Among other closing steps, the TE will input TC 971 with action code 156. If the taxpayer files tax year 2003 claiming EITC with or without qualifying child(ren), the TP will be required to recertify by attaching Form 8862 to his/her Form 1040.

  4. Taxpayers required to recertify but claim EITC with no Form 8862 attached, will be denied through Math Error procedures during the processing of the tax return under section 6213(g)(2)(K). Math error procedures [see also 21.5.4] are not available to disallow EITC claims made during years subject to the bans set out in section 32(k)(1).

  5. Master File programming was implemented in January 2004 that will have EITC recertification indicators (RI) 1 or 9 automatically removed when a case is closed and the taxpayer receives full EITC claimed under the conditions detailed below:

    1. TC 300 for zero amount containing Disposal Code 02 if the module contains TC 764 or TC 768, or

    2. TC 421 with a Disposal Code 20 if the module contains a TC 764 or TC 768, or

    3. Current posted TC 764 (doc code 47 or 54) with an amount equal or exceeds a prior TC 765 with doc. code 47.

    All other conditions or Disposal Codes will still require the manual removal of the RI. This is done by inputting TC 971 AC 056.

    If and Then
    For Tax Years 2002 and Subsequent
    Taxpayers are denied EITC, in part or in full, through deficiency procedures which includes adjustments to income or expenses that affect EITC   The taxpayer is ineligible to file an EITC claim until the taxpayer provides evidence of eligibility for the EITC. Deficiency procedures include administrative procedures (other than procedures related to math or clerical errors) that result in an assessment of a deficiency in tax, whether or not a Notice of Deficiency is issued.
    Taxpayers are denied EITC, in part or in full, through deficiency procedures by disallowance of qualifying child(ren).   The taxpayer is ineligible to file an EITC claim with qualifying child(ren) until the taxpayer provides evidence of eligibility for the EITC. Deficiency procedures include administrative procedures related to math or clerical errors that result in an assessment of a deficiency in tax, whether or not a Notice of Deficiency is issued.
    A determination is made that the EITC was claimed due to reckless or intentional disregard of the rules and regulations or fraud   The taxpayer is required to recertify with Form 8862 on the first return on which EITC is claimed after the

    • two (2) year period (reckless or intentional disregard) or

    • ten (10) year period (fraud) has elapsed.
    EITC has been denied through deficiency procedures no Form 8862 Under IRC Section 6213(g)(2)(K), the EITC can be denied as a mathematical or clerical error.
    EITC has been denied through deficiency procedures Form 8862 attached Inventory will be received through DDB.
    Refund is frozen   CP 75 will automatically generate, informing taxpayer the EITC refund will be held.

    Note:

    The CP 79A will be sent to the taxpayer, advising them of the 2 year EITC ban. The CP 79A will also tell the taxpayer the next year they will be able to claim EITC again. However they are still subject to EITC Recertification for that year which can be viewed on IDRS using CC ENMOD under EITC-EL-TXPD> Field.

  6. Starting in 2006, when an EITC Recertification indicator of 1 or 9 is removed by input of TC 971 action code 056 then Master File will send a new CP 74 to the taxpayer. CP 74 will inform the taxpayer they have re-certified for EITC, and will receive a refund within 6 weeks, provided the taxpayer owes no other taxes or debts.

  7. The entity module (IMFOLE or ENMOD) will reflect the EITC RI if EITC was disallowed through deficiency procedures, a 2 or 10 year EITC ban is applied or if Examination determines that Recertification is no longer required.

    EITC Recertification Indicators (RI)
    If the RI is and Then
    Blank or 00   Recertification is not required.
    1   Recertification is required.
    9   Recertification is required.

    Note:

    RI 9 denotes taxpayer’s EITC was adjusted due to an adjustment in income.
    2 The tax year is < then the EITC-EL-TXPD field*. Taxpayer is under a 2 year EITC ban & not entitled to EITC. **
    2 The tax year is > or = to the EITC-EL-TXPD field. Recertification is required.***
    3 The tax year is < then the EITC-EL-TXPD field. The taxpayer has recertified for the EITC, after the banned years, but is still under an EITC ban for the banned years (i.e. tax years < then the EITC-EL-TXPD).
    3 The tax year is > the EITC-EL-TXPD field. Recertification is not required.
    4 The tax year is < then the EITC-EL-TXPD field. Taxpayer is under a 10 year EITC ban & not entitled to EITC.
    4 The tax year is > or = to the EITC-EL-TXPD field. Recertification is required.**
    * TheEITC-EL-TXPD is a new Master File field that indicates when the taxpayer’s ban expires and is then subject to EITC Recertification. It can be viewed on IDRS under IMFOLE or ENMOD.
    ** The TC 971 056 will convert the RI 2 or 4 into a blank when the tax year is < then the EITC-EL-TXPD field.
    ***If the taxpayer recertifies for EITC the 971 056 will convert the RI 2 or 4 into a 3 when the tax year is > or = to the EITC-EL-TXPD field.

  8. See LEM 4.19.1 section 4.19.14.5 for additional information.

4.19.14.5.1  (01-01-2007)
EITC 2/10 Year Ban

  1. 2 - Year Ban - (PC 697) Taxpayers who previously were denied EITC through a Deficiency proceeding and have been determined to have had intentional or reckless disregard for EITC rules will have a 2-Year Ban placed on their account. ENMOD will carry an EITC-Recertification Indictor "2" along with the year the Ban was placed.

  2. The technician’s decision to assert a penalty/ban or not needs to be documented and justified on the work papers on Report Generation System (RGS). The following table provides a starting point to help determine if the two-year ban is appropriate. This table is not all-inclusive

    If and Then
    This is the first year EITC audit for the taxpayer   A ban usually is not imposed for the first year UNLESS the taxpayer establishes blatant disregard for the rules and regulations

    Example:

    During a conversation, the taxpayer admits he/she knew they did not meet the eligibility requirements but decided to "try it anyway" . In this instance, the ban would be justified since the taxpayer intentionally disregarded the rules and regulations.

    This is a Recertification case Inadequate documentation is received from the taxpayer and the case results in the EITC being disallowed again Based on facts and circumstances presented apply the two-year ban. The taxpayer was previously informed of the requirements and the specific rules and regulations pertaining to EITC.
    A decedent’s SSN is used for a qualifying child The person died before the year under examination Based on facts and circumstances presented apply the two-year ban.
    The technician can determine the taxpayer’s claim was due to reckless or intentional disregard rather than misunderstanding or confusion of the rules   The two-year ban should be imposed.
    The taxpayer filed MFJ in prior tax years, is now filing as HOH, and our records show the taxpayers still live at the same address and/or are still married Is unable to establish he/she is divorced or legally separated (They may be splitting the children to maximize the EITC) The two-year ban should be imposed.
    There is a lack of acceptable records The taxpayer understood what types of documentation could be accepted The two-year ban should be imposed.
    The taxpayer is claiming different qualifying children each year When asked to identify the qualifying children, the taxpayer does not know who they are claiming The two-year ban should be imposed.
    The taxpayer agreed with the assessment and denial of EITC in the previous tax year(s) Is again unable to verify eligibility for claiming the EITC and qualifying children The two-year ban should be imposed.

  3. If the taxpayer claims EITC while under the Ban, the return will automatically be established on AIMS through the DDb in Project Code 0697. RGS will systemically generate a Statutory Notice of Deficiency, Letter 3219. CP 75C will be the initial contact letter informing the taxpayer their refund was delayed. At this point EITC eligibility is not the issue of this examination and the taxpayer should not be asked to send in qualifying documentation. We are simply notifying the taxpayer that the EITC is disallowed since there is a 2/10 year Ban on the current tax period.

  4. W&I taxpayers are centralized in Austin and SB/SE taxpayers are centralized in Brookhaven.

  5. 10 Year Ban - (PC0698) Taxpayers who previously were denied EITC through a Deficiency proceeding and the error was due to fraud will have a 10 Year Ban placed on their account. ENMOD will carry an EITC-Recertification Indictor "4" along with the year the Ban was placed.

  6. If the taxpayer claims EITC while under this Ban, the return will automatically be established on AIMS through the DDb using PC 698. RGS will systemically generate a Statutory Notice of Deficiency, Letter 3219, CP75C will be the initial contact letter informing the taxpayer their refund was delayed. At this point EITC eligibility is not the issue of this examination and the taxpayer should not be asked to send in qualifying documentation. We are simply notifying the taxpayer that the EITC is disallowed since there is a 2/10 Year Ban on the current tax period.

  7. If the Audit Reconsideration Team determined that the Ban was erroneously set and the EITC was inappropriately denied, close the Ban year off on AIMS using a disposal code 12. The Audit Reconsideration team is responsible to advise the taxpayer of the outcome of the reconsideration decision

  8. Tax examiners must enter a priority code 6 on Form 5344, Examination Closing Record to impose either a two or ten year EITC ban. If the –A freeze is present; the examiner must use priority code 7 to impose the ban, on the Form 5344, Examination Closing Record.

    • The two year EITC ban is set when the TC 300, 765, 240 (reference code 680) and either the priority code 6 or 7 posts to Master File. Master File will also mail a CP 79A, to the taxpayer explaining the ban.

    • The ten year EITC ban is set when the TC 300, 765, 320 and either the priority code 6 or 7 posts to Master File. Master File will also mail a CP 79B, to the taxpayer explaining the ban. AIMS Project codes 0027 and 0028 will systemically input the new priority code 6 on the Form.

  9. New Recert Indicator 3 signifies that the taxpayer has recertified for EITC, after the banned period, but is still under an EITC ban for the banned years.
    For example taxpayer's EITC is disallowed and a ban set for tax year 2005 in October, 2006. The taxpayer is banned from claiming EITC for tax years 2006 and 2007 and is then subject to EITC recertification the next year they claim EITC with qualifying child or children after the ban expires. So to continue with our example in tax year 2008 taxpayer claims EITC, attaches form 8862 to their return, and "successfully recertifies" for the EITC. IDRS will then display an indicator 3 to signify that the taxpayer is still under an EITC ban for the banned years
    IDRS cc ENMOD displays the EITC indicator under the literal: EIC - RECERT - IND>. See IRM 21.6.3.4.2.7.15.1 for an explanation of the EIC indicators.
    IDRS cc ENMOD displays the year the taxpayer is first required to recertify again if claiming EITC with qualifying children again after either the 2 or 10 year EITC ban expires, under the literal: EITC-EL-TXPD>. Using the same example detailed in paragraph 7 above, 2008 will display in this field.

  10. For more information on the 2/10 Year Ban See IRM 20.1.5.3, Two - Ten Year Bans on Claiming the Earned Income Credit (EITC).

4.19.14.5.1.1  (10-01-2004)
Correspondence Guidelines for Examination Technicians (CET)

  1. When taxpayers under the 2/10 Year Ban call or write in response to receiving a Statutory Notice of Deficiency L3219 CETs will:

  2. Inform the taxpayer they are under the 2 or 10 Year Ban and they can not claim EITC until the Ban expires. Publication 596, chapter 5 explains how the Ban expires. The date on which EITC was denied and the date on which you file your tax return affects the years you are prohibited from claiming the EITC. ENMOD will carry an EITC-Recertification Indictor "2" (2-Year Ban) or "4" (10 Year Ban) along with the year the Ban originated.

    Note:

    The date the TC 300, TC 765, & TC 240 (2-Year Ban trigger) or TC 320(10 Year Ban trigger) posts to master file is the date the Ban was imposed. The Ban will apply to any tax year after this date.

    Example:

    Taxpayer claimed EITC on 2002 tax return, which was filed in March 2003. In October 2003, the IRS denied the claim and determined that there was reckless or intentional disregard of the EITC rules. The taxpayer cannot claim EITC for tax year 2003 or 2004. If they wish to claim the EITC on the next year 2005, the taxpayer must complete and file Form 8862.

    Example:

    The facts are the same as in the above example, except that the IRS did not disallow the 2002 EITC until after the 2003 tax return was filed. The taxpayer would not be able to claim EITC for tax year 2004 and 2005. They would be required to recertify in tax year 2006 if claiming EITC with qualifying child(ren).

  3. [2-Year Ban] - If taxpayer believes the Ban was incorrectly applied, advise them that they must provide documentation to show that they did not recklessly or intentionally disregard the EITC rules for the year the Ban was imposed.

  4. [10 Year Ban] - If the taxpayer believes the Ban was incorrectly applied, advise them that they must provide documentation to show that their EITC claim was not fraudulent for the year the Ban imposed.

4.19.14.5.1.2  (10-30-2004)
Telephone Guidelines for Tax Examining Clerks (TEC)

  1. When a Taxpayer under the 2/10 Year Ban calls in response to receiving a Statutory Notice of Deficiency, Letter 3219, TEC will:

    • Inform the taxpayer they are under the 2 or 10 Year Ban and they can not claim EITC until the Ban expires. Publication 596, chapter 5 explains how the Ban expires. The date on which EITC was denied and the date on which the taxpayer files their tax return affects the years for which the taxpayer is prohibited from claiming the EITC. "ENMOD" will carry an EITC-Recertification Indictor "2" (2-Year Ban) or "4" (10 Year Ban) along with the year the Ban originated. See IRM 4.19.14.5.1.1(2).

4.19.14.5.1.3  (10-01-2004)
Petitions to Tax Court

  1. If the taxpayer petitions the tax court, in addition to the petitioned year, Counsel requires the tax year the Ban was first applied to properly defend the government’s position. This will require the campus to request the close administrative cases from files.

  2. The petitioned year case file must include the tax year the Ban was applied. In addition to the RGS case file, work papers and all correspondence received for the Ban tax period.

4.19.14.5.1.4  (10-01-2004)
Audit Reconsideration EITC 2/10 Ban

  1. See IRM 4.13.3.18, Audit Reconsiderations EITC 2/10 Year Ban, more information if a taxpayer requests a reconsideration if a tax year while under a 2 or 10 year EITC ban.

4.19.14.5.1.5  (02-10-2006)
Project codes 0027 & 0028 – EIC Recertification with a proposed 2 year EIC ban

  1. To help ensure that 2 year EIC bans are consistently applied, starting in processing year 2006, we are using DDb data to systemically identify EIC examination cases with apparent abuse before taxpayers are contacted. See LEM 4.19.1 section 4.19.14.5.1.5.

  2. These cases will be worked as EIC Recertification cases; using existing aging and purging time frames, however both the initial contact letter and report will propose a 2 year EIC ban. If the taxpayer does not reply the 2 year EIC ban will post to Master File along with the EIC disallowance. If the taxpayer replies evaluate the documentation and determine if circumstances exist not to assert the 2 year EIC ban. If taxpayers request a Reconsideration of PC 0027 or 0028 cases, use existing Reconsideration guidelines for taxpayers with a 2 year EIC ban.

  3. Project Code 0027 Project Code 0028
    Letters, Attachments, & Issues Letters, Attachments, & Issues

    • CP 75/75A with fill ins: EIC Recertification
      2 year EIC ban

    • Form 886-H-EIC (for appropriate tax year).

    • Publication 3498-A

    • Publication 4134

    • Return envelope

    • CP 75/75A with fill ins: EIC Recertification
      2 year EIC ban
      Schedule C

    • Form 886-H-EIC (for appropriate tax year).

    • Form 11652

    • Publication 3498-A

    • Publication 4134

    • Return envelope

  4. Fill ins for CP 75/75A

    • EIC Recertification – You must show you qualify for EIC because we denied your EIC during a prior year examination. You need to send us information to show you've met three tests to claim a qualifying child. The enclosed Form 886-H-EIC, Supporting Documents for Taxpayers Claiming EIC, explains the tests.

    • Schedule C - You must have earned income to claim the EIC. Please complete and send us the enclosed Form 11652, Questionnaire, Form 1040 Schedule C, to help us determine if you have the right amount of earned income.

    • 2 year EIC ban - Based upon information we have available, we propose that you should be restricted from receiving the earned income credit for the next two years. This two year ban is asserted for the reckless or intentional disregard of the rules and regulations regarding the earned income credit under Internal Revenue Code section 32(k)(1)(B)(ii).

4.19.14.6  (01-01-2008)
Dependent Database

  1. For guidance working Dependent Database cases see LEM 4.19.1 section 4.19.14.6.

  2. Returns will be sent through the DDb as the return is processed. If the return is selected, based on the scoring methodology and the business rules, the refund will be held with a TC 810 at the Master File. A CP 75 will generate to alert the taxpayer that his/her refund will be held pending an examination. The case will open on AIMS in Organization Code 5014.

  3. Selected cases will be sent to the RGS server in their site based on that center’s mail out schedule.

    Note:

    All pre-refund cases opened through DDb will have the portion of the refund not in question released upon issuance of the initial contact letter using a systemic TC 811 reversal amount moved through RGS/CEAS. When a TC 421 is recognized in an account that has had this unique TC 810, a TC 811 will automatically generate, thus releasing the remaining credit.

  4. DDb will not select cases with any of the following conditions: See LEM 4.19.14.5.6(5).

  5. Through the use of the Command Code "DDBOL" the tax examiners will be able to access the DDb for the Classification Viewer Sheet

    • DDBOL is a command code designed to allow the TEs access to the Dependent Database.

    • TE will be able to view the rules, any cross references SSN and any other information that is on the DDb base

    • This command code can be used on any EITC program since all returns will be scored (even if not selected) though the DDb.

    • DDBOL must be used to work the DDb cases. The information obtained from this command code will act as your classification sheet.

    • Command Code DDBKD allows access to the DDb using the child’s SSN. It includes Social Security information from the DM1 data, Federal Case Registry (FCR) data, KIDLINK (indicates who is listed on the child’s Social Security application as the parent(s)), and prior Duplicate TIN information, and names of parents.

  6. If the information on the DDb is incorrect ask the taxpayer to supply documentation to verify the residency requirement of the Earned Income Tax Credit. If the taxpayer can provide proof of the residency requirement allow the Earned Income Tax Credit.

  7. Information on each taxpayer will be stored on the DDb with the current year and the two prior years starting with tax year 2000.

4.19.14.6.1  (01-01-2008)
Post Refund DDb Selections Duplicate Tin Program (DUPTIN)

  1. This program includes both EITC and non-EITC taxpayers.

  2. Duplicate Tin Program

    When four or less taxpayers claim a TIN for EITC Qualifying Child or a dependency exemption they are selected and worked as follows:
    a. Modernization & Information Technology Services (MITS) will select post refund EITC and Non-EITC duplicate TIN case
    b. Selections will be sent through the RGS server to the pre-selected sites.
    c. Cases selected for each campus will contain taxpayers throughout the country.
    d. EITC and Non-EITC Duplicate TIN cases will only open (Project Code 0652 EITC and 0097 non-EITC) on returns where a DDb Business Rule has been broken See LEM 4.19.1 section 4.19.14.6.1.
    e. If the selected return results in a No-Change, research Command Code DDBOL for the related TIN. If the potential increase to tax and credits exceeds the tolerance for the applicable DUPTIN project code LEM 4.19.1 section 4.19.14.6.1, it is mandatory that the related TIN be established on AIMS when closing the no-change case using the following Project Codes:

    • 0058 EITC Duplicate use of TIN for "related party. "

    • 0059 Non-EITC Duplicate use of TIN for "related party."

    f. New processing will allow the second return duplicating a TIN for EITC or dependency exemptions to post electronically when one of the three following conditions exists:

    • The FCR data shows the Taxpayer who files second to be the custodial parent.

    • There is a recertification indicator on the account of the taxpayer who filed first. or

    • The Taxpayer who files second has an EITC audit that resulted in a no-change in one of the two prior years.
    Continue to follow the above procedures in cases where the 2nd return is allowed to post electronically.

  3. Multi-Duplicate Tin Program

    When five or more taxpayers claim the same TIN for EITC Qualifying Child or a dependency exemption they are selected and worked as follows:
    a. Modernization & Information Technology Services (MITS) will select post refund EITC and Non-EITC duplicate TIN case.
    b. Selections will be sent through the RGS server to the pre-selected site.
    c. The cases will open in the DUPTIN Project Code (0652 EITC and 0097 non-EITC) with tracking code 7669.

  4. For all systemically selected DUPTIN cases, the first contact letter will be the CP75A. See IRM 4.19.14.3.1 for the applicable examination process.

4.19.14.6.1.1  (10-01-2001)
Schedule C Filters

  1. See LEM 4.19.1 section 4.19.14.6.1.1.

4.19.14.7  (03-06-2008)
Questionable Refund Program (QRP)

  1. Criminal Investigation (CI) identifies individuals filing false returns claiming refundable credits, income and withholding.

  2. Cases with income and withholding only, or the ASED is 12 months or less are sent to AM for processing.

  3. Cases with refundable credits in addition to the false income and withholding and the ASED is 13 months or more will be referred to Examination.

4.19.14.7.1  (01-01-2009)
QRP Referral Process

  1. With the exception of the PC0603 prisoner (GATT) cases, all QRP cases are systemically delivered from EFDS to DDb to be filtered and opened on AIMS eliminating the use of spreadsheets.

  2. PC0603 will be delivered by CI via spreadsheet to HQ Exam. HQ Exam will coordinate to have the cases opened on AIMS by DDb.

  3. The Electronic Fraud Detection System (EFDS) will systemically send weekly files to DDb to filter cases and open selected Exam cases on AIMS and push files to RGS/CEAS.

  4. For the automated project codes 0173, and 0584, DDb will also send a file to systemically generate the CP75D/75A notice as the ICL.

  5. DDb will send a reject file back to EFDS weekly. CI will post a Z freeze on the account of all rejects including L freeze (TC42X). The Z freeze will cause the case to reject out of Batch to consider incorporating additional CI issues. See Z freeze procedures for further instructions.

  6. TAS will coordinate with the FDC if the case is not open on AIMS. If AIMS is open, TAS will coordinate with Exam following existing TAS guidelines.

4.19.14.7.2  (03-06-2008)
QRP Source Code and Project Codes

  1. Effective FY2008 project codes and source codes have been re-categorized. Source codes identify a type of case, project codes identify the examination issues.

    Note:

    For QRP, source code 06 and 11 have different definitions then outlined in the Document 6209. See LEM 4.19.1, section 4.19.14.7.2 for additional information.

    BOD EITC or Discretionary Examination Issues Project Code
    SBSE EITC Questionable Schedule C, EITC, prisoner 0173
    W&I SBSE Discretionary Wages, withholding, ACTC and/or FTC Note: HQ SBSE will add any other issues identified for SBSE Campuses. 0263
    W&I, SBSE EITC Completely false one wage, withholding, EITC 0584
    W&I EITC Prisoner (GATT) good wages, unallowable EITC 0603
    W&I EITC Household Help (HSH), No W-2, withholding, EITC 0390
    W&I, SBSE EITC Multiple Issues; can be more than one wage, withholding that are false or inflated, HSH, EITC or Schedule C or any other situation not addressed in QRP project codes above. 0611

4.19.14.7.3  (01-01-2008)
QRP Examination Process

  1. Procedures apply to EITC and Non-EITC cases unless specified. Enclosures are based on examination issues as outlined in parentheses below.

    Project Code Initial Contact Letter Enclosures Automated or Manual Process
    0584, 0173 CP 75D/75A Form 12483
    Form 886-H-EIC
    Form 886-L
    Publication 3498-A
    Publication 4134 (EITC)
    Form 11652 (if Sch. C)     		Automated.
    CP 75D/75A Notice is systemically generated as ICL when case is selected and opened on AIMS.
    0584 - Batch processing will disallow total wage, withholding and EITC.
    0603 – Batch processing will disallow EITC.
    0173 – Batch processing will disallow Schedule C and EITC.
    0390, 0611 Letter 566-E Form 12483
    Form 886-H-EIC
    Form 886-L
    Publication 3498-A
    Publication 4134
    Form 11652 (if Sch. C)     		Manual: Letter 566-E and exam report need to be manually completed. W&

    W&I Campuses Need EFDS-WMS prints to determine all CI issues to incorporate into letters and reports.

    SBSE Campuses: HQ will determine all issues to incorporate into letters and reports for PC0611.
    0603 Letter 566 Form 886-A Manual. Letter 566 and exam report need to be manually completed. W&I Campuses: Need EFDS-WMS prints to validate only issue is EITC to incorporate into letters and reports.
    0263 Letter 566 Form 886-A (ACTC)
    Form 886A-FTC (FTC)
    Form 11652 (if Sch. C)
    Publication 3498-A     		Manual: Letter 566 and exam report need to be manually completed.

    W&I Campuses: Need EFDS-WMS prints to determine all CI issues to incorporate into letters and reports.

    SBSE Campuses: HQ will determine all issues to incorporate into letters and reports for PC 0263

    Note:

    See LEM 4.19.1 section 4.19.14.7.3 for Form 886-A explanation for PC0603.

  2. Project Codes 0390, 0603, 0611 and 0263 require research on EFDS-WMS to identify all examination issues.

    1. W&I Campuses - the designated Exam EFDS-WMS Coordinator (EWC) will access WMS to identify the CI issues and print out the EFDS Return Detail for the case file so examiners know what issues to incorporate into the letters and reports. See IRM 4.19.14.5.3.4 for additional procedures for EFDS-WMS Coordinators.

    2. SBSE Campuses - HQ will determine all issues for PC 0611 and 0263 to incorporate into letters and reports and inform SBSE Campuses.

  3. After ICL mail out, all QRP project codes should follow existing RPS examination process letters and timeframes as outlined under 4.19.14.3.1 for issuing the 30 day Letter 525 and Statutory Notice of Deficiency, Letter 3219

  4. Cases requiring manually prepared ICL and reports should be introduced to Batch as soon as possible

  5. Taxpayers with more than one tax year open (multi-year) should be bundled together and move through the examination process and AIMS status update as one package.

4.19.14.7.4  (01-01-2007)
QRP Replies and Closing Process

  1. All replies to the EITC issue will be worked as outlined in IRM 4.19.14.

  2. All Schedule C Net Profit issues are to be worked in accordance with LEM 4.19.1 4.19.1 section 4.19.14.7.4

  3. For procedures on acceptable documentation and closing actions see LEM 4.19.1 section 4.19.14.7.4.

4.19.14.7.4.1  (06-25-2008)
QRP Cases Needing EFDS - Workload Management

  1. There are 5 designated EFDS-WMS Coordinators (EWC) with access in each campus.

  2. All campus EWC’s will access WMS for Z freeze cases. See IRM 4.19.14.7.6

  3. Additionally, the W&I campus EWC’s will access WMS for project codes 0263, 0390, 0603 and 0611.

  4. The EFDS Return Detail printouts will be used in lieu of the spreadsheets from CI to determine what issues to incorporate into the exam reports. They include the specific examination issues identified by CI; i.e. prisoner, HSH, Schedule C, wages and withholding and whether they are completely false or partially verified (inflated).

  5. The W&I EWC will access WMS and

    1. print out EFDS Return Detail

    2. identify exam issues to incorporate into letters and reports by circling the specific items on the EFDS Return Detail print

    3. complete WMS Checksheet

    4. attach completed WMS Checksheet to EFDS Return Detail prints, associate to case and assign to examiner to complete report and/or letters.

  6. For SBSE Campuses, HQ will determine the issues for PC 0611 and 0263.

    Note:

    Wage and withholding amounts will not always be a total disallowance. If EFDS Return Detail reflects that a portion of the wage and withholding amounts was verified by CI then only the "unverified" amount should be disallowed.

4.19.14.7.5  (03-07-2007)
QRP Negative Deficiency Procedures

  1. The negative deficiency occurs when there was tax on original filing which is reduced to zero when the false wages are removed and the amount of EITC and/or ACTC reversed is less than the original tax amount. See LEM 4.19.1 section 4.19.14.7.5.

4.19.14.7.6  (03-06-2008)
- Z Freeze Cases

  1. In February 2008, QRP cases will be systemically sent through EFDS to DDb to open on AIMS. However, if AIMS is already open the case will reject back to CI as an "L freeze" and CI will post a Z freeze to the account.

  2. The Z freeze will cause the open case to reject out of Batch when it moves to the next step in the process.

  3. Z freeze cases should be researched as follows;

    IF THEN
    The case is in a status prior to 90 Day

    1. Coordinate with one of the designated employees with EFDS-WMS access in your respective site to secure/print the EFDS Return Detail which will identify what issues need to be incorporated into the exam report.

    2. Once the exam report has been revised to include the additional CI issues, input AIMS tracking code 7571. Do not change source and project code on AIMS.

    3. Complete Z freeze listing template (provided by HQ) for "Examiner" columns and forward to designated EFDS-WMS Coordinator (EWC). EWC will consolidate the case listings needing TC 570 and Z freeze removed weekly and email/fax the listing to the designated CI Contact. See CI Contact Job Aid on SERP under Job Aids, Part 4, (SC) Campus Examination Operations.

    4. CI will post TC 570 and remove Z freeze within 10 workdays of receipt of listing, confirming it has been completed by returning listing to EWC with CI column completed with date of input.

    5. EWC will suspend listings for 11 workdays after sending them to CI, waiting for CI confirmation. EWC will keep track of confirmations received and follow-up by phone/email/fax with CI for any confirmations not received by the 12th day.

    6. Examiners should introduce/reintroduce cases with revised reports into Batch immediately after sending Z freeze list to EWC to avoid delays in case processing.

    The case is in status 24 after 90 Day Letter has been issued

    1. You cannot incorporate additional issues into exam report.

    2. Continue case processing leaving Z freeze on taxpayer account through closing.

    3. The CI-FDC will correct the unpostable closing and subsequently coordinate with AM to reverse the wage and withholding that was not included in the examination.

4.19.14.8  (01-01-2009)
Math/Clerical Error Program

  1. The Tax Reform Act of 1976 defines mathematical error to include clerical errors and is broader than literal errors in arithmetic. Section 6213(g) of the Internal Revenue Code defines the term mathematical or clerical error as:

    1. An error in addition, subtraction, multiplication, or division shown on any return

    2. An incorrect use of any table provided by the Internal Revenue Service with respect to any return if such incorrect use is apparent from the existence of other information on the return.

    3. An entry on a return of an item which is inconsistent with another entry of the same or another item on such return.

    4. An omission of information which is required to be supplied on the return to substantiate an entry on the return.

    5. An entry on a return of a deduction or credit in an amount which exceeds a statutory limit imposed by subtitle A or B, or chapters 41, 42, 43, or 44, if such limit is expressed as a specific money amount or as a percentage, ratio, or fraction and if the items entering into the application of such limit appear on such return.

    6. An omission of a correct Taxpayer Identification Number required under section 32 to be shown on the return in order to claim the earned income credit (applies for returns due without regard to extensions after September 21, 1996).

    7. An entry on a return claiming the earned income credit with respect to self-employment earnings on which the self-employment tax imposed by section 1401 has not been paid (applies for returns due without regard to extensions after September 21, 1996)

    8. An omission of a correct Taxpayer Identification Number required under section 21 (expenses for household or dependent care) or section 151 (personal exemptions) [applies for returns due on or after September 19, 1996 without regard to extensions].

    9. An omission of a correct Taxpayer Identification Number required to be included on the return under section 24(e), the child tax credit (effective for tax years beginning after December 31, 1997).

    10. An omission of a correct Taxpayer Identification Number required to be included on the return for purposes of section 25A(g)(1) relating to higher education tuition and expenses (effective for tax years beginning after December 31, 1997).

    11. An omission of information required by section 32(k)(2) relating to taxpayers making improper prior claims of the earned income credit (effective for tax years beginning after December 31, 1997).

    12. The inclusion on the return under section 21, 24, or 32 if such TIN is of an individual whose age affects the amount of the credit, and the computation of the credit reflects the treatment of such individual as being of an age different from the individual’s age based on such TIN.

  2. This legislation permits assessment of additional tax resulting from math/clerical errors.

  3. The statute provides the taxpayer who receives a math/clerical notice of assessment for additional tax with the right to appeal. The appeal:

    1. Must be made within 60 days.

    2. Must request an abatement of the assessment.

    3. May explain any disagreement with the amount of the assessment.

  4. The summary assessment rules, with the rights of taxpayers to require abatement of any assessments made under those rules, apply to:

    • Form 1040

    • Form 1040-A

    • Form 1040 NR

    • Form 1041

    • Form 1120

    • Form 1120 POL

    • Form 1120 S

    • Form 1120 H

    • Form 706 NA

    • Form 709 Excise Tax applicable to Form 5329 filed after December 31, 1976

    • Tax Exempt and Government Entities forms

    Note:

    TE/GE will work the Employee Plans and Exempt Organizations

  5. All math/clerical error type appeals for abatement are received in Customer Accounts Service, Accounts Management. Only returns without substantiating documentation or supporting information for the figures on the return will be referred for examination.

    Note:

    TE/GE will work the Employee Plans and Exempt Organizations

  6. Unsubstantiated Math Errors (PC 0600) are scored and selected by DDBCK and routed to Examination through CIS. Form 5101 will be notated that the case is a Math Error 653.

  7. Appeals that do not justify the figures on the return and involve an increase in tax are processed for abatement of the summary assessment. They will receive a refile document locator number in a special blocking series so Master File records can identify them for examination.

  8. Upon closing the AM case, Master File Programs (IMF and BMF) generate the AIMS database and the Examination Assemblies with the appropriate initial contact letter. The following machine generated forms are provided:

    1. Form 5739 — IMF cases

    2. Form 5739 — BMF cases

  9. Cases that have not been assessed with less than 120 days in the period for assessment are sent to Examination for issuance of the Statutory Notice of Deficiency. Statutory Notices procedures are located in this manual.

  10. All IMF cases are screened for other issues and frozen refunds are released if a transfer to area office is necessary. Initiate refund procedures and input Transaction Code 571 on partial refund returns being transferred to Area Office

    1. If the Math Error was a result of the taxpayer’s requirement to recertify their eligibility for the Earned Income Tax Credit, the examination should be conducted by Correspondence Examination.

    2. If the screening identifies complex issues on the EITC Math Error case that cannot be address in Correspondence Examination follow steps outline in (9) to forward for Area Office review.

  11. Assignments to examiners should be made promptly to ensure that initial contact letters are mailed to the taxpayer within ten (10) work days of the date the return is received in the Campus Examination Operations. Math Error cases should be in AIMS Project Code 0125 for discretionary issues (non-EITC) and for EITC issues Project Code 0600. The site is responsible for making the proper distinction on AIMS

  12. Non EITC Cases - Letter 566B-EZ will be used as the initial contact letter with Form 4549/4549EZ (Report of Proposed Examination Changes), Form 886A (Explanation of Items), Form 886H (Explanation of Items Supporting Documents), Form 2297 (Waiver of Statutory Notification of Claim Disallowance), Publication 3498 (The Examination Process).

    1. The Letter 566(SC/CG) will be the initial contact letter for EITC math errors. Check appropriate boxes on the 566. See LEM 4.19.1 section 4.19.14.8.

    2. A statutory notice of deficiency Letter 3219 will be issued on all unagreed or no response cases. Prepare and attach Form 3198 (Special Handling Notice) to the case file indicating that a certified notice of claim disallowance (Letter 105C) is to be issued for cases in which the refund has been frozen and are being assessed through default.

  13. Initiate refund procedures and input Transaction Code 0571 on partial refund returns being transferred to Area Offices.

  14. Follow general correspondence examination procedure.

4.19.14.9  (01-01-2008)
DDBCK/CAT A (1040X) EITC Claims

  1. This section defines procedures for current year and/or prior year EITC 1040X Claims/Amended Returns that will be systemically scored and selected through the Dependent Database Check command code DDBCK. See LEM 4.19.1 section 4.19.14.6.

  2. The SSN of the Qualifying Child(ren) will be run against all the DDB Rules and Filters. If one or more selectable rules break or filters fire, the return will be systemically selected for Examination. This system will score and select current and prior year EITC Claims.

  3. See LEM 4.19.1 Section 4.19.14.6.1 for Schedule C criteria.

  4. The current and prior year 1040X Claims/Amended Returns will be transferred to Examination through either the Correspondence Imaging System (CIS) or paper routing for manual classification and possible selection.

    If And Then
    TY 2006 and subsequent EITC 1040X Claim/Amended Returns without a Schedule C are systemically scored and selected by CC DDBCK.

    Note:

    CIS Sites: Claims will be received through the Exam Electronic Inventory and accessed through the dedicated terminal for Amended returns.
    Non CIS Sites: Claims will continue to be received as a paper referral.

    		TP claiming additional or new EITC not claimed on original return.

    1. Verify:
      IMFOLT – TC 424 posting
      AIMS – PC 0367
      EGC 5005
      Source Code 30
      Status Code 08

    2. Establish/assign on CEAS

    3. Review Validation Results (DDBCK print, retrieve if necessary) to identify rule breaks. The rule breaks identify the questionable issues. Claims should be reviewed for related EITC issues; filing status, exemption, Child Tax Credit, Child Care Credit, Education Credit, etc., if included on 1040X as well as additional Non EITC issues that may require further classification

    4. Mail letter 566(D) with appropriate form 886 to start the examination within 30 days of claim receipt.

    5. Follow existing Claim procedures in IRM in 4.19.16.1.4.1
    TY 2006 and subsequent EITC 1040X Claim/Amended Returns with Schedule C are systemically scored and selected by CC DDBCK based on selectable rule breaking and Schedule C Filters firing.

    Note:

    CIS Sites: Claims will be received through the Examination Electronic Inventory and accessed through the dedicated terminal for Amended Returns.
    Non CIS Sites: Claims will continue to be received as a paper referral.

    		TP is claiming Schedule C changes to self employment income/expense/tax and claiming additional or new EITC not claimed on original return.

    1. Verify:
      IMFOLT – TC 424 posting
      AIMS – PC 0026
      EGC 5005
      Source Code 30
      Status Code 08

    2. Establish/assign on CEAS

    3. Review Validation Results (DDBCK print, retrieve if necessary) to identify rule and or Schedule C filter fired. If Schedule C filters are identified on DDBCK, Schedule C should be disallowed. Follow LEM 4.19.1 section 4.19.14.4.1 for acceptable documentation to substantiate the existence of a business. 1040X should be reviewed for related EITC issues; filing status, exemption, Child Tax Credit, Child Care Credit, Education credit, etc., if included on 1040X as well as additional Non-EITC issues that may require further classification.

    4. Mail letter 566(D) with appropriate form 886 to start examination within 30 days of claim receipt

    5. Follow existing Claim procedures in IRM 4.19.16.1.4.1
    TY 2006 and subsequent. EITC 1040X Claim/Amended Returns meeting CAT A criteria are scored and identified by CC DDBCK . TP claiming additional or new EITC that was not claimed on original return.

    1. Manually classify claims for possible selection. If selected, open on AIMS using
      Project Code 0370,
      Source Code 30,
      Status Code 08.

    2. Mail letter 566(D) with appropriate Form 886 to start the examination within 30 days of claim receipt.

    3. Follow existing Claim procedures in IRM 4.19.16.1.4.1.
    TY 2006 and subsequent EITC 1040X Claim/Amended Returns with Schedule C meeting CAT A criteria are scored and identified by CC DDBCK and Schedule C filters firing .

    Note:

    CIS Sites: Claims will be received through the Examination Electronic Inventory and accessed through the dedicated terminal for Amended Returns.
    Non CIS Sites: Claims will continue to be received as a paper referral.

    		 

    1. Manually classify claims for possible selection. If selected, open on AIMS using:
      Source Code 30,
      Project Code 0386,
      Status Code 08

    2. Mail letter 566(D) with the appropriate Form 886 to start the examination within 30 days of claim receipt.

    3. Follow existing Claim procedures in IRM 4.19.16.1.4.1 Claims
    TY 2006 and subsequent EITC 1040X Claim/Amended Returns with Recertification Indicator 1 or 9 and EITC was not claimed on the original return, are systemically scored and selected by CC DDBCK .  

    1. Verify:
      IMFOLT – TC 424 posting
      AIMS – PC 0625
      EGC 5005
      Source Code 30
      Status Code 08

    2. Establish/assign on CEAS

    3. Review Validation Results (DDBCK print, retrieve if necessary) to identify rule breaks. The rule breaks identify the questionable issues. Claim should be reviewed for related EITC issues; filing status, exemption, Child Tax Credit, Child Care Credit, Education Credit, etc., if included on 1040X as well as additional Non-EITC issues that may require further classification

    4. Follow existing Claim procedures in IRM 4.19.16.1.4.1 .

      Note:

      See IRM 4.19.14. Claims to determine when recertification indicator must be removed.
    Math Error 653 responses after 60 day statutory period (i.e. 1040X, Informal Claim, loose Form 8862 with Recertification Indicator) are systemically scored and selected by CC DDBCK based on selectable rule breaks and Schedule C Filters firing. TP claiming EITC and EITC was Previously disallowed (Math Error Code 653)

    1. Verify:
      IMFOLT – TC 424 posting
      AIMS – PC 0625
      EGC 5005
      Source Code 30
      Status Code 08

    2. Establish/assign on CEAS

    3. Review Validation Results (DDBCK print, retrieve if necessary) to identify questionable issues. Claims should be reviewed for related EITC issues; filing status, exemption, Child Tax Credit, Child Care Credit, Education Credit, etc., if included on 1040X as well as additional Non-EITC issues that may need further classification.

    4. Mail letter 566(D) with Form 886(H) to start examination within 30 days of claim receipt.

    5. Follow existing Claim procedures in IRM 4.19.16.1.4.1.
    Math Error (ME) 653 responses received within 60 days are systemically scored and selected by CC DDBCK based upon selectable rule breaks and filters when FCR data is present. TP claiming EITC and EITC was previously disallowed

    1. Verify on IMFOLT: TC424 posting AIMS PC 600
      EGC 5005

    2. Establish/assign on CEAS

    3. Review Validation Results (DDBCK print, retrieve if necessary) to identify questionable issues. Claims should be reviewed for related EITC issues, such as filing status, exemption, Child Tax Credit, Child Care Credit, Education Credit, etc., if included on 1040X; Non-EITC issues should also be classified

    4. Mail letter 566 with Form 886(H) to start examination within 30 days of receipt.

    5. Follow existing Math Error procedures in IRM 4.19.14.8.

  5. This section defines procedures for prior year EITC 1040X Claims/Amended Returns not being scored and selected through the Dependent Database Check command code DDBCK.

    If And Then
    TY 2005 and prior 1040X Claim/Amended returns without an EITC Recertification Indicator

    Note:

    1040X Claim/Amended returns with Recertification Indicators 2 or 4 will only be reviewed for years of disallowance. If received for any other year, send Letter 105C to inform TP that his claim will not be considered. Explain the 2-10 year ban.

    		TP claiming an additional child or EITC not claimed on original return

    1. Open using:
      Project Code 607,
      Source Code 30,
      Status Code 08

    2. Mail letter 566(D) and Form 886(R) to start the examination within 30 days of claim receipt.

    3. Follow existing claim procedures in IRM 4.19.16.1.4.1
    Presently open on the AIMS data base  

    1. Associate claim with open case.

    2. Follow existing procedures.
    1040X/Claim has a Duplicate Dependent condition It has been determined that the 1040X is the non-custodial/third party of claim receipt.

    1. Open with:
      Project Code 652,
      Source Code 30,
      Status Code 08.

    2. Mail letter 566(D) and Form 886(H) to start the examination within 15 days

  6. If the amended return results in a No-Change, and has a duplicate dependent condition, the related TIN must be established on AIMS within 5 days using the following project codes:

    0054 Source Code 06 - W&I EITC Duplicate use of TIN for EITC child
    0055 Source Code 11 - SB/SE EITC Duplicate use of TIN for EITC child

    Letter 566 will be used to initiate the examination. Include Form 886A (Explanation of Items) and Form 886H Form (Explanation of Items supporting Documents).

4.19.14.9.1  (01-01-2007)
Claims Processing in Examination Operations

  1. See IRM 4.19.16,Claims for instructions and processing procedures for Claims cases.


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