4.19.3. IMF Automated Underreporter Program

(1) Taxpayers have the right to appeal many IRS decisions in an independent forum. Taxpayers have the right to be informed and generally have the right to take their cases to court. That is, they are entitled to clear explanations. The right to petition the U.S. Tax Court is a critical entitlement for taxpayers, it is important employees understand and educate taxpayers about the foundation and impact of this right on taxpayers and the IRS.

(2) A CP 3219A, Statutory Notice of Deficiency (SNOD), also called a Statutory Notice of Deficiency (Stat), SNOD or "90-Day Letter", is the legal notice in which the Commissioner determines the taxpayer’s tax deficiency. IRC 6212, IRC 6213, IRC 6214, and IRC 6215 require the IRS issue a Stat before assessing additional income tax, estate tax, gift tax, and certain excise taxes unless the taxpayer agrees to the additional assessment. The Stat is a legal determination and consists of the following:

1. A letter explaining the purpose of the notice, the amount of the deficiency, and the taxpayer’s options.

2. A waiver to allow the taxpayer to agree to the additional tax liability.

3. A statement showing how the deficiency was computed.

4. An explanation of the adjustments.

(3) The purpose of the Stat is to:

1. Ensure the taxpayer is formally notified of the IRS’ intention to assess a tax deficiency.

2. Inform the taxpayer of the opportunity and right to petition the U.S. Tax Court to dispute the proposed adjustments.

(4) IRC 6212 requires the IRS issue this notice to the taxpayer’s last known address by certified or registered mail. Once the IRS issues this notice, the taxpayer has 90 days (150 days if the Stat is addressed to a person outside the United States) from the date the Stat is mailed to file a petition in the U.S. Tax court. This 90-day (or 150 day) period is statutory and IRS employees can't extend it.

(5) If the taxpayer doesn’t petition the U.S. Tax Court within the 90 days (or 150 days), the IRS is permitted to assess the deficiency, after the 90 days (or 150 days) have passed. Although the IRS does permit reconsideration of examination assessments in some situations, the taxpayer loses significant administrative and judicial avenues to dispute the IRS’ decision if they don't file a petition. Therefore, it is critical that IRS employees understand the importance of the CP 3219A and be able to explain its ramifications to taxpayers. The U.S. Tax Court website (U.S.Tax Court) provides substantial information on the petition process.

(6) If the taxpayer does petition the U.S. Tax Court within the 90 days (or 150 days), the IRS is prohibited from making the assessment until after the court enters a decision. Once the taxpayer petitions, the IRS will usually send the case to Appeals to try to settle the case prior to the U.S. Tax Court hearing date unless the taxpayer has already been through the IRS’ administrative appeal process.

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

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

• TC 961 reverses the CAF Indicator (POA revoked)

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

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

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

2. PARAGRAPH 178 automatically generates on the CP 2000/ CP 2501 and Recomputation Notice to inform the taxpayer a copy is being sent to the POA. See Exhibit 4.19.3-7, CP PARAGRAPHS.

(4) If an original POA is found attached to the tax return (not detached during processing), see IRM 4.19.3.22.1.22, Letters From a Third-Party and Authorization From a Valid Power of Attorney (POA), and IRM 21.3.7, Processing Third-Party Authorizations onto Centralized Authorization File (CAF), for instructions on determining validity.

(5) Disregard invalid POAs. See IRM 4.19.3.22.1.22, Letters From a Third-Party and Authorization From a Valid Power of Attorney (POA).

(6) If a POA is "valid":

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

2. Input the POA information on the Update Address window (POA). See AUR System Guide, Updating Address Information.

   Note: A foreign address requires a period (".") in the first position of the State field.

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

(2) A Freeze Code "-A", indicates a duplicate return was filed. These cases are worked by AUR. See IRM 4.19.3.4.3.3, Transaction Codes Reflecting Tax Liability, for further instructions.

(3) A Freeze Code "-C" on the account indicates the taxpayer was involved in a military operation in a designated combat zone and may be entitled to special tax treatment.

1. The -C freeze remains on the taxpayer's account even after the taxpayer is no longer in the combat zone. If a case has a -C freeze present additional research is necessary to determine the taxpayer's combat zone status.

2. During screening if you receive the message: "12/31/9999 date is present, possible combat zone - See IRM 4.19.3", close the case using PC 15.

(4) Freeze Code "-E" (TC 810 - code "4") indicates the case is currently being reviewed by the Frivolous Return Program (FRP). Refer the case to the FRP coordinator who will provide instructions to either continue processing or to transfer case. If FRP wants the case transferred, use PC 13. Leave a detailed case note of determination.

(5) Freeze code "F-" (TC 971 - action code (AC) 089) freezes the entire account and most adjustments will unpost. Refer the case to the FRP coordinator who will provide instructions to either continue processing or to transfer case. If FRP wants the case transferred, use PC 13.

(6) Freeze Code "G-" indicates there is a TC 270/271, TC 500 or TC 780 on the account. The system alerts the tax examiner when Freeze Code "G-" is present, see the table below for the appropriate action to take.

(7) If a Freeze Code "-I" is present on Tax Account screen, see the table below:

(8) If a Manual Interest computation is required, and the tax examiner attempts to input Process Code (PC) 55, 57, 59, or 95 or Internal Process Code (IPC) RN or SR, the system alerts the tax examiner that IPC MI is required. See IRM 4.19.3.18.10, Manually Computed Interest for the CP 2000, for additional information.

(9) A Freeze Code "L-" identifies an Innocent Spouse claim, Form 8857, Request for Innocent Spouse Relief, has been filed and is set by input of TC 971 AC 065. During the Response phase, refer to IRM 4.19.3.22.1.20, Innocent Spouse Relief Cases, for more information.

(10) Freeze Code "-L"(Audit Indicators TC 420 or 424, not reversed by TC 421) indicates the return is currently being requested or audited by Exam. During case analysis (screening phase), research IDRS CC TXMODA for a pending TC 421 that will reverse the "-L" freeze. If there is a reversal, continue normal processing.

(11) If there is No reversal, research IDRS CC AMDISA for the CURRENT-STATUS-CD/DATE field. The CURRENT-STATUS-CD/DATE field determines case action as follows:

1. If the AMDISA CURRENT-STATUS-CD/DATE field is "33" or "34" the case is controlled by the Tax Equity and Fiscal Responsibility Act (TEFRA) function. Continue normal processing. Do not use the Exam transfer PCs to close TEFRA cases.

2. If the AMDISA CURRENT-STATUS-CD/DATE field is "06" or "08" AWAITING CLASSIFICATION, the cases have not yet been screened for possible selection for examination. Do not use the Exam transfer PC’s to close the case, continue normal processing.

3. If the AMDISA CURRENT-STATUS-CD/DATE field is "10", use the primary business code (PBC), secondary business code (SBC) and employee group code (EGC) to locate the correct Exam contact by accessing the EXAM Employee Group Code (EGC) Contacts, under the Who/Where Tab on SERP, then select Employee Group Code (EGC) Listing Contacts.

4. If Exam wants the case, use either PC 11 or 12 as appropriate to transfer the case to Exam. If Exam doesn't want the case, continue with normal processing.

   Note: To determine if the case is a Field or Campus audit see SERP 6209 IRM Supplements.

5. If the conditions in a-c above are not met, input PC 13 (Case Analysis phase) to transfer the case to Exam.

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

1. Research IDRS CC AMDISA to determine the primary business code (PBC), secondary business code (SBC) and employee group code (EGC).

2. Use the PBC, SBC and EGC information from AMDISA to locate the correct Exam contact by accessing one of the following websites:

If	Then
PBC is 301-309:	Access: Exam Contact List
PBC is other than 301-309:	EXAM Employee Group Code (EGC) Contacts, under the Who/Where Tab on SERP.

3. If the case is in CP 2501 or CP 2000 phase and Exam wants the case, input PC 38 (CP 2501) or PC 64 (CP 2000).

4. Prepare and send Form 3210, which should include appropriate Exam contact information and in the remarks notate AUR TC 922 closed, open TC 420/424.

5. If the case is in Statutory Notice phase and Exam wants the case, see (13) below.

6. If Exam doesn't want the case, leave a case note and continue normal processing. If an assessment is needed see IRM 4.19.3.22.11, Assessments.

(13) If Exam wants the case, take the following actions:

1. Allow the statutory period to expire.

2. Access the Assessment window and enter an "N" in the SOURCE DOCUMENT ATTACHED field and the appropriate priority code.

3. Commit the Assessment window.

4. Prepare Form 3210, including the appropriate Exam contact information, and leave it with the case.

5. Input PC 94 and release the case.

(14) A Freeze Code "-O" on the Tax Account screen, is a Disaster Indicator set by TC 971 AC 086 or 087. See IRM 4.19.3.5.6, Declared Disaster Areas, for more information.

(15) Freeze Code "P-" indicates the case may be assigned in the FRP or Integrity and Verification Operation (IVO) held the refund. Research IDRS for the following:

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(17) A Freeze Code "-R" on Tax Account screen may reflect RIVO or Taxpayer Protection program (TPP) involvement when TC 971 AC 052, AC 134, AC 617 and TC 570 with TC 971 AC 199 is present which indicates a frozen refund. RIVO uses the TC 971 AC 199 to place a hard freeze on a module when the return has been deemed questionable or false. Research IDRS CC TXMODA for a TC 971 AC 199 having a literal in the Miscellaneous (MISC) field indicating the inventory type for proper case referral and resolution. Refer to the “If and Then” table below for case processing instructions.

(18) A Freeze Code "-S" replaces the assignment of computer condition codes to identify tax returns filed within a declared disaster area and is set with a TC 971 AC 688. The -S freeze doesn't suppress notices. Continue normal case processing. See IRM 4.19.3.5.6, Declared Disaster Areas, for more information.

(19) If a Freeze Code "-T" is present on Tax Account screen, there is a ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ entity freeze on the account, used for monitoring purposes only. Continue normal case processing.

(20) If there is a Freeze Code "-U", see IRM 4.19.3.5.13, Erroneous Refunds, for further information. Freeze Code "-U" indicates the Erroneous Refund area is monitoring a case for available credits and a closure may release needed credits.

(21) If there is a Freeze Code "-V" and/or TC 520, a Bankruptcy condition is present. If identified on the Tax Account screen;

1. During Case Analysis (screening), close the case using PC 27.

   Note: If TC 520 is reversed by TC 521 or 522, continue normal processing.

2. During Response phase (after the taxpayer has been issued an AUR Notice), see IRM 4.19.3.22.1.10, Bankruptcy Procedures - Responses.

(22) If there is a Freeze Code "-W" with closing code (cc) 81, or cc 84 and/or a TC 520 (not reversed by TC 521 or 522), a Bankruptcy condition is present. If identified on the Tax Account screen;

1. During Case Analysis (screening), close the case using PC 27.

   Note: If TC 520 is reversed by TC 521 or 522, continue normal processing.

2. During Response phase (after the taxpayer has been issued an AUR Notice), see IRM 4.19.3.22.1.10, Bankruptcy Procedures - Responses.

(23) A Freeze Code "-Y " on the account indicates the taxpayer filed an Offer-in-Compromise with the IRS. See IRM 4.19.3.4.3.4, Other Transaction Codes and Math Error Codes, for additional information.

(24) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

(25) If a Freeze Code other than those explained in (2) through (23) above, are indicated on the Tax Account screen, refer to Document 6209, IRS Processing Codes and Information.

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

(2) TCs 290 and 300 indicate additional tax was assessed after the original return was filed. The system adds these amounts to the TC 150 amount to determine the total tax per return. If the TC 290/300 source document is present, determine if the adjustment source document (Form 5147, Form 5344, Examination Closing Record, Form 4700, Examination Workpapers, amended or duplicate return) resolves the U/R issue(s).

• A TC 300-0 with a corresponding TC 764, TC 768, or TC 765 indicates Exam adjusted EIC with no change to AGI or TXI. See IRM 4.19.3.17.3, Earned Income Credit, for further instructions on EIC.

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

(3) TCs 291 and 301 indicate a portion or all of a previously assessed tax was abated after the original return was filed. The system subtracts these amounts from the TC 150 amount to determine the total tax per return. If the TC 291/301 source document is present, determine if the adjustment source document (Form 5147, Form 5344, Examination Closing Record, amended or duplicate return) resolves the U/R issue(s). If the AGI/TXI on the Tax Account screen:

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

2. Matches the tax return, screen for income discrepancies and see (5) below.

(4) Order the missing TC 290/291 or TC 300/301 adjustment source document

1. Before issuance of a notice or

2. Prior to taking a PC 20 action.

(5) Don’t order the missing TC 290/291 or TC 300/301 source document for the following situations:

1. The difference between the AGI/TXI on the return and the AGI/TXI shown on the Tax Account screen matches the total discrepant amount within ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡. Consider the amount in question reported and close the case if there are no other related issues (for example, Self-employment tax (SE tax), 10 percent tax).

   Note: To calculate reported self-employment income, divide the amount shown in the SE INCOME fields on the Tax Account screen by .9235 (92.35 percent).

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

3. A TC 766/767 with credit reference (CRN) 338 or CRN 257 for TY 2020 and subsequent for Economic Rebate Payments (EIP).

4. W/H, excess SSTAX, or additional MCTXW is the only issue (PC 20 criteria) and the adjustment doesn't have a TC 806/807 or TC 766/767 with credit reference number (CRN) 252 present.

5. A TC 806/807 or a TC 766/767 with CRN 252 is the only change (there is no change to the AGI or TXI) and W/H or excess SSTAX isn't an issue.

   Caution: Certain modules where an overstatement of estimated tax payments or W/H credits resulted in a refund, offset, or a credit elect may show as assessed using TC 290, RC 051, for the amount of the overstatement. These accounts will generally not contain a TC 807. Send PARAGRAPH 235, see Exhibit 4.19.3-7, CP PARAGRAPHS.

6. The adjustment is a TC 291/301 when the AGI, TXI and the tax has been reduced to zero. Close case with PC 28 (these are generally filing status changes or incorrect SSN).

(6) Order the TC 290-0 adjustment source documents when one of the following corresponding TCs is present:

• TC 976/977

• TC 971 AC 010, 012 through 016 or 120

• TC 806/807 with the TC 290-0

• TC 764/765/768

  Exception: Don’t order the TC 290-0 adjustment source document for changes to EIC and there is no change to AGI or TXI.

• TC 766/767 with CRN 336

• TC 766/767 with CRN 252

• TC 766/767 with CRN 260

• TC 766/767 with CRN 262

• ELF return and the blocking series of the TC 290-0 is "05" - "07" or "15" - "17"

(7) Don’t order TC 290-0 adjustment source documents for the following:

1. TC 290-0 adjustment source document is for changes to EIC (TC 764/765/768) and there is no change to AGI or TXI.

2. The TC 290-0 has a corresponding TC 971 AC 071. These are injured spouse claims for which the refund was released.

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

4. The TC 290-0 has Reason Code (RC) 202 indicates no Economic Impact Payments (EIP) due to TIN issues.

5. The TC 290-0 has a corresponding TC 971 AC 270. These are cases where the amended return was sent back to the taxpayer.

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

7. The TC 290-0 has a corresponding TC 271 which fully reverses the previous TC 270 amount.

8. The TC 290-0 has a corresponding TC 971 AC 142. This is a true duplicate return.

(8) The Tax Account screen indicates if the adjustment source document is a Correspondence Imaging Inventory (CII) document. If it is determined the adjustment is:

• A CII document, view document on Account Management System (AMS).

• Not a CII document, follow the instructions in (9) below.

(9) Request an amended return to resolve the case, if necessary.

1. To request an amended return, enter an "X" in the ORDER RTN field for the applicable DLN on the Tax Account screen. Input the appropriate IPC XA. See Exhibit 4.19.3-3, AUR Internal Process Codes for further information.

   Exception: The system won't accept an "X" for any DLN where the DLN indicates the return is Virtual or a CII document.

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

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

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

(12) When a TC 300/301 is present on the Tax Account screen with a TC 421 and no -L freeze, a disposal code displays on the Tax Account screen. If pursuing U/R income, determine the disposal code. The disposal code is located under the column titled "DIS CD" in the transaction section of the Tax Account screen.

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

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

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

(14) When a TC 896 with the literal "OFF to IRA" is present, the taxpayer has paid additional tax on excess contributions on Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. This tax is posted to the taxpayer’s Master File Tax (MFT) 29 account and isn't included in the TC 150 amount. The system adds this amount to the TC 150 amount to arrive at total tax per return.

(15) If a duplicate/amended return is filed (TC 976/977 or TC 971 AC 010, 012 through 016 or 120), a CP 2000, CP 2501 or PC 20 is to be issued, a TC 290/291 is present, and the duplicate or amended return isn't in the case file, research Account Management System (AMS) and Employee User Portal (EUP) for the duplicate/amended return. If after performing AMS/EUP research the amended/duplicate return isn't located:

1. Order the duplicate/amended return by requesting the TC 290/291 DLN unless the conditions in (7) above apply.

2. Close the case using PC 29 if the duplicate/amended return isn't available.

(16) If a duplicate/amended return is posted (TC 976/977 or TC 971 AC 010, 012 through 016 or 120), within 45 days, a CP 2000, CP 2501 or PC 20 is to be issued, and a TC 290/291 is NOT present, take the following action:

1. Transfer the case to the Unit Suspense batch.

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

3. If the TC 290/291 posts, research AMS/EUP for the return information, if not available on AMS/EUP, order the adjustment document.

4. If the TC 290/291 doesn't post, continue processing.

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

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

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

(19) If TC 599, TC 720 and/or TC 570 are present, see IRM 4.19.3.4.3.2, Freeze Codes, for instructions on how to process.

(1) Other TCs shown on the Tax Account screen may require additional action.

(2) TC 160 or 166 indicates a Delinquency/Failure to File Penalty was assessed. TC 161 or 167 means a portion or all of the penalty has been abated. When a U/R issue exists, the system computes or recomputes the Delinquency/Failure to File Penalty when required. See IRM 4.19.3.18.1, Failure to File (FTF) Penalty, for additional information.

(3) TC 170 or 176 indicates an Estimated Tax (ES) Penalty was assessed. TC 171 or 177 means a portion or all of the penalty has been abated. When a U/R issue exists, a recomputation of the ES penalty may be required. See IRM 4.19.3.18.3, Estimated Tax (ES) Penalty, for additional information.

(4) TC 270 or 276 indicates a Failure to Pay Penalty (FTP) was assessed. TC 271 or 277 means a portion or all of the penalty is abated. See IRM 4.19.3.18.2, Failure to Pay Penalty (FTP), for additional information.

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

(6) TC 480 (not reversed by TC 481 or 482) indicates the taxpayer has filed an "Offer in Compromise" (OIC) with the IRS. Continue normal AUR processing. A TC 29X may be input on these types of cases. Send copies of the case data to Collection OIC function upon their request.

(7) TC 540 indicates the taxpayer is deceased. See IRM 4.19.3.5.5, Deceased Taxpayers, for further instructions.

(8) TC 604 indicates either bankruptcy has been discharged/revoked or close-out of the MFT 30 module in preparation of mirroring to MFT 31.

1. During screening, close the case using PC 27.

2. During responses (AFTER the taxpayer has been issued an AUR notice), see IRM 4.19.3.22.1.20, Innocent Spouse Relief Cases, (when TC 971 AC 065 is present) or the Bankruptcy Coordinator (all others).

(9) TC 764 or 768 indicates earned income credit (EIC) was allowed. TC 765 indicates the credit was fully or partially reversed. If TC 764, 765, or 768 is present, EIC may need to be computed or recomputed. See IRM 4.19.3.17.3, Earned Income Credit, for instructions.

(10) TC 766 with:

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

(12) If an unreversed TC 780 is present on the Tax Account screen, a warning message displays to close the case. Take the following action:

1. Close case using the appropriate PC (28, 52, 71, or 96).

2. Leave a case note stating this is an OIC closure.

3. Issue a Letter 1802-C, if closing the case with PC 52, 71 or 96.

(13) TC 806/800 credits the tax module for the amount of W/H claimed on a tax return. TC 807/802 reverses the TC 806/800 credit in whole or in part. W/H may need to be adjusted because of AUR processing. Before proposing a change to W/H, be certain the adjustment has not been previously allowed. See IRM 4.19.3.17.1, Withholding - General, for instructions.

(14) TC 971 AC 151 indicates duplicate filing by secondary taxpayer, close the case using PC 10.

(15) If a TC other than those explained in IRM 4.19.3.4.3.3, Transaction Codes Reflecting Tax Liability, or IRM 4.19.3.4.3.4, Other Transaction Codes and Math Error Codes, are indicated on the Tax Account screen, refer to Document 6209, IRS Processing Codes and Information.

(16) For cases in Subfile P, AUR will disregard the TC 971 ID Theft indicators(s) and continue normal AUR processing. If issuing a notice, Paragraph 45 will automatically generate. See Exhibit 4.19.3-7, CP Paragraphs. Leave a case note with the following verbiage, "IDT Subfile P case. IDT marker not considered during screening".

(17) TC 971 with certain Action Codes (AC), indicate the taxpayer may be a victim of identity theft. During response phase, see IRM 4.19.3.22.1.26, Identity Theft (IDT) Claims - Overview, and IRM 4.19.3.22.1.26.3, IDT Claims - Responses, for additional information. During screening phase close the case PC 23 if it’s NOT in Subfile P and:

(18) If the taxpayers address on AUR or IDRS CC ENMOD/IMFOLE is a Service Center/Campus Address, there is no confirmed good address for the taxpayer, and the taxpayer is a victim of ID Theft, close the case PC 23. See IRM 4.19.3.5, Analysis Procedures, for additional information.

(19) If the tax return in question meets the criteria outlined in the Refund Scheme Listing, IRP data, see IRM 25.23.4-1, IRPTR/IDRS Data Decision Tree, (i.e., the only UR income is social security benefits that don’t indicate a filing requirement.), it may be an indication that the return is bad (not filed by the SSN owner) and the address on the module may not be that of the actual taxpayer. It may be necessary to research the taxpayer’s address against prior year returns or IDRS CC ENMOD and reissue the notice/letter accordingly. If the income is clearly not the taxpayer’s, close the case PC 23.

(20) TC 972 with a corresponding Action Code (AC) indicates identity theft has been reversed, continue normal AUR processing.

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

(22) If a math error was made during original processing, take the math error into consideration, enter/verify the appropriate amounts in the applicable system window. See AUR System Guide.

(1) CII is used to manage scanned images of amended Individual Master File (IMF) returns, documents and electronic case files.

(2) When there is a duplicate/amended return on Tax Account (TC 976/977 or TC 971 AC 010, 012 through 016 or 120 or a posted TC 290/291) an indicator "1" is displayed in the Tax Account screen in the CII column when a CII document is available.

(3) To research Account Management System (AMS) for a CII document, take the following actions:

1. Access IDRS.

2. Access AMS.

3. From the AMS Message Center Screen, enter the" SSN" in the TIN field box and press <Enter> on the keyboard. The account summary screen appears.

4. In the Alert section, click on the "View CII Images" link. If not found, see (5) below.

5. Select the tax year to review from the CII image list and click on "Open Image".

6. Compare the amended return to the U/R issues to determine if any or all issues are addressed. Continue normal processing.

   Note: Review history section in the account summary screen for any case history, actions taken etc.

7. After processing changes, input the IRS received date located on the amended return.

(4) To exit AMS:

1. Click on the "Exit Account" link in the upper right-hand corner.

2. In the Message Center Screen, click on the "Logout" link to exit the system.

(5) If a CII document is indicated and not found in AMS, take the following actions:

1. Access EUP.

2. Select "MeF IMF Tax Return & Ack PRD" under Applications.

3. Select the SSN tab.

4. Enter the SSN in the SSN field.

5. Enter the Tax Period Year and Tax Period Month in the fields.

6. Click the "Find" button.

7. Scroll down and click on the matching DLN entry to open the amended return.

8. Compare the amended return to the underreported (U/R) issues to determine if any or all issues are addressed. Continue normal processing.

   Note: Review history section in the account summary screen for any case history actions taken.

9. After processing changes, select Control, Case, Revd Date on AUR to input the received date located on the amended return.

(1) Modernized e-file is a web-based system which allows electronic filing of returns through the internet.

(2) MeF accepts electronic returns for the current tax year and two prior years. Taxpayers will still have the option to submit a paper version of Form 1040-X.

(3) Users can access MeF through the Employee User Portal (EUP) Portal.

(4) AUR users can access Accounts Management System (AMS) and Employee User Portal (EUP) when there is instruction to research Tax Account for TC 971/120, TC 971/010, and/or an -A freeze is present, and the taxpayer’s response isn't in the case file, or it hasn’t been routed.

(5) The following Individual Tax Forms be e-filed through the MeF platform:

• Form 1040/1040-SR

• Form 1040-X

• Form 9465

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

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

(3) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

   Example: ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

   Example: ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

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

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

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

(6) Do not send information regarding erroneous SCRIPS IRs to the AUR Payer Agent Coordinator, unless some other payer agent (P/A) condition exists.

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

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

(1) Identify indications of fraud that are uncovered through regular case processing. Prior to researching for fraud indicators, use the IAT "aMend" tool, research portion, to determine Scrambled SSN or Mixed Entity. If yes, prepare Form 4442 for referral to AM. If no, refer to the following:

1. Fraud Refund Scheme listing found in the Job Aids section on SERP: Fraud Refund Scheme Listing

2. IRM 4.19.3.5.8.1, Identifying and Developing Fraud in AUR.

3. IRP data versus the filed return; for example, the only UR income is social security benefits that don't indicate a filing requirement. The posted return appears to have fraudulent income reported, such as Schedule C and wage income that can't be verified on IRPTR.

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

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

2. Secure the group managers initials and date.

3. Forward Form 13549 and transfer case to the AUR Functional Fraud Coordinator (FFC) for consideration.

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

1. All case actions.

2. All documents received.

3. All contacts must be adequately documented (for example, changes to entity information were recognized/updated).

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

(4) If Fraud refuses the case it will be returned to the tax examiner per IRM 4.19.3.5.8.3, AUR Functional Fraud Coordinator Responsibilities. See the table below for the appropriate action to take.

(1) The AUR Functional Fraud Coordinator (FFC) is responsible for monitoring and managing the Fraud Program within the AUR Operation:

1. Conduct preliminary screening of potential fraud case(s) referred from the AUR Operation.

   Note: If W/H is the only issue and the W/H matches the payer document on file (IRPTR) don't forward to the CFC as a fraud referral unless directed by AUR HQ Policy.

2. Perform thorough research and review of the potential fraud cases for a pattern of non-compliance and/or fraud scheme characteristics within the AUR Program.

3. Input and maintain case action on the AUR HQ Policy Fraud SharePoint.

4. Leave a case note detailing actions taken (for example, forwarded to AUR HQ Policy for Fraud, doesn't meet fraud criteria.).

5. Track all AUR fraud leads, including those declined/returned to AUR and those accepted for further fraud development using AUR HQ Policy SharePoint..

6. Submit information on fraud referral/accepted/declined cases to Exam Headquarters by Completing the Campus Fraud Monitoring report by the fifth day of each month.

7. Maintain a copy of each Form 13549, Campus Fraud Lead Sheet for 3 years.

8. AUR will use a combination of the IPC listing and Form 13549, Campus Fraud Lead Sheet, to track fraud referrals.

(2) The AUR FFC is responsible for maintaining fraud referrals using AUR HQ Policy SharePoint by:

1. Complete AUR HQ Policy Fraud SharePoint template for all potential fraud cases.

2. Review and determine if referral from the AUR Operation meets fraud criteria:

If	Then
Case(s) potentially meets criteria but is incomplete from initiator.	Update AUR HQ Policy Fraud SharePoint with appropriate actions to return the case to the initiator.
Case(s) doesn't meet fraud criteria.	Update AUR HQ Policy Fraud SharePoint with the appropriate actions to decline the referral. Leave a detailed case note of the declination on the AUR System. Complete Form 13549, Campus Fraud Lead Sheet, Section VI with explanation of declination. Return copy of completed Form 13549, Campus Fraud Lead Sheet, to the initiator through their manager/lead within 5 business days. Reassign case to the initiators AUR User Identification Number (SEID).
FFC has determined the case(s) is deemed valid for potential fraud.	Update AUR HQ Policy Fraud SharePoint with the appropriate actions to accept the referral. AUR HQ Policy Fraud will provide the FFC with determination of necessary steps.

Reminder: ALL potential fraud cases need to be documented on the AUR HQ Policy Fraud SharePoint.

(3) AUR HQ Policy Fraud will provide determination of next steps for potential fraud case(s):

If	Then
AUR HQ Policy Fraud determines the referral is accepted.	Leave a detailed case note on the AUR System. Scan all case contents and send securely to "*SBSE AUR HQ Policy Fraud "email. Complete Form 13549, Campus Fraud Lead Sheet, Section VI with explanation of acceptance. Return copy of completed Form 13549, Campus Fraud Lead Sheet, to the initiator through their manager/lead. Follow guidance provided from AUR HQ Policy Fraud.
AUR HQ Policy Fraud determines the case needs to be sent to Campus Fraud Coordinator (CFC).	Update AUR HQ Policy Fraud SharePoint with the appropriate actions to refer case to Campus Fraud Coordinator (CFC). Complete Form 13549, Campus Fraud Lead Sheet, Section VI with explanation of acceptance. Scan all case contents and completed Form 13549, Campus Fraud Lead Sheet, to the CFC for final determination. Input the appropriate fraud IPC (0F, 3F, 6F, 8F), this will suspend case in BT 94. Monitor case for determination from CFC. Note: CFC is required to provide a determination to accept or decline fraud lead within 21 business days of receipt. Note: The Specialized Suspense Batch Report contains the listing of cases in BT 94. If there is no response after 21 days, contact AUR HQ Policy Fraud.

Caution: The normal Assessment Statute Expiration Date (ASED) expires three (3) years from the due date of the return or three years from the received date of the original return; whichever is later. There must be at least 13 months remaining on the ASED, from the date the case is referred to the CFC. If less than 13 months remain and the case has good fraud potential, the FFC can contact the CFC who can consider accepting the case on a case by case basis.

(4) If the CFC accepts the fraud lead for further development, they will request the case be reassigned and ensure the case is established on AIMS. The AUR FFC will:

1. Leave a detailed case note on the AUR System.

2. Update AUR HQ Policy Fraud SharePoint stating the case has been accepted by CFC.

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

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

5. Send a copy of the Form 13549, Campus Fraud Lead Sheet to the initiator through the initiator's manager.

6. Ensure the entire case contents are forwarded to CFC.

   Note: If the case contents are being trans-shipped to the CFC, recharge the return using IDRS CC ESTABDT or Form 2275, Records Request, Charge and Recharge.

(5) If the CFC declines the fraud lead, they will return the Form 13549 with a written explanation to AUR. The AUR FFC will:

1. Leave a detailed case note on the AUR System.

2. Update AUR HQ Policy Fraud SharePoint stating the case has been declined by CFC.

3. Return the Form 13549 to the initiator through the initiator’s manager.

4. Reassign the case to initiating tax examiner’s SEID.

(1) There are four categories of erroneous refunds that AUR will work; Category A1, A2, B and D. Each category has a specific method that must be used to recover the erroneous refund and different statutes of limitation apply.

(2) The Statute of Limitation used when recovering erroneous refunds are:

1. ASED (assessment statute expiration date) which is generally three years from the date the return was filed,

2. CSED (collection statute expiration date) which is generally ten years from the date of assessment, and

3. ERSED (erroneous refund statute expiration date) which is generally two years from the date of the erroneous refund check or direct deposit. A five year statute applies when the IRS can show the erroneous refund was induced by fraud or a misrepresentation of a material fact. ERSED is used to recover Category D erroneous refunds.

(3) When a case is determined to be an erroneous refund, there are two steps to follow for recovering the erroneous refund:

1. Identify the appropriate erroneous refund category.

2. Complete the required actions within the applicable statutes to correct the error that caused the erroneous refund.

(1) Erroneous refunds which have been repaid may be discovered during AUR processing. Per IRC 6404(e)(2), a taxpayer won't be charged interest from the date of the erroneous refund to the date repayment is demanded, if they did not cause the erroneous refund and the refund amount is $50,000 or less. Even though the refund was repaid, it is necessary to follow Category D erroneous refund procedures to protect the taxpayer from interest charges.

(2) If the erroneous refund has been repaid take the following actions:

1. Use the IAT "REQ77" tool to input TC 844, using the current date as the date of demand. This will reverse any systemically assessed interest.

2. Complete Form 12356, Erroneous Refund Worksheet. In the details section include the following information, using the verbiage provided as an example: "Full paid erroneous refund. No Letter 510-C sent. Please input TC 845 to reverse TC 844."

3. Use the following table to determine the appropriate action:

If	Then
The original payment was full payment received before a Stat was issued	Work the case as an AUR agreed response, assigning PC 53, 67, or 87.
The original payment was partial payment received before a Stat was issued	Assign PC 75 and release the case. Monitor the case for the PC 75 to post and the Stat to be mailed. After the Stat has been issued, request the case and hold in unit suspense until the taxpayer responds or the suspense period has expired. If no response is received, default the case using the appropriate PC.
Payment was received after a Stat was issued	Request the case and hold in unit suspense until the taxpayer responds or the suspense period has expired. If no response is received, default the case using the appropriate PC.
The case is in Reconsideration phase	Use the IAT "xMend" or "REQ54" tool to post the appropriate adjustment.

(3) Once the adjustment posts:

1. See IRM 4.19.3.5.13.1.4 to create a new IDRS control.

2. Use the IAT "REQ77" tool to input a TC 971 AC 663. See IRM 21.4.5-1, TC 971 AC 633 - Identifying Erroneous Refunds, for further information.

3. Refer the case to the A/ER using Form 3210, Document Transmittal. See IRM 3.17.80-4, Erroneous Refund Coordinators, for a list of A/ER functions and their corresponding Erroneous Refund Coordinators.

4. Leave a detailed case note on AUR.

(4) If the taxpayer returned the erroneous refund check (TC 841 on the account with "99999" in the DLN) take the following actions:

1. Use the IAT "REQ77" tool to input a TC 971 AC 663.

2. Complete Form 12356, Erroneous Refund Worksheet. In the details section include the following information, using the verbiage provided as an example: "Check returned; TC 844 not needed. No Letter 510-C sent."

3. Use the following table to determine the appropriate action:

If	Then
The original payment was full payment received before a Stat was issued	Work the case as an AUR agreed response, assigning PC 53, 67, or 87.
The original payment was partial payment received before a Stat was issued	Assign PC 75 and release the case. Monitor the case for the PC 75 to post and the Stat to be mailed. After the Stat has been issued, request the case and hold in unit suspense until the taxpayer responds or the suspense period has expired. If no response is received, default the case using the appropriate PC.
Payment was received after a Stat was issued	Request the case and hold in unit suspense until the taxpayer responds or the suspense period has expired. If no response is received, default the case using the appropriate PC.
The case is in Reconsideration phase	Use the IAT "xMend" or "REQ54" tool to post the appropriate adjustment.

(5) Once the adjustment posts:

1. Refer the case to the A/ER using Form 3210, Document Transmittal. See IRM 3.17.80-4, Erroneous Refund Coordinators, for a list of A/ER functions and their corresponding Erroneous Refund Coordinators.

2. Leave a detailed case note on AUR.

(1) Compare WAGES amount with entries on Form 1040 / Form 1040-SR line 1, (TY 2021), line 1a (TY 2022 and subsequent).

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

1. Form 1040/1040-SR, line 4b

Note: ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

2. Schedule C or Schedule F - If wages are reported here, see IRM 4.19.3.8.1.3, Wages Paid to Statutory Employees, for instructions regarding Statutory Employees.

3. Attachments to the return.

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

(3) When comparing reported wages to IRs, don't allow partial credit for unidentified amounts UNLESS the return is missing supporting Form(s) W-2. Returns that were processed through Optical Character Recognition (OCR) or ELF may not have Form(s) W-2 attached. DO NOT request the Form(s) W-2 from FRC. Allow the credit for amounts reported on lines shown in (1) above. Issue a CP 2000 for discrepancies.

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

(5) Consider any two WAGE IRs, for the same taxpayer, that contain identical income information, as duplicates even if the payer names and EINs are different. Take the following action:

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

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

(6) If there are two WAGE IRs for the same taxpayer, from the same payer (payer name and EIN match) take the following action:

1. If the taxpayer fully reports one of the IRs, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ (mark all elements of the IR with status code "D" or "N").

   Exception: If the payer is IHSS (In Home Support Services) don't apply the 25 percent rule, continue normal processing.

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

(7) Allow taxpayers (such as, police offers or firefighters.) who have sustained "IOD" (Injury on Duty) or "LODI" (Line of Duty Injury) injuries to reduce Form W-2, box 1 Wages, by amounts indicated as line of duty injury payments when ALL of the following conditions are present:

1. The taxpayer is under age 65.

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

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

   Note: If the taxpayer has double excluded the amount (Social Security Wages are more than the Wages shown on Form W-2 box 1), send PARAGRAPH 46. See Exhibit 4.19.3-7, CP PARAGRAPHS.

(8) Retired/non-active status members of the military employed as Junior ROTC (Reserve Officers Training Corps) instructors receive allowances for uniforms, housing, subsistence. However, unlike active-duty military personnel, these taxpayers CANNOT exclude these allowances. Disallow any excluded amounts and send PARAGRAPH 154. See Exhibit 4.19.3-7, CP PARAGRAPHS.

(9) When wages or Social Security wages are U/R, and the taxpayer paid SE tax, or is now subject to SE tax, enter/verify the appropriate entries in the SE Tax window.

(10) Use status code "R" in the SSWAG and SSTIP literal when screening valid Wage IRs. Do not use status code "N" or "D". Status code "N" or "D" may result in an incorrect excess SSTAX calculation.

(11) The system automatically enters status code "R" on MCWGE. The status code can be changed to "D" if necessary.

(12) If there are two or more fully U/R WAGE IRs with an out-of-state payee address beyond the reasonable commuting area of the taxpayer (for example, taxpayer lives in Pennsylvania and U/R IRs are for Georgia), send PARAGRAPH 167. See Exhibit 4.19.3-7, CP PARAGRAPHS.

(13) When taxpayers exercise statutory (qualified) employee stock options, the amount is generally excluded from ordinary income and the gain may be reported as a capital gain on Schedule D when the shares acquired upon exercise are sold.

1. Taxpayers may reduce Form W-2, box 1, Wages by the amount shown in box 14 (identified as: stock, incentive stock options (ISOs), employee stock purchase plan (ESPP), etc.) and report the difference as a gain on Schedule D/Form 8949, column (h).

   Note: If the stock received upon exercise was not held a minimum of 2 years from the date the option was granted or 1 year from the date the option was exercised, the employer may not identify the exercised amount on the Form W-2, box 14. If the balance of the WAGE IR is found on Schedule D/Form 8949, column (h), consider the issue resolved.

2. Review Form 1040/1040-SR, line 1 ( TY 2021), or line 1a (TY 2022 and subsequent) and Schedule D before determining any U/R WAGE amount.

3. If the taxpayer did not report the full WAGE amount, send PARAGRAPH164. See Exhibit 4.19.3-7, CP PARAGRAPHS.

   Note: When the option is exercised, Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, may also be issued to show the value of the stock. Since the STOCK IR relates to the exercise of the statutory employee stock option, allow credit for amounts reported on Schedule D/Form 8949, column (d) against STOCK IRs.

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

1. Review Form 1040/Form 1040-SR, line 1,( TY 2021) or line 1a (TY 2022 and subsequent) and Schedule D, Part 1 before determining any U/R WAGE amount.

   Caution: If the taxpayer reports the non-statutory option gain as a long-term capital gain (Schedule D/Part II) AND a notice is being sent for other U/R issues, remove the non-statutory option gain from the LONG-TERM GAIN(LOSS) field in the Sch D window. Send PARAGRAPH 165, see Exhibit 4.19.3-7, CP PARAGRAPHS.

2. If the taxpayer did not report the full WAGE amount, send PARAGRAPH 164. See Exhibit 4.19.3-7, CP PARAGRAPHS.

   Note: When the option is exercised, Form 1099-B may also be issued to show the value of the stock. Since the STOCK IR relates to the exercise of the non-statutory employee stock option, allow credit for amounts reported on Schedule D/Form 8949, column (d) against STOCK IRs.

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

1. If there is an U/R WAGE IR with no W/H amount, there are no other IRs with W/H, and there is a TC 806, 807, or TC 290 with Reason Code 51 and/or Reason Code 136 on the Tax Account screen, complete the Withholding window. See IRM 4.19.3.17.1.1, Withholding - Analysis, for additional information. Reason Code 136 is present when Additional Medicare Tax from Form 8959 was adjusted.

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

(16) For a list of the codes found in box 12 of Form W-2, see Exhibit 4.19.3-8, Form W-2 - box 12 Codes.

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

• Omitted

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

• Transposed

• Taken from the wrong box(es) on Form(s) W-2. Send PARAGRAPH 2, see Exhibit 4.19.3-7, CP PARAGRAPHS.

(2) If it appears the taxpayer reduced Form W-2 box 1 Wages by the amount in box 11 (Nonqualified Plans), pursue the difference as U/R wages and send PARAGRAPH 50, see Exhibit 4.19.3-7, CP PARAGRAPHS.

(3) An O/R situation exists if the taxpayer's entry on Form 1040/Form 1040-SR, line 1 ( TY 2021) or line 1a (TY 2022 and subsequent) is greater than the total WAGE IR(s).

(4) Consider wage income O/R if you determine the taxpayer:

• Made a double entry (math error)

• Transposed figures

• Used Social Security Wages from Form W-2, box 3. Send PARAGRAPH 2, see Exhibit 4.19.3-7, CP PARAGRAPHS.

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

1. Tax favored amounts.

2. Elective deferrals to certain retirement plans, such as 401(K) or 403(B). These are generally tax-deferred annuities for teachers and employees of 501(c)(3) organizations and/or plans. See Exhibit 4.19.3-8, Form W-2 - box 12 Codes, for a complete list of the elective deferral codes found in box 12 of Form W-2.

3. Dependent Care Assistance Benefits (DCB). See IRM 4.19.3.8.2.1, Dependent Care Benefits (DCB), for limitation of excludable income.

4. "IOD" (Injury on Duty) or "LODI" (Line of Duty Injury) payments. See IRM 4.19.3.8.1.1, Wages - Analysis, for further information.

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

6. Cost of living allowances paid to federal employees working abroad.

7. Ministers Housing Allowances Ensure excluded minister housing allowance is subjected to SE tax, unless: the taxpayer notates “Exempt Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners” or “Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits” on Form 1040(see table below IRM 4.19.3.8.1.5, Wages Miscellaneous for line numbers) or the housing allowance is for a retired minister. This amount may be the difference between net Schedule C income and income subject to SE tax on Schedule SE, see IRM 4.19.3.8.1.5(4), Wages Miscellaneous.

8. Exercised statutory Employee Stock Options. See IRM 4.19.3.8.1.1, Wages - Analysis, for further instructions.

(6) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

• There is a W/H discrepancy, AND

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

  Note: Use the IR as the most correct information if the case doesn't meet referral criteria or if the referral is returned.

(7) If wages are U/R, check the attached Form W-2 and/or any attachments to determine if the taxpayer excluded the amount as sick pay.

1. Accept the exclusion if there is an indication the taxpayer paid the premiums (an amount present on Form W-2, box 12, with code "J" that matches the excluded amount) and per attached paystubs or other documentation, the payer incorrectly included employee paid sick pay on Form W-2, box 1. Form W-2, box 1 matches box 3, SSWAG, or attached payer documentation.

2. If there is no clear indication per a. above, consider the amount U/R and issue CP 2000. Send PARAGRAPH 25, see Exhibit 4.19.3-7, CP PARAGRAPHS.

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

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

(9) Consider W-2 IRs fully reported when Wage or W/H amounts on the IRs are ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡.

(10) If the taxpayer participates in a nonqualified deferred compensation plan that doesn't meet all requirements as specified in IRC 409A, the employer must report the deferred compensation as income and the amount is subject to an additional tax.

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

Note: The amount in Form W-2 box 12, Code Z is already included in box 1 (WAGES). If WAGES are U/R and the difference corresponds to the NQDC amount, pursue the discrepancy as WAGES. For TY 2022 and subsequent, Send PARAGRAPH 248, see Exhibit 4.19.3-7, CP PARAGRAPHS.

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

Note: Enter status code "R" on the "NQDC" element(s).

3. The "NQDC" amount is subject to an additional tax. See IRM 4.19.3.16.7, Additional Taxes on Income from Nonqualified Deferred Compensation Plan (IRC 409A), for further instructions.

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

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

(2) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and consider them a statutory employee if their occupation is listed in IRM 4.19.3.22.4.1.1, Statutory Wages. Do not make any adjustments to the Schedule C, and/or SE tax.

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

(4) Statutory employees report their Form W-2 Wages on Schedule C, line 1, along with business expenses on line 28 of Schedule C. This income is NOT subject to SE tax and business expenses are not subject to the 2 percent limitation for miscellaneous itemized deductions. This income is subject to social security and Medicare taxes that should be withheld at the source by the payer and shown on Form W-2 as SS/Medicare Tax Withheld, SS Wages, and Medicare Wages and Tips.

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

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

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

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

4. Their adjusted gross income (AGI) isn't more than $16,000 before deducting these business expenses.

(6) Cases involving wages of statutory employees are created when:

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

   Note: Only statutory employees may deduct expenses on Schedule C.

2. The statutory employee did not report the wages on Schedule C, line 1, or as wages on Form 1040/Form 1040-SR.

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

(8) Input Income Identify Code "SW" in all U/R wages from Statutory Employee IRs if wages are U/R.

(9) Consider wages from Statutory Employees U/R and send PARAGRAPH 115, (see Exhibit 4.19.3-7, CP PARAGRAPHS) if the Wage amounts from attached Form(s) W-2 are:

• Omitted

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

• Transposed

• Taken from the wrong box(es) on Form(s) W-2, send PARAGRAPH 2. See Exhibit 4.19.3-7, CP PARAGRAPHS.

(10) If the taxpayer combines non-statutory wages with statutory wages or self-employment income (for example, NEC, MERCH, OTINC, MED) on the same Schedule C, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

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

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

3. Send PARAGRAPH 116, see Exhibit 4.19.3-7, CP PARAGRAPHS.

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

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

   Note: The taxpayer can't deduct or exclude expenses that exceed the IR. (for example, enters a negative amount).

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

3. The taxpayer excludes expenses not shown above, then pursue the unallowable expenses. Send PARAGRAPH 124, see Exhibit 4.19.3-7, CP PARAGRAPHS.

(2) If an explanation attached to the return indicates the ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡, consider the income reported.

(3) Accept as fully reported when the scholarship and/or fellowship grant isn’t reported on Form W-2 and the taxpayer enters "SCH" next to Form 1040 /Form 1040-SR, line 1 ( TY 2021), or Form 1040, Schedule 1, line 8r (TY 2022 and subsequent).

(4) .

(5) If no explanation is attached and the IR isn't fully reported, pursue the amount not reported. Send PARAGRAPH 124, see Exhibit 4.19.3-7, CP PARAGRAPHS.

(1) If wages are U/R and the taxpayer has Form W-2 wages, determine if the taxpayer makes any reference to repayment of supplemental unemployment benefits. If the taxpayer correctly reported net wages after repayment of supplemental unemployment benefits, consider the wages reported.

(2) If wages are U/R and the taxpayer is claimed as a dependent on another person's return, see IRM 4.19.3.13(4), Standard Deduction, for further instructions.

(3) If wages are U/R, the system requires that you analyze W/H. See IRM 4.19.3.17.1, Withholding - General, for further instructions.

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

1. If the Form W-2 and/or WAGE IR shows SSTAX has NOT been withheld, allow the expenses. The net income is subject to SE tax UNLESS the taxpayer has a Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, or Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits, exemption annotated on Form 1040/Form 1040-SR, Schedule 2, line 4.

2. If the Form W-2 and/or WAGE IR shows SSTAX has been withheld, disallow the expenses. Do not adjust any SE tax claimed. Manually access the SETAX window to suppress the change. See IRM 4.19.3.16.1, Self-Employment Tax.

3. Ensure excluded minister housing allowance is subjected to SE tax, unless the taxpayer notates “Exempt Form 4361” or “Form 4029” on Form 1040/1040-SR, Schedule 2, line 4 or the housing allowance is for a retired minister.

(5) If the taxpayer computes Social Security Tax on Tips on Form 4137, Social Security and Medicare Tax on Unreported Tip Income, but did not include the tip income in the AGI, consider the tip income U/R.

1. If necessary, create a W-2 IR with an A-TIP element for the amount of allocated tips for which Social Security Tip Tax was reported but was not included in income. See IRM 4.19.3.16.2, Social Security Tax on Tip Income Unreported to the Payer.

2. The system computes a 50 percent Social Security Tip Tax Penalty when the taxpayer uses Form 4137, PARAGRAPH 15 automatically generates. See Exhibit 4.19.3-7, CP PARAGRAPHS.

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

(1) An employer can exclude (within certain limits) earnings from taxable wages designated to pay for childcare and/or care for a dependent(s) who is unable to care for themselves. The excluded amount is limited to the smaller of the taxpayer's earned income, the spouse's earned income, or $5,000 ($2,500 if MFS) ( TY 2022 and subsequent). The American Rescue Plan (ARP) Act of 2021 increased the maximum amount to $10,500 ($5,250 if MFS) (TY 2021).

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

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

(4) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

(5) Taxpayers MUST complete Form 2441, Child and Dependent Care Expenses, Parts I, II, and III in order to compute the correct amount of Child Care Credit and excludable DCB.

1. Form 2441, line 15, contains the TOTAL BENEFIT AMOUNT less the amount forfeited.

2. Form 2441, line 26 contains the TAXABLE BENEFIT AMOUNT. Taxpayers will include this taxable benefit amount on Form 1040/Form 1040-SR, line 1 with DCB written on the dotted line (TY 2021) or line 1e (TY 2022 and subsequent).

3. See IRM 4.19.3.15.2, Credit for Child and Dependent Care Expenses, for further instructions regarding Child Care Credit.

(6) The system computes the correct taxable amount of DCB and auto populates window fields on ELF returns. For paper returns, enter/verify the appropriate entries on the Dependent Care Benefits window whenever necessary to compute or recompute DCB by taking the following actions:

• Enter/Verify the DCB amount from Form 2441 line 15, Child and Dependent Care Expenses, in the REPORTED DEP CARE BENEFITS field.

• Enter/Verify the total amount of DCB as reported by the payer(s) on the IR(s) minus the amount forfeited benefits from Form 2441 line 14, in the DEPENDENT CARE BENEFITS field.

• Enter/Verify the qualified expenses amount from Form 2441 in the QUALIFIED EXPENSES field.

• Enter/Verify the primary taxpayer’s original earned income in the PRIMARY EARNED INCOME field. If negative, enter "0" (zero).

Caution: When earned income is from self-employment, enter the amount shown on Schedule SE, line 3.

• Enter/Verify the secondary taxpayer’s original earned income in the SECONDARY EARNED INCOME field. If negative, enter "0" (zero).

• Enter/Verify the amount of DCB reported by the taxpayer on the Form 1040wage line in the REPORTED TAXABLE BENEFITS field.

• Enter/Verify the manually computed DCB amount, if applicable in the MANUAL COMPUTED BENEFITS FIELD.

Note: An amount in this field will override the system calculation.

(7) If there is an indication the taxpayer participated in one of the following Cafeteria Plans: flex plan, flex credits, or flex dollars (pre-tax deduction) for Dependent Care Benefits and the taxpayer IS NOT claiming Child Care Credit, consider the DCB reported.

(8) If the taxpayer did not file Form 2441 and did not report DCB, the taxable portion is the DCB IR amount up to ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ per payer and per taxpayer. Take the following action to determine if DCB is U/R:

1. Select the Dependent Care Benefits window.

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

3. Enter the total of all DCB reported by payer(s), but no more than ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡, on the IR(s). Enter/Verify all other fields per the AUR System Guide, Dependent Care Benefits.

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

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

1. Review the taxpayer's entries in Part III, lines 12 through 26 and prepare a mock Form 2441 to correct any errors and/or complete any omitted entries. Use the total expenses shown in Part II, line 2, column (c), ( TY 2021) or column (d) (TY 2022 and subsequent) to determine the line 16 (qualifying expenses) amount.

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

3. Send PARAGRAPH 66, see Exhibit 4.19.3-7, CP PARAGRAPHS. Toggle off PARAGRAPH 156 when sending PARAGRAPH 66.

(10) Taxpayers who receive DCB generally don't qualify for Child Care Credit. If Child Care Credit is claimed, take the following action:

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

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

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

4. See IRM 4.19.3.15.2, Credit for Child and Dependent Care Expenses, to determine the correct entry in the QUALIFYING EXPENSES field in the Child Care Credit window.

(11) If the taxpayer reduced their wages by the DCB IR amount, pursue the issue as an U/R WAGES issue.

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

(2) Taxpayers may be eligible to exclude qualified adoption expenses paid for or reimbursed by their employers under a qualified written EPAB, up to the amounts listed in the table below. The exclusion may be available for each child, whether the child is a foreign child, a child who is a U.S. citizen or resident, or a child with special needs. If the adopted child is a U.S. child with special needs, the taxpayer may be able to exclude up to the maximum dollar limit for the year, even if the taxpayer or employer did not pay any qualified expenses, provided the employer has a written qualified adoption assistance plan.

(3) Employer-provided adoption assistance payments are shown on Form W-2, box 12 and are identified with a code "T".

(4) The wage amount on Form(s) W-2, box 1 doesn't include the EPAB payments for the tax year.

(5) Taxpayers must complete Form 8839, Qualified Adoption Expenses, Part I, II and III in order to compute the correct amount of taxable or excludable EPAB, Form 8839, line 28. If no Form 8839 is filed, consider the EPAB fully U/R.

(6) Taxpayers should include this taxable benefit amount on Form 1040/Form 1040-SR line 1 and notate AB on the dotted line (TY 2021), line 1f (TY 2022 and subsequent).

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

(8) Whenever it is necessary to compute or recompute EPAB, take the following actions:

1. Enter/verify the total number of adopted children Form 8839, Part III. If Form 8839 isn't attached, enter "0" (zero).

2. Enter/verify the total amount from Form 8839, line 22 (all three columns) in the FORM 8839, LINE 22 PER RETURN field. If Form 8839 isn't attached, enter "0" (zero).

3. Enter/verify the amount from Form 8839, line 28, as filed or previously adjusted, in the EXCLUDED BENEFITS field. If Form 8839 isn't attached, enter "0" (zero).

4. Enter/verify the amount from Form 8839, line 29 as filed or previously adjusted, in the TAXABLE BENEFITS PER RETURN field. If Form 8839 isn't attached, enter "0" (zero).

(9) If the amount from the Taxable Benefits line 29 of Form 8839, isn't reported on Form 1040/Form 1040-SR, line 1(TY 2021), line 1f (TY 2022 and subsequent), create a WAGE IR for that amount. Send PARAGRAPH 191, see Exhibit 4.19.3-7, CP PARAGRAPHS.

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

(11) Enter/verify the appropriate entries on the EPAB window. See AUR System Guide, Employer-Provided Adoption Benefits.

(12) If it can be determined the taxpayer reduced their wages by the EPAB payment, pursue the issue as U/R wages. Also pursue EPAB as a separate issue. Send PARAGRAPH 195, see Exhibit 4.19.3-7, CP PARAGRAPHS.

(13) PARAGRAPH 190 automatically generates when EPAB is U/R. See Exhibit 4.19.3-7, CP PARAGRAPHS.

(1) ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

• Municipal Bonds

• Tax Sheltered Annuities (403(b)) accounts

• Simplified Employee Pensions (SEP) or Individual Retirement Accounts (IRA)

• A Pension Plan or Profit Sharing Plan (including a 401(k) plan)

• A Capital Construction Fund (CCF) account

(2) Compare INT amounts with entries on Form 1040 /Form 1040-SR, line 2a or 2b, Schedule B, Interest and Ordinary Dividends, Part I, line 1.

(3) Interest comparisons for the following entries must match within $1 or be CLEARLY IDENTIFIED as interest:

1. Form 1040/1040-SR, Schedule 1, line 8z

2. Schedule C, line 6

3. Schedule E, Parts II, III, or IV

4. Schedule F, lines 8 or 43

(4) If Schedule B (or an attachment in lieu of Schedule B) is attached, compare IRs with individual items. If you can't match individual IRs:

1. Group all INT amounts from the same payer.

2. Compare to the total interest reported for that payer.

3. If the group total amount is smaller, assign status code "R" to the group.

4. If the group total is larger, assign status code "U" to the group.

(5) If a breakdown of interest by payer isn't shown on the return or on an attachment and there is only one IR:

1. Compare the amount reported on Form 1040/Form 1040-SR, line 2b.

2. If the taxpayer reports a larger amount, consider the IR fully reported.

3. If the taxpayer reports a lesser amount, allow credit for the amount reported.

(6) If a breakdown of interest by payer isn't shown on the return or on an attachment and there is more than one IR:

1. Group by income type INT.

   Note: The Group function is a tool to assist the TEs in computing the correct U/R amount. It may not be necessary to use the Group function if the correct U/R can be determined without it.

   Note: If BOND, MKTDS and/or AMD IRs are present it may be necessary to add BOND, MKTDS and/or AMD IRs to the group.

2. Compare the group total amount to the total interest amount reported on the return.

3. If the group total amount is smaller, assign status code "R" to the group.

4. If the group total amount is larger, consider the difference U/R and assign status code "U" to the group.

5. If interest amounts are U/R, send PARAGRAPH 64. See Exhibit 4.19.3-7, CP PARAGRAPHS.

   Exception: If the specific U/R amount matches an IR - PARAGRAPH 64 may not be appropriate.

(7) Taxpayers often interchange interest and dividend income. Check any dividend income areas when comparing INT amounts. Offset interest income against dividend income ONLY if one of the following applies:

1. The same amount (within $1) AND the same payer are reported; OR

2. An unidentified amount matches the U/R interest amount within $1.

(8) If interest income is listed on Schedule B but isn't added into the AGI:

1. Consider the interest income U/R. If necessary, create an IR for any income the taxpayer included on Schedule B for which we don't have a corresponding IR.

2. If interest and/or dividend amounts are U/R, send PARAGRAPH 57. See Exhibit 4.19.3-7, CP PARAGRAPHS.

(9) If you notice a math error on Schedule B:

1. Create an IR for any reported interest amount(s) for which we don't have a corresponding IR.

2. Group by income type INT.

3. Compare the group total amount to the total interest reported.

4. If the group total is larger, assign status code "U".

5. Send PARAGRAPH 79, see Exhibit 4.19.3-7, CP PARAGRAPHS.

6. If the group total amount is smaller, assign status code "R" to the group.

(1) A 99OID IR reflects the original issue discount allocable to the tax year and may show the qualified stated interest paid or credited on the obligation during the tax year.

(2) Original issue discount is identified on the Case Analysis screen by the literals "99 OID" in the DOC TYPE field and the following literal(s) in the INCOME TYPE field:

• "S-INT" is the qualified stated interest paid or credited on the obligation during the tax year

• "OID" is the original issue discount allocable to the tax year, and/or

• "OIDTO" is the original issue discount on Treasury Obligations.

• "MKTDS" is the market discount if the taxpayer made the election under section 1278(b) to include in income as it accrues.

Note: OID on Treasury Inflation-Indexed Securities is reported in box 8 on Form 1099-OID.

(3) Original issue discount, which is treated as interest income, is the difference between the issue price and stated redemption price of a debt instrument (bond). ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ issued by a brokerage firm or by financial institutions (banks, credit unions, and savings and loans).

(4) Original issue discount (other than original issue discount on an obligation with a term of 1 year or less) is reported on Form 1099-OID.

(5) If the taxpayer reports a partial amount or no amount from a 99OID IR, consider whether the taxpayer has made an adjustment for acquisition premium, or some other offset. Original issue discount may be reduced by these offsets provided the taxpayer first included the gross amount of original issue discount on Form 1040, Schedule B, line 1. The line 2 amount should then reflect the taxable amount of original issue discount as adjusted for these offsets.

(6) If the taxpayer reports a partial amount or no amount from a 99OID IR and the Schedule B doesn't reflect any adjustments, consider the OID, S-INT and OIDTO amounts in determining the U/R amount.

(7) If 99OID and 99INT IR(s) are present from the same payer, and you can't determine which amount is reported:

1. Group the OID, S-INT, OIDTO and INT amounts by PAYER EIN.

2. Compare the group total amount to the total amount reported by the taxpayer for that payer.

3. If the group total amount is smaller, assign status code "R" to the group.

4. If the group total amount is larger, consider the difference U/R and assign status code "U" to the group.

(1) Interest from U.S. Savings Bonds, Treasury Bills, Treasury Bonds, and Treasury Notes appear on 99INT IRs with the literal "BOND". OID on Treasury Inflation-Indexed Securities is reported in box 8 on Form 1099-OID.

(2) Bond interest is identified on the Case Analysis screen by the literal "99INT" in the DOC TYPE field and the literals "BOND" or "TEBND" (Tax-Exempt Bond) in the INCOME TYPE field. TEBND amounts are system deleted.

(3) If the taxpayer reports an amount of savings bond interest equal to or greater than the IR(s) amount, consider the IR(s) reported unless the return amount is identified as being from a different payer.

(4) Accept bond interest if the taxpayer indicates the following:

1. The bond interest is reported each year as it accrues. Accept only if the taxpayer reports an interest amount.

2. Interest on inherited savings bonds was reported on the decedent's final individual income tax return.

(5) If the taxpayer included Bond income as Capital Gains on Schedule D, Part II, consider the Bond reported. Subtract the Bond Income from the LONG-TERM GAIN/(LOSS) field in the Schedule D Tax window and send the IR(s). Send PARAGRAPH 229, see Exhibit 4.19.3-7, CP PARAGRAPHS.

(6) If a breakdown of bond interest by payer isn't shown on the return or on an attachment and there is only one IR:

1. Compare the amount reported on Form 1040/Form 1040-SR, line 2b.

2. If the taxpayer reports a larger amount, consider the IR fully reported.

3. If the taxpayer reports a lesser amount, allow credit for the amount reported.

(7) If the taxpayer reports bond interest but doesn't identify the payer and there is more than one BOND IR:

1. Group by income type BOND.

   Note: If INT IRs are present, it may be necessary to add INT IRs to the group.

2. Compare the group total to the amount of reported bond interest.

3. If the group total amount is smaller, assign status code "R" to the group.

4. If the group total amount is larger, consider the difference U/R and assign status code "U" to the group.

5. If bond amounts are U/R, send PARAGRAPH 64. See Exhibit 4.19.3-7, CP PARAGRAPHS.

   Exception: If the specific U/R amount matches an IR - PARAGRAPH 64 may not be appropriate.

(8) If the taxpayer reports an amount as savings bond, T-Bill bond, or note interest, and the 99INT IR shows only regular interest, consider the IR reported if the amounts match within $1 ONLY if the taxpayer has not excluded interest on Schedule B, line 3, for college tuition. PARAGRAPH 108 automatically generates when the exclusion is fully disallowed.

(9) 99INT IRs will not show EWPEN amounts if only bond interest is present. Treat such IRs as potential Payer Agent data or questionable.

(1) Form 8815, Exclusion of Interest from Series EE and I U.S. Savings Bonds Issued After 1989, is allowed on Schedule B, line 3.

(2) Bond Interest must be reported on the return before being claimed as a Savings Bond Exclusion on Form 1040/Form 1040-SR.

(3) When the taxpayer excludes a savings bond interest amount and the AGI is changed, the Adjusted Gross Income and Savings Bond Exclusion windows may display when the Return Value window is selected. If the windows don't display, they must be accessed before continuing to the Return Value screen.

(4) The AUR system computes the new excludable savings bond interest amount based on the entries in the Adjusted Gross Income and Savings Bond windows and displays it in the RECOMPUTED SAVINGS BOND EXCLUSION field.

(5) If the Adjusted Gross Income (AGI) window appears take the following actions:

1. Enter/verify the amounts in the ADJUSTED GROSS INCOME field, including the Schedule B, line 3 amount in the EXCLUDED SAVINGS BOND field.

2. If the taxpayer placed their total interest on the wrong line or the total interest amount was included in the AGI total, a correction must be made to the ADJUSTED GROSS INCOME window to eliminate the savings bond exclusion window from displaying.

Note: Once the AGI window is verified and committed, the SAVINGS BOND EXCLUSION window will appear.

3. Use the SAVINGS BOND EXCLUSION window to compute/recompute the savings bond exclusion when there is a change to the AGI. Enter/verify the amount from Form 8815, line 8 in the MODIFIED SAVINGS BOND INTEREST field. The recomputed savings bond exclusion amount appears in the RECOMPUTED SAVINGS BOND EXCLUSION field.

Note: Only change the amount in the RECOMPUTED SAVINGS BOND EXCLUSION field if overriding the system computed exclusion, due to rounding. If the amount entered is outside the system computed tolerance range, the entry is disallowed and a message displays, showing the allowable tolerance range. A warning message Change below tolerance. Recomputed exclusion is set equal to original exclusion may appear. Click on <OK> or press <Enter> to acknowledge the message.

(6) The savings bond exclusion claimed on Schedule B, line 3 is disallowed when:

1. The taxpayer is married filing a separate return

2. The new Modified Adjusted Gross Income (MAGI) is:

(7) The savings bond exclusion claimed on Schedule B, line 3 is adjusted when the new MAGI is greater than:

(8) If the system determines the exclusion claimed should be disallowed in whole or part, an IR is created by the system for the amount of the disallowance and coded with status code "U".

(9) PARAGRAPH 105 automatically generates when the exclusion is adjusted or eliminated. PARAGRAPH 107 automatically generates when the exclusion is eliminated based on the filing status.

(10) If you adjust the Savings Bond Exclusion, enter the amount from Schedule B in the RETURN field of the Summary screen.

(1) Accrued Market Discount is identified on the Case Analysis screen with the literal "1099B" in the DOC TYPE field and the literal "AMD" in the INCOME TYPE field. Accrued Market Discount is reported on Form 1099-B, box 1f.

(2) ONLY screen AMD IRs in Category 31, 39, 61 and 79.≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡"≡ ≡ ≡ ≡"≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

(3) Compare AMD amounts with entries on Form 1040/Form 1040-SR, line 2b and/or Schedule B, Part 1, line 1.

(4) Accrued Market Discount comparisons for the following entries must match within $1 or be CLEARLY IDENTIFIED as AMD:

1. Form 8949 Part I or II, column (g).

2. Schedule D, Part I, line 1b, column (g) or Part II, line 8B, column (g).

(5) If Schedule B (or an attachment in lieu of Schedule B) is attached, compare AMD IR(s) with individual items. If you can't match individual IRs:

1. Group all INT and AMD amounts from the same payer in the same group.

2. Compare group total to the total amount reported on the return from that payer.

3. If the group total is smaller, assign status code "R" to the group.

4. If the group total is larger, assign status code "U" to the group.

   Note: If BOND IRs are present, it may be necessary to add BOND IRs to the group.

   Caution: When grouping AMD and INT together the summary screen will show the income type as interest income.

5. If interest amounts are U/R, send PARAGRAPH 64. See Exhibit 4.19.3-7, CP PARAGRAPHS.

   Exception: If the specific U/R amount matches an IR - PARAGRAPH 64 may not be appropriate.

(1) Interest income may be reduced by any of the following, provided the taxpayer first included this income on Schedule B, line 1. The line 2 amount will then reflect the taxable amount of interest minus these adjustments:

1. Nominee Distributions - Interest received by the taxpayer that belongs to another person, such as a child.

2. Accrued Interest - Interest on securities transferred between interest payment dates.

3. Tax-Exempt Interest - (for example, Municipal Bonds).

   Note: When SS/RR is also present, see IRM 4.19.3.8.17.1, SS/RR - Analysis.

4. Amortizable Bond Premium - Premium offsets interest on taxable bonds acquired after December 31, 1987.

5. Frozen Deposits - An account from which the taxpayer is unable to withdraw funds because the financial institution or others in the area are bankrupt, insolvent, or in receivership.

(2) Pursue the issue if it appears the taxpayer reports an incorrect taxable interest due to improper deduction of these amounts.

(3) PARAGRAPH 85 automatically generates to inform the taxpayer they may be subject to Backup Withholding (BWH) when the total of U/R interest, dividends, and patronage dividends is greater than $500.

(4) 99INT and 99OID IRs may reflect an Early Withdrawal Penalty (EWPEN). See IRM 4.19.3.9.5, Early Withdrawal Penalty (EWPEN) - General, for further instructions.

(5) If a 99INT IR, from the U.S. Treasury, with EIN 38-1798424 is shown on the Case Analysis screen, it is credit interest paid to the taxpayer by IRS for refund cases and is fully taxable.

(6) 99INT IRs may reflect W/H. If there is an indication the interest account is jointly owned with someone other than the taxpayer's spouse or the filing status is 3:

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

2. Send PARAGRAPH 6, see Exhibit 4.19.3-7, CP PARAGRAPHS.

3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

   Note: See IRM 4.19.3.5.3, Jointly Owned Income, for additional instructions on jointly owned income.

4. See IRM 4.19.3.17.1, Withholding - General, for further instructions on W/H.

(7) A fully U/R 99INT IR with a payee EIN is considered self-employment income. Enter an Income Identify Code to assess SE tax. See IRM 4.19.3.16.1, Self-Employment Tax and Exhibit 4.19.3-9, Income Identify Codes.

(8) If interest is U/R, enter the amount from Form 1040/Form 1040-SR, line 2b in the RETURN field on the Summary screen.

(1) The types of dividends compared are:

• Ordinary Dividends - Entire amount is taxable

• Capital Gain Distributions - Are considered taxable

(2) Dividends are identified on the Case Analysis screen by the literal "99DIV" in the DOC TYPE field and one of the following literals in the INCOME TYPE field:

• "ORDIV" - Ordinary dividends

• "QDIV" - Qualified Dividends may be eligible for the Capital Gains rate of 20 percent.

• "NDDIS" - Non-Dividend distributions (non-taxable)

• "INEXP" - Investment Expenses (information only/system deleted)

(3) The AUR system considers each of the following amounts separately:

• Ordinary Dividends

• Capital Gain Distributions (including 28 percent rate, 5 year gain, 1250 gain and 1202 gain)

(4) If a 99DIV IR with multiple income types is U/R, and the tolerance for issuing a notice is met, screen all elements of the IR.

(1) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

• 403(b) accounts

• SEP or IRA accounts

• Municipal Bond funds

• Pension Plan or Profit Sharing Plan (including a 401(k) plan)

• Capital Construction Fund (CCF) account

(2) Compare ORDIV amounts with entries on Form 1040/Form 1040-SR, line 3b.

1. Schedule B, Part II.

2. Schedule E, Parts II, III, and/or IV. The amounts must match within $1 or be clearly identified as Dividend Income.

(3) Compare IR(s) on the Case Analysis screen with individual items listed on Schedule B, if attached. The taxpayer may use an attachment in lieu of Schedule B.

(4) Dividend IRs display Ordinary Dividends (ORDIV), Qualified Dividends (QDIV), Capital Gain Distributions (CG), and non-dividend distributions (non-taxable) as separate amounts.

1. The QDIV are included in the ORDIV.

2. If the sum of the ORDIV and the CG amounts matches the sum of dividends reported on Schedule B, line 5, consider the IR(s) fully reported.

(5) If individual IR(s) don't match the amount claimed on the return:

1. Group ordinary dividend amounts from the same payer.

2. Compare the group total amount to the total ordinary dividends reported for that payer.

3. If the group total amount is smaller, assign status code "R" to the group.

4. If the group total amount is larger, assign status code "U" to the group.

(6) If a breakdown of dividends by payer isn't shown on the return or on an attachment and there is only one IR:

1. Compare the amount reported on Form 1040/Form 1040-SR, line 3b.

2. If the taxpayer reports a larger amount, consider the IR fully reported.

3. If the taxpayer reports a lesser amount, allow credit for the amount reported.

(7) If a breakdown of dividends by payer isn't shown on the return and there is more than one dividend IR:

1. Group all ORDIV together.

   Note: The Group function is a tool to assist the TEs in computing the correct U/R amount. It may not be necessary to use the Group function if the correct U/R can be determined without it.

2. Compare the group total amount to the total reported dividends.

3. If the group total amount is smaller, assign status code "R" to the group.

4. If the group total amount is larger, consider the difference U/R and assign status code "U" to the group.

5. If dividend amounts are U/R send PARAGRAPH 64. See Exhibit 4.19.3-7, CP PARAGRAPHS.

Exception: If the specific U/R amount matches an IR - PARAGRAPH 64 may not be appropriate.

(8) Dividends and interest income are often interchanged by the taxpayer. Check any interest income areas when comparing IRs (for example, credit union dividends). Check any dividend income areas when comparing INT amounts. Offset dividend income against interest income ONLY if one of the following applies:

1. The same amount (within $1) AND the same payer are reported; OR

2. An unidentified amount matches the U/R dividend amount within $1.

(9) If dividend income is listed on Schedule B but isn't added into the AGI:

1. Consider the income U/R. Create an IR for any income the taxpayer reported on Schedule B for which we don't have a corresponding IR.

2. If interest and/or dividend amounts are U/R, send PARAGRAPH 57. See Exhibit 4.19.3-7, CP PARAGRAPHS.

(10) If the taxpayer reports ordinary dividends on Schedule D/Form 8949, lines 1a, 1b, 2, or 3 column (d) or lines 8a, 8b, 9 or 10 column (d).

1. Consider the amount(s) in columns (e) and (g), (cost or other basis) U/R.

2. To arrive at the amount to enter in the REPORTED AMOUNT field, subtract the columns (e) and (g) amounts from the information return.

Caution: Delete the dividend income from the LONG-TERM GAIN (LOSS) field in the Schedule D Tax window.

3. Send PARAGRAPH 52, see Exhibit 4.19.3-7, CP PARAGRAPHS.

(11) If you notice a math error on Schedule B:

1. Create an IR for any reported dividend amount(s) for which we don't have a corresponding IR.

2. Group by income type ORDIV.

3. Compare the group total amount to the total dividends reported.

4. If the group total is smaller, consider reported and assign status code "R" to the group.

5. If the group total is larger, consider the difference U/R and assign status code "U" to the group.

6. Send PARAGRAPH 79, see Exhibit 4.19.3-7, CP PARAGRAPHS.

(12) During Case Analysis, screen the QDIV element of the IRs. If the ORDIV element of the IR is fully or partially U/R enter status code "U" and the reported amount as zero for fully U/R, or the amount from Form 1040/Form 1040-SR, line 3a for partially U/R in the QDIV element of the IR. This will ensure that the appropriate Schedule D tax rate is determined.

(13) The QDIV element(s) is systemically included on the notice when the ORDIV element is marked with a "U". Send Indicator "S" won’t be reflected on the QDIV element of the IR on the Case Analysis screen and QDIV(s) won’t be displayed on the Summary screen: however, QDIV(s) will be included on the notice. PARAGRAPH 4 automatically generates.

(1) The taxpayer may report a net dividend amount based on the payer's estimated percentage of taxability (especially utility companies). ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

(2) Dividends from money market funds may be reported under a different name. If a dividend amount on a 99DIV IR matches an amount on Schedule B, consider the IR reported unless there is an IR(s) for that individual payer.

(3) Restricted stock transferred to an employee as compensation for services may accrue dividends. Even though these dividends are reported on Form 1099-DIV, they will be treated as wages. Consider the income reported if the amount was included with wages.

(4) Reinvestment dividends are not allowable as an exclusion.

(5) 99DIV IRs may reflect W/H. If there is an indication the dividend account is jointly owned with someone other than the taxpayer's spouse or the filing status is 3:

1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Send PARAGRAPH 6, see Exhibit 4.19.3-7, CP PARAGRAPHS.

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

   Note: See IRM 4.19.3.5.3, Jointly Owned Income, for further instructions on joint ownership.

3. See IRM 4.19.3.17.1, Withholding - General, for further instructions on W/H.

(6) A fully U/R 99DIV IR with a payee EIN is considered self-employment income. Enter an Income Identify Code to assess SE tax. See IRM 4.19.3.16.1, Self-Employment Tax and Exhibit 4.19.3-9, Income Identify Codes.

(7) Nominee dividends may be deducted provided the taxpayer first included this income on Schedule B, line 5.

(8) PARAGRAPH 85 automatically generates to inform the taxpayer they may be subject to BWH when the total of U/R interest, dividends, and patronage dividends is greater than $500.

(9) If dividends are U/R, enter the return amount in the RETURN field on the Summary screen.

(1) Capital Gain Distributions are identified in the Case Analysis screen by the literal "99DIV" in the DOC TYPE field and "CG" - Capital Gain Distributions - Income Identify Code "SD" displays for Capital Gain Distributions in the INCOME TYPE field.

(2) The AUR system considers Capital Gain Distributions separately from Ordinary Dividends.

(3) If Capital Gains are U/R and the tolerance for issuing a notice is met, screen all elements of the IR.

(1) Compare capital gain distributions amounts with entries on:

1. Form 1040/Form 1040-SR, line 7 or,

2. Schedule D, line 13, column (h) or,

3. Form 8949, Part II, line 1, column (h).

   Note: The taxpayer may use an attachment in lieu of Form 8949.

(2) Verify the taxpayer has reported capital gain distributions on Schedule D, line 13, and the proper amount was carried over to Form 1040/1040-SR, line 7.

(3) If no Schedule D is present verify the taxpayer reported the capital gain distributions directly on Form 1040/1040-SR, line 7.

(4) When the taxpayer reports Capital Gain Distributions directly on Form 1040/1040-SR, line 7 the Schedule D window in Return Value MUST be accessed manually. See IRM 4.19.3.14.2, Schedule D Tax Window.

(5) If the taxpayer provides a breakdown of capital gains (for example on an attachment), be sure the amount was properly transferred to either Schedule D, line 13, column (h) or Form 1040/1040-SR, line 7 before considering them reported. If not, then consider the amount U/R and send PARAGRAPH 3. See Exhibit 4.19.3-7, CP PARAGRAPHS.

(6) If a breakdown of capital gain distributions isn't shown on the return and there is more than one capital gain distribution IR:

1. Group by income type CG.

   Note: The Group function is a tool to assist the TEs in computing the correct U/R amount. It may not be necessary to use the Group function if the correct U/R can be determined without it.

2. Compare the group total amount to the amount reported on Schedule D, line 13, column (h) or if Schedule D isn't attached, Form 1040/1040-SR, line 7.

3. If the group total amount is smaller, assign status code "R" to the group.

4. If the group total amount is larger than the amount reported, consider the difference U/R and assign status code "U" to the group.

   Note: If the reported dividend amount matches the sum of the ORDIV and CG on the IR(s), consider the capital gain distributions fully reported.

5. If capital gains amount are U/R, send PARAGRAPH 64. See Exhibit 4.19.3-7, CP PARAGRAPHS.

Exception: If the specific U/R amount matches an IR - PARAGRAPH 64 may not be appropriate.

(7) Capital Gain Dividends reported on Form 1099-DIV with a "S" or "P" in the taxpayer field on the Case Analysis screen default with an Income Identify Code of "SD" for long-term capital gain/loss belonging on Schedule D, Part II. If the taxpayer field contains an "E" for EIN, the user MUST ENTER an Income Identify Code of "SD".

(8) Change the Income Identify Code on partially U/R CG elements when you can determine from the taxpayer's reported amount that:

1. The CG distributions don't belong on Schedule D. Enter the appropriate Income Identify Code (for example, "PB" for the income to be treated as primary business subject to SE tax). See Exhibit 4.19.3-9, Income Identify Codes.

Note: Capital gain distributions which have an Income Identify Code of "PB", "PF", "SB", "SF", or "CG" IRs with a payee EIN display on the Summary screen as Nonemployee Compensation. Send PARAGRAPH 245, see Exhibit 4.19.3-7, CP PARAGRAPHS..

2. The Capital Gain distributions are determined to be a short-term capital gain/loss belonging on Schedule D, Part I. Input an Income Identify Code of "ST".

(9) Capital Gain IRs with Income Identify Codes of "SD" or "ST" are screened using the following procedures:

1. Enter a status code of "U" on the CG element containing Income Identify Code of "SD" or "ST".

2. The Adjusted Gross Income window displays. Enter/verify the fields.

3. The COMPUTE SCHEDULE D LOSS window displays.

   Note: If there are U/R CG and the taxpayer reports a capital loss on Form 1040/Form 1040-SR, line 7 enter a zero (0) in both fields on the COMPUTE SCHEDULE D LOSS window. It may be necessary to blank out both fields first. This will prevent the system from using losses in excess of $3,000 ($1,500 if MFS) to offset U/R Schedule D income.

4. The cursor returns to the IR CD field of the IR where it was before the windows displayed. The field is blank.

Note: The AGI and COMPUTE SCHEDULE D LOSS windows only display automatically when a status code of "U" is initially entered. It isn't necessary to access these windows again unless the field entries need to be changed.

5. Enter a status code ("U", "R", or "N") and the reported amount, if applicable, for the CG elements containing Income Identify Code of "SD" or "ST".

6. The system uses the information on the COMPUTE SCHEDULE D LOSS window to determine the correct U/R amount of Schedule D income. The total U/R Schedule D income amount is included in the TOTAL AGI CHANGE field on the Case Analysis screen.

(10) PARAGRAPH 24 automatically generates when CG are treated as ordinary income due to loss limitations. If the loss per return is less than $3,000 ($1,500 if MFS) toggle off PARAGRAPH 24 from the Summary screen.

(11) If Capital Gain Distributions are U/R, enter the return amount from Schedule D, line 13. If there is no Schedule D, enter the return amount from Form 1040/Form 1040-SR, line 7 in the RETURN field of the Summary screen.

(1) Taxpayers that pay Alternative Minimum Tax don't derive a benefit from SITR. The AUR program now identifies taxpayers who paid ALT MIN Tax in the prior year before considering SITR unreported. Therefore, only pursue system identified (asterisked) SITR discrepant IRs. If the case is open for other issues, mark the non-asterisked SITR IR(s) with status code "D", "N" or "R".

(2) State and local income tax refunds (SITR) are potentially U/R if there is no SITR amount reported or when there are multiple SITR IRs and not all are reported. Compare SITR IRs to Form 1040/1040-SR, Schedule 1, line 1.

(3) Taxpayers from certain states are not required to report their payments received for the promotion of the general welfare or as a disaster relief payment. For example, payments received related to the outgoing pandemic, may be excludable from income for federal tax purposes under the General Welfare Doctrine or as a Qualified Disaster Relief Payment. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

(4) Enter/Verify the required amounts on the SITR window by taking the following actions:

• Enter the amount of state and local tax refund from Form 1040, Schedule 1, line 1, in the REPORTED SITR field

• Enter the amount of state and local income taxes claimed on current year Schedule A, line 5a, in the STATE/LOCAL TAX DED field.

Note: Leave this field blank when there is no current year deduction. DO NOT enter "0" (zero).

• Enter the total number of age and/or blind exemptions for the taxpayer and spouse as reported on the return in the AGE/BLIND COUNT field.

• Enter "Y" if the taxpayer has been claimed as a dependent on someone else’s return in the CLAIMED ON ANOTHER’S RETURN field.

• Enter "Y" if the Married Filing Separate and Spouse Itemized Deduction/Dual Status box on the return is checked in the FS3/ ITEMIZED OR ALIEN field.

Note: The prior year SITR information displays in the PRIOR YEAR section of the window. Only change if the displayed value is incorrect.

(5) 1099G IRs with reported SITR amounts for other than the prior tax year are deleted by the system. The literal "X" displays in the IR CODE field of the Case Analysis screen.

(6) When any of the following conditions are present, mark all SITR IRs (including those system identified as discrepant) with status code "D", "N", or "R":

1. SITR worksheets are attached to the return.

2. The taxpayer indicates there is no tax benefit due to Alternative Minimum Tax.

(7) The AUR system will compute the U/R SITR amount if Form 1040 /Form 1040-SR, Schedule 1, line 1, doesn't equal the total of the SITR IRs.

(8) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

1. The taxpayer claimed itemized deductions for the prior AUR tax year, AND

2. The prior year total itemized deductions are greater than their standard deduction, AND

3. The prior year state/local tax deduction is less than (including zero) the SITR IR(s).

4. Form 1040/1040-SR, Schedule 1, line 1 doesn't equal the SITR IR(s).

   Note: ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

(9) If the system computed a SITR refund, the current year filing status code has changed from the prior year, and the PRIOR YEAR TOTAL ITEMIZED DED field on the SITR window is less than or equal to 0 (zero), the system displays the following message: "Warning: SITR refund. Prior Yr Sch A info needed, access RTVUE on IDRS."

1. Mark the applicable SITR IR with status code "N" or "D" if the spouse did not claim state/local taxes on the prior year Schedule A.

2. If the spouse reported SITR on the current year return and the prior year filing status was 1, 3, or 4 and the spouse did not itemize, enter the amount of SITR reported as a miscellaneous deduction in the SCH C EXP/MISC Adjustment window, to refund the amount. Send PARAGRAPH 249, see Exhibit 4.19.3-7, CP PARAGRAPHS.

3. Verify the PRIOR YEAR fields on the SITR window match RTVUE and correct if necessary.

Caution: If taxpayer chose to itemize (even when it is less than the standard deduction) and the taxpayer claimed state/local tax deduction on the previous year’s Schedule A, don't allow the SITR refund. Mark the SITR IR with status code "N" or "D".

(10) If the system computed a SITR refund and the current year filing status code has not changed from the prior year, the system displays the following message: "Warning: SITR refund."

1. Access IDRS CC RTVUE.

2. Verify the PRIOR YEAR fields on the SITR window match RTVUE and correct if necessary.

Caution: If taxpayer chose to itemize (even when it is less than the standard deduction) and the taxpayer claimed state/local tax deduction on the previous year’s Schedule A, don't allow the SITR refund. Mark the SITR IR with status code "N" or "D".

(11) The system won't compute an U/R SITR amount if the Prior Year Taxable Income is zero or negative.

(12) If the difference between the sum of state and local income tax withheld and the SITR IR(s) is equal to or greater than the taxpayer's current AUR tax year Schedule A, line 5a amount, this indicates the taxpayer netted.

1. The system considers the SITR reported.

2. If the taxpayer netted SITR, the system alerts the tax examiner to send an appropriate paragraph. If a notice is sent for any other issue, send PARAGRAPH 141. See Exhibit 4.19.3-7, CP PARAGRAPHS.

(13) Do not refund apparent O/R SITR for taxpayers who are minors or who are claimed as a dependent on someone else's return. Delete the SITR IRs for minors and dependents claimed on someone else's return.

(14) If the taxpayer filed "married filing jointly" in the prior year, and filed "married filing separately" in the current AUR tax year and reported one-half of the SITR amount, consider the SITR fully reported.

(15) PARAGRAPH 69 automatically generates when SITR is U/R.

(16) PARAGRAPH 16 automatically generates when SITR is O/R because the taxpayer did not claim itemized deductions for the prior AUR tax year.

(17) If SITR is U/R, enter the return amount in the RETURN field of the Summary screen.

(1) Compare NEC amounts with entries on:

1. Schedule C, Part I.

2. Schedule E, Part II - see (3) below.

3. Schedule F, Part I or III.

4. Form 4835, Farm Rental Income and Expenses, Part I.

(2) When comparing NEC IRs with entries on any line not specifically identified for NEC, the amount must match within $1 or be CLEARLY IDENTIFIED by payer name, activity or as NEC income:

1. Form 1040/Form 1040-SR, line 1.

Note: ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

2. Schedule D, Part I, lines 1a, 1b, 2, or 3 column (d) or Part II, lines 8a, 8b, 9 or 10, column (d).

   Caution: Digital Assets (Virtual currency) may be reported or partially reported on Schedule D. This income may be identified by payer name or may be referred to as bitcoin or similar language on the system IR. If the income is partially reported and the taxpayer includes an explanation they reported the fair market value of the digital asset (virtual currency), as of the date it was received, consider the income reported.

3. Form 8949- Part I, line 1 column (d) or Part II, line 1, column (d).

   Caution: Digital Assets (Virtual currency) may be reported or partially reported on Form 8949. This income may be identified by payer name or may be referred to as bitcoin or similar digital asset terminology. If the income is partially reported and the taxpayer includes an explanation they reported the fair market value of the digital assets (virtual currency), as of the date it was received, consider the income reported. If pursuing digital assets (virtual currency) send Paragraph 226, see Exhibit 4.19.3-7, CP PARAGRAPHS, for further information.

4. Form 2106, Employee Business Expenses, line 7 - Give credit when the NEC IR is related to the occupation (or activity) shown on Form 2106. See (4) below.

5. Schedule E, Part I.

6. Form 4797, Sales of Business Property, Parts I, II, or III.

7. Form 6252, Installment Sale Income, line 5 or line 21.

8. Form 3903, Moving Expenses, line 4.

   Note: Only Members of the Armed Forces who meet certain requirements can deduct moving expenses.

(3) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

1. An amount on the return matches within $1. Also give credit for reported amounts identified as being from the same payer.

2. The taxpayer is incorporated (payer name must include CORP, INC, LC, LLC, PA, SC, or PC) and pays wages to themselves (the name and/or address of the payer is similar to or matches the name and/or address of the taxpayer). ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

3. The taxpayer appears to be a partner or shareholder as shown on Schedule E, Part II. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

4. The taxpayer is in the medical profession and has reported wages from a medical professional corporation (payer name must include CORP, INC, LC, LLC, PA, SC, PC, clinic or group) but not a hospital or medical center. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

   Exception: ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

5. The taxpayer is an employee of an institution and has ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

6. The taxpayer is in the medical profession and there is an indication ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

7. The taxpayer nets the amount for reimbursed expenses reported on Form 1099-NEC, and ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

8. Form 3115, Application for Change in Accounting Method, is attached and the taxpayer is an insurance agent, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡.

9. The combined NEC for both taxpayers equals the Schedule C within $1 or there is a statement indicating the amounts are included in a larger total.

(4) If Form 2106, column A, line 7 is greater than line 6, the taxpayer ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ The U/R amount can't exceed the amount on Form 2106, column A, line 8. To arrive at the amount to input in the RETURN field, subtract the amount that shouldhave been included in income (Form 2106, column A, line 8) from the IR amount.

(5) If the payer is an oil, gas, or petroleum company:

1. Consider the IR(s) reported if it is included (identified by payer or activity) in a larger total on Schedule C, or Schedule E, Part I.

2. Depletion should NOT be deducted on Schedule C, Part II, or Schedule E, Part I, unless the business activity is related to a natural resource (for example, oil, gas, mineral, timber).

3. Consider the depletion amount U/R if that depletion was deducted from income that is clearly NEC (Schedule C, line 12, or Schedule E, line 20). To arrive at the amount to enter in the SHOWN ON RETURN field, subtract the depletion amount from the IR amount(s).

4. Consider the IR fully U/R if the depletion amount can't be determined.

(6) Nonemployee Compensation may represent crop insurance proceeds, which are reported on Schedule F, line 6a or 6b, or Form 4835, line 5a or 5b. The taxpayer may elect to postpone the crop insurance proceeds to the year following the damage. If the NEC amount(s) appears to be this type of income, consider the amount reported if:

1. The box on Schedule F, line 6c, or Form 4835, line 5c, is checked AND

2. The reported amount is equal to or greater than the NEC IR amount(s).

(7) If an explanation is attached to the return indicating the fellowship, grant, or stipend was used for tuition, fees, books, supplies, and equipment required for the course, AND:

1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ The taxpayer can't deduct expenses that exceed the IR.

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

3. The taxpayer excluded expenses not shown above, then pursue the unallowable expenses. Send PARAGRAPH 124, see Exhibit 4.19.3-7, CP PARAGRAPHS.

(8) If the NEC IR is identifiable as fellowship/grant/stipend income, no explanation of tuition expenses is attached, and the IR isn't fully reported, pursue the amount not reported. Send PARAGRAPH 124, see Exhibit 4.19.3-7, CP PARAGRAPHS.

1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

2. DO NOT ASSESS SE tax on scholarship/stipend income.

(9) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡

(10) If the taxpayer reports NEC income on Form 1040/Form 1040-SR, line 1 (TY 2021), line 1g (TY 2022 and subsequent) and attaches a Form 8919, Uncollected Social Security and Medicare Tax on Wages, to assess the employee share of FICA, the taxpayer is indicating that they are NOT LIABLE for SE tax on NEC because they’re an employee. Unless an employment status determination has been rendered by the SS-8 group to identify if the taxpayer is an independent contractor or employee, SE tax must be assessed. To ensure that credit is given for the tax paid on Form 8919:

1. Do not change the Income Identify Code.

2. Remove any amount from the ADDITIONAL FICA TAX window that is subject to SE Tax in the PRIMARY/SECONDARY INCOME SUBJECT TO FICA field.

3. Access the SE Tax window and enter the Primary/Secondary Form 8919 tax in the PRI/SEC TAX FROM FORM 8919 INCOME field.

4. Enter the amount of reported NEC in the PRIM/SEC 8919 INCOME SUBJECT TO SE TAX field.

   Note: DO NOT enter this amount in the "Reported SE Income not on Sch SE" field of the SE Tax window.

5. If necessary, adjust the PRI/SEC SS/RR WAGES/TIPS field so it doesn't include the NEC amount from Form 8919.

6. Send PARAGRAPH 12, see Exhibit 4.19.3-7, CP PARAGRAPHS.

(11) If Form 4137, Social Security and Medicare Tax on Unreported Tip Income, is attached to the return:

1. Do not change the Income Identify Code.

2. Access the SST on TIPS window and correct the entries in the PRI/SEC ALLOCATED TIPS, UNREPORTED SS TIPS and/or MEDICARE-ONLY TIPS fields to reflect the actual amount of tip income received (use zero (0) or blank if no tip income was received).

   Reminder: Do not adjust the PRI/SEC UNREPORTED TIP TAX field.

3. Access the SE Tax window and input the reported NEC amount in the PRI/SEC REPRTED SE INC NOT ON SCH SE field.

4. If necessary, adjust the PRI/SEC SS/RR WAGES/TIPS field so it doesn't include the NEC amount from Form 4137.

   Reminder: Do not assess a tip tax penalty.

5. Send PARAGRAPH 12, see Exhibit 4.19.3-7, CP PARAGRAPHS.

(12) If taxpayers who are members of federally recognized Native American Tribes report Form 1099-NEC tribal-related income on Form 1040/1040-SR, Schedule 1, line 8z don't assess SE tax if any of the following literals are provided:

(13) If the taxpayer reports NEC on Form 1040/Form 1040-SR, Schedule 1, line 8z and ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

(1) If a NEC amount on a 99NEC IR is U/R, verify the Income Identify Code so the system computes SE tax correctly. See Exhibit 4.19.3-9, Income Identify Codes.

(2) Underreported NEC is considered self-employment income (Income Identify Code is "PB", "PF", "SB", or "SF", as applicable) even if there is Form W-2 wage income from the same payer, unless the following applies:

1. The NEC is partially or fully reported on Form 2106, Form 3903,Form 4835, Form 6252, Form 4797, Schedule D, Form 8949 or Schedule E, Part I. NEC reported on these forms isn't subject to SE tax or considered earned income (Income Identify Code is blank).

   Note: Excess reimbursements on Form 2106 must be reported on Form 1040/Form 1040-SR, line 1(TY 2021), line 1a (TY 2022 and subsequent) and is considered earned income. Enter Income Identify Code "PE" or "SE".

   Note: Only employees in the following categories qualify to use Form 2106: Armed Forces Reservists, qualified performing artists, fee basis state or local government officials and employees with impairment-related work expenses.

2. The taxpayer is a newspaper carrier or magazine seller and is under the age of 18, DO NOT assess SE tax.

3. The taxpayer is exempt from SE tax on the net earnings covered by an approvedForm 4361 or Form 4029. If the taxpayer writes “Exempt Form 4361” or “Form 4029” on Form 1040/1040-SR, Schedule 2, line 4, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

Note: Although taxpayers may exclude Ministers Housing Allowance from NEC, it generally is subject to self-employment (SE) tax. Thus, there may be a difference between net Schedule C income and income subject to SE tax due to the Ministers Housing Allowance.

4. If the taxpayer indicates that an NEC amount is compensation for a "non-compete" agreement or they are a member of a federally recognized Native American Tribe, the NEC amount isn't subject to SE tax. Leave the INCOME IDENTIFY CODE field blank.

5. If the taxpayer indicates the compensation is for court awards/settlements. See IRM 4.19.3.8.18.2, Other Income Miscellaneous, for further information.

(3) If there is reported NEC on which the taxpayer should have paid SE tax but did not, SE tax must be computed or recomputed if NEC is asterisked or a CP 2000 is sent for another issue(s). Enter the reported NEC amount in the PRIM REPRTD SE INC NOT ON SE and/or SEC REPRTD SE INC NOT ON SE field(s) on the SE Tax window. See IRM 4.19.3.16.1, Self-Employment Tax or Exhibit 4.19.3-20, Examples of Self-Employment Income.

1. Send reported NEC IR elements on the notice when adjusting SE tax.

2. If the NEC amount is entered in the PRIMARY and/or SECONDARY REPORTED SE INCOME field in the SE Tax window in error, an unpostable condition will occur.

(4) If the taxpayer reports NEC income, but indicates they worked as an employee and

1. Paid the employee 7.65 percent of FICA , follow the instructions in IRM 4.19.3.8.6.1, NEC - Analysis.

2. Did not pay the employee 7.65 percent of FICA, charge the appropriate amount of SE tax.

3. The NEC IR is partially reported on Form 4137 or Form 8919 and SS/Medicare tax is paid on the reported amount instead of SE tax, unless the condition in IRM 4.19.3.8.6.1 is met, treat the U/R NEC from the partially reported IR as subject to SE tax and follow the instructions in IRM 4.19.3.8.6.1, NEC - Analysis.

4. Send PARAGRAPH 12, see Exhibit 4.19.3-7, CP PARAGRAPHS.

(5) If the taxpayer reports NEC income AND attaches a Form 4137, follow the instructions in IRM 4.19.3.8.6.1, NEC - Analysis.

(6) If the taxpayer reports NEC income AND attaches a Form 8919, follow the instructions in IRM 4.19.3.8.6.1(9) or (10) as appropriate, NEC - Analysis.

(7) 99NEC IRs may reflect W/H. See IRM 4.19.3.17.1, Withholding - General, for further instructions.

(8) If there are two or more fully U/R NEC IRs with an out-of-state payee address beyond the reasonable commuting area for the taxpayer (for example, taxpayer lives in Pennsylvania and U/R IRs are for Georgia), send PARAGRAPH 167. See Exhibit 4.19.3-7, CP PARAGRAPHS.

(9) If the taxpayer participates in a nonqualified deferred compensation plan that doesn't meet all requirements as specified in IRC 409A, (appears with the literal 409AI on the IR) the payer must report the deferred compensation as income and the amount is subject to an additional tax.

1. The payer identifies income under IRC 409A on, Form 1099-MISC, box 12.

2. Income subject to IRC 409A regulations is identified on the Case Analysis screen by the literal "99MIS" in the DOC TYPE field and the literal "409AI" in the INCOME TYPE field. Enter status code "R" on the "409AI" element(s).

3. The 409AI amount is subject to an additional tax. See IRM 4.19.3.16.7, Additional Taxes on Income from Nonqualified Deferred Compensation Plan (IRC 409A), for further instructions.

   Reminder: Mark the 409AI IR element(s) with Send Indicator "S" when adjusting the additional tax.

(10) If NEC is U/R, enter the GROSS return amount in the RETURN field on the Summary screen.

(1) Compare MERCH amounts with entries on:

1. Schedule C, Part I.

2. Schedule E, Part II - see (5) below.

3. Schedule F, Part I or III.

(2) Consider MERCH reported if it is included in a larger total for the applicable taxpayer on Schedule C, or F, unless the IR is obviously not the same type of income.

(3) When comparing MERCH IRs with entries on any line not specifically identified for MERCH, the amount must match within $1 or be CLEARLY IDENTIFIED by payer name, activity or as MERCH income:

1. Form 1040/1040-SR, line 1 (TY 2021), 1a (TY 2022 and subsequent).

2. Schedule 1, Part I, line 8z.

Note: If the taxpayer is selling a personal item at a loss or reporting an error on the Form 1099-K the gross receipts will be reported on line 8z-Other Income using the description "Form 1099-K Personal Item Sold at a Loss" or "Form 1099-K received in Error" with an offsetting amount reported on Part II - Line 24z Other adjustments.

Note: ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

3. Schedule D, Part I, lines 1a, 1b, 2, or 3 column (d) or Part II, lines 8a, 8b, 9 or 10, column (d).

4. Form 8949, Sales and Other Dispositions of Assets, Part I, line 1 column (d) or Part II, line 1, column (d).

   Caution: Digital assets (Virtual currency) may be reported or partially reported on Form 8949. This income may be identified by payer name or may be referred to as bitcoin or similar digital asset terminology. If the income is partially reported and the taxpayer includes an explanation they reported the fair market value of the digital assets, as of the date it was received, consider the income reported. If pursuing digital assets (virtual currency) send Paragraph 226, see Exhibit 4.19.3-7, CP PARAGRAPHS, for further information.

5. Schedule E, Part I.

6. Form 4797, Sales of Business Property, Parts I, II, or III.

(4) The taxpayer may report the sale of timber, coal, easements, right-of-way (ROW), land damages, etc., on the designated lines for Schedule D, Form 8949 or Form 4797. Consider the MERCH reported if the sales price matches the IR within $1.

(5) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

1. The taxpayer is incorporated (payer name must include CORP, INC, LC, LLC, PA, SC, or PC) and pays wages to themselves (the name and address of the payer is similar to or matches the name and/or address of the taxpayer). ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

2. The taxpayer appears to be a partner or shareholder as shown on Schedule E, Part II. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

3. The taxpayer is in the medical profession and has reported wages from a medical professional corporation (payer name must include CORP, INC, LC, LLC, PA, SC, PC, clinic or group) but not a hospital or medical center. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

   Exception: ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

4. The MERCH IR is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

5. If the MERCH IR can be clearly identified as being a reimbursement of expenses ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

(1) If MERCH is U/R, verify the Income Identify Code so the system computes SE tax correctly. See Exhibit 4.19.3-9, Income Identify Codes.

(2) Underreported MERCH can be considered self-employment income (Income Identify Code is "PB", "PF", "SB", or "SF", as applicable) even if there is Form W-2 wage income from the same payer.

(3) If MERCH isn't subject to SE tax (for example, MERCH reported on Schedule E, Part I, or Schedule D/Form 8949) remove the income identify code and leave the field blank.

(4) If there is reported MERCH on which the taxpayer should have paid SE tax but did not, SE tax must be computed or recomputed if MERCH is asterisked or a CP 2000 is sent for another issue(s). Include the reported MERCH amount in the PRIM REPRTD SE INC NOT ON SE and/or SEC REPRTD SE INC NOT ON SE field(s) on the SE Tax window. See IRM 4.19.3.16.1, Self-Employment Tax and Exhibit 4.19.3-20, Examples of Self-Employment Income.

1. Send reported MERCH IR elements on the notice when adjusting SE tax.

2. If the MERCH amount is entered in the PRIMARY and/or SECONDARY REPORTED SE INCOME field in the SE Tax window in error, an unpostable condition will occur.

(5) PARAGRAPH 109 automatically generates when the MERCH IR is identified as U/R or used to create a group. If MERCH isn't used to create a group, send PARAGRAPH 109, see Exhibit 4.19.3-7, CP PARAGRAPHS.

(6) If MERCH is U/R, enter the GROSS return amount in the RETURN field on the Summary screen.

(1) Compare MED amounts with entries on:

1. Schedule C, Part I, if it appears to be for a medical practice.

2. Schedule E, Part II, if it appears to be related to the medical profession.

(2) MED comparisons for the following entries must match within $1 or be CLEARLY IDENTIFIED as MED payments on Form 1040/Form 1040-SR, line 7 or Form 1040/1040-SR, Schedule 1, line 8z.

(3) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

1. Reported wages from a medical professional corporation (payer name must include CORP, INC, LC, LLC, PA, SC, PC, clinic, or group), but not a hospital or medical center or

2. Is incorporated (payer name must include CORP, INC, LC, LLC, PA, SC or PC) and pays wages to themselves (the name and/or address of the payer is similar to or matches the name and/or address of the taxpayer).

   Note: If there are no WAGES IRs displayed on the Case Analysis screen, review the Form W-2 attached to the return.

(4) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

(5) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

(1) If MED payments are U/R and the taxpayer's occupation and/or the payer name on the MED IR(s) is NOT related to the medical field, the income may be sick pay or disability payments. Form 1099-MISC are sometimes incorrectly used to report sick pay or disability payments.

1. Do not consider the U/R MED amount(s) as self-employment income.

2. Delete the Income Identify Code(s).

(2) If MED payments are U/R and the taxpayer is in the medical profession, treat U/R MED payments as self-employment income. See IRM 4.19.3.16.1, Self-Employment Tax.

(3) If there is reported MED on which the taxpayer should have paid SE tax but did not, SE tax must be computed or recomputed, if MED or SE tax is asterisked or a CP 2000 is sent for another issue(s). Include the reported MED amount in the PRIM REPRTD SE INC NOT ON SE and/or SEC REPRTD SE INC NOT ON SE field(s) on the SE Tax window. See IRM 4.19.3.16.1, Self-Employment Tax, and Exhibit 4.19.3-20, Examples of Self-Employment Income.

1. Send reported MED IR elements on the notice when adjusting SE tax.

2. If the MED amount is entered in the PRIMARY and/or SECONDARY REPORTED SE INCOME field in the SE Tax window in error, an unpostable condition will occur.

(4) IRs with MED amounts may reflect W/H. See IRM 4.19.3.17.1, Withholding - General, for further instructions.

(5) If MED payments are U/R, enter the GROSS return amount in the RETURN field on the Summary screen.

(1) When comparing FISH or FRSAL amounts with the following entries, the amount must match within $1 or be CLEARLY identified by payer name, activity or as fish income:

1. Schedule C, Part I.

2. Schedule E, Part I.

3. Schedule E, Part II.

4. Form 1040/1040-SR, Schedule 1, line 8z.

(1) If a FISH or FRSAL amount on a 99MIS IR is U/R, verify the Income Identify Code so the system computes SE tax correctly. Valid Income Identify Codes are "PB", "PF", "SB", or "SF", as applicable. See Exhibit 4.19.3-9, Income Identify Codes.

(2) If there is fishing income reported on which the taxpayer should have paid SE tax but did not, SE tax must be computed or recomputed if FISH, FRSAL, or SE tax is asterisked or a CP 2000 is sent for another issue(s). Include the reported FISH amount in the PRIM REPRTD SE INC NOT ON SE and/or SEC REPRTD SE INC NOT ON SE field(s) on the SE Tax window. See IRM 4.19.3.16.1, Self-Employment Tax, and Exhibit 4.19.3-20, Examples of Self-Employment Income.

1. Send reported FISH or FRSAL IR elements on the notice when adjusting SE tax.

2. If the FISH amount is entered in the PRIMARY and/or SECONDARY REPORTED SE INCOME field in the SE Tax window in error, an unpostable condition will occur.

(3) 99MIS IRs with FISH or FRSAL amounts may reflect W/H. See IRM 4.19.3.17.1, Withholding - General, for further instructions.

(4) If fishing income is U/R, enter the GROSS return amount in the RETURN field on the Summary screen.

(1) Form 1099-Rs may display the following literals:

• "GR/A" - Gross amount

• "TX/A" - Taxable amount

• "ECG" - Eligible Capital Gains

  Note: Payers must include the capital gain distribution amount in the gross and taxable distribution amount boxes on Form 1099-R.

• "UNRAP" - Unrealized Appreciation

• "EMCON" - Employee Contributions from box 5 of Form 1099-R

Note: "UNRAP" and "EMCON" amounts are system deleted.