25.15.9. Account Processing of Requests for Relief from Joint and Several Liability

(1) The innocent spouse program makes determinations on requests for relief provided in the Code of Federal Regulation (CFR) Title 26, Subtitle F - Procedure and Administration, IRC 6015, Relief from Joint and Several Liability on Joint Return, and CFR Title 26, Subtitle A – Income Taxes, IRC 66, Treatment of Community Income.

(2) An innocent spouse technician applies the law to the facts and circumstances submitted with Form 8857, to determine whether the individual should be relieved of any or all tax liability owed. See IRM 25.15.3, Technical Provisions of IRC 6015, or IRM 25.15.5, Relief from Community Property Laws, for more information.

(3) CCISO handles all requests except those involving tax years with open audits conducted by a Revenue Agent or Tax Compliance Officer outside of the campus environment. In the case of open field examination audits, determinations will be made by the assigned employee.

(4) The campus Innocent Spouse Program is an Examination Field Support Operation located at CCISO.

(5) All requests for account adjustment(s) and/or refunds will be submitted to CCISO processors on an Innocent Spouse Operations (ISO) Adjustment Request (ISO-AR) with a full TXMOD print of the account attached.

(6) The procedures in this IRM are general in nature and cannot cover all situations that may be encountered. Document all actions taken and consult with management when appropriate.

(1) IRC 66(c), Treatment of Community Income relief provisions.

(2) The CFR at 26 CFR sections 1.66-1 through -5, contain guidance on requests for relief from federal income tax liability resulting from the operation of community property law.

(3) IRC 6015, Relief from joint and several liability on joint return.

(4) 26 CFR sections 1.6015-1 through -9, which provide guidance on requests for relief from joint and several liability and related proposed regulations, including 78 FR 49242 (issued on August 13, 2013) and 80 FR 72649-01 (issued November 20, 2015).

(5) Rev. Proc. 2003-19, administrative appeal rights for the non-requesting spouse.

(6) Rev. Proc. 2013-34, guidelines for taxpayers seeking equitable relief from income tax liability under section 66(c) or section 6015(f).

(1) The Director, Examination - Field and Campus Policy, reports to the Director, Headquarters Examination, and is responsible for the delivery of policy and guidance that impacts the field and campus examination process. See IRM 1.1.16.3.5.1, Field and Campus Policy, for additional information.

(2) Campus Exam and Field Support, which is under the Director, Examination - Field and Campus Policy, is the group responsible for providing Servicewide policy guidance on compliance processes that relate to campus examination operations and support Field Exam and Specialty Programs in SB/SE and Large Business & International (LB&I). See IRM 1.1.16.3.5.1.5, Campus Exam and Field Support, for additional information.

(3) CCISO falls under the responsibility of the Director, Examination - Campus, with the Director, Examination - Field and Campus Policy, providing oversight to the innocent spouse processing IRMs.

(4) Management in CCISO oversees employees processing Forms 8857, including creating and updating the Innocent Spouse Tracking System (ISTS) records, creating and maintaining cases on the Accounts Management System (AMS)/Innocent Spouse Application (ISA) Database, and making account adjustments according to the relief determination.

(5) The Processing Technicians in CCISO are responsible for:

• Finalizing all account actions as directed on the ISO-AR.

• Reviewing the tax account(s) for any transactions posted after the preparing of the ISO-AR.

• Using Document 6209, IRS Processing Codes and Information, to determine meaning of transaction, freezes, and other information, on any account.

  Note: For example, a unique sequence number is required in the ADJ54 screen for each adjustment input. The sequence numbers used should be input in increasing numerical order, (For example: 1, 2, 3, and so on.).

(6) The IRS adopted the Taxpayer Bill of Rights (TBOR) in June 2014. Employees are responsible for being familiar with and acting in accordance with taxpayer rights. See IRC 7803(a)(3), Execution of Duties in Accord with Taxpayer Rights. For additional information about the TBOR, see the web page Taxpayer Bill of Rights FAQs.

(1) The following is a list of common terms used in this IRM section:

(1) The following table lists common acronyms and their definitions, used throughout this IRM:

(1) The table below includes references for related innocent spouse and account adjustment IRMs and is not all inclusive:

(2) For research of IDRS transcripts of accounts see Document 6209, IRS Processing Codes and Information.

(1) Fully allowed requests can be classified as:

• Refund due, or

• No refund due.

(1) A request is considered to be partially allowed if the RS is still liable for any part of an original filing or additional tax assessment (including EITC reversal, withholding credit, accuracy-related penalty, etc.).

(1) This section describes post determination actions required to close relief requests where relief is disallowed in full.

(1) Form 12810, Account Transfer Request Checklist, is used to request transfer of part or all of a tax assessment to MFT 31 or NMF 20.

(2) Consider the following for transfer restrictions and resolutions prior to completing Form 12810. It is not necessary to remove reversed transactions, e.g. TC 582 reversed by a TC 583.

(3) The Credit and Account Transfer Unit cannot transfer a TC 896 through TC 899 (offset to non-tax debt). This is usually associated with the original settlement (TC 150 transactions). Do not transfer the TC 150 and related transactions. If the entire account is being transferred because of a refund/offset after the due date, a Non-Restricted TC 340 may be required. If it is necessary to transfer the TC 150, see appropriate manager.

(4) If transferring a TC 280 (bad check penalty) from the MFT 30 account, the related TC 670/671 causing the penalty must also be transferred.

(5) The Credit and Account Transfer Unit cannot transfer a TC 766 with an Offset Trace Number (OTN)-Code (CD) number. If it is necessary to transfer the TC 766 with an OTN-CD number, see appropriate manager.

(6) Transfer any Centralized Authorization File (CAF) indicator (TC 960/961/962) only if any of these pertain to the NRS. Verify who the valid CAF indicator belongs to on CC CFINK. These transactions along with the TC 460 will be listed on the "To" Account column for NRS only.

(7) For bankruptcy transactions (TC 520/521) and closing codes pertaining to the NRS, see IRM 25.15.9.4.1, Bankruptcy: Freeze -V and/or -W, and follow the procedures referenced.

(8) If transferring an undeliverable refund credit (TC 740) posted after a TC 300 or TC 290, transfer the entire account. A TC 740 applicable to the RS cannot be transferred. The TC 740 is a credit transaction following a TC 840/846 debit transaction. If there is a reason why the entire account cannot be transferred, see appropriate manager.

(9) If transferring an account with a reversal of allowable interest paid (TC 777) posted with the TC 300 or TC 290, transfer the entire account. The TC 777 is a debit transaction now part of the balance due, and cannot be moved without the associated TC 776. If there is a reason why the entire account cannot be transferred, see appropriate manager.

(10) If a TC 840 has posted to the account as the result of a refund of various payments to the RS, be alert to the fact the computer will always presume the last payments posted before the TC 840 are the payments refunded. CC INTSTD will reflect this. The computer has no way of knowing the payments refunded may not be the last payments made. Therefore, if a Non-Restricted TC 340 is required, and the payments refunded do not agree with CC INTSTD, it will be necessary to manually compute the interest.

(11) If the NRS has a pending Installment Agreement (IA) TC 971 AC 043 or has an IA TC 971 AC 063, it is necessary to manually input these transactions to MFT 31 account using CC REQ77. These protect the taxpayer from levy action. If the NRS was taken out of the IA status, the account will reflect a TC 971 AC 163 on the MFT 30 account. Input this on the MFT 31 account.

(12) Invalid NRS secondary TINs must be corrected before trying to post to MFT 31, if possible. If the NRS secondary TIN cannot be corrected, the account will be transferred to NMF 20.

(13) If either taxpayer used an incorrect TIN (transposed numbers or typographical error) and through research the correct TIN is found, use CC ENMOD/ENREQ to correct the TIN. After posting, the TIN will be validated and the account can be transferred to MFT 31.

(14) Typographical errors in the name control and/or use of a hyphenated last name can also be corrected using CC ENMOD/ENREQ to validate either TIN as long as the CC INOLEX, Social Security Administration (SSA), and Individual Master File (IMF) name controls match.

(15) Invalid secondary TINs due to name control mismatches can be validated using CC IRCHG. To use IRCHG:

1. Input CC ENMOD on the primary taxpayer's TIN residing on the valid segment.

2. Overlay with CC ENREQR to bring up CC IRCHG.

3. Input Justification Indicator (JUST-IND) "1" YEAR-NM-LINE "19XX or 20XX", SPOUSES-TIN (no asterisk), and REMARKS "to validate name of spouse".

4. This will generate a TC 017 on CC ENMOD. Monitor for the TC 017 to post. This will move the spouse's TIN from the invalid segment to the valid segment.

5. TC 971 AC 103 can now be input to create a MFT 31 account for the secondary taxpayer.

   Caution: The only cases which must be transferred to NMF 20 are those where the secondary claimant is actually using a TIN belonging to another taxpayer. Do not validate the TIN in this situation.

(16) Prior to transferring an account to NMF 20:

1. Print a copy of CC INTST computed to the 23C posting date.

2. Using CC REQ54, post the accruals of Failure to Pay (FTP) penalty and interest to the MFT 30 account.

3. Wait for the adjustment to post. Then continue with Form 12810, Account Transfer Request Checklist, processing

4. Update IDRS control as appropriate with activity "F12810".

5. Update ISTS to Stage 28.

6. Document the activity record and the ISTSR Input Record with all actions taken.

7. Make a copy of Form 12810 and attached TXMOD print. Place original Form 12810 and highlighted CC TXMOD (if more than 10 transactions) in the appropriate receptacle.

8. Place a copy of Form 12810 and highlighted TXMOD in case file.

(17) If an account must be transferred to NMF 20, and it is necessary to transfer two or more tax assessments from the same module (TC 150, TC 290, TC 300 and their related transactions), prepare a separate Form 12810 for each tax assessment. NMF 20 accounts are set up to reflect only one collection statute per module. Be certain to indicate the correct CSED for each tax assessment.

(18) The following transactions will affect the processing of a relief request. These indicate the NRS and/or RS have been relieved of all or part of the debt by Bankruptcy or OIC. The amount may subsequently be transferred to either taxpayer or the entire balance may be removed with an assessed debit cleared (TC 604). Ensure the actions taken by Compliance are in agreement with the innocent spouse determination. If the account has been transferred to MFT 31 for the RS, a TC 604 may be required. If the joint debt was written off, the case may be closed. If uncertain of the correct action to take, see appropriate manager.

(19) The Credit and Account Transfer Unit can only transfer 50 transactions on Form 3413, Transcription List, (Account Transfer In). If there are more than 50 transactions to be transferred, transfer enough payments to the MFT 31 so the number of transactions is less than 50. Use CC ADD/ADC34 with a "1" in the Credit Freeze Code field on the credit side of the transfer to keep the payments from refunding off the MFT 31. Print an entire INTSTD before the technician transfers the payments and keep with case file in the event a Non-Restricted TC 340 is required.

(20) A transfer of the entire account may be required, if there is a reversal of penalties with the TC 290 or TC 300, and the reversal amount differs from the amount originally assessed with the TC 150 transaction.

(1) Bankruptcy cases are identified with a -V and/or -W freeze.

(2) If an account has a -V and/or -W freeze, check for an open bankruptcy indicator TC 520 with closing codes 60-67, 81, 83 or 85-89. The TC 520 will also contain a CSED-EXT-IND. Valid entries are P for primary, S for secondary or B for both. Determine if the RS or NRS filed the bankruptcy.

(3) If the account has been transferred to the RS on MFT 31 because the NRS received a discharge of the debt as a result of bankruptcy, process per the instructions listed below:

(4) If the account has been transferred to the RS on NMF 20 because the NRS received a discharge of the debt as a result of bankruptcy. See IRM21.7.12 Non-Master File (NMF) Adjustments, for more information.

(1) Verify that AMS has been updated to document a telephone call to the taxpayer (RS and/or NRS) that has the –O Freeze, determining whether or not they are actually in a disaster zone. If the taxpayer states that they are not in a disaster zone, follow normal processing procedures. If the taxpayer is in a disaster zone continue with the following instructions.

(2) Update ISTS and ISTSR Input Record as follows:

1. To Stage 06

2. Activity - "Other"

3. Comment field - "RS", "NRS", or "Both", as appropriate and should indicate FEMA Disaster Relief or something similar.

(3) Update TXMOD as follows:

1. Activity - "-O Freeze"

2. Control to "02XXX00006"

(4) Route case to designated team for suspense cases.

(1) If the account has an open -Y freeze:

1. Check for a TC 480 or TC 780.

2. Look at the indicator to determine which taxpayer filed the OIC; P is for primary; S is for secondary; B is for both.

3. If the NRS filed the OIC and the TC 780 posted to the account before the date of determination, then the Full Scope technician must document the activity record for the OIC contact.

   Note: If not, return back to the technician. See IRM 25.15.9.8, Returning Cases, for more information.

4. If the TC 780 posted to the account after the date of determination, then the Processing Team technician will coordinate with the OIC office.

(2) The following is a list of transactions related to OIC:

(3) If TC 48X or TC 78X transactions are present for the NRS, the transactions will be transferred to MFT 31 or NMF 20. Provide a print of the MFT 30 TXMOD to the designated Processing Team technician to have the TC 48X(s) and TC 78X(s) input to MFT 31 or NMF 20.

• Document on TXMOD print attached to Form 12810, Account Transfer Request Checklist, and activity record that the request was made to have the TC 48X or TC 78X input on MFT 31. This is necessary for the computer to calculate the correct CSED for the NRS.

• If there is a TC 480 or TC 780 posted in error, those do not need to be transferred to MFT 31. The CSED would not be extended in this case.

(4) When an accepted OIC is fully paid, including payment of deferred installment payments and completion of the terms of any collateral agreements, the tax liabilities are adjusted to zero. The OIC file is placed into a monitoring status. See IRM 5.19.7.13, 5-Year Monitoring Status, for more information.

(5) One of the terms of the offer agreement requires the taxpayer to timely file returns and timely pay taxes for five years after the acceptance of the OIC or until the offered amount is paid in full, whichever is longer. Breach of this future tax compliance provision permits the Service to reinstate the original tax liability. See IRM 5.19.7.14.4, Failure to Adhere to Compliance Terms, for more information.

(6) Due to the possible reinstatement of the original tax liability because of noncompliance, the initial adjustment bringing the balance in the account to $0 is not considered an abatement of the tax assessment. Process all cases involving an accepted OIC (TC 780) as follows:

(7) If the account has been transferred to the RS on NMF 20 because the NRS' liability was adjusted through an OIC, see IRM 21.7.12, Non-Master File (NMF) Adjustments.

(8) Continue with closing procedures based on the determination made. See IRM 25.15.9.3.1, Fully Allowed Requests, IRM 25.15.9.3.2, Partially Allowed Relief, or IRM 25.15.9.3.3, Relief Disallowed, for more information.

(1) In determining if any payments or credits can be refunded, all payments and credits need to be applied to tax in the order that they have been received. This includes the order of assessment.

(2) A RS and a NRS each have a separate interest in any overpayment on the joint account. As a result, each spouse may have a different Refund Statute Expiration Date (RSED) for claiming a credit or refund for the account when a payment or a credit applied from another account is not joint, but rather is shown to have been paid by or is attributable to only one of them.

(3) The amount to be credited or refunded is limited to the tax paid (which includes tax, penalties and interest) during the two year period prior to filing of the request for relief, or three years from the return filed date, whichever is later. See IRM 25.6.1.10.2.7, Claims for Credit or Refund - General Time Period for Submitting a Claim, for more information.

(4) An overpayment, including any interest allowed on the credit by the Service, credited to an underpayment of another year, constitutes a payment on the date the credit is allowed. See IRM 25.6.1.7.2(5), Time When Payments and Credits are Considered to be Made, for more information.

(5) If the RS is entitled to relief, but the RSED has expired on payments made or credits attributable to the RS, the amount will remain on the account to be applied against the outstanding liability. Do not transfer the payment/credit to excess collection. This would result in the amount being collected twice.

(1) If freeze conditions exist that make a refund inappropriate or prevent a refund from being issued by Master File, either resolve the freeze or issue a manual refund. See Document 6209, IRS Processing Codes and Information, Section 8, for more information.

(2) When possible, rather than issuing a manual refund, transfer credits back to the year producing the offset and allow the computer to refund the overpayment or transfer to another year. This will ensure the allowable interest on the refund is correctly computed.

(3) Apply any credits to any existing separate or joint liabilities for which the RS does not have an open innocent spouse request for relief. Satisfy the liabilities on the earliest CSED.

(4) Installment Agreement (IA) user fees will not be refunded except for IRS error, (i.e. fee taken twice). See IRM 5.19.1.6.4.6, IA Payment Methods and User Fees (UF) Overview, DPC 41 - 57 on a payment indicate IA user fees.

(5) A taxpayer's overpayment may be applied to any of the following: outstanding Federal tax, non-tax child support, Federal agency non-debt, State income tax obligation or Unemployment Compensation prior to crediting the overpayment to a future tax pursuant to a taxpayer's election or making a refund.

(6) Information on refund offsets may be found in IRM 21.4.6, Refund Offset.

(1) Payments and credits can be applied to a taxpayer’s account in three different ways.

1. The IRS computer system will automatically apply payments and credits when received or available.

2. Service personnel may apply payments and credits to specific tax periods.

3. The taxpayer may designate the application of certain payments.

(2) Conduct the following research in order to determine the disposition of the payments.

(1) Undesignated voluntary payments, involuntary payments or credits are applied in the following manner:

1. For accounts where there are several periods with a balance due, the Service will apply payments and credits in an order of priority that will serve its best interest. See Rev. Proc. 2002-26 section 3.02, for more information. Usually the best interest is to satisfy the individual or joint liabilities with the earliest CSED.

2. Within a tax period the Service applies payments and credits to a balance due first to the tax, then to the penalties and finally to the interest.

   Caution: Do not apply a payment or credit that is eligible for refund to an account with an unreversed TC 971 AC 065, unless requested by the RS per a documented phone call or written correspondence.

(2) A designated payment is a voluntary partial payment designated in writing by the taxpayer to be applied in a particular manner, (i.e., specific tax period, kind of tax, or among tax, penalty and interest within a period) when the payment is insufficient to satisfy the balance due. See Paragraph (3) for designated payment codes.

(3) A Designated Payment Code (DPC) is mandatory for the following transaction codes

• 640

• 670

• 680

• 690

• 693

• 700

(4) DPCs indicate

• Application of payments for a specific liability.

• The event which resulted in the payment.

(5) Refer to IRM 3.8.45.10.1, Designated Payment Codes (DPCs), for a list of codes and meanings.

(1) Credit transfers are requested on an ISO-AR. The credit transfer request can be in addition to the account transfer/adjustment information shown on the form. Information must be documented in the case file by the technician if relief was allowed under IRC 6015(b), IRC 6015(c), or IRC 6015(f), and if refund/offset of credits is appropriate.

(2) An ISO-AR requesting a credit transfer can also be received without the case file when a refund has offset from the RS’ individual tax return to the joint account after Form 8857, Request for Innocent Spouse Relief, was filed.

• For purposes of determining the date of payment when there is a TC 706 (offset of overpayment from the RS' account) use the cycle the offset posted. Prior to January 1, 2012, Monday's date is considered the first day of the cycle and the date the offset occurred. Effective January 1, 2012, the cycle format is "YYYYMMDD". The date is determined by the last two digits of the cycle. 01 = Friday, 02 = Monday, 03 = Tuesday, 04 = Wednesday, 05 = Thursday.

  Note: For payment application when taxpayers are in community property states, verify computation by Technical Unit or addressed by technician.

(3) Refer to IRM 21.5.8, Credit Transfers, for detailed instructions on credit transfers. Use CC ADD24 or Integrated Automation Technologies (IAT) tool to transfer the credit.

• Use remarks "NSD IS Relief/ISO-AR", or similar statement.

  Note: Once a credit or payment is properly applied to a period and/or kind of tax, subsequent events may prevent the Service from moving a TC 706.

(4) If TC 971 AC 065 has not posted to the account use a posting delay code of one cycle on both sides of the credit transfer.

(5) If a TC 131 is required (posted to incorrect account or not timely released) along with the credit transfer, use a posting delay code of one cycle on both sides of the credit transfer. See IRM 25.15.2.4.3(5), TC 130 Entire Account Frozen From Refunding, for more information on TC 130 Reversal Requirements.

(1) All refund requests will be received on a completed ISO-AR.

(2) All payments being refunded must be verified as being received solely from the RS.

(3) It may be necessary to issue a manual refund to the RS if Master File is unable to refund the credit. See IRM 21.4.4, Manual Refunds, for detailed instructions on manual refunds. Some of the reasons a manual refund would be necessary are:

• An erroneous TC 130 freeze, i.e., the TC 130 was input to the RS’ TIN in error.

• Deceased taxpayers.

• RSED expired.

• Certain Tax Year 2001 rebates.

• Payments, other than offsets, on the joint module belonging to only one spouse.

• Primary taxpayer is the RS, IDRS is in Status 60 (IA), and payment(s) need to be refunded.

(4) Do not issue a manual refund from a tax module where no TC 150 has posted. This creates an –X freeze and a TC 290 .00 will be unable to post to release it. If payments must be refunded on an expedite basis and conditions on the module prevent the issuance of the refund from the module, transfer the payments to a module where a TC 150 has posted and the module is in zero balance.

(5) Compute allowable interest, if appropriate, using either the CC COMPA or the Automated Computational Tool (ACT).

1. No interest is paid on an original return overpayment if the refund is issued within 45 days of the later of the return received date, the return due date (determined without regard to any extension of time for filing the return), or the date the return was received in processable form.

2. If the 45-day interest-free period is missed, interest must be paid on the refund. Generally, interest is allowed from the availability date of the overpayment. The availability date of the overpayment is determined by the payment(s) and/or credit(s) of which it is comprised. See the table below for determining the availability date of a payment.

(6) Interest may be computed from other than the availability date of the overpayment when the original tax return was filed late or in unprocessable form. See the table below for determining which date to calculate interest from.

(7) Use Manual Refund Request Referral to request the refund. See Exhibit 25.15.9-1 , Job Aid for "ISO Manual Refund Request Referral" for additional information. The form can be found on the Innocent Spouse Operations Sharepoint site at https://organization.ds.irsnet.gov/sites/SBSEfeEP/ExamTasks/FSP/ISO/SitePages/Home.aspx.

(8) Attach the following to the Manual Refund Request Referral form before scanning:

• Form 3210, Document Transmittal

• ISO-AR

• CC COMPAD print

(9) If the refund is being issued from a joint module, input TC 971 AC 037 using IDRS CC REQ77. This will show the TIN of the recipient of the manual refund on the joint account. Use the current date as the Transaction Date. Enter the TIN of the person receiving the refund.

(10) After completing the Manual Refund Request Referral, the manager will review and sign. It must be signed by the authorized manager listed in Box 4 on the form. See Exhibit 25.15.9-1, Job Aid for "ISO Manual Refund Request Referral", for more information.

(11) After the manual refund packet is complete, scan the packet to create an electronic PDF file.

(12) Update TXMOD case control activity to "WTG840".

1. Open a control base on the MFT 31 account where the TC 840 will post.

2. Use "B" status,

3. Activity code "WT840",

4. Category code "MISC",

5. IDRS number "02977XXXXX" (technician’s IDRS number), and

6. The current date as the received date.

(13) Monitor the account for the TC 840 to post. If leaving an account in debit balance, TC 840 will set an -X freeze. If the -X freeze needs to be released, use REQ54 to input TC 290 .00 as needed, with:

1. BS "05".

2. RC "099".

3. SC "2".

4. HC "3".

5. PC "8".

6. PDC "1".

7. NSD Remarks: "To release -X freeze" .

(14) Complete the ISO-AR "Actions Completed By" section, which documents the date of input.

(15) Continue to work case after TC 840 posts, or, if the only action requested was the manual refund, close the IDRS base activity "840POSTED". Place the case in the appropriate receptacle to be returned to the appropriate team.

(16) For credit transfer(s) and/or manual refund(s) on NMF 20, obtain a NMF transcript from the Campus maintaining the NMF 20 account.

1. Complete Form 3870, Request for Adjustment. In the Reason for Adjustment section, indicate "Innocent Spouse Relief" and state amount and date of payment to be refunded. Also, request a copy of the NMF transcript be faxed to the technician when refund is completed.

2. Send a copy of the signed, completed Form 3870 and a copy of the NMF transcript to the Cincinnati Campus. See IRM 21.7.12, Non-Master File (NMF) Adjustments, for more information.

3. If a transcript is not received back within 4-6 weeks, call the Accounting Function at the Cincinnati Campus and ask for a current transcript to be faxed to the technician.

4. When received, verify either a TC 840 has posted to NMF 20 or the credit was transferred back to the MFT 30 account. If the credit was transferred back to the RS’ MFT 30 account, verify a TC 846 has posted from the MFT 30. If the credit is being held by a V- freeze, a manual refund will be required

(1) For information on mirrored payments and credits, see IRM 25.15.15.5.2, Mirrored Payments and Credits.

(1) If transferring a fully or partially allowed account to MFT 31 or NMF 20, accruals of Failure to Pay (FTP) penalty and interest need to be posted to the MFT 30 account.

(2) To post accruals, input a TC 290 .00 with:

1. BS "05".

2. SC "02".

3. RC "099".

4. HC "0".

5. PC" 5".

6. NSD and in the remarks enter "Post accruals - IS relief".

(3) There are three rates of FTP penalty that can be charged. Use CC COMPAF to compute:

• 1/2 percent per month of underpaid tax is the normal rate;

• 1/4 percent per month of underpaid tax is the rate charged during the period a taxpayer has an approved Installment Agreement (IA);

  Reminder: Format: COMPAF (7 spaces) 063 date (space) &

• 1 percent per month is the rate beginning on the 10th day after the issuance of an IRS intent to levy. (Stat 58)

  Reminder: COMPAF (7 spaces) State 58 date + 110 days.

  Note: In all cases, the maximum FTP penalty charged is an aggregate total of 25 percent of the underpaid tax.

(4) If a FTP penalty is being charged concurrent with the Failure To File (FTF) penalty, the amount of the FTF penalty is reduced by the amount of the FTP penalty charged per month. The rate does not change, see IRC 6651(c)(1). If a FTP penalty is not being charged concurrently (as in a TC 300 examination assessment), the FTF penalty rate is 5 percent per month on the unpaid tax as of the normal return due date, for a maximum of 5 months, or 25 percent.

(5) If the return is more than 60 days late, a minimum FTF penalty or 100 percent of the underpaid tax, whichever is less, applies. See IRM 20.1.2.3.7.4, Minimum Penalty, for more information.

(6) When transferring accounts to MFT 31, notice status 21, 56, and 58 cannot be transferred. The original 1 percent start date which triggers a 1 percent FTP penalty will be lost. Indicators the FTP penalty must be computed at 1 percent are:

1. MFT 30 shows Status 58, which indicates a CP 504 notice of intent to levy has been issued.

2. TC 971 AC 035, indicating the manual recordation of a notice of intent to levy.

   Note: Must be input if MFT 31 is manually established and not mirrored.

3. TC 971 AC 069, indicating a notice of intent to levy with a Collection Due Process (CDP) notification.

4. Assessment with doc code 51 and blocking series 140–149 indicating a notice of intent to levy in conjunction with an assessment notice.

5. Assessment with doc code 51 and blocking series 100–119 indicating a demand for immediate payment as part of a jeopardy assessment.

(7) The taxpayer may receive the 1/4 percent rate for the IA if the original return was filed timely, including extensions. An indication the taxpayer was allowed the 1/4 percent rate is the TC 971 AC 063 on the MFT 30 account. The Full Scope technician will document the history sheet whether the IA was entered into by the RS or NRS.

• If the IA was entered into by the NRS, then input TC 971 AC 063 on the MFT 31 account, using IDRS CC REQ77.

• If there is a TC 971 AC 163 on the MFT 30 account, input this on the MFT 31 account as well.

(8) The following are some situations the technician may encounter affecting the calculation of the FTP penalty. These are not all-inclusive. See IRM 20.1.2, Failure to File/Failure to Pay Penalties, for additional information.

1. The FTP penalty is suspended on the account during a bankruptcy. The suspension period runs from the TC 520 transaction date through the TC 521 transaction date.

2. For months beginning on or after January 1, 2000, the FTP penalty rate is reduced to 1/4 of 1 percent during the period a taxpayer is in installment status, if the return was timely filed (including extensions). If the taxpayer defaults on the agreement, the rate changes to 1/2 percent per month or 1 percent per month (if notice and demand for payment has been made and 10 days have elapsed since payment). The FTP penalty rate will revert to 1/4 percent again, if the agreement is reinstated and the 1 percent rate never went into effect. For installment agreements reinstated or posted after cycle 200452, the rate changes to 1/4 percent regardless whether the 1 percent rate was ever in effect.

3. The FTP penalty on an original TC 150 is computed on the tax as calculated by the taxpayer. If the taxpayer makes a math error which results in an increase in tax, the FTP penalty is charged on the tax per the taxpayer until the TC 150 posting date plus 21 days. At that point, the FTP penalty is charged on the corrected tax until the tax is paid. This allows the taxpayer time to pay the corrected tax without incurring additional FTP penalty.

4. If a taxpayer does not file a tax return and IRS records indicate a tax return is due, Substitute For Return (SFR)/Automated Substitute For Return (ASFR) procedures may be started. An IRS prepared return can be identified by TC 150 .00 with "SFR" or "ASFR" located to the right of the TC 150. This is known as a "dummy" return. If the taxpayer does not respond to the request to file a return, a TC 599 closing code 88 is input on the account and a default SFR/ASFR assessment is made (TC 290 or 300). If the taxpayer agrees with the proposed assessment or files a tax return, a TC 599 closing code 89 is input on the account and the taxpayer's return is posted as TC 290 with Priority Code (PC) 2 or TC 300 with PC 9. In both cases, per Taxpayer Bill of Rights (TBOR) II, for returns due after July 30, 1996, the Service will assess FTP from the original return due date. IRC 6015 relief cannot be an issue for a defaulted SFR assessment because default SFR and ASFR assessments never use the married filing joint filing status.

5. When allocating a FTP penalty for partials, a TC 806 posted with a subsequent assessment (TC 290) can be difficult to verify. The computer will table the TC 806 with the TC 150 for the purpose of computing the FTP penalty. Check CC INTSTD to verify how the computer is tabling tax and credits in these cases.

6. Computation of FTP penalty will be suspended for all applicable FEMA (Federal Emergency Management Agency) periods. These periods can be found on CC ENMOD referenced by a TC 971 AC 086 or AC 688.

(1) Interest is charged on an underpaid tax from the last date prescribed for payment, without regard to extensions (generally the normal return due date).

1. Underpaid tax is the total tax minus timely credits such as TC 806, TC 764, TC 660 and any other payments received on or before the due date.

2. Interest is charged on the Failure to File (FTF) and TC 240 penalties (penalty reference number (PRN) 680, 681, and 682) from the normal due date, extended due date, or July 18, 1984 (whichever is later).

3. Interest on Failure To Pay (FTP) penalties is not charged until the penalties are assessed (23C date). See IRM 20.2.5.3, Interest on Penalties and Additions to Tax, for more information.

(2) An original tax return (TC 150) resulting in a refund issued after the normal return due date affects the underpayment interest on a subsequent assessment for the same tax year.

1. Interest is not charged on a subsequent assessment (up to the amount of the refund) for the periods of time the Service had use of the taxpayer's money without the Service paying interest.

2. If the taxpayer received interest on the refund, underpayment interest on the subsequent assessment is charged at the overpayment rate during the period interest was paid on the refund (up to the amount of the refund).

   Note: IRC 6611(e)(1) prohibits the IRS from paying interest on overpayments if a refund is made within 45 days after the due date of the return, or 45 days after the return was filed, if the return was filed after its due date.

3. Input a TC 772 for the underpayment interest amount that was netted, or if one interest adjustment involves multiple overpayments that were netted, combine the netted amounts for a single TC 772 adjustment. See IRM 20.2.14.4.3, Manually Computing Within Module Interest Netting, for more information.

   Exception: Because TC 772 will not post to an MFT 31 tax module that was not established through mirroring of its corresponding MFT 30 tax module, any netted interest amount(s) must be included with the TC 340 amount.

4. A complete account transfer allows the computer to make this calculation of interest on MFT 31. If this is not possible because the module is restricted, manually compute the interest amount to be input on MFT 31 for a Non-Restricting TC 340. See IRM 20.2.5.6.3, Non-Restricting Transaction Code (TC) 340, for more information.

5. In the case of a partial, it is necessary to compare both the MFT 30 and MFT 31 tax amounts against the refund amount to determine the correct interest-start dates.

   Example: A refund is issued on 06-13-XX for $5,000 (without interest). A subsequent assessment is made for $7,000. $4,000 of the tax will remain on MFT 30 and $3,000 will be transferred to MFT 31. $4,000 of the tax being left on MFT 30 will start accruing interest on 06-13-XX. ($5,000 refund minus $4,000 tax used on MFT 30 leaves $1,000 to apply against the $3,000 being transferred to MFT 31). Of the $3,000 being transferred to MFT 31, $1,000 will start accruing interest on 06-13-XX and the remaining $2,000 will start accruing interest on the normal due date (04-15-XX).

   Example: Using the same figures and dates, except a refund was issued on 06-13-XX for $1,000. $1,000 of the $4,000 MFT 30 tax starts accruing interest on 06-13-XX, the other $3,000 on the normal due date. All of the MFT 31 tax of $3,000 would start accruing interest on the normal due date. Therefore, it would not be necessary to request a NR 340 on MFT 31.

(3) If there is a credit elect (TC 836) on the MFT 30 account, interest may need to be manually computed depending on what quarter the amount applied as a credit elect is needed in the subsequent year. See IRM 20.2.5.7.2, Rev. Rul. 99-40 and Credit Elects (May Sequa), for more information.

(4) IRC 6404(g) suspends interest and certain penalties for tax years ending after July 22, 1998 in cases where the Service fails to provide a notice of liability to the taxpayer within 36 months (18 months prior to November 26, 2007), beginning on the later of:

• The date the return is filed; or

• The due date of the return without regard to extensions.

(5) If the notice is not provided to the taxpayer before the close of the 18- or 36-month period, interest and certain penalties are suspended for the following period:

• Beginning on the day after the close of the 18- or 36-month period, and

• Ending on the date which is 21 days after the date on which the IRC 6404(g) notice is provided to the taxpayer.

  Note: The IRC 6404(g) suspension applies only to timely filed individual income tax returns for taxable years ending after July 22, 1998.

  Note: The notice must state the liability and the basis for the liability. IRM 20.2.7, Interest - Abatement and Suspension of Debit Interest, contains information about inputting TC 971 AC 064 on these cases.

(6) Programming was created to allow the computer to perform this suspension. A TC 971 AC 064 is input on the account with the transaction date as the mailing date of the 6404(g) notice. Input TC 971 AC 064 only if the 6404(g) notice was issued after the 18- or 36-month period; however, keep in mind that TC 971 AC 064 may have been prematurely input on some Examination/AUR cases. There are three scenarios innocent spouse processing personnel must watch regarding IRC 6404(g).

1. The TC 971 AC 064 is posted on the account, the transaction date is within the 18- or 36-month period, the Examination/AUR assessment is posted, and a subsequent TC 29X adjustment was made. Before input of subsequent TC 29X, input TC 972 AC 064 using the same transaction date as shown on the TC 971 AC 064 which is being reversed. Continue processing case as usual.

2. TC 971 AC 064 is posted on the account, the transaction date is beyond the 18- or 36- month period and the Examination/AUR assessment is posted. CC INTSTD will show the interest is suspended from the day after the close of the 18- or 36-month period until 21 days from the TC 971 AC 064 date or the date the notice was issued. If the notification is not issued by the close of the 18- or 36-month period, interest is suspended from the day after the 18- or 36-month period until 21 days after the TC 971 AC 064 date. In this case IDRS and Master File can no longer calculate interest on the subsequent TC 29X and manual computations are necessary.

3. Two TC 971 AC 064s are posted to the account. This may have been caused by an incorrect transaction date being used. A TC 972 AC 064 was input to reverse the incorrect transaction and a second TC 971 AC 064 is input with the correct date. There were two separate 6404(g) notices issued and both are valid. In either case, IDRS and Master file can no longer calculate the interest and manual computations are necessary.

(7) If an account contains the following conditions, it must be worked by a Processing Team technician.

• TC 340, and

• Associated with TC 290 .00, and

• Adjustment RC 065--028, and

• Contains a COMP-INT-AMT.

  Note: This adjustment indicates the taxpayer was affected by a federally declared disaster. A taxpayer affected by one of these is given relief from penalty and interest within the declared disaster period. For disasters occurring before January 1, 2015, the interest suspension period applies to tax returns having an original or extended return due date that falls within the disaster period. Effective for disasters occurring on or after January 1, 2015, only those tax returns having an original return due date that falls within the disaster period qualify for interest suspension. After the time period ends, normal interest and penalty is charged. See IRM 20.2.7.13.1, IRC 7508A Interest Computation, for more information.

  Note: The case must be either an allowed request or a partially allowed request where the entire account can be transferred. Use IDRS CC INTST to get the accrued interest amount. Transfer all the interest transaction codes to MFT 31. This includes TC 196, 197, 340, and 341. Request a NR 340 on MFT 31. This is the accrued interest on INTST. The COMP INT AMT will be all the items that are transferred plus the accrued interest from INTST.

(8) Once a notice and demand is issued, the taxpayer has a limited amount of time to pay the amount shown before additional interest is charged. Notice status codes are 19, 20, 21, 54, 56 and 58. See IRM 20.2.5.4, Notice and Demand and Underpayment Interest, for more information.

1. For notice and demand issued before January 1, 1997, if the amount shown on the notice is paid within 10 calendar days, additional debit interest is not computed.

2. For notice and demand issued after December 31, 1996, refer to the following table:

If the amount shown on the notice	And	Then
Is less than $100,000.	Is paid within 21 calendar days.	Additional interest is not computed
Equals or exceeds $100,000.	Is paid within 10 business days.	Additional interest is not computed

(1) The Non-Restricting TC 340 is an enhancement to Master File programming to allow a systemic interest update on a tax module after it has been restricted. Input of the Non-Restricted TC 340 requires a manual computation of interest up to the date in the INT-TO-DATE field, and the module balance (including tax, penalty and interest) entered in the COMP-INT-AMT field. Entering the module balance in the COMP-INT-AMT field causes Master File to resume normal interest computation on that amount from the date entered in the INT-TO-DATE field. See IRM 20.2.5.6.3, Non-Restricting Transaction Code (TC) 340 for specific input instructions and limitations. The following situations require a Non-Restricting TC 340 to be input to MFT 31:

1. A refund issued after the return due date. Transferring the entire account will negate the need for a Non-Restricting TC 340 in this situation

2. A Form 870, Waiver of Restrictions on Assessment & Collection of Deficiency in Tax & Acceptance of Overassessment, (taxpayer agreed to the Examination assessment) date is present and the 870 date on CC TXMOD is more than 30 days prior to the 23C date of the assessment (TC 300). The 870 date is located beneath the TC 300 tax amount on CC TXMOD

3. AUR assessment (TC 290 following TC 922), BS 55-58 or 65–67, with CR-INTDT indicates the taxpayer agreed to the AUR assessment. The TC 290 must be made within 30 days of the CR-INT-DT date.

4. Any credit transaction posting dates (received after the Return Due Date (RDD)) on MFT 30 CC TXMOD differ from the CC INTSTD posting dates and the credit transaction will be transferred to MFT 31.

5. The original TC 150 was paid off with credits after the normal RDD and the RS was relieved of a subsequent assessment. Transferring the entire account will negate the need for a Non-Restricting TC 340 in this situation. This also applies even if the TC 150 is paid off prior to the posting (23C date) of the subsequent assessment.

6. Any accounts requiring transfer of carry-back transactions (TC 294, TC 295, TC 298, TC 299, TC 304, TC 305, TC 308, or TC 309) carry an interest computation date affecting the deficiency interest. Accounting cannot pick up this date on the transfer document.

7. Accounts containing a TC 840 and the credits refunded were not the latest credits in the module.

8. Transaction date of the TC 971 AC 064 is 18 or 36 months beyond the return due date of a timely filed return. IRM 25.15.9.6.2(4), Interest Consideration.

(2) The Non-Restricting TC 340 should only be used in instances where normal interest computation can be resumed by Master File. Interest computed at 120 percent of the normal rate (e.g. Tax Motivated Interest) is not compatible with a Non-Restricting TC 340. A TC 34X can identify these accounts on CC TXMODA for a money amount posted with Item References 221 TX-MOTVTD-TRANS and 222 TX-MOTVTD-INT. Compute the interest and request a restricting TC 340 be posted to MFT 31. Complete Form 12810, Account Transfer Request Checklist, with the interest transactions and item reference codes and amounts required. See IRM 20.2.5.6.3, Non-Restricting Transaction Code (TC) 340, for additional limitations.

(3) Take the following actions if a Non-Restricting TC 340 is required and the entire account is being moved to MFT 31 including the interest (TCs 190, 196, 197, 336, 337):

1. Print CC INTST.

2. Enter the "ACCRUED INT" amount from the IDRS CC INTST print on Form 12810 as the Non-Restricting TC 340.

3. Copy the date interest was computed to from CC INTST to Form 12810 as the DEBIT DATE.

4. Add the MFT 30 module balance plus the "ACCRUED INT "from CC INTST and enter on Form 12810 as the "COMP AMT".

(4) Take the following actions if a Non-Restricting TC 340 is required, but the technician is not moving the posted interest transactions from MFT 30 to MFT 31:

1. Print CC INTST.

2. Enter the "TOTAL INT" amount from the CC INTST print on Form 12810 as the Non-Restricting TC 340.

3. Copy the date interest was computed to from CC INTST to Form 12810 as the DEBIT DATE.

4. Add the MFT 30 module balance plus the "ACCRUED INT" from CC INTST and enter on Form 12810 as the "COMP AMT". Input this information to MFT 31 using CC REQ 54, after the transfer has been completed.

(1) An account problem may be identified by either First Read or Full Scope while researching the taxpayers' account. Account problems can include math errors from the original return processing, duplicate assessments, missing/incorrectly applied payments, incorrect/incomplete tax assessments made by the Examination or AUR operations or Form 1040-X, Amended U.S. Individual Income Tax Return, for Accounts Management adjustments.

(2) The ISO-AR identifies the account issue. The ISO-AR must clearly explain what the problem is and what action the processor must take.

(3) The Financial Technician must send back-up documentation to justify the actions requested, e.g., copy of the tax return, substantiation for math error, proof of payment. The Financial Technician may or may not send the entire case file.

(4) The processor will review ISO-AR for completeness and take the necessary actions to resolve the account problems.

(5) The following are reminders when making a tax adjustment. See IRM 21.5, Account Resolution, for more information.

1. When allowing earned income tax credit (EITC), use transaction code (TC) 764 PC 8 to prevent an unpostable, this includes a previously posted TC 290 with PC 6 or TC 290 with Julian Date 999.

   Note: If the adjustment contains a TC 764 and there is a previously posted TC 29X on the module no PC 8 required.

2. When adjusting withholding and the account contains a manually-computed ES penalty (TC 170), address the penalty. The computer can adjust a computer-generated TC 176 in this case. Refer to IRM 20.1.3, Penalty Handbook - Estimated Tax Penalties, for more information.

   Note: An amended tax return filed after the normal or extended due date claiming a decrease in tax does not change the ES penalty computed on the original return.

   Note: Additional prepaid credits will cause an adjustment to the ES penalty.

3. When adjusting tax and the account contains a manual FTF penalty TC 160, manually recalculate and adjust the penalty using TC 161.

4. To adjust TC 240 accuracy-related penalty use CC REQ54 lower portion of the screen using related Penalty Reference Number. For Penalty Reference Numbers see Document 6209, Section 10-8, Penalty Reference Numbers - Miscellaneous Civil Penalties , for more information. This will convert to TC 240 or TC 241 once the IDRS CC REQ54 screen is transmitted.

5. The only tax, penalty, or item reference that can be adjusted to a negative amount is the adjusted gross income (AGI/TC 888).

6. When adjusting an account and an entry for the field Refund Statute Control Date (RFSCDT) is required, use the received date of the Form 8857.

   Note: Input in the RFSCDT field will also require input in the OVERRIDE-CD field. Transactions input with a Blocking Series 05 will use OVERRIDE-CD "SR". Transactions input with Blocking Series 18 will use OVERRIDE-CD" RS"

   .

(6) If the entire case file is sent, document the history sheet if the case must be returned to the examiner, or if it can be closed in the Processing Team. If the case file is not sent, document the adjustment request for actions taken, initial and date.

(1) Follow the instructions on the ISO-AR. Use the following information to determine which taxpayer to establish a MFT 31 or NMF 20 account to transfer the barred assessment to:

1. If the primary taxpayer is the unagreed spouse, the secondary taxpayer will be established on MFT 31.

2. If the secondary taxpayer is the unagreed spouse, the primary taxpayer will be established on MFT 31.

3. If both taxpayers were assessed on NMF 20 as mirrored assessments, the unagreed spouse's NMF 20 assessment will be abated. Review the agreed spouse's NMF 20 assessment to ensure all credits were applied to both NMF 20 accounts.

4. If the unagreed spouse's account was transferred to MFT 31 or NMF 20 due to OIC or bankruptcy relief granted to the agreed spouse, the unagreed spouse's assessment will be abated.

(2) If abatement of NMF 20 is required, obtain a current NMF transcript from the campus maintaining the NMF 20 account. If mirrored assessment, obtain transcripts for both taxpayers.

1. Complete Form 1331-B, Notice of Adjustment, and/or Form 3870, Request for Adjustment. In the "Reason for Adjustment" section, indicate the specific reason for the abatement request. Address refund issues (e.g., Taxpayer is entitled to refund of payment dated (MM/DD/YYYY) for $. Taxpayer is not entitled to any refund). Also, request a copy of the NMF transcript be faxed to the technician when abatement is completed.

2. Send a copy of the signed, completed Form 1331-B, and/or Form 3870 and a copy of the NMF transcript to the appropriate campus.

3. If a NMF transcript has not been received after approximately 4 - 6 weeks, call and request a new transcript to see if assessment has been abated.

(3) When the transcript is received showing the abatement, close the case using the following steps:

1. Input TC 290 .00 on the joint MFT 30 account with: BS 00 (with original return), 05 (without original return), or 99 (if tax period is more than 10 years earlier and the original return has been destroyed RC 097 SC 2, Hold Code (HC) 3 SD Y with the remarks "IS Relief - BSOS". See IRM 21.6.7, Individual Tax Returns - Adjusting Individual Tax Accounts, for additional information on posting the TC 290. See IRM 25.15.9.9, Case File Assembly, for case assembly instructions.

2. Reverse TC 971 AC 065. See IRM 25.15.2.4.2, Innocent Spouse Indicator Transaction Code (TC) 971/972.

3. Reverse TC 130, if appropriate. For TC 130 information, see IRM 25.15.9.3.3 Relief Disallowed, for more information.

4. Update ISTS to Stage 30, Activity "ACCTCORR".

5. Update history sheet with actions taken.

6. Close the IDRS control base.

7. Send case to Files.

(4) If the unagreed spouse was assessed on MFT 31, abate the tax using IDRS CC REQ77 per Form 3465 instructions. Close the case in the same manner as above.

(1) Check CC IMFOLT for the last CSED. CC IMFOLT will show the next, last and first CSED to expire. CC TXMOD only shows the current CSED.

(2) Take the following actions