3.22.3. Individual Income Tax Returns

(1) The Error Resolution System (ERS) is an online computer application used by tax examiners to correct errors identified on tax returns during Generalized Mainline Framework (GMF) processing.

(1) Authority for the procedures in this IRM is in the following sections of the Internal Revenue Code and their corresponding Treasury regulations:

• IRC 6213(b)

• IRC 6201(a)

(2) Policy Statements and Delegation Orders for submission processing are in the following IRMs:

• IRM 1.2.1, Servicewide Policy Statements

• IRM 1.2.2, Servicewide Delegations of Authority

(1) The Submission Processing Director is responsible for monitoring operational performance of Submission Processing.

(2) The Austin Submission Processing Input Correction Operations Manager is responsible for monitoring operational performance of Austin Error Resolution.

(3) The Error Resolution team manager and lead tax examiner are responsible for performance monitoring and ensuring tax examiners have the tools to perform their duties.

(4) Tax examiners are responsible for following the instructions in this IRM, including all IRM procedural updates (IPU) posted to the SERP (Servicewide Electronic Research Program) website.

(1) Program Reports. All ERS records are controlled by a Document Locator Number (DLN), and error records are accessed and assigned for correction by block DLN. The daily ERS Error Inventory Report ERS 13-40 lists each block of returns and the number of returns in ERS inventory by program. The ERS system displays with command ERVOL the real-time volume in inventory by status and by program. Daily, weekly and periodic reports are available to management through Control-D WebAccess to manage inventory and capture data for program planning and review. See IRM 3.12.37, Error Resolution, IMF General Instructions, Related Reports, for a listing and description of ERS reports.

(2) Quality Review. Tax examiner completed inventory is selected for quality review during real-time processing. This review is conducted according to the procedures in IRM 3.30.30, Embedded Quality for Submission Processing (EQSP) System.

(3) CARE Review. The Computer Assisted Review of ERS (CARE) is an on-line quality review of Taxpayer Notice Codes (TPNC) when assigned by tax examiners in ERS. Assigned TPNCs are reviewed and records are corrected to prevent the issuance of erroneous notices to taxpayers. Results are reported in daily and periodic reports to managers and tax examiners.

(4) Annual Clearance of IRM. This IRM is updated and published annually after review and concurrence by affected offices according to the clearance process established in IRM 1.11.9, Internal Management Documents, Clearing and Approving Internal Management Documents (IMDs).

(1) All tax examiners must submit and have approved by management a BEARS request to gain access to the Error Resolution System.

(2) Tax returns in ERS are worked on a First In First Out (FIFO) basis as they are received from input systems through the General Mainline Framework (GMF).

(3) Control clerks are responsible for the control of error documents. Inventory control procedures are described in IRM 3.12.37, Error Resolution, IMF General Instructions.

(1) The following table lists other Internal Revenue Manuals (IRM) and job aids that provide guidance for ERS processing of international tax returns.

(1) Tax forms and internal use forms referenced in this IRM are listed in Exhibit 3.22.3-14, Tax Forms and Internal Use Forms.

(1) Acronyms commonly used in this IRM are listed in Exhibit 3.22.3-15, Acronyms.

(1) The text in this manual is organized in the following order:

• General Information

• Correspondence Procedures

• Special Procedures

• Field Errors

• Error Codes

• Reply and No Reply Procedures

• Exhibits

(1) If forms other than Form 1040 or Form 1040-X are submitted using the Streamlined Filing Compliance Procedures, then route to LB&I MS 4305 AUSC if there’s no indication of prior LB&I review.

(2) Upon receipt of the returns back from LB&I, follow the procedures outlined by LB&I.

(1) If the Streamlined Certification Form 14653 or Form 14654 is marked "Amended" then the returns must be reviewed by LB&I before processing. If an amended certification form is attached to an amended return, and there isn't an indication of prior LB&I review, then route all the returns submitted to MS 4305 AUSC.

(2) Philadelphia Accounts Management processes amended returns submitted using the Streamlined Filing Compliance Procedures.

1. Each taxpayer's submission must be kept together even if the submission includes original and amended returns.

2. If a 1040-X is included with original returns, the 1040-X must stay with the original returns until processing is complete.

3. If no correspondence is required, the submission can be separated, and the Form(s) 1040-X need to be routed to Image Control Team (ICT), MS 6567 AUSC with a Streamlined Accounts Management cover sheet. Be sure to keep all 1040-X returns being routed to ICT together using one cover sheet.

   Note: A copy of the certification must be attached to each 1040-X before routing to ICT.

4. If correspondence is required keep the submission together until a reply is received or the suspense period has expired.

(1) If correspondence is necessary for any return submitted under the Streamlined Filing Compliance Procedures, all returns submitted by the taxpayer must be kept together. This means that if one return needs correspondence then all returns in the submission must be kept with the suspended return(s) and held together in the Suspense area.

(2) Don’t correspond for missing information related to the streamline procedures (paragraphs A through E on Form 13900) if the primary taxpayer doesn’t have a valid TIN (SSN or ITIN). Follow the instructions in IRM 3.22.3.7 (4) and process as a return not filed using Streamlined Filing Compliance Procedures.

(3) If correspondence is needed for issues related to Streamlined Filing Compliance Procedures as listed in "Types of Correspondence" at IRM 3.22.3.7.3.1, use Letter 4087C and correspond for these issues and all required information missing on the return.

(1) The American Jobs Creation Act of 2004 (AJCA) clarified and supplemented the U.S. tax rules dealing with U.S. territories for determining if a taxpayer is a bona fide resident of a U.S. territory and whether income is from a territory source or effectively connected with the conduct of a U.S. territory trade or business.

(2) Residence Rules - In general, IRC 937(a) provides rules for determining whether a taxpayer is a bona fide resident of a U.S. territory.

(3) Source Rules - In general, IRC 937(b) provides that the principles for determining whether income is U.S. source and whether income is effectively connected with the conduct of a United States trade or business are applicable for purposes of determining whether income is U.S. territory source and whether income is effectively connected with the conduct of a trade or business in a U.S. territory. The regulations also generally provide that under the "U.S. Income Rule" of IRC 937(b)(2):

• Income from United States sources is not treated as income that is U.S. territory source or effectively connected with the conduct of a U.S. territory trade or business, and

• Income that is effectively connected with the conduct of a United States trade or business is not treated as U.S. territory source or effectively connected with U.S. territory trade or business.

(4) The regulations provide the following exceptions to these rules:

• The regulations preserve the existing treatment of income from the sale of goods manufactured in a U.S. territory, which provides for the allocation of this income between U.S. territory sources.

• The regulations provide that gains from the disposition of certain property by a United States citizen or resident who owned the property on the date they became a bona fide resident of the U.S. territory may not be treated as from sources within a U.S. territory. This special gain rule applies to the disposition of certain property such as stocks, bonds, debt instruments, and other property that is held for investment. However, the taxpayer may elect to split the source of gains from the disposition of appreciated property subject to this rule by using a market-to-market allocation for marketable securities and a time-based allocation for other property.

• The regulations also provide certain anti-abuse rules for determining the source of dividends and interest from U.S. territory corporations.

(1) American Samoa has its own separate and independent income tax system.

(2) Bona fide residents of American Samoa are generally exempt from United States tax on their American Samoa source income.

(3) United States Armed Forces - Bona fide residents of American Samoa include military personnel whose official home of record (i.e., SLR) is American Samoa. See instructions at IRM 3.22.3.9 above.

(1) The CNMI has its own income tax system based partly on the same tax laws and tax rates that apply to the United States, and partly on local taxes imposed by the CNMI government.

(2) In general, all individuals with income from the CNMI will file only one return, either with CNMI or the United States. The taxpayer's residency status under IRC 937(a) with respect to the CNMI determines which return they will file.

1. Bona Fide residents with worldwide income -- if properly filed with CNMI, a taxpayer will not have to file a return with the U.S.

2. Non-Bona Fide residents with worldwide income -- taxpayer is instructed to claim withholding from both U.S. and CNMI on a U.S. income tax return.

(3) Taxpayers that reside in any of the U.S. territories cannot claim Earned Income Credit except in limited circumstances. Refer to IRM 3.22.3, EC 337 and EC 338.

(4) Members of the U.S. Armed Forces who:

1. Qualify as a bona fide resident of the CNMI in a prior tax year, and are absent from the CNMI solely in compliance with military orders must file with CNMI

2. Did not qualify as a bona fide resident of the CNMI in a prior tax year, and are present in the CNMI solely in compliance with military orders must file with the IRS.

(1) Guam has its own income tax system based partly on the same tax laws and tax rates that apply to the United States

(2) In general, all individuals with income from Guam will file only one return, either with Guam or the IRS. The taxpayer's residency status regarding Guam determines which return they will file.

(3) Members of the U.S. Armed Forces who:

1. Qualify as a bona fide resident of Guam in a prior tax year, and are absent from Guam solely in compliance with military orders, must file with Guam

2. Did not qualify as a bona fide resident of Guam in a prior tax year, and are present in the Guam solely in compliance with military orders, must file with the IRS.

(1) The Commonwealth of Puerto Rico has its own separate independent income tax system.

(2) Generally, the taxpayer will file returns with both Puerto Rico and the IRS. The income reported on each return depends on the taxpayer's residency status in Puerto Rico. See IRM 3.22.3.9 for instructions in determining if the taxpayer is a bona fide resident of Puerto Rico.

(1) The USVI system of income taxation is based upon the United States Internal Revenue Code as amended. An important factor in USVI taxation is whether, during the entire taxable year, the taxpayer is a bona fide resident of USVI.

(2) In general, a bona fide resident of the USVI pays tax only to the USVI.

(3) A United States citizen or resident alien who is not a bona fide resident of the USVI, but has USVI source income, is required to pay the allocable portion of the tax to each jurisdiction.

(1) The Virgin Islands Bureau of Internal Revenue (BIR) sends Form 1040 tax return to the IRS that require special handling and editing, a process identified in Submission Processing as the VI Cover Over Program. These returns are batched together and hand carried to each function, including ERS.

(2) Code & Edit is instructed to X all entries except:

• Caption information

• Special Processing Codes (SPCs), Computer Condition Codes (CCCs) and Return Processing Codes (RPCs)

• Received Date

(3) Follow these instructions when processing these returns in ERS:

(4) Don’t correspond or assign TPNCs on a VI Cover Over return. If an error code generates and a TPNC is required to resolve the error, assign TPNC 100 with the following literal instead of the TPNC specified in the error code instructions: "VI Cover Over return - Void Notice".

(1) A taxpayer is a Resident Alien of the United States for tax purposes and must file Form 1040 if they meet either the "green card test" or the "substantial presence test" for the calendar year. If they do not meet either of these tests, they file Form 1040-NR, if applicable.

(2) Green Card Test is met when a taxpayer is a lawful permanent resident of the United States at any time during the calendar year and has been issued an alien registration card (Form I-551), also known as a "green card". All references made throughout this IRM to "green card" include Form I-551 for all years after 1996. Form I-151 is only acceptable as proof of permanent residency for TY96 and prior. See 2512-001, International Tax Returns Job Aid.

(3) To meet the Substantial Presence Test the taxpayer must be physically present in the United States on at least

1. 31 days during the tax year of the return, and days during the 3 year period that includes the tax year of the return and the 2 years prior to the tax year of the return.

   Example: Taxpayer is filing a 2023 tax return and was present in the United States 150 days in 2023, 150 days in 2022 and 150 days in 2021 the total days would be 225 days. See chart below:

2. Use the following table to determine Substantial Presence.

Substantial Presence Determination
The taxpayer will count each day they were present in the United States during the tax year of the return (If present in the United States 150 days in 2023, then 2023 = 150 days.), AND
Add 1⁄3 of the days they were present in the United States during the first year prior to the tax year of the return (If present in the United States 150 days in 2023, then 150⁄3 = 50 days for 2022. The days in the United States are 200 days. 150 days (for 20232) + 50 days (for 2022) = 200 days.), AND
Add 1⁄6 of the days they were present in the United States during the second year prior to the tax year of the return (If present in the United States 150 days in 2021 then 150⁄6 = 25 days for 2021. The total days in the United States for the three year period is 225 days. 150 days (for 2023) + 50 days (for 2022) + 25 days (for 2021) = 225 days.) Exception: Certain exception apply to exempt an individual from being considered a U.S. resident under the substantial presence test. See Exhibit 3.22.3-7 for types of Visas.

(1) Nonresident Aliens report only U.S. source income and income that is effectively connected with a U.S. trade or business on Form 1040-NR. U.S. source income is reported on Form 1042-S, Form W-2, Form 1099 series, Form 8805, Form 8288-A, Form SSA/RRB 1042-S, or statement of income and received from:

1. U.S. payer or

2. Foreign payers for services performed in the U.S.

3. Financial institutions because the account holder failed to provide the required information for the financial institution to report under FATCA

(2) United States tax law exempts nonresident aliens from United States taxation on interest from deposits in United States bank accounts if such interest is not effectively connected with a U.S. trade or business.

(3) Effectively Connected Income, after allowable deductions, is reported on page 1 of the Form 1040-NR and is taxed at graduated rates. These are the same rates that apply to U.S. citizens and residents.

(4) Non-Effectively Connected Income is reported on Schedule NEC of Form 1040-NR and is taxed at a flat 30 percent rate or at a lower treaty rate if a tax treaty exists between the United States and the taxpayer's foreign country of residence, and no deductions are allowed against such income.

(5) When a taxpayer performed services as an employee both inside and outside the United States, the taxpayer must allocate their compensation between the United States and non-U.S. sources.

(1) Determine the country of permanent residence of a nonresident alien by using the taxpayer’s information on the return, in the following order:

1. Schedule OI, Line B Form 1040-NR

2. Schedule OI, Line A Form 1040-NR

3. Address from the Entity section of Form 1040-NR

4. Review of any attachments

(1) When Scholarship or Fellowship Grants income is paid to a resident of a country with a tax treaty that exempts this type of income from taxation, the exempt income may be reported on line 1k (TY21 and prior 1c, Form 1040-NR)Form 1040-NR. See the instructions for verifying Scholarship or Fellowship Grants income treaty claims in EC 218 at IRM 3.22.3.170.2.2.1 (Form 1040-NR).

(2) When Scholarship or Fellowship Grant income is paid to a resident of a country without a tax treaty with the United States:

• The income may not be exempted under a tax treaty.

• The income must be reported on line 8r, Schedule 1 (TY21 and prior line 1b, Form 1040-NR).

• For TY 21 and prior If the taxpayer is a "Degree Candidate", amounts received from a qualified educational institute for education related expenses (books, fees, tuition) may be deducted on line 10c, Form 1040-NR.

• . For TY 22 and later Degree Candidates may deduct amounts received from a qualified educational institute for education related expenses (books, fees, tuition) and report the net on line 8r, Schedule 1.

(1) When a Form 1040-NR is received from a married Canadian resident (who is not a U.S. citizen) who has U.S. source wages that are subject to tax in the United States, they may be able to compute their U.S. tax liability in accordance with the special provision contained in Article XXV(3) of the U.S.- Canada Tax Treaty.

(2) Review Form 1040-NR from Canadian resident taxpayers for the following indications that they are computing their U.S. tax on wages using Article XXV(3):

1. Two names are present in the entity section of the return; or

2. Hypothetical married filing joint tax computation using worldwide income for both taxpayers (Form 1040 or statement); or

3. A statement is attached indicating that a special computation permitted by the U.S.- Canada Tax Treaty has been used; or

4. A notation of "Article XXV" is found on the return or its attachments.

(3) Article XXV(3) limits the Canadian resident taxpayer’s U.S. liability with respect to his or her U.S. source employment income to an amount computed using the following formula: (Form 1040-NR Taxable Income/Form 1040 Taxable Income) × Form 1040 Tentative Tax. The tentative tax reported on Form 1040 or statement is the total U.S. tax payable by the taxpayer and his or her spouse as if both were U.S. citizens and all of their income arose in the United States. An income deficit (or loss) of the spouse shall not be taken into account.

(4) EC 265 generates on Form 1040-NR when the taxpayer uses this special tax calculation. See EC 265 at IRM 3.22.3.198.2.

(5) Article XXV(3) does not provide a basis for Canadian residents who are not U.S. citizens to claim on their actual Form 1040-NR a standard deduction or any credits for which they would not be eligible under the Internal Revenue Code.

(1) Taxpayers that are subject to expatriation tax must attach Form 8854, Initial and Annual Expatriation Statement, to their regular filing of Form 1040 or Form 1040-NR, whichever is applicable, for the year of expatriation and in certain circumstances for subsequent years. Taxpayers may elect to defer all or a portion of the expatriation tax and may attach two hypothetical Form 1040 returns to Form 8854 to support their calculations. Taxpayers making this election must file Form 8854 annually up to and including the year in which the full amounts of deferred tax and interest are paid.

(2) If Form 8854 is attached to a tax return, GTSEC 01 and enter Audit Code "K" in Field 01ACD. Continue to process the tax return with normal processing procedures.

(1) Taxpayers that are subject to the community property laws of a foreign country, a United States state, or a United States territory, generally must follow those laws to determine the income of each taxpayer for United States tax purposes. However, they must disregard certain community property laws if:

1. Both taxpayers are nonresident aliens, or

2. One taxpayer is a nonresident alien and the other taxpayer is a United States citizen or resident and they do not choose to be treated as United States residents (as explained in Chapter 1 under Nonresident Spouse Treated as a Resident). In these cases, both taxpayers must report community income as explained below.

(2) Earned Income of each taxpayer, other than trade or business income and a partner's distributive share of partnership income, is treated as the income of the taxpayer whose services produced the income. That taxpayer must report all on a separate tax return.

(3) Trade or business income, other than a partners’ distributive share of partnership income, is treated as the income of the person who exercises substantially all of the management and control over the trade or business. That taxpayer must report all on a separate return.

(4) Partnership income (or loss). A partner's distributive share of partnership income is treated as the income (or loss) of the partner. The partner must report all of it on a separate tax return.

(5) Income derived from the separate property of the taxpayer (and which is not earned income, trade or business income, or partnership distributive share income) is treated as the income of that taxpayer. That taxpayer must report all on a separate tax return. Use the appropriate community property law to determine what is separate property.

(6) All other community income is treated as provided by the applicable community property laws.

(7) For additional information see EC 260 at IRM 3.22.3.198.5

(1) The United States has income tax treaties (conventions) with many foreign countries. Under these treaties, residents of foreign countries are taxed at a reduced rate, or are exempt from United States income taxes on certain items of income they receive from sources within the United States. These reduced rates and exemptions vary among countries and with specific items of income. In certain limited circumstances, resident aliens may be entitled to treaty benefits.

(2) Tax treaties may, under certain circumstances, permit foreign individuals who are residents of the treaty country to visit the United States, practice their profession and earn income (sometimes in limited amounts) for a limited period of time without having to pay United States tax.

(3) Tax treaty tables are found in this IRM at Exhibit 3.22.3-1, Tax Treaty Table 2, Compensation for Personal Services Performed in United States Exempt from U.S. Income Tax Under Income Tax Treaties, and Exhibit 3.22.3-3, Tax Treaty Table 1, Tax Rates on Income Other than Personal Service Income Under Chapter 3, Internal Revenue Code, and Income Tax Treaties.

(4) Refer to IRM 3.22.3.17.3, Field 03TEX - Total Income Exempt by Treaty, for instructions for validating treaty exemption claims on Form 1040-NR. Refer to IRM 3.22.3.17.23, Field 03TNC Tax on Not Effectively Connected Income (NEC), for instructions for validating treaty tax rates.

(1) An original signature is required, below the jurat (perjury statement), on most returns. Without the taxpayer's signature, the return is not an official document and may not be processed. ERS examiners are required to inspect returns for missing original signatures. If a return is unsigned, SSPND 640 to send the return to Rejects. Refer to IRM 3.12.2, Individual Master File Error Resolution General Instructions, Signature Requirements, for specific procedures regarding missing signatures.

(1) Refer to IRM 3.12.2, Individual Master File Error Resolution General Instructions, for guidance on identifying possible refund schemes and frivolous and fraudulent returns.

(1) All amounts on U.S. individual tax returns are to be reported in U.S. currency only. If amounts on the tax return are reported in foreign currency, and Code & Edit has not converted to U.S. dollars, then convert the amounts using the official rate in effect at the end of the tax year of the return as reported on the exchange rate chart published by the U.S. Treasury for the tax period of the filer’s tax return (see https://fiscaldata.treasury.gov/datasets/treasury-reporting-rates-exchange/treasury-reporting-rates-of-exchange).

(2) If a Taxpayer Notice Code (TPNC) is required to resolve an error on a return after foreign currency is converted to US dollars, also assign a TPNC 358.

(1) In all instances, it is necessary to convert a Form 1040-NR-EZ to a Form 1040-NR to process the return.

(2) If a TPNC is required to resolve an error on Form 1040-NR-EZ after conversion to Form 1040-NR, assign TPNC 311 as the first notice code to inform the taxpayer that the return has been converted.

(1) Each taxpayer must complete a separate Form 1040-NR and include the income and withholding for self only, even if the taxpayer is married. If there are two names on the name line of the return see Field 01NL1 First Name Line at IRM 3.22.3.15.4 for instructions.

(2) If the return includes wages or other income or withholding that doesn’t belong to the taxpayer filing the return, then adjust the return to include only the taxpayer’s income and withholding. Assign TPNC 334

(1) Section 01 contains the following fields

(1) The following describes correction procedures for Section 01 that are unique to processing International returns. Refer to IRM 3.12.2, Individual Master File Error Resolution General Instructions, for general Section 01 correction procedures.

(2) Correct coding and transcription errors and misplaced entries on displayed fields.

(1) Return Filed Using Streamlined Filing Compliance Procedures with Missing Primary TIN (P-TIN) - Don’t correspond for a missing TIN on a Streamlined return. If the TIN is missing and not found after searching the return and after research, then suspend with Action Code 320 to Entity for assignment of an IRSN. When the return comes back from Entity with an IRSN follow the instructions in EC 005 at IRM 3.22.3.82.2 before entering RPC O.

(1) Form 1040-NR can have only one name in the caption on page 1. If two names are present, determine if two incomes are present or if withholding documentation (Form W-2, Form 1042-S, etc.) is included for both names and follow these instructions.

(1) The foreign country name, province, and foreign postal code are found on page 1 of the tax return.

(2) Foreign Address - Field 01NL2 may be used when the entity is a foreign address. Field 01NL2 is limited to 35 characters.

(3) If a domestic and foreign address are both present in the entity area of the return then enter the domestic address.

(4) For TY18 only, if the address on page 1 of Form 1040 is for a foreign country, and no domestic address is present, enter the foreign address in Section 01. Don’t correspond for Schedule 6.

(5) For Puerto Rico only, the following are different types of address formats:

1. Four-line address containing Name, Urbanization, House Number and Street Name, City, State and Zip Code.

2. Three-line address containing Name, House Number and Street Name, City, State and Zip Code.

   Exception: Some areas in Puerto Rico do not have street names or repetitive house numbers. The urbanization name substitutes as the street name and becomes the primary identifier.

   Example: Name, House Number and Urbanization Name, City, State and Zip Code.

3. Public Housing Projects (residenciales) without street names or repetitive apartment numbers. In these cases, the apartment number is the primary number and the public housing project becomes the street name.

   Example: Name, Apartment Number and Residential Name, City, State and Zip Code.

4. Apartment Buildings and Condominiums with a physical (street) address containing Name, Building Name, Street Number Apartment Number, City, State and Zip Code.

5. Buildings without a physical address. Certain Condominiums are located on an unnamed street and may not have an assigned number. The name of the Condominium substitutes as the street name and the number 1 is used when no building number exists.

6. Numbered streets must always contain a street prefix.

7. House numbers - always place the house number before the street prefix. When the house number is an alpha numeric, do not use a hyphen to separate the letter from the number. See table below.

Incorrect Form	Correct Form
Calle 12 C-19	C19 Calle 12
A-17 Calle Ampapola	A17 Calle Ampapola
B-40 Calle 1	B40 Calle1

8. Post Office Box - always use PO Box to identify Post Office Boxes. Do not use the Spanish words.

9. Do not substitute the prefix Calle with the suffix street. Such substitutes render the address Undeliverable.

10. Urbanization -- denotes an area, sector or residential development within a geographic area. Commonly used in Puerto Rico urban areas, it is an important part of the addressing format, as it describes the location of a specific street. In Puerto Rico, identical street names and address number ranges can be found within the same Zip Code. In these cases, the urbanization name is the only element that correctly identifies the location of a particular address. Generally, the abbreviation URB is placed before the urbanization name.

11. Below is a table of examples of correct address formatting. The first line in the correct format column represents the entry for Field 01NL2. The second line represents the entry that goes into Field 01ADD:

Tax Return Address	Correct Format
Estancias Detortuger, 521 Calle Tulpia	Estancias Detortuger 521 Calle Tulpia
Bo Rocha Comunidad LaSalle HC 02 Box 12811	Bo Rocha Comunidad LaSalle HC 02 Box 12811
Puerto Nuevo 512 Calle Aragon	Puerto Nuevo 512 Calle Aragon
Cond. Hato Rey Plaza Jesus T Pinero #200 Apt 6-M	Cond. Hato Rey Plaza Jesus T Pinero #200 Apt 6-M
URB Cuidad Jardin de Bairoa 88 Calle Franca	URB Cuidad Jardin de Bairoa 88 Calle Franca

(6) When Field 01NL2 is required (deceased taxpayer, Power of Attorney (POA), minor, etc.) and a foreign address is present, follow the instructions at EC 260 to issue a manual refund. See IRM 3.22.3.193.6.

(1) A foreign address is any address outside of the 50 states of the United States and the District of Columbia.

(2) The foreign country name, province, and foreign postal code are found on page 1 of the tax return.

(3) A U.S. territory address must be entered using the same format as a domestic address as described in IRM 3.12.2, Individual Master File Error Resolution General Instructions. See IRM 3.22.3.15.5 for additional instructions for addresses in Puerto Rico.

(4) If a domestic and foreign address are both present in the entity area of the return then enter the domestic address.

(5) For TY18 only, if the address on page 1 of Form 1040 is for a foreign country, and no domestic address is present, enter the foreign address in Section 01. Don’t correspond for Schedule 6.

(6) For an address in a foreign country Field 01ADD should contain the city, state, territory or province, and postal code, if present. Field 01NL2 may be used to allow for a more complete address (see Field 01NL2, IRM 3.22.3.15.5, for exceptions). When shortening the foreign address to fit the limitations of Field 01NL2 and Field 01ADD:

• Do not remove a postal code.

• If a postal code is present and the address can’t be shortened, delete the address information according to major (e.g., province) to minor (e.g., city, town) subdivisions of the address.

Note: Some countries prefer that the postal code follow and others prefer it precede the city or town name. Follow the order as edited on the return.

(7) The following states, provinces and territories for the countries listed below must be abbreviated. See Exhibit 3.22.3-6 to enter the abbreviation:

1. Australia

2. Brazil

3. Canada

4. Cuba

5. Italy

6. Mexico

7. Netherlands

(1) The foreign country name, province, and foreign postal code are found on page 1 of the tax return.

(2) A foreign country name entered in Field 01C/S must be in the required format. Twenty-four (24) characters may be entered in this field, which includes the slashes (/) and period. The required space in position 25 is not visible on the ERS screen.

(3) If a domestic and foreign address are both present in the entity area of the return then enter the domestic address.

(4) For TY18 only, if the address on page 1 of Form 1040 is for a foreign country, and no domestic address is present, enter the foreign address in Section 01. Don’t correspond for Schedule 6.

(5) For foreign addresses, this field should contain ONLY the country in the correct format:

(6) The following are examples of country names that too are long and the abbreviation below must always be used.

(7) For United States territory addresses: The following are valid state abbreviations for U.S. territories:

1. AS - American Samoa

2. MP - Commonwealth of Northern Mariana Islands

3. GU - Guam

4. PR - Puerto Rico

5. VI - United States Virgin Islands

Note: Although Micronesia, the Marshall Islands, and Palau are not U.S. territories, they are listed in 3.22.3-5 because they use the same addressing methods as U.S. territories.

(1) The foreign country name, province, and foreign postal code are found on page 1 of the tax return.

(2) For FLC 20 with a foreign address:

1. This field must be blank

2. If a foreign mail routing code is entered after the country or in Field 01ZIP, GTSEC 01 and enter the mail routing after the state or province in Field 01ADD. Delete mail routing code from Field 01ZIP.

(3) All U.S. territory addresses must contain a valid zip code. See Exhibit 3.22.3-5

(1) Valid tax period endings are as follows:

1. Form 1040-NR, Form 1040-SS (sp) and Form 1040-SS - Current year tax period is not less than 202112 or more than current year and month.

2. Form 1040-NR, Form 1040-SS (sp) and Form 1040-SS - Prior year tax period is 196212 through 202111.

(2) Residents of Australia and New Zealand often use a June (06) fiscal tax period ending date that coincides with their country’s accounting period. Follow taxpayer intent and enter YYYY06 for the tax period when June 30th is indicated as the tax period ending date on the tax return for a resident of Australia or New Zealand.

(3) Correction Procedures -Verify the tax period on the return or attachments and correct any transcription errors. If the tax period is invalid, correct as follows:

(1) The Country Code Field is a two-position field which is designed to identify treaty countries whose residents are entitled to refunds of U.S. withholding on U.S. sourced income. The Country Code will assist in identifying erroneous claims for refunds of Social Security (Form SSA-1042-S) withholding. See Exhibit 3.22.3-4 for a listing of Country Codes.

(2) Code & Edit edits the Country Code to the right of the Entity Section of Form 1040-NR. Determine the country of permanent residence using the information on the tax return in this order:

1. Line B, Schedule OI

2. Line A, Schedule OI

3. Address from the Entity section of Form 1040-NR

4. Review of any attachments

(1) A special processing code (SPC) is an alphabetic or numeric character entered by a Code & Edit examiner to alert the computer to a special condition or computation. The number of SPCs in a return may not exceed ten. These codes are used for campus processing and do not post to the Master File. This field was created as an overflow for return processing codes.

(2) The list of Special Processing Codes is in IRM 3.12.2, Individual Master File Error Resolution General Instructions, Exhibit 3.12.2-4, Special Processing Code.

• The valid SPC for Form 1040-NR are A, B, C, E, F, G, J, M, N, P, T, U, V, X, 2, 3, and 9.

  Note: SPC U is generated by Modernized E-File (MeF) on Form 1040-NR. See instructions in EC 215 at IRM 3.22.3.167.2

• The valid SPC for Form 1040-SS (sp) and Form 1040-SS are B, J, M, T, V, 2, 3, and 9.

(1) An entry in Field 01FSC is invalid if the Filing Status Code is other than:

• Form 1040-NR all tax years: 1, 3, 5

• Form 1040-NR TY17 and prior year only: 1, 3, 5, 6

(2) Form 1040-NR:

(3) Filing Status Code for Dual-Status - Filing Status (FS) can be 1, 3, or 5; and FS 6 in TY17 and prior year.

(1) The Computer Condition Code (CCC) is transcribed in Field 01CCC from the following area on the return:

1. Form 1040-NR - upper portion of the filing status

2. Form 1040-SS (sp) and Form 1040-SS - upper portion of Part I, Self-Employment Tax

(2) An entry in Field 01CCC is invalid if the Computer Condition Code is other than the following:

1. Form 1040-NR - 1, 2, 3, 4, 7, 8, B, C, E, F, G, H, J, L, M, N, O, P, R, U, V, W, X, Y, or Z.

2. Form 1040-SS (sp) or Form 1040-SS - 1, 3, 4, 7, 9, A, B, E, F, G, H, L, M, N, O, P, Q, R, U, V, W, X, Y, or Z.

(3) Correction Procedures- Determine and enter the correct code, if needed.

1. A CCC "3" must be in the first position.

2. CCC "5" or "6" must always be preceded by CCC "G".

3. SSPND 610, for renumbering, when a Form 1040-X has CCC "5" or "6" preceded by CCC "G" and is not in blocking series 990-999 or vice versa.

(4) The list below describes Computer Condition Codes commonly used on international returns. For a complete list of Computer Condition Codes see IRM 3.12.2, Individual Master File Error Resolution General Instructions, Exhibit 3.12.2-2, Computer Condition Codes.

(1) If an international Form 1040, Form 1040-NR, Form 1040-SS, or Form 1040-SS (sp) is transshipped to AUSPC from another IRS Campus, Territory Office, or IRS foreign post, take the following action:

(2) Refer to IRM 3.12.2, Individual Master File Resolution General Instructions, Field 01RCD, Received Date, for additional procedures on determining received dates.

(3) If a received date is needed but not stamped or written on the return, and there’s no indication that the return was transshipped as described above, then determine the received dates by following the priorities in IRM 3.12.2.4.3.20 paragraph (9).

(4) ALWAYS review each return for the words "Sent Back for Signature" or similar statement and a date present in the lower left-hand corner of the return. These are returns that were originally received missing a signature and were mailed back to the taxpayer from Receipt and Control. If a date and the notation, "Sent Back for Signature" is present, follow the instructions below for determining the received date:

1. If the return is Balance Due and a received date is present showing a date within 45 days of the "Returned for signature date stamp", honor the date the return was sent back for signature. Delete any later received date(s) that may be present

2. If the return is Balance Due and a received date is present showing a date MORE than 45 days after the "Returned for signature date stamp", honor the latest received date. Delete any earlier received date(s) that may be present.

3. If the return is a Refund, Credit Elect or Zero balance return, honor the latest received date. Delete any earlier received date(s) that may be present.

(1) The exemption amount that can be claimed on an individual’s Form 1040-NR in TY 201812 and later is $0. Exemption coding (Field 01EXC and Field 94EXV) is retained for determining family size in certain calculations.

(2) For TY18 and later Form 1040-NR, the exemption line 13b (TY19, line 39) is only to allow for exemptions when the form is filed by an Estate or Trust. These returns are processed at the Kansas City Submission Processing Center.

(3) Form 1040-NR - Dependents (TY18 and later) and Exemptions (TY17 and prior) are limited by country of residence. The country of residence is determined by using taxpayer information on Schedule OI of Form 1040-NR or on other attachments.

1. Residents of South Korea can claim an exemption for self, spouse or children, however the children must live with the parents in the United States.

2. Residents of Canada, Mexico and United States National may claim exemptions for self, spouse, and/or other dependents.

3. Residents of India who are students or business apprentices may claim exemptions for self, spouse and/or dependents on the same basis as United States citizens.

4. All others are allowed only one exemption for self only. Delete the name control and TIN if present for all others than the primary taxpayer.

(4) Form 1040 use exemption positioning as if the taxpayer lived in the United States. For example, if the taxpayer lists children who lived with them, enter that number of exemptions in position 3 regardless of the address on the return.

(5) Form 1040-SS (sp)/Form 1040-SS the computer will generate Field 01EXC based on filing status.

(1) Form Processing Codes (FPC) are edited to the right of line 7 on page 1 of Form 1040-NR, 1040-SS (sp), and Form 1040-SS.

(2) An entry in Filed 01FPC is invalid if the Form Processing Code is other than:

1. Form 1040-NR (Doc Code 72/73 and FPC is other than D, G, H, J, L, R, S W, X, 5, 8, or 9.

2. Form 1040-SS (sp)or Form 1040-SS and FPC is other than G, Q, 8, or 9.

   Note: If there is an FPC A on Form 1040-SS or Form 1040-SS (sp) remove the A and continue processing.

(3) Correction Procedures- Take the following actions to correct Field 01FPC:

1. Check for coding and transcription errors and correct, if needed.

2. Determine and enter the correct code.

3. Blank the field when the FPC written on the return is illegible and/or you cannot determine the correct FPC from the explanations in (4) below.

(4) Form Processing Codes - The number of Form Processing Codes may not exceed ten. The codes and their meanings are listed below:

(1) Return Processing Codes (RPC) are edited as follows:

• Form 1040-NR - horizontally in the bottom left margin of page 1

• Form 1040-SS (sp) or Form 1040-SS - near the right of line 5

(2) An entry in Field 01RPC is invalid if the Return Processing Code is other than:

1. Form 1040-NR (Doc. Code 72/73) and RPC is other than A, B, C, D, F, G, H, I, J, K, L, N, O, Q, R, S, T, U, V, X, Y, Z, 1, 2, 3, 4, 6, or 7

2. Form 1040-SS (sp)/Form 1040-SS (Doc. Code 26/27) - RPC other than E, K, L, O, Q, R, V, Y, or 6.

(3) Correction Procedures- Take the following actions to correct Field 01RPC:

1. Check for coding and transcription errors and correct, if needed.

2. Determine and enter the correct code.

3. Blank the field when the RPC written on the return is illegible and/or you cannot determine the correct RPC from the explanations in (4) below.

(4) Return Processing Codes - The number of Return Processing Codes may not exceed ten. The codes and their meanings are listed below:

(1) ALWAYS SSPND with Action Code 215 for first correspondence with taxpayers in FLC 20 or 21.

(2) The ERS Action Code indicates that specific information is missing, or the return is being suspended, or removed from processing. Error Resolution System (ERS) Action Codes will have sufficient detail to indicate if correspondence, in-house research, or other action(s) are required. For a complete listing of ERS Action Codes refer to the exhibit in IRM 3.12.2, Individual Master File Error Resolution General Instructions.

(3) Code & Edit Tax Examiners assign Action Codes to numbered returns that are unprocessable, require research, correspondence, etc. The code is entered on the lower center margin of the return.

(4) Correspondence Action Sheets (Form 3696-A, Form 6001, Form 13900, or Form 13975) used for initiating correspondence are attached by Code & Edit. For routing within the service center (In-House Research), codes and literals for each Action Code will generally be sufficient with no further explanation.

(5) The Action Code assigned by Code & Edit is transcribed and kept as part of the Form 1040/Form 1040-NR record. It will always display as a Priority 1 error.

(6) The presence of a valid Action Code except for Action Code 001, places the record in the suspense inventory, either Workable or Unworkable.

(7) If the Action Code assigned by Code & Edit is invalid or incomplete, the "000" is used as a clear code to delete invalid or erroneous Action Codes when there is no reason to suspend the record.

(8) Only one Action Code can be assigned at one time to a record.

(9) Use Command Code SSPND, RJECT or NWDLN to enter an Action Code on the record, correct an invalid code, resuspend, or delete a record from ERS.

1. Entering a valid Action Code with SSPND Command Code clears the record from the screen and places it in either Workable or Unworkable Suspense.

2. An ERS Tax Examiner entering a valid Action Code with the RJECT Command Code deletes the record from ERS. Generally, the Service Center Control File (SCCF) is automatically updated for the deleted records. Only Action Codes 620, 630, 640, 650, 660, and 670 are valid with Command Code RJECT.

3. Entering an Action Code with the NWDLN Command Code deletes the record from ERS and establishes a new DLN for reinput.

(1) This is edited by Code & Edit in the bottom right margin of Page 1.

1. The valid Audit Codes for Form 1040-NR (Doc. Code 72 and 73) are 2, 3, B, C, E, H, J, K, L, N, P, Q, R, S, U, V, W, X, and Z.

2. The valid Audit Codes for Form 1040-SS (sp)/Form 1040-SS (Doc. Code 26 and 27) are 2, 3, B, H, J, K, L, U, X, and Z.

(2) Invalid Conditions - are as follows:

1. For Form 1040-NR(Doc. Code 72/73) and the Audit Code is other than 2, 3, B, C, H, J, K, L, N, P, Q, S, U, V, W, X, or Z.

2. For Form 1040-SS (sp)/Form 1040-SS (Doc. Code 26/27) and the Audit Code is other than 2, 3, B, H, K, L, U, X, or Z.

(3) Correction Procedures - Compare the field on the screen with the entry on the return. If edited or transcribed incorrectly, correct the screen display and the code entered in the lower right margin of page 1 of the return. If the code is illegible, use the following list to determine the correct Audit Code:

(4) If the correct audit code cannot be determined delete the audit code from the screen.

(1) Section 02 contains the following Fields:

(1) Don’t enter unallowable codes (UA) or unallowable amounts on any international tax returns including Form 1040, Form 1040-NR, Form 1040-SS, and Form 1040-SS (sp). Unallowable instructions in IRM 3.12.3, Error Resolution, Individual Income Tax Returns, don’t apply to any international returns. LB&I Compliance has developed other methods to select unallowable cases for review.

(2) Delete entries if present in the following fields in Section 02: 02CD1, 02AM1, 02CD2, 02AM2, 02CD3, 02AM3, 02AGI, 02ITM, 02NI, and 02TXA.

(1) Description -This field is edited on line 8 of Edit Sheet Form 3471.

(2) Invalid Condition - Any entry other than "1".

(3) Correction Procedures -

1. If Form 4563 is attached to the return, Code & Edit will enter a "1". This number must be entered in Field 0208.

2. Delete an entry other than a "1", if present in this Field.

3. Field 0208 is only valid for FLC 21.

(1) Section 03 contains the following Fields:

(1) W-2 Wages is transcribed in Field 03WG from the following lines:

• TY20 and later- line 1a, Form 1040-NR

• TY19 - line 8, Form 1040-NR.

(2) Refer to EC 218 in both IRM 3.22.3 and IRM 3.12.3, Error Resolution, Individual Income Tax Returns.

(3) For TY21 and prior Household Employees may not have Form W-2 to support an entry on line 1a, Form 1040-NR. They are instructed to write "HSH" and the amount of earnings to the left of the wages line. Consider this a "Form W-2 type" statement.

(1) Total Income Exempt by Treaty is transcribed in Field 03TEX from the following lines:

• TY 22 and later - line 1k Form 1040-NR

• TY20 and TY21 - line 1c, Form 1040-NR

• TY19 - line 22, Form 1040-NR

(2) The amount from this field is used for information purposes only and not used in the computation of total income. Refer to EC 218 in IRM 3.22.3.170.2.2.1 (3) for Form 1040-NR.

(3) The taxpayer's entry on line 15 (TY20 and TY21, line c) must correspond to the information provided about treaty-exempt income reported on Schedule OI, item L, Form 1040-NR, or elsewhere on the return.

(4) The taxpayer must identify:

1. the name of the foreign country whose tax treaty with the United States provides his exempt status;

2. the treaty article number which exempts his specific income; and

3. the amount of the exempt income for the tax year.

(5) All three (3) items listed above must be identified before validation of the treaty can be completed. Correspond for any missing information by selecting paragraph J on Form 13900. If no reply or an incomplete reply, disallow the treaty exemption.

(6) Treaty income exemption claims are validated using the tax treaty table at Exhibit 3.22.3-1, Table 2. Compensation for Personal Services, and the table of exempt countries for government service employees at Exhibit 3.22.3-2. Include the guidance in the footnotes on the tax treaty table when validating treaty exemption claims. The footnotes are based on the specific provisions in each of the tax treaties.

(7) If the taxpayer provides a treaty article number, but doesn’t cite the subparagraphs, accept the treaty article without the subparagraphs if the country and amount are valid for that article number on the treaty tables.

(1) Total Wages is transcribed in Field 03TWG from line 1z Form 1040-NR.

(2) Refer to EC 201 in IRM 3.12.3 Error Resolution, Individual Income Tax returns.

(1) Tax Exempt Interest is transcribed in Field 03TEI from the following lines:

• TY20 and later- line 2a, Form 1040-NR

• TY19 - line 9b, Form 1040-NR

(2) ≡ ≡ ≡ ≡ ≡ ≡ taxpayer's entry.

(1) Taxable Interest is transcribed in Field 03INT from the following lines:

• TY20 and later - line 2b, Form 1040-NR

• TY19 - line 9a, Form 1040-NR

(2) Refer to EC 218 in both IRM 3.22.3 and IRM 3.12.3, Error Resolution, Individual Income Tax Returns.

(3) United States bank interest, savings and loan or similar association interest and certain deposits with United States insurance companies is not taxable. Delete entry where reported.

(1) Qualified Dividends is transcribed in Field 03QD from the following lines:

• TY20 and later - line 3a, Form 1040-NR

• TY19 - line 10b, Form 1040-NR

(2) Refer to EC 218 in both IRM 3.22.3 and IRM 3.12.3, Error Resolution, Individual Income Tax Returns.

(1) Ordinary Dividends is transcribed in Field 03DIV from the following lines:

• TY20 and later - line 3b, Form 1040-NR

• TY19 - line 10a, Form 1040-NR

(2) Refer to EC 218 in both IRM 3.22.3 and IRM 3.12.3, Error Resolution, Individual Income Tax Returns.

(1) Gross IRA Distribution is transcribed in Field 03GIR from the following lines:

• TY20 and later - line 4a, Form 1040-NR

• TY19 - line 16a, Form 1040-NR

(2) Taxable IRA Distribution is transcribed in Field 03TIR from the following lines:

• TY20 and later - line 4b, Form 1040-NR

• TY19 - line 16b, Form 1040-NR

(3) Refer to EC 218 in IRM 3.12.3, Error Resolution, Individual Income Tax Returns. In TY 2018, IRA amounts are combined with pensions and annuities and reported on line 17a and 17b.

(1) Gross Pensions and Annuities is transcribed in Field 03GPA from the following lines:

• TY20 and later - line 5a, Form 1040-NR

• TY19 - line 17a, Form 1040-NR

(2) Taxable Pensions and Annuities is transcribed in Field 03TPA from the following lines:

• TY20 and later - line 5b, Form 1040-NR

• TY19 - line 17b, Form 1040-NR