4.4.14. Individual Retirement Account (IRA), Education Savings Accounts and Medical Savings Account Adjustments

(1) Purpose: The procedures, which were in this IRM, pertained to the Examination Audit Process. The removed procedures do not pertain to the AIMS Information Technologies (IT) System, which is the subject of this IRM. New IRM references for the procedures previously located in this IRM are listed in the material changes. This section provides general instructions for processing Individual Retirement Account (IRA), Education Savings Accounts and Medical Savings Account Adjustments, as they pertain to Centralized Case Processing (CCP). CCP procedures remaining in this IRM will be included in the new IRM 4.38.1, Examination Processing, Centralized Case Processing, Organization and Responsibilities.

(2) Audience: The audience for this IRM Section will be Examination CCP.

(3) AIMS Policy Owner: The Director: SB/SE Technology Solutions who is under the Director, Operations Support.

(4) Program Owner: Exam Systems and Programs, Customer Service.

(5) Program Goals: This chapter contains information and procedures on processing Individual Retirement Account (IRA), Education Savings Accounts and Medical Savings Account Adjustments for examination employees.

(6) IRM deviations must be submitted in writing to the Director Small Business and Self-Employed (SB/SE) following instructions from IRM 1.11.2.2.4.3, Internal Management Documents System - Internal Revenue Manual (IRM) Process.

(1) The procedures, which were in this IRM, pertained to the Examination Audit Process. The procedures do not pertain to the AIMS IT System, which is the title of this IRM. IRM references are given in the material changes, for the procedures previously located in this IRM. CCP procedures, remaining in this IRM, will be included in the new IRM 4.38.1, Examining Processing Centralized Case Processing (CCP), Organization and Responsibilities.

(1) Headquarter Examination is responsible for all policy and procedures related to CCP.

(1) This chapter contains procedures for Individual Retirement Arrangements (IRA), Education Savings Account and Medical Savings Account adjustments made by Examination.

(2) A Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts assessment can be made during a Form 1040, U.S. Individual Income Tax Return, audit. The assessment appears in other taxes on Form 4549, Income Tax Examination Changes, and will be identified as an IRA Tax on Form 4549, Report of Income Tax Examination Changes.

(3) The Form 5329 includes both Income Tax and Excise Tax. When Form 5329 is used, an Income Tax assessment is indicated by Master File Tax Code (MFT) 30 and an Excise Tax assessment is indicated by MFT 29.

(4) For more information on IRAs - See IRM 21.6.5, Individual Tax Returns - Individual Retirement Arrangements (IRA), Coverdell Education Savings Accounts (ESA), Archer Medical Savings Accounts (MSA) and Health Savings Accounts (HSA).

(1) Form 5329 is used by the taxpayer to report additional taxes. The table below describes the Part Number on Form 5329, the corresponding reference number and the type of tax (income or excise).

(2) Secure the transcripts below to determine whether the taxpayer paid additional tax or filed Form 5329.

• Command Code (CC) RTVUE: Use this transcript to determine if the Form 1040 included an amount on Line 58, Additional Tax on IRAs, other qualified retirement plans, etc. or Line 59 for 2014 Form 1040. The Form 5329 schedule will also be transcribed if it was required and filed.

• CC IMFOL ‘I’: If an MFT 29 tax period exists, it indicates that an assessment was made based on a processed Form 5329 during a specific tax period.

(1) Examinations of Form 1040 may result in a no change or adjustment to a Form 5329.

(2) AIMS controls must be established for the individual taxpayer's MFT 30 account.

(3) If the outcome of the audit is a no change, do not process the no change to the IRA account.

(4) If the outcome of the audit is a change, follow the procedures below.

(1) If the adjustment is to Part I or II of Form 5329, the adjustment is included in the Transaction Code (TC) 300 amount on Form 5344, Examination Closing Record. The "Other information" section of Form 4549 should indicate the IRA taxes are all income taxes. If the adjustment is a change, the assessment is included in "Plus other taxes", (Line 10.) on Form 4549.

(1) If any or all of the adjustment is to Parts III through VIII of Form 5329, the Form 4549 will include the excise tax adjustment as part of other taxes. In addition, the section titled "Other Information" on Form 4549 should explain the type of other taxes.

(2) The explanation of "Plus other taxes" in Section 10, will be included as part of the individual report if other issues on Form 1040 are under audit. Form 886-A, Explanation of Items, attached to Form 4549 should identify the adjustment and applicable Internal Revenue Code sections. In joint returns, the spouse(s) to whom the excise tax is applicable should be specified. The adjustment must be made on the MFT 29 module. Therefore you must research (CC IMFOL ‘I’) to see if an MFT 29 module exists.

(1) Research IDRS to determine if there is an MFT 29 account on Master File.

(2) Review the entity information for MFT 30 and MFT 29. If the entity is not correct, prepare Form 2363, Master File Entity Change. Extreme care must be taken to ensure that the Form 2363 is input to the correct MFT account. If the change is only for the MFT 29 account, include "MFT 29 - IRA" in bold letters, on the top portion of the form.

(3) Normally Form 2363 input to the MFT 30, Individual Master File (IMF) module will cause automatic updating of the MFT 29, IRA account if the IMF filer(s) is also an IRA filer(s). It will not be necessary to prepare Form 2363 for input to the IRA module unless the information to be updated on the IRA account is different than what is being input to the MFT 30 module.

(4) If Form 2363 is to be prepared, input the form one cycle prior to the input of the adjustment document (i.e., Form 5344). An exception to this is if a name change or address change was previously input directly to the MFT 29 account. When this situation exists, a name or address change input to the MFT 30 account will not automatically change the IRA name or address. Only another Form 2363 input to the MFT 29, IRA account or subsequent IRA return posting will change the IRA address or name.

(5) Form 2363 entries include:

1. Transactions Codes applicable to the IRA file are: TC 011, 012, 013, 014, 015, 016, 020, 030, and 041.

2. IRA First Name Line: Must be the name of an individual, joint names are not allowed.

3. Address Data: Must be perfected and input in total. Major city coding cannot be used. State abbreviations must be used, ZIP code and location codes must be input. There will be no computer generation of these codes.

4. Miscellaneous Data: i.e. Fiscal Month Ending (calendar year filer enter 12, if fiscal year filer enter the fiscal month ending). Power of Attorney (POA) codes for IRA accounts will be input to the Centralized Authorization File (CAF) by the Campus POA UNIT. Valid POA documents should be forwarded to the Campus.

5. Change to IRA Indicator: The indicator must be input with TC 016 and accompanied by the tax year digits. Inputs must be Codes 1, 2, 3, or 4 and will have the following meaning and action on the Master File.

   Note: IRA Indicator 5 - 7 definition provided if it appears on CC TXMOD.

IRA Indicator	Definition
0	Indicates that no IRA return was filed or that the taxpayer is not considered an IRA filer.
1	Primary Taxpayer has an IRA.
2	Secondary Taxpayer has an IRA.
3	Both Taxpayers (Filing Status (FS) 2 only) have IRAs.
4	IRA Notice issued (input of Code 4 will set the IRA indicator to zero on the Master File).
5	IRA Notice issued to the primary taxpayer
6	IRA Notice issued to the secondary taxpayer
7	IRA Notice issued to both taxpayers (FS 2 only)

6. Other data elements, editing and transactions will follow the same rules as apply to the MFT 30 module.

(1) Research IDRS to determine if there is an MFT 29 account on Master File.

(2) If a MFT 29 account does not exist, an MFT 29 account must be established.

1. A Form 3177, Notice of Action for Entry on Master File, must be prepared and eFaxed to CCP; requesting the input of a TC 971 Action Code (AC) 144. The TC 971 AC 144 causes the generation of an IRAF MFT 29 account. The MFT 29 account must be processed for each year that an assessment is needed. The TC 971 AC 144 also generates an IRA code of 1 on the MFT 29 module. If this code is not correct, request a correction to the code using procedures found in IRM 4.4.14.9.

Note: If multiple tax periods are included on one Form 3177, it should be for the same SSN. Each tax period on the Form 3177 must contain specific actions to be taken. If the group determines that Form 3177 is required to create a MFT 29 account, follow the procedures above and EFax the form to CCP for processing. Use this link: CCP EFax.

(1) If advance payments have been made, a separate Form 3244-A, Payment Posting Voucher - Examination, must be prepared for income tax or IRA excise tax. Annotate "IRA MFT 29" in the "Remarks" section of Form 3244-A.

(2) Research IDRS to determine if a payment has been made for the MFT 29 module but has been applied to the MFT 30 module. Use Form 2424, Account Adjustment Voucher, to transfer any available credit from the MFT 30 module to pay a liability on the MFT 29 module, or vice versa.

(1) Case files containing IRA adjustments will be identified on Form 3198, Special Handling Notice for Examination Case Processing, by checking the box in the "Special Features" section titled "Individual Retirement Account (IRA) Adjustments".

(2) In lieu of a separate Form 5344, for the MFT 30 adjustment and one for the MFT 29 adjustment, an attachment to Form 5344- IRAF Adjustments document was developed to assist in the closing of IRA cases. The document can be found at: IRAF Adjustments-Attachment to Form 5344. Attach a copy of the completed document to the Form 5344.

(1) The following procedures apply only when an IRA account indicator is present and the adjustment is being processed with CC AMCLS "I".

(2) The group will follow the procedures below:

(3) Complete Form 5344, using the information completed by the group on the "IRAF Adjustments - Attachment to Form 5344" document for the processing of MFT 29 adjustment(s). See link below. IRAF Adjustment - Attachment to Form 5344.

(4) Below are the valid Item Number entries required on Form 5344 to process an MFT 29 adjustment.

1. P1–6, CC AMCLS Definer: Enter an ‘I’.

2. P7–18, Taxpayer’s Identification Number (TIN): This is always the Social Security Number (SSN) applicable to the Form 1040. However, if the adjustment is to the spouse’s account (secondary SSN on the Form 1040), line through Item P7-18 before forwarding the closing document for processing.

3. P21–22, Master File Tax Code (MFT): The MFT is always 30. After completion of CC AMCLS ‘I’, the MFT 29 module will be generated within the system to build the record for transfer to Master File. MFT 29 will never actually display.

4. P31-34, Name Control and B-Name: The taxpayer’s Name Control and Name are the same as the MFT 30 module, except in the case of a joint return. The name of the IRA account will be shown on Form 5329 filed with the Form 1040. Line through the first name of the taxpayer not applicable. The IRA account could be for either spouse, or one for each spouse, but never a joint account for both spouses.

5. P38-40, Block Number: The following block numbers are valid for CC AMCLS ‘I’: 0NN, 1NN, 78N, 00X, 08X, 10X, 18X, or 78X.

6. Item 01, Secondary Spouse SSN (AMCLS ‘I’ only): Individual Retirement Account – IRA. If the IRA adjustment is to the spouse’s account (secondary SSN on the Form 1040), enter the secondary SSN. Do not make an entry in Item 01 if the IRA account being adjusted is that of the primary taxpayer.

7. Item 12, Tax, Penalty and Interest Adjustments: Enter the transaction code in the Trans. Code column and amount of tax adjustment increase or decrease as appropriate. Valid transaction codes are 300, 301, 340, 341, 342, 770, 772, 16X and 27X.

8. Item 13, Disposal Code: Enter the applicable disposal code.

9. Item 15, Credit and Tax Computation Adjustments and Penalties with REF Numbers: Reference Numbers and amounts entered here serve to identify the type and amount of tax adjustment reflected in the TC 30X entry in Item 12, Tax, Penalty and Interest Adjustments and also to correct specified non-tax data on the MFT 29 module. Item reference numbers must be used with any tax adjustment.

   Reminder: Item reference numbers must be used with any tax adjustment.

• Enter the Reference Number in the "Ref. No." column, and the corresponding amount of increase or decrease as appropriate.

• The amount entered for Reference Number(s) 160, 162, 233, 235, 236 or 237 must be the same as the TC 30X amount in Item 12.

  Note: The 10% premature distributions tax requires no special handling by tax examiners. Premature distributions tax, although reported on Form 5329 is an income tax which is assessed on the MFT 30 account and taken into consideration when the total corrected income tax is determined by the examiner.

(1) After the MFT 29 adjustment is made, make a printout of the CC AMDIS to accompany the MFT 30 case file. The final closing of the MFT 30 module can now be input using IDRS CC AMCLS "E".