Employees in the Accounts Management (AM) organization respond to the taxpayer inquiries and phone calls as well as process claims and other internal requests.

Refer to IRM 1.2.1.13, Policy Statements for Customer Account Services Activities, for information.

Per Policy Statement 5-2: We actively assist taxpayers who try to comply with the law, and work to continually improve the quality of our systems and service to meet the needs of our customers. All taxpayers whether delinquent or fully compliant are entitled to prompt and professional service whenever they deal with Service employees. The public as a whole is our customer, not just delinquent taxpayers. Our customers expect us to promote voluntary compliance by ensuring that all promptly pay their fair share. This information can be found in IRM 1.2.1.6.2, Policy Statement 5-2, Collecting Principles.

The Taxpayer Services Commissioner has overall responsibility for the policy related to this IRM which is published on a yearly basis.

Additional information is found in IRM 1.1.13.7.3, Accounts Management, and IRM 21.1.1, Accounts Management and Compliance Services Overview.

Program Reports: The program reports provided in this IRM are for identification purposes for the Accounts Management Customer Service Representatives (CSRs) and Tax Examiners (TEs). For reports concerning quality, inventory, aged listing, refer to IRM 1.4.16, Accounts Management Guide for Managers. Aged listings can also be viewed by accessing the Control-D/Web Access server, which has a login program control.

Program Effectiveness: Program Effectiveness is determined by Accounts Management’s employees successfully using IRM guidance to perform necessary account actions and duties.

Program Controls: Goals, measures, and operating guidelines are listed in the yearly Program Letter. Quality data and guidelines for measurement are referenced in IRM 21.10.1, Embedded Quality (EQ) Program for Accounts Management, Campus Collection, Campus Examination, Field Assistance, Tax Exempt/Government Entities, Return Integrity and Compliance Services (RICS), and Electronic Products and Services Support.

The information below is a list of commonly used acronyms used throughout this IRM:

For a comprehensive listing of any IRS acronyms, refer to the Acronym Database.

Refer to IRM 1.4.2.1.8, Related Resources, for information on related resources that impact internal controls.

The Taxpayer Bill of Rights (TBOR) lists rights that already existed in the tax code, putting them in simple language and grouping them into 10 fundamental rights. Employees are responsible for being familiar with and acting in accordance with taxpayer rights. See IRC 7803(a)(3), Execution of Duties in Accordance with Taxpayer Rights. For additional information, see Taxpayer Bill of Rights.

As described in Rev. Rul. 2004-33 and Rev. Rul. 2006-20, taxpayers may make frivolous arguments, seeking reparation tax credits against the U.S. government for past injustices resulting from slavery and economic oppression, or from another historical mistreatment. They usually indicate "Black Investment Taxes" , "Reparation for African Americans" , "Reparations for Native Americans" , or a similar statement. The amount claimed per person, is often, but not always, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡.

Taxpayers claim entitlement to a tax credit because of these hardships and try to claim the credit:

DO NOT ALLOW the claim. Refer to IRM 21.5.3.4.16.7, Identifying Frivolous Returns/Correspondence and Responding to Frivolous Arguments. If the taxpayer erroneously received a refund based on this credit, they file an amended return to correct their account. Refer to IRM 21.4.5, Erroneous Refunds, for additional instructions.

If the taxpayer has questions regarding the legitimacy of the claim, advise as follows:

Generally, for damages to be excluded from gross income under IRC 104(a)(2), the damages are received because of personal physical injuries or physical sickness. DisallowForm 1040-X, Amended U.S. Individual Income Tax Return, claiming income payments as excludable under IRC 104(a)(2) if based on age discrimination, refer to IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures. Include in the Letter 105C, Claim Disallowed, the following disallowance language: "Amounts received because of personal physical injuries or physical sickness may be excluded from gross income under IRC 104(a)(2). However, amounts received because of age discrimination are not considered as received for physical injuries or physical sickness and are not otherwise excluded from income."

The Tax Cuts and Jobs Act (TCJA) enacted on Dec. 22, 2017, eliminates the deduction for certain alimony and separate maintenance payments and the requirement that those payments be reported as taxable income.

Taxpayers who claim deductions for alimony paid under divorce or separate maintenance agreements executed before 2019 but do not provide the Taxpayer Identification Number (TIN) of the recipient are not contacted during pipeline processing for this information. A penalty is charged for not providing the TIN. If a Form 1040-X, Amended U.S. Individual Income Tax Return, is received, the taxpayer must include the TIN of the recipient of the alimony.

When correspondence is received requesting abatement of the penalty, use the following table to help you decide if the IRC 6723 Penalty may be abated.

IRC 446(e) requires a taxpayer to receive the consent of the Commissioner before changing a method of accounting. Unless specifically authorized by the Commissioner, a taxpayer may not request, or otherwise make, a retroactive change in method of accounting, regardless of whether the change is from a permissible method for disposed depreciable or amortizable property. See Section 2.05 of Rev. Proc 2015-13 for or information. Amended returns may be received referencing the "Albertson's, Inc." court case, to claim:

Disallow the following:

IRC 127 allows employers to exclude educational expenses from the employee's taxable income. The maximum annual exclusion is $5,250.

These claims are changing income from taxable to nontaxable. Prior to adjusting the account, refer to Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General.

For additional information on educational assistance, refer to Publication 15-B, Employer’s Tax Guide to Fringe Benefits.

IRC 117(c)(2)(C) excludes from gross income any payments from certain work-learning-service programs that are operated by a work college as defined in Section 448(e) of the Higher Education Act of 1965. This provision is effective for amounts received in tax years beginning after December 18, 2015, the date of enactment of Section 301 of The Protecting Americans from Tax Hikes (PATH) Act of 2015.

This provision supports the educational costs for qualified students through self-help payments or credits provided under the work-learning-service program of the institution. It provides students the opportunity to contribute to their education and to the welfare of the community.

These claims are changing income from taxable to nontaxable. Prior to adjusting the account, refer to Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General.

State trooper expenses for meals eaten while on duty are nondeductible, except for the following exceptions:

You may receive claims, from taxpayers outside the jurisdiction of the U.S. Court of Appeals for the Eighth Circuit, citing a Georgia State patrolman's article asserting that the IRS had changed its position in 1993 to allow such deductions. This is not correct. Disallow such claims using the language in paragraph (1) above. For disallowance procedures, refer to IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures.

IRC 119(b)(4), states that all employee meals provided on an employer’s business premises are excludable if more than half of the employees who receive the meals on the premises receive them for the "convenience of the employer" .

For additional information, refer to Publication 15-B, Employer’s Tax Guide to Fringe Benefits.

The Mortgage Forgiveness Debt Relief Act of 2007, Public Law 110-142, Section 2, enacting IRC 108(a)(1)(E) and IRC 108(h), generally allows a taxpayer to exclude income from the discharge of debt on the taxpayer's principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

This provision applies to debts forgiven in calendar years 2007 through 2025, as extended by the Taxpayer Certainty and Disaster Relief Act of 2020. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately).
Section 114(b) of the Taxpayer Certainty Tax Relief Act of 2020 (P.L. 116-260, Section 114 (b) Div. EE) amended 108(h)(2) such that the amount of a qualified principal residence indebtedness that can be discharged is $750,000 for married filing jointly and $375,000 for married filing separately for discharges after 12/31/2020. The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

Normally, debt that is forgiven or cancelled by a lender is reported and included as income and is taxable, but the Mortgage Forgiveness Debt Relief Act allows taxpayers to exclude certain cancelled debt on their principal residence from their income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

This provision applies only to forgiven or cancelled debt used to buy, build or substantially improve the taxpayer's principal residence, or to refinance debt incurred for those purposes. In addition, the debt is secured by the taxpayer’s main home. This is known as qualified principal residence indebtedness. Refer to Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals).

Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax-relief provision. If proceeds of refinanced debt are used for other purposes (for example, to pay off credit card debt), the discharge of the refinanced debt does not qualify for the exclusion.

The amount of debt forgiven that is excluded from gross income is reported on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), which is attached to the tax return. Taxpayers are instructed to mark the appropriate box under line 1 on Form 982 to indicate the type of discharge of indebtedness and enter the amount of the discharged debt excluded from gross income on line 2. Any remaining cancelled debt is included as "Other Income" . Process the claim following normal adjustment procedures. Normal statute of limitations procedures apply; refer to IRM 25.6.1, Statute of Limitations Processes and Procedures. If Form 982 is filed separately or loose, refer to IRM 21.5.1.4.4, Processing of Loose Forms or Schedules. If Form 1040-X, Amended U.S. Individual Income Tax Return, is filed claiming forgiven or cancelled debt and the Form 982 is not attached, research CC TRDBV. If there is no indication the Form 982 was received, refer to IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing.

There are two elections under IRC 108 as explained in the instructions for the Form 982. "The election to reduce the basis of depreciable property under IRC 108(b)(5) and the election made on line 1d of Part I regarding the discharge of qualified real property business indebtedness is made on a timely filed return (including extensions) and can be revoked only with the consent of the IRS."

If the original tax return was filed without making either of the elections described in (7) above and the taxpayer wishes to make the election, the taxpayer must file an amended return within 6 months of the due date of the original return (excluding extensions). Disallow claims filed after the due date of the original return (excluding extensions). For disallowance procedures, refer to IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns. Taxpayers are instructed to write "Filed pursuant to Section 301.9100-2" on the amended return.

There is NO election necessary to exclude indebtedness from Mortgage Forgiveness on a principal personal residence from income; therefore, the 6 month rule does NOT apply to claims filed for discharge of indebtedness on a principal residence.

Lenders are required to send Form 1099-C, Cancellation of Debt, when they cancel any debt of $600 or more. The amount cancelled is shown in box 2 of the form. When the taxpayer receives a copy of the Form 1099-C, the "Instructions for Debtor" accompanying the form instructs the taxpayer to notify the lender immediately if the amount in box 2 is incorrect.

If taxpayer repays money that was included in gross income in a previous tax year due to an expectation of an unrestricted right to the income (Claim of Right, IRC 1341), and the repayment is deductible (for example as a business expense or an IRC 165 loss), then the taxpayer may (1) deduct all or part of the amount for the year in which it is repaid, or (2) take a refundable credit against tax for that year. This repayment may also be referred to as a “Clawback Payment or Deduction”. If the repayment is not deductible, then IRC 1341 is not available. The way the deduction is taken depends upon the:

Generally, if a debt is canceled or forgiven, the canceled amount is included in income. Refer to Publication 17, Your Federal Income Tax, Chapter 12, and Publication 525, Taxable and Nontaxable Income, "Repayments" for details and exceptions like a gift or bequest (inheritance).

One exception, not outlined in Publication 17, involves the issuance of Form 1099-C, and a subsequent repayment of the debt by the taxpayer. The regulations under IRC 6050P generally require that Form 1099-C be issued to a debtor if one of seven events outlined in Publication 17 and Publication 525 occurs. In some cases, the taxpayer includes the amount reported on the Form 1099-C as income on their income tax return, not understanding the fact that the creditor may still pursue collection activity.

For all types of repayment, the following applies:

The Department of Army or taxpayer may submit DA Form 5174-R, Refund for Prior Year Salary Overpayment. No adjustment activity is necessary.

Associate the form with the return for the year of overpayment.

All claims for refund of prior year income taxes paid on periodic partial distributions from employee savings, retirement, and investment plan distributions are worked using normal adjustment procedures.

Taxpayer must show the aggregate amount contributed and withdrawn before the claim can be worked. Do not send to Examination as Category A.

Taxpayers may claim seller paid points when purchasing a principal residence. The deduction is claimed on Schedule A, Itemized Deductions. Points are generally reported on Form 1098, Mortgage Interest Statement, issued by the financial institution. The term "points" is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. Appraisal, inspection, title, and attorney fees are NOT deductible. Property taxes paid are NOT deductible as points even if designated as points. Refer to Publication 936, Home Mortgage Interest Deduction. See also Rev. Proc. 94-27.

Points paid by the seller: The term "points" includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. The seller cannot deduct these fees as interest, but they are a selling expense that reduces the amount realized by the seller. Refer to Publication 523, Selling Your Home.

These claims are a change to Income and may need to be referred to Exam for review. Refer to IRM 21.5.3, General Claims Procedures.

Whenever Integrated Data Retrieval System (IDRS) Command Code (CC) LETER is input on a joint account, the system determines if the spouse is the same for the current year.

Taxpayers may file amended returns to claim a deduction for daily transportation expenses between a taxpayer's residence and a temporary work location.

In Rev. Rul. 57-383, the IRS considered the Federal Income Tax treatment of certain unemployment benefits received by union members while separated from their jobs.

Rev. Rul. 57-383 provides that:

The unemployment benefits received may be offset by the amount of payments into the fund. The benefits received in excess of the payments are includible in the taxpayer's income.

IRC 85 also provides that gross income includes unemployment compensation received under a law of the United States or of a State which is in the nature of unemployment compensation. Unemployment benefits derived from a union established fund that are not unemployment compensation for purposes of IRC 85 are generally included as gross income as described in Revenue Ruling 57-383.

Taxpayers must submit a Selective Strike Assessment Schedule showing the annual wages earned and payments made into the plan according to their records, based on a yearly percentage. Unions do not maintain records of members' individual contributions. A dollar figure representing the entire year's payment made to the Fund is not sufficient; correspond if the schedule is not provided. The following is an example of a UMWA SELECTIVE STRIKE FUND ASSESSMENT SCHEDULE:

Verify the treatment of the strike fund benefits in prior years. Accept a taxpayer statement declaring no deduction was taken in prior years. Further research is necessary, if the taxpayer did not provide documentation or substantiation showing no prior income deduction was taken for any payments made into the selective strike fund.

Coal companies may file a claim for refund of premiums paid to the UMWA Combined Benefit Fund (the Combined Fund). Even though the amounts paid are premiums and were not paid to the IRS, the companies are seeking a refund pursuant to the decision of the United States Court of Appeals for the Fourth Circuit in Pittston Co. v. United States, 199 F.3d 694 (4th Cir. 1999). In that decision, the Fourth Circuit held that the premiums are taxes and that it was appropriate for a coal company to bring a tax refund action to seek a refund of premiums that it contests were wrongly assessed.

Check the taxpayer's address, if address did not originate in the Fourth Circuit (that is, did not originate in Maryland, North Carolina, South Carolina, Virginia, or West Virginia) research to determine if taxpayer may have moved and may be eligible. Complete additional research (e.g., CC IRPTR) prior to disallowing the claim. If the claim did not originate in the Fourth Circuit, disallow the claim, refer to IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures. Send Letter 105C, Claim Disallowed, include the following information: "We disallowed your claim for refund of premiums paid pursuant to IRC 9704 of the Internal Revenue Code to the United Mine Workers of America Combined Benefit Fund. The IRS is not following the decision of the Fourth Circuit in Pittston Co. outside the Fourth Circuit." Route the claim to Files to be filed in the Alpha File. If case is on Correspondence Imaging Inventory (CII), the CII image is the source document, and it remains on CII for further recall if needed. Since the image remains available on CII, Alpha File association is not necessary. For additional information pertaining to CII, refer to IRM 21.5.1.5, Correspondence Imaging Inventory (CII) procedures.

If the claim originates in the Fourth Circuit, refer to Examination as Category A.

If the claim does not have merit, they are to disallow it. When the disallowed claim is returned by Examination, send Letter 105C, include the following information: "We disallowed your claim for refund of premiums paid pursuant to IRC 9704 of the Internal Revenue Code to the United Mine Workers of America Combined Benefit Fund. You have not alleged a ground for which a refund can be granted." Route the claim to Files to be filed in the Alpha File. If case is on CII, the image is the source document, and it remains on CII for further recall if needed. Since the image remains available on CII, Alpha File association is not necessary. For additional information pertaining to CII refer to IRM 21.5.1.5, Correspondence Imaging Inventory (CII) procedures.

If the claim appears to have some merit, Examination suspends the claim until a final determination is made. Because coordination with the Combined Fund and the Social Security Administration may be necessary, there may be some delay in making a final determination.

These claims are expeditiously processed in Identity Theft Victims Assistance (IDTVA). Reassign ALL"veteran disability claims" to IDRS number 1185402670, Doc type 1040-X - Veteran Claim, category code VRET, and program code 40051. Update the case note with "veteran disability claim" .

A disabled veteran is a veteran who applied for disability benefits from the Department of Veterans Affairs (VA) and their application was approved. The veteran’s disability compensation is a tax-free compensation paid by the VA to veterans who have become disabled or chronically ill during their military service. This monetary benefit is based on an injury or disease incurred or aggravated during active military service. These disabilities are considered to be "service-connected" or "service related" . The veteran must have been terminated through separation or discharged from the military under conditions that were other than "dishonorable" . The disability compensation varies with the degree of the disability and the number of dependents, and is paid monthly by the VA.

The VA determination process for the eligibility of VA benefits can take several months, and sometimes years. VA benefits are retroactively excluded from gross income from the date of the application for VA disability. The VA disability benefits are expressed in percentages, intended to represent the degree of impairment in the veteran's earning capacity. A veteran who receives retirement benefits and is later retroactively determined by the VA to be eligible for "service-connected" disability benefits, may exclude from their gross income the amount of their disability benefits from their military retirement pay. The effective date applies to any additional award for retroactive benefits. In general, military retirement benefits are based on length of service and included as income, whereas veteran’s benefits on a "service-connected" disability are excluded from income. Veterans may file claims for refund of taxes paid on the retroactive amounts of VA benefits for prior years covered by a waiver, back to the earliest year not barred by the Statute of Limitations, for additional information, refer to IRM 21.6.6.2.19.1, Extension of the Statute of Limitations to File Claims for Refunds Relating to Disability Determinations by the Department of Veterans Affairs.

To file a claim, the veteran must submit a Form 1040-X, Amended U.S. Individual Income Tax Return, for each year they wish to reduce the taxable pay, and a VA Determination letter covering those years. Refer to Publication 525, Taxable and Nontaxable Income.

These claims are changing income from taxable to nontaxable. Except as specified in the following instructions, normal procedures are followed. Prior to adjusting the account refer to Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General.

Review claims for completeness following the guidelines in IRM 21.5.3, General Claims Procedures.

A copy of an official VA Determination letter granting the retroactive benefit with the table showing amount withheld and effective date must be attached to the claim. The table listed on the VA Determination letter must cover the same dates for the tax year reported on the claim. If the claim is received within 180 days of the statute barred date, refer to IRM 21.6.6.2.19.1, Extension of the Statute of Limitations to File Claims for Refunds Relating to Disability Determinations by the Department of Veterans Affairs, and IRM 21.5.3.4.3, Tax Decrease and Statute Consideration.

To verify and calculate the correct tax reduction, the VA determination letter must have a table listing the "Amount Withheld" and either the "Payment Start Date" or the "Effective Date" . In general, the VA Determination letter includes a table containing five headings. We only use the "Amount Withheld" and the "Payment Start Date" or "Effective Date" when verifying/calculating the tax reduction.

Below are two examples on how to verify and calculate the correct amount for the tax reduction using the example of the table listed above:

If other tax changes unrelated to the VA benefits are claimed then the amounts reported on Line 1 Adjusted Gross Income (AGI), Column B of Form 1040-X, may not match the amounts shown on the VA Determination letter. Before inputting the adjustment, review the account for any previous adjustment(s). The amounts reported on the VA Determination letter MUST be math verified before adjusting the account. Refer to procedures in IRM 21.5.3.4.5, Math and Master File Verification of Claims and Amended Returns.

After math verifying the VA benefits claimed amount and it is different than the VA Determination letter calculated amount, you MUST set the initial math error and send the Letter 474C, Math Error Explained (IMF), or another letter that provides the taxpayer a detailed explanation of the math error. Refer to procedures in IRM 21.5.4.5.1, Setting the Initial Math Error Action.

Disallow claims based solely on the following:

Summary of Benefits Letter:

Individual Unemployability Claim must include the following:

Combat Related Special Compensation (CRSC) and Concurrent Receipt of Disability Pay (CRDP) :

According to the Department of Veteran Affairs, there are three medical diagnoses that would be considered Agent Orange presumptive in Vietnam veterans (Parkinson's disease, a type of ischemic heart disease, and certain leukemias). When a military member has a disability that is combat-related (e.g., one that is Agent Orange presumptive), they may qualify for Combat Related Special Compensation (CRSC). According to Defense Finance and Accounting Services (DFAS), many Vietnam veterans have been issued retroactive CRSC awards based on the Veteran Affairs determination. Each Branch of the military makes its own determination as to whether a veteran qualifies for CRSC and issues the veteran an award letter. The veteran also has documentation from Veteran Affairs regarding their disability. There is a special statute of limitation applicable to these situations; refer to IRM 21.6.6.2.19.1, Extension of the Statute of Limitations to File Claims for Refunds Relating to Disability Determinations by the Department of Veterans Affairs (Section 106 of Public Law 110-245 and Section 6511(d) of the Code). The retroactive CRSC award could have the effect of reducing previously reported taxable military retirement income, creating a situation where the veteran may be eligible for a refund from prior year's tax return (or multiple year's tax returns). The veteran includes copies of their DFAS letter, CRSC award letter, the CRSC/CRDP Payment Audit Report, and any correspondence received explaining the awards and adjustments. Resources are available for veteran's seeking assistance regarding how to file his/her amended returns at Is.gov, key words "disabled veteran" .

Payments under the Department of Veterans Affairs (VA) Compensated Work Therapy (CWT) program are no longer taxable and disabled veterans who paid tax on these benefits can claim refunds, subject to the statute of limitations, by filing an amended return using the Form 1040-X, Amended U.S. Individual Income Tax Return.

Information may be received indicating a taxpayer is deceased. Verification needed prior to updating the entity includes one of the following:

Refer to IRM 3.11.3.10.3, Documentary Evidence on a Decedent Return, for additional information.

IRC 692 provides for the forgiveness of certain Federal income taxes for certain U.S. military and civilian employees who are killed or die of injuries received because of military or terrorist action. For additional information and instructions for completing Killed in Terrorist Action/Killed In Action (KITA/KIA) returns, refer to Publication 3, Armed Forces' Tax Guide, and Publication 3920, Tax Relief for Victims of Terrorist Attacks.

Refer all claims and inquiries referring to KITA, KIA, Victims of Terrorist Attacks and the 9/11 Attack to the KITA/KIA team in Kansas City. These claims are expeditiously processed in the Kansas City KITA team. If received at any other campus, reassign the claim to the KITA team using IDRS 0933578782, and category code "KITA" .

The following subsections include procedures for processing claims/returns received under IRC 692. All claims covered in the following subsections are considered KITA/KIA claims and are routed as detailed in paragraph 2, above.

Under the Tax Equity and Fiscal Responsibility Act (TEFRA) administrative adjustment requests (AARs) may be filed to adjust partnership items which could result in refunds to the partners. An AAR can be filed by the Tax Matters Partner (TMP) on behalf of the partnership or by a partner with respect to that partner’s distributive share of the partnership items. An AAR approved by the IRS or a court before the adjustments take effect. Once approved, or if a partner would receive a refund as a result of adjustments made during an exam, partners may file amended returns to take into account their share of adjustments if the IRS does not automatically apply the adjustments to the partner.

The partners’ periods of limitation for the flow-through adjustments may be held open at the partnership level. The Letter 3906, Letter 4505-A, or Letter 4505-E provides the date by which the partner may file an amended return to determine whether the claim was filed timely. Do NOT automatically reject any amended return filed with a Letter 3906, Letter 4505-A or Letter 4505-E. The letter MUST be attached to the partners amended the return and must provide the date by which the amended return must be filed. The amended returns should have "Letter 4505-A/AAR" or "Letter 4505-E" written in the top center margin of the first page of the return. The partners may be filing amended returns with amended Schedules K-1. The Letters 4505-A and E instruct the partners to write Letter "4505-A/AAR" or "Letter 4505-E" in the top center margin of the form. The tax year of the adjustment to the TEFRA partnership return is for that year ONLY but does cover any potential carryback or carryover years. The partners/taxpayers have until the same date to file those carryback/carryover claims; therefore, they must be postmarked on or before the date provided in the Letter 3906, Letter 4505-A, or Letter 4505-E.

At the partnership level, this a minimum period that generally protects the ASED and related RSED for all the underlying partners until the date provided in the Letter 3906, Letter 4505-A, or Letter 4505-E. The ASED and RSED of the partners are likely to appear to be expired but it may be extended under IRC 6229(b)(1). The partners/taxpayers have until the same date to file those carryback/carryover claims; therefore the claims MUST be postmarked on or before the date provided in the Letter 3906, Letter 4505-A, or Letter 4505-E.

Similar scenarios may exist with BMF amended returns. Both taxable BMF entity as well as pass-through entity claims may be filed. Pass-through entity claims are filed with amended Schedules K-1 to report the effect of the partnership adjustments to their investors.

If the only issue on the amended return is the TEFRA partnership related loss, the claim is NOT be referred to CAT-A for review.

Refer claims received from taxpayers residing in the Virgin Islands to the Austin Campus for processing.

Refer to IRM 21.7.4.4.4.15.1, Modernized e-file (MeF) - Electronic Filing of Corporate and Exempt Organization Returns, for information on electronically filed Form 1120, U.S. Corporation Income Tax Return, Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations, Form 1120S, U.S. Income Tax Return for an S Corporation, and Form 990, Return of Organization Exempt From Income Tax. Utilize Command Code (CC) TRDBV, or CC RTVUE, or CC BRTVU, if CC TRDBV is unavailable, to verify return information in lieu of requesting an Electronic Filing (ELF) return (hard copy print). Only obtain a hard copy of the ELF return if it is to be reprocessed or reinput.

Use CC TRPRT to request graphic prints. The CC TRPRT graphic is available nationwide regardless of where the return was filed. The CC TRPRT print is not considered the original return. The print is labeled "TRPRT PRINT DO NOT PROCESS" . Refer to IRM 21.5.2.4.23.1, Reprocessing Electronic Returns. However, when the return is reprocessed, the CC TRPRT print is used. Refer to IRM 21.2.2.4.4.6, TRDB CC TRPRT (Tax Return Print) Input, for additional information on CC TRDBV and CC TRPRT.

Do not use blocking series 18 for e-filed returns. Use the applicable blocking series for the type of return/situation you are adjusting. Refer to Returns Processing Adjustment Blocking Series in Document 6209, Section 4.14, Adjustment Blocking Series, for a listing of adjustment blocking series.

Request Form 8453, U.S. Individual Income Tax Transmittal for an IRS e-file Return, if needed. When using CC ESTAB, enter the applicable MFT and "8453" for the form. If 8453 is not input for the form, the request is systemically rejected. When using CC ELFRQ, use action "2" .

DO NOT attach information (e.g., loose forms, schedules, and correspondence) to an ELF return. To identify an ELF DLN, refer to Document 6209, Section 4.3, Campus and File Location Codes. Use the following procedures:

Electronic Filing Unit (EFU) may forward Form 3465, Adjustment Request, to Accounts Management with a problem annotated. Take normal adjustment action.

Take the following action if the taxpayer submits a payment for excise tax and attaches a Form 5330:, Return of Excise Taxes Related to Employee Benefit Plans (Voucher Update Document).

Form 8697 is filed by an individual, corporation, estate, or trust. These claims are worked in either Philadelphia (IMF) or Cincinnati (BMF) depending on the type of claim filed (IMF or BMF). If received at any other campus, ensure the case is notated as a Form 8697 claim and forward to the applicable IMF or BMF campus. If the claim is scanned into CII re-control BMF claims to 0244374812. Once received in Philadelphia (IMF) or Cincinnati (BMF), employees are to follow procedures in IRM 21.7.4.4.20, Form 8697, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts.

IRC 101(h) generally excludes from income, amounts paid to a public safety officer, to the extent that the amounts are attributable to the officer’s service as a law enforcement officer. To qualify for the exclusion, the payments must meet all of the following conditions:

The survivor annuity is provided under a governmental plan to the surviving spouse (or former spouse) of the public safety officer or to a child of the officer. Public safety officers include law enforcement officers, firefighters, rescue squads, ambulance crews, and certain Federal Emergency Management Agency (FEMA) employees and employees of agencies providing disaster-related assistance to FEMA. The provision does not apply to the death of a public safety officer if it is determined by the appropriate supervising authority that:

Similar procedures apply to exclude from gross income the survivor benefits described in IRC 104(a)(6), effective May 22, 2015. The survivor benefits described in IRC 104(a)(6) are those received under Section 1201 of the Omnibus Crime Control and Safe Streets Act of '68, or under a state law to provide monetary compensation for surviving dependents of a public safety officer who died as the direct and proximate result of a personal injury sustained in the line of duty.

If an amended return claims this exclusion, the filer must provide a copy of the death certificate and a letter from the employing agency to substantiate the claim. Follow normal claims processing procedures.

An eligible retired public safety officer (i.e., law enforcement officer, firefighter, chaplain or member of a rescue squad or ambulance crew) can elect to exclude from income a maximum of $3,000 received from an eligible governmental retirement plan that was used to pay the premiums for accident, health, or long-term care insurance. To be eligible for this exclusion, the individual has separated from service, by reason of disability or attainment of normal retirement age, from the governmental employer that is the sponsor of that governmental retirement plan. An individual who separated from service prior to normal retirement age is not eligible for this exclusion unless the separation from service was by reason of disability.

An eligible retirement plan is a government plan that is:

Allow the claim if the taxpayer is excluding from income $3,000 or less and indicates "PSO" next to line 5b, Form 1040, U.S. Individual Income Tax Return, for tax years 2020-2023 (for prior tax years “PSO” is listed on the taxable amount line of disability pension) or is retired on a disability and is reporting the disability pension on line 5a of Form 1040.

Disallow any claim more than of the $3,000 income exclusion; refer to IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures. Include in the Letter 105C the following disallowance language: "Under IRC Section 402(l)(2) the exclusion of distributions from governmental plans for health and long-term care insurance to a retired Public Safety Officer (PSO) is limited to the lesser of the amount paid for qualified health insurance or $3,000 per year."

Amounts used to pay qualified insurance premiums that are excluded from gross income under IRC 402(l) are not considered in determining the itemized deduction for medical care expenses under IRC 213.

Taxpayers, retired from the military service, are citing IRC 134, claiming their compensation as JROTC instructors is tax exempt. A JROTC instructor's salary is fully includable in gross income as compensation for services under IRC 61(a)(1).

Disallow the claim; refer to IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures. Send the Letter 105C. Include the following information: "We disallowed your claim to exclude compensation received as a JROTC instructor from your income. The amount you received as a JROTC instructor from a school or school board for teaching is characterized as salary, rather than as an allowance. IRC Section 134 does not apply because the salary at issue does not meet the statutory definition of a qualified military benefit. Rev. Rul. 71-307 concluded that the compensation received by JROTC instructors is fully includable in gross income."

Compensatory damages for physical injuries and physical sickness (including damages received for economic losses stemming from the physical injury or physical sickness) that an individual receives from a state for wrongful conviction and incarceration are excluded from gross income under IRC 104(a)(2). The compensatory damages that the individual receives are excluded from gross income whether the individual receives the compensation in a lump sum, periodic payments, or a factoring transaction. IRC 139F excludes any civil damages, restitution, or other monetary award relating to wrongful incarceration of an individual for taxable years beginning on or after December 18, 2015 (date of enactment of Sec. 304 of the 2015 PATH Act).

Claims are generally filed on Form 1040-X, Amended U.S. Individual Income Tax Return. The claim must include two different types of documentation. The first type of documentation must establish that the award was previously reported in income, when it was reported, and the amount. Examples of such documentation include copies of federal income tax returns, Form 1099-MISC, Miscellaneous Income, and any other retained records relating to the reported income. This can be verified by researching the account. The second type of documentation must establish that the award was made on account of the wrongful incarceration. Examples of such documentation include copies of federal or state court orders awarding the compensation, signed settlement agreements accepting the amount of the award, and letters by governmental agencies or private payment sources that may have accompanied the payment of the award that include an explanation of the reason for the payment.

These claims are expeditiously processed in Kansas City. Reassign ALL exonerated prisoner claims to IDRS 0933578782, with category code "XRET" . Update the case note with "exonerated prisoner claim" .

Only "exonerated prisoner" claims are centralized in Kansas City, do NOT refer "prisoner" or "incarcerated" claims to Kansas City, refer to IRM 3.11.6.7.20, Prisoner Returns.

Kansas City forwards claims that meet Examination CAT-A criteria when the amount of the claim exceeds the criteria amount as outlined in Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General.

For additional information, refer to the IRS.gov for news release IR 2016 - 88 IRS Provides Guidelines on How to Claim New Wrongful-Incarceration Exclusion; Use Special Address for All Back-Year Refund Claims; Dec. 19 Deadline for Older Claims and Wrongful Incarceration FAQs.

A deduction for meal expenses may be available for meals (other than amounts which are lavish and extravagant under the circumstances) consumed while traveling away from home in pursuit of a trade or business. Away from home pursuant to IRC 162(a)(2) means traveling away from home in the pursuit of a trade or business that requires sleep or rest to properly perform duties. A deduction for a meal expense also may be available in other limited circumstances.

Generally, for expenses paid or incurred on or before December 31, 2017, IRC 274(n) subjects business-related meal and entertainment expenses to a 50 percent deduction limit. Generally, entertainment expenses are not deductible if paid or incurred after December 31, 2017, but business-related meal expenses remain 50 percent deductible. In addition, a temporary exception to the 50 percent deduction limit allows a 100 percent deduction for food or beverages provided by a restaurant and paid or incurred after December 31, 2020, and before January 1, 2023. See Notices 2021-25 and 2021-63. A higher percentage may be deducted if meals are consumed while a taxpayer is traveling away from home and is required to remain away from home overnight during, or incident to, any period of service subject to the Department of Transportation's (DOT) hours of service limits. The deductible percentage for tax year 2008 and subsequent years is 80 percent.

Review claim for completeness. If all requirements are met, input the necessary adjustment. If all requirements are not met, refer to IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures, for claim disallowance. If unable to determine that all requirements are met refer to IRM 21.5.3.4.7.2.1, Examination Technical Assistance Request.

Many lottery winners receive their lottery prizes in yearly installments over a 20-to-26year period. The winners are sometimes allowed to sell their rights to the future payments, to third parties in exchange for a lump sum payment. These lump sum payments can range from several thousand to several million dollars.

The lump sum payments are reported as "Other Income" on Form 1040, U.S. Individual Income Tax Return. Taxpayers are filing amended returns to change the income to capital gains. This allows them to benefit from the preferential capital gains tax rates versus the ordinary income tax rates. Disallow the claim; refer to IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures. Include in the Letter 105C the following disallowance language: "Proceeds from the sale of rights to receive lottery winnings are ordinary income and may not be treated as a capital gain."

Under the Merchant Marine Act, 46 U.S.C chapter 535, an owner or lessee of an “eligible vessel” may enter into a written agreement with the Department of Commerce or the Department of Transportation to establish a capital construction fund (CCF).The National Marine Fisheries Service (NMFS) of the Department of Commerce administers the CCF program regarding fishing vessels. The Maritime Administration (MARAD) of the Department of Transportation administers the CCF program regarding trading vessels. The purpose of the agreement is to provide replacement vessels, additional vessels, or reconstructed vessels built in the United States and documented under the laws of the United States for operation in the United States foreign, Great Lakes, non contiguous domestic, or short sea transportation trade or in the fisheries of the United States. Generally, a vessel is “eligible” if it is:

Under IRC 7518, the owner or lessee may deposit into the CCF certain amounts representing taxable income from the eligible vessel, depreciation on the eligible vessel, net proceeds from the disposition of the eligible vessel, and earnings on amounts held in the CCF. Taxation is deferred on amounts deposited into the CCF. Also, taxation is deferred on amounts withdrawn from the CCF to the extent they are used to purchase, construct, or retire indebtedness on a “qualified vessel.” The basis of the qualified vessel is reduced by the amount of the qualified withdrawal representing ordinary income and capital gain. A vessel is “qualified” if it is:

For additional information regarding fishing vessels, refer to Pub 595, Capital Construction Fund for Commercial Fisherman, and the Department of Commerce regulations at 50 C.F.R. part 259. For information regarding trading vessels, refer to the Department of Transportation regulations at 46 C.F.R. Parts 390 and 391. For additional information regarding taxation of CCFs, refer to IRC 7518 and the regulations under 26 C.F.R. Part 3.

To take the deduction, taxpayers are instructed to report earnings from the operation of agreement vessels on their Form 1040 Schedule C, Profit or Loss from Business (Sole Proprietorship), or Form 1040 Schedule C-EZ, Net Profit from Business (Sole Proprietorship), even if they deposit part of the earnings into their CCF account. The taxpayers subtract the CCF deposit from the amount that would normally be entered on Line 8 of Form 1040, U.S. Individual Income Tax Return. The taxpayer also write "CCF" and the total amount of these deposits next to Line 8. The CCF deposits are not deducted on Schedule C, or Schedule C-EZ. These claims may also be filed on Form 1040-X, Amended U.S. Individual Income Tax Return. These claims are changing income from taxable to nontaxable. Prior to adjusting the account, refer to Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General.

On February 23, 2015, the IRS posted a Questions-and-Answers page, Certain Medicaid Waiver Payments May Be Excludable from Income, addressing the income tax treatment of certain payments to an individual care provider under a state Home and Community-Based Services Waiver (Medicaid waiver) program. This post reflects formal guidance published in January 2014 (Notice 2014-7). The notice provides that the IRS treats "Qualified Medicaid Waiver Payments" as difficulty of care payments, including payments identified as In Home Support Services (IHSS), excludable from gross income under IRC 131(c). This treatment applies whether the care provider is related or unrelated to the eligible individual. Taxpayer is NOT required to submit a Form W2-C, Corrected Wage and Tax Statement, or a corrected Form 1099-MISC, Miscellaneous Income.

Taxpayer may file a Form 1040-X, Amended U.S. Individual Income Tax Return, if they received payments described in the Notice 2014-7 in an earlier tax year, providing that these payments were received on or after January 3, 2014. Normal statute of limitations procedures applies, refer to IRM 25.6.1, Statute of Limitations Processes and Procedures. The taxpayer can generally file a claim for refund within three years from the date the return was filed or two years from the date the tax was paid, whichever is later. In Part II of Form 1040-X, the taxpayer explains that the payments are excludable under Notice 2014-7. Excluding payments described in the notice in an earlier tax year may affect deductions or credits that the taxpayer claimed for the earlier tax year, as well as other tax items for the earlier year. To help expedite the processing of the amended return, the taxpayer must include the following to substantiate their claim:

Accounts Management (AM) and Submission Processing (SP) processes these amended returns following normal adjustment procedures. Use the reason code based on the type of income being adjusted, for instance, RC 007 is based on Form W-2; RC 021 is Form 1099-MISC, etc. Refer to IRM 21.5.3.4, General Claims Procedures, IRM 21.6.3, Credits, and for CAT-A criteria for Difficulty of Care Qualified Medicaid Waiver Payments (DOC) refer to Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General.

For additional information, refer to the irs.gov website: Certain Medicaid Waiver Payments May Be Excludable From Income.

Section 803 of the Economic Growth and Tax Relief Reconciliation Act of 2001 provides that there is no federal income tax on excludable restitution payments received by eligible individuals (or their heirs or estates) who were victims of the Nazi regime. Eligible individuals are persons who were persecuted because of race, religion, physical or mental disability, or sexual orientation by Nazi Germany, any other Axis regime, or any other Nazi-controlled or Nazi-allied country. Excludible restitution payments (or distributions) include those payments made payable to an individual (or the individual’s heirs or estate) which is payable by reason of the individual’s status as an eligible individual, and which constitutes the direct or indirect return of, or compensation or reparation for, assets stolen or hidden from, or otherwise lost, to the individual before, during, or immediately after World War II by reason of the individual’s status as an eligible individual. Any proceeds of insurance under policies issued by European insurance companies immediately before or during World War II also qualify for exclusion. Finally, interest payable on the payments described in the previous two sentences qualify for exclusion.

Such restitution payments shall not be included in gross income and shall not be considered for purposes of applying any code section that takes into account excludable income in computing adjusted gross income, including IRC 86 (relating to the taxation of social security benefits). The basis of any property received is its fair market value at time of receipt. Section 803 of the Economic Growth and Tax Relief Reconciliation Act of 2001 applies to payments or property received after December 31, 1999. Any interest earned by escrow accounts or settlement funds established pursuant to the settlement of the action entitled "In re: Holocaust Victim Assets Litigation," funds to benefit eligible individuals or their heirs’ estates created by the International Commission on Holocaust Insurance Claims, or similar funds subject to the administration of U.S. courts to benefit eligible individuals is not taxable. Review claim for completeness. If all requirements are met, input the necessary adjustment. If all requirements are not met, refer to IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures, for claim disallowance. If unable to determine that all requirements are met, refer to IRM 21.5.3.4.7.2.1, Examination Technical Assistance Request.

Maritime personnel are filing claims for the following:

Refer claims for expenses associated with traveling to and from union halls to Examination as CAT-A criteria if the amount of the claim exceeds the criteria amount as outlined in Exhibit 21.5.3-2, Examination Criteria (CAT-A)-General.

Refer claims for deductions of meals and incidental expenses while temporarily traveling away from home to Examination as CAT-A criteria if the amount of the claim exceeds the criteria amount as outlined in Exhibit 21.5.3-2, Examination Criteria (CAT-A) - General.

Generally, Indian general welfare benefits are excluded from gross income per provisions of the Tribal General Welfare Exclusion Act of 2014 (IRC 139E) and Rev. Proc. 2014-35. Notice 2015-34 clarifies that IRC 139E does not make the general welfare exclusion for certain benefits addressed in Rev. Proc. 2014-35 inapplicable.

Related IMF claims may be received on Form 843, Claim for Refund and Request for Abatement, or Form 1040-X, Amended U.S. Individual Income Tax Return. These claims can be identified by the presence of one or more of the following key words in the explanation section of the claim or written across the top margin of the form:

Do NOT process these claims. Route all claims to:
Internal Revenue Service
M/S 7700 Attn: GECS
1973 N. Rulon White Blvd.
Ogden, Utah 84404

Taxpayers may file a claim for refund of FICA taxes due to the following reasons:

Some aliens must obtain a Certificate of Compliance (also known as an exit or sailing permit) before permanently departing the U.S. or any U.S. Possession. This is obtained by filing Form 2063, U.S. Departing Alien Income Tax Statement or Form 1040-C, U.S. Departing Alien Income Tax Return. A Certificate of Compliance is made when the Director or delegate signs the certificate; refer to IRM 21.3.4.18, Alien Tax Clearances.

Abusive Tax Avoidance Transactions (ATAT) - Individuals are filing claims and attaching Form 8594, Asset Acquisition Statement Under Section 1060, for the purpose of re-characterizing termination payments from insurance companies as capital gains, even though the payments are reported as ordinary income.

Baker v. Commissioner, 338 F.3d 789, 793(7th Cir 2003), has already addressed this issue ("Goodwill cannot be transferred apart from the business with which it is connected." ). The promoter is aware that the IRS was affirmed; however, he continues to erroneously advise his clients, who are typically retired or terminated insurance agents, that their termination payments are treated as capital gain instead of ordinary income. Termination payments, to which the agent is issued a 1099, are payments that an insurance agent receives for a pre-determined number of years after he stops selling policies for the insurer. This period can vary but is typically from 3 to 5 years. Individuals are filing claims to reclassify their termination payments as capital gain, to obtain refunds for taxes paid in previous years.

Any claims submitted meeting the issue as described are disallowed; refer to IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures. Send a disallowance Letter 105C including the following information "The termination payments from insurance companies are considered ordinary income and cannot be treated as capital gains."

Taxpayers are filing claims for "theft losses deductions" due to corporate misconduct and Ponzi schemes.

Claims are generally filed on Form 1040-X, Amended U.S. Individual Income Tax Return, and include comments indicating "theft loss deduction under IRC Section 165" , "Rev. Proc. 2009-20" , or "investment theft loss." The claims may include an opinion letter explaining the theft loss and why it qualifies under IRC 165(c)(2) or Revenue Procedure 2009-20, as modified by Rev. Proc. 2011-58.

The theft loss is reported on page 2, Part B of Form 4684, Casualties and Thefts, and flows to the "Other Miscellaneous Deductions" section of Schedule A, Itemized Deductions. The taxpayer may indicate on the miscellaneous deduction line:

The following subsections provide instructions for processing the different types of IRC 165 theft loss conversions.

Self-Created Goodwill claims are referred to CAT-A regardless of the tax decrease claim amount, unless they fit the criteria in paragraph 2 below. For more information, refer to IRM 21.5.3-2, Examination Criteria (Cat-A ) - General. Do NOT refer tax increases to CAT-A; process the claim following normal adjustment procedures.

Do not refer to CAT-A Self-Created Goodwill claims that contain the following, these claims are disallowed:

Several taxpayers filed "Self-Created Goodwill" claims in error and are filing Form 1040-X, Amended U.S. Individual Income Tax Return to correct their account(s). These taxpayers received a letter with guidance on how to file the amended return(s). Taxpayers are instructed to write "Remove Goodwill" across the top of the claim or in the remarks section and attach a copy of the letter. Process these claims following normal adjustment procedures.

Taxpayers may file claims stating the sale of the “stock” received from demutualization has a “basis” and the amount as originally reported for tax purposes is now lower. Claim may also reference Fisher v. US.

Disallow all demutualization claims. Use the following verbiage in the open paragraphs: The Appellate Court issued opinions in the government’s favor in Dorrance v. United States, 809 F.3d 479 (9th Cir. 2015), and in Reuben v. United States. In both cases, the Ninth Circuit held that because the taxpayers failed to show that they paid any consideration for their stake in the membership rights, they had a basis of $0 in the shares of stock received resulting from the demutualization of the insurance company.

The Tax Cuts and Jobs Act enacted on Dec. 22, 2017, granted combat zone tax benefits to any member of the Armed Forces of the United States who is receiving or has received imminent danger pay or hostile fire pay while serving in the Sinai Peninsula of Egypt. Troops began receiving this pay as of June 9, 2015. The benefit lasts during the period such entitlement is in effect, but not later than taxable years beginning before Jan. 1, 2026. For more information on Combat Zone provisions, refer to Publication 3, Armed Forces Tax Guide.

Telephone calls are handled via App 98/99, Special Services; therefore, customer service representatives route calls relating to the Sinai Peninsula combat zone to 1098/1099 per the Telephone Transfer Guide (TTG).

These claims are worked in Accounts Management at the Andover Campus and are controlled with a category code of XRET. If received at any other site, reassign the case to 0830141335.

To obtain a refund or decrease in tax, the service member must file a Form 1040-X, Amended US Individual Tax Return, if they have already filed a tax return for tax years 2015, 2016, and 2017, and include the Form W-2C, Corrected Wage and Tax Statement, they received from the Department of Defense. This Form W-2C show the non-taxable pay that was received while serving in the combat zone in box 12 with code Q instead of box 1 where it was originally reported. For documentation requirements and processing instructions, refer to IRM 5.19.10.6, Combat Zone Accounts.

An eligible service member who is unable to secure a corrected Form W-2C for 2015, 2016, or 2017 may still claim the combat pay exclusion by attaching to their Form 1040-X copies of official documents showing they served or worked in the Sinai Peninsula. These documents indicate the area, theater or military operation and the approximate entry date. Acceptable documents include military orders, letters of authorization (civilians), hospital discharge papers, discharge from active duty, official letterhead memorandum from a military department or civilian employer, or a request and authorization for temporary duty travel of Department of Defense personnel (civilians and military). Confirm that the service member was reported as having served in the Sinai Peninsula during the tax year. The date of entry (DOE) into the Sinai Peninsula may be notated on CC TXMOD with a TC 500 closing code 56, see IRM 5.19.10.6.3, Combat Zone Freeze Code, for a list of TC 500 closing codes.

Refer to IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns, as needed.

The Tax Cuts and Job Act (TCJA) enacted on December 22, 2017, allows a taxpayer the ability to elect to defer recognition of the eligible gains timely invested in a Qualified Opportunity Fund (QO Fund) until the QO Fund investment is disposed of, or December 31, 2026, whichever is earlier.

A QO Fund is an investment vehicle set up as either a partnership or corporation for investing in qualified opportunity zone property. Qualified opportunity zone property is any stock or partnership interest in a qualified opportunity zone business or qualified opportunity zone business property.

Individuals shall elect to defer eligible gains invested into the QO Fund by reporting their eligible gains on Form 8949, Sales and Other Dispositions of Capital Assets, as well as a Form 1040 Schedule D, Capital Gains and Losses. If the taxpayer has filed an original return electing a QO Fund deferral, a Return Processable Code “U” appears on CC RTVUE indicating the Form 8949 has been filed.

Normally, net gains are taxed at a minimum of 20 percent and a 3.8 percent surtax. The law permits an individual to defer the inclusion and taxation of eligible gains when the gains are invested in a QO Fund. The amount of tax relief depends upon the amount of time the investor holds the investment.

Eligible gains that may be deferred include capital gain from any actual or deemed sale or exchange, or any other gain that is required to be included in a taxpayer’s computation of capital gain or is an IRC 1231 gain. This includes capital gains from disposition of stocks, mutual funds, real estate (including personal residence), collectibles and capital gains reported to the taxpayer on Form 1065 Schedule K-1, Partners Share of Income, Deductions, Credits, etc., from a partnership or S corporation.

The inclusion and taxation of eligible gains can be deferred if they were invested in a QO Fund within the 180-day time limit. Taxpayers who have filed their income tax returns must file an amended income tax return and attach a revised Form 8949, Sales and Other Dispositions of Capital Assets.

There are three tax incentives available for investors investing in a QO Fund.

The American Rescue Plan Act of 2021 allows the taxpayer to exclude $10,200 (MFJ - $10,200 per spouse) of Unemployment Compensation from income for tax year 2020. For information on MFJ couples living in community property states, see 2020 Unemployment Compensation Exclusion FAQs.

The following qualifications apply:

The MAGI is calculated by subtracting all unemployment compensation from the Adjusted Gross Income (AGI). Form 1040 Instructions for 2020 include an Unemployment Compensation Exclusion (UCE) Worksheet to assist in this calculation.

For taxpayers that filed their TY 2020 returns and included Unemployment Compensation, accounts were corrected systemically through our recovery efforts. In most cases, it was not necessary for those taxpayers to file an amended return; IRS notified them of the correction within 30 days of the adjustment and refunded or offset any overpayment. Accounts reviewed for the exclusion are identified on IMFOLT or TXMODA by a TC 971 AC 123 with MISC field UCERECOVERY03112021, and a subsequent TC 972 AC 123 with MISC field UCERECOVERY03112021. A TC 972 with no adjustment does not always indicate they are not eligible for UCE, it may only be that it could not be corrected systemically and required a manual review and/or adjustment.

As of November 19, 2022, the systemic and manual review was discontinued. Accounts previously identified with the TC 971 AC 123 with MISC field UCERECOVERY03112021, but not reviewed, have a TC 972 AC 123 with MISC field UCERECOVERY03112021NR (cycle 20225005) posted to show that it is no longer under review. Normal adjustment procedures apply to these accounts and amended returns are now required, if one has not been filed claiming the exclusion. See IRM 21.6.6.2.47.1, Account Adjustments for the UCE, for specifics on adjusting these accounts.

The UCE Recovery was postponed or forwarded to another area if any of the following conditions existed for TY 2020:
Tax module contained:

The following chart includes UCE scenarios and recommendations when answering taxpayer calls:

On June 5, 2024, IRS issued Notice 2024-26, Treatment of certain relief payments made to individuals affected by the East Palestine, Ohio, train derailment, to provide guidance for taxpayer treatment of payments received from Norfolk Southern. The Commissioner of IRS determined that the train derailment in East Palestine, Ohio, on Feb. 3, 2023, qualifies as “an event of a catastrophic nature” and that payments from the common carrier, Norfolk Southern, are qualified disaster relief payments” are exempt from gross income.

The common carrier issued Form 1099-Misc, Miscellaneous Income, to taxpayers affected by the disaster. Only expenses covered by the common carrier, and not paid by insurance or other reimbursement, are excluded from income. Tax-free qualified disaster relief payments made by the common carrier are:

Taxable payments include:

Non-taxable payments are not reported on Form 1040, even if a Form 1099-MISC was issued. However, taxable payments are reported.

Form 1040-X is filed to exclude previously reported qualified disaster relief payments and claim any taxes paid.

Adjustment considerations include: