The purpose of Document Perfection is to code and edit (perfect) returns and other documents for input to the Master File (MF) through the Integrated Submission and Remittance Processing System (ISRP) or the Service Center Recognition Image Processing System (SCRIPS). In addition, Document Perfection forwards any other documents or attachments not related to the processing of the returns to the function responsible for handling them.

Document Perfection is not responsible for checking the validity of the documents being processed. The computer will perform these functions after the returns and other documents are coded and edited as prescribed in this Section.

Authority for these procedures is found in IRC 6201(a) of the Internal Revenue Code and its corresponding Treasury regulations.

The Director of Ogden and Kansas City Submission Processing are responsible for monitoring operational performance for the BMF Submission Processing campuses.

The Operations Manager is responsible for monitoring operational performance for their operation.

The Team Manager/Lead is responsible for performance monitoring and ensuring employees have the tools to perform their duties.

The Team Employees are responsible to follow the instructions contained in this IRM and keep updated IRM procedures.

Program Goals: Ensure documents are code and edit ready for transcription.

Program Effectiveness are measured using the following:

Quality Review conducts a statistical valid sample size review of completed work to ensure IRM guidelines are followed.

For Terms, Definitions and Acronyms, See Exhibit 3.11.13-14, Glossary of Acronyms.

The following is a list of related resources:

Correspondence is all written communications from a taxpayer or their representative, excluding tax returns, whether solicited or unsolicited. This includes:

The key to identifying taxpayer correspondence is to ask the following questions:

Edit marks are edited on the return for transcription to the Automated Data Processing (ADP) system through the Integrated Submission and Remittance Processing (ISRP) or SCRIPS. Enter edit marks in brown, red, orange, purple, or green pencil or pen.

Only edit items on the return that are for transcription except where specific instructions require editing of a non-transcribed item. Lines are left blank if the entry would be a zero amount unless otherwise instructed.

Do not obliterated, altered, or erased when deleting or correcting an entry. Always exercise care to ensure the original entry remains legible. Perfected entries provide a legible "edit trail" for anyone who may work with the return later.

Do not re-edit edit marks entered by other areas, such as Collections, Entity or Accounts Management, except to place the marks in the correct area or perfect for legibility.

Photocopied Returns - Re-edit or underline any valid, black edit marks. See IRM 3.11.13.11.9, Correspondence Imaging Inventory (CII) Returns, and IRM 3.11.13.11.7, Re-Entry Document Procedures.

For a description of specific edit marks, see the tables below:

Place an asterisk (*) to the left of an adjustment entry if the entry is a payment of an outstanding liability or Failure to Deposit (FTD) and not a true adjustment of income tax withholding or Social Security/Medicare or Railroad Retirement Tax Act (RRTA) tax liability for a prior period. The indication can be in the form of an attachment on the return.

Figure 3.11.13-3

Picture of Form 945 with attached taxpayer correspondence indicating a deposit coupon for Form 941 was used in error, required action is to prepare Form 3465, Adjustment Request indicating transfer amount from Form 941.Form 945 Name Line reads Vern Hickory with HICK edited for the Name Control.Taxpayer attached a note that is shown that reads Dear Sirs: My payment of $229.50 was mistakenly deposited into my 941 account for the fourth quarter. PLEASE move that payment to this return. Thank you, V. Hickory.Edited on the bottom left reads 3465 Prep Hold to CY XXForm 3465 properly filled out to transfer to Accounts Management.

Please click here for the text description of the image.

Process a signed return containing no line entries as a non-taxable return. This includes a signed return with a CP 139 attached or with a notation indicating not liable to file for the quarter such as "No Employees This Quarter" , "No Wages Paid This Quarter" , etc. Edit Schedule Indicator Code (SIC) 1. See Figure 3.11.13-4.

Figure 3.11.13-4

Picture of signed Form 941, no line entries with a notation on the return of No Wages Paid This Quarter, instructions are to process as normal if signed. Form 941 name line reads Alder and Elm with ALDE edited for the name control.Edited 1 to the right of Part 1 showing no wages paid this quarter.

Please click here for the text description of the image.

Starting January 1, 2009, a taxpayer filing under IRC 3509 for "Misclassified Employees" is instructed to file a Non-Taxable Return with a zero on Line 10, write across the top of the return "Misclassified Employees" , complete Part 5 (signature field), and attach Form 941-X to the return. When a Non-Taxable 941 return is received with "Misclassified Employees" written in the top margin and Form 941-X is attached process as follows:

Process a Non-Taxable return with any indication of "Final" , "No longer in business" , "Do not file this form" , "Previously Filed a Final Return" , etc., using the following table:

For returns completed in other than U.S. currency, process as filed. However, if corresponding for missing/incomplete item(s), include in the letter to resubmit in U.S. currency.

A return is considered Amended based on the following:

Examine the return for attachments.

There is an indication the return is amended and:

Figure 3.11.13-5

Picture of Form 941, with a notation of amended in top margin. Text Box - NOTE: If Non-Remittance, DO NOT edit; Route to AM following local procedures.

Please click here for the text description of the image.

The following data must be present on all amended returns:

An Early Filed quarterly return is defined as a filed return where the Tax Period Beginning Date, is after the current (received) date.

An Early Filed annual employment return is defined as a filed return where the Received Date is prior to the Tax Period Ending date.

Below are the procedures to process an Early Filed Return:

Tax return information can be received via fax as part of return perfection even if a taxpayer signature is required. In circumstances where contact with the taxpayer has been made and documented, faxed signatures are acceptable. For more information about accepting signed taxpayer documents by fax, see the most recent revision of the IRS Policy for Use of Fax, available at http://imdtrack.web.irs.gov/IG_Uploads/IRS.gov_No/NHQ-01-1019-0001.pdf.

Contact with the taxpayer may be by telephone or correspondence. Follow local procedures to determine which method of contact will be used.

Code & Edit examiners will show the fax paragraph on Form 13195, Correspondence Action Sheet, or alternative version of the correspondence sheet, to advise taxpayers of the option to fax their response.

Use the following resources to make sure you are speaking with the taxpayer or authorized representative before disclosing any tax information:

Before leaving any messages on a taxpayer's answering machine, review:

Criminal Investigation (CI) investigates potential criminal violations of the Internal Revenue Code (IRC) and related financial crimes. Criminal violations of the IRC include willful attempts to evade or defeat the income tax. Criminal tax violations also include the willful failure to collect or pay over tax and false claims for refunds based on bogus return information.

If CI has stamped the return, do not send for further CI action.

For returns with refund claims ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ do the following:

Because of the repetitive nature of the Code and Edit (C&E) function, C&E Tax Examining technicians often recognize income tax return data which is outside of the norm for data found on similar returns for each income tax return type. If C&E finds return characteristics not meeting Audit Code or Exam referral criteria it deems suspicious, CI is available to review the referral.

If a suspicious return is found, do the following:

The primary goal in identifying tax returns for examination is to promote the highest degree of voluntary compliance. Examination gives support and helps Submission Processing (SP) with any questionable return found during processing. Exam has a vast multitude of programs and tolerance criteria already found in several IRM sections. SP can refer any questionable return to Exam, unless prohibited by instructions currently found in several IRMs.

Businesses use frivolous arguments for expressing dissatisfaction with the substance, form or administration of the tax laws by trying to illegally avoid or reduce tax liabilities. See IRM 25.25.10, Frivolous Arguments, and Exhibit 3.11.13-13, Potential Frivolous Arguments for Examination Review, for a list of recognized frivolous arguments made by businesses.

Review the return to determine whether it appears to be a frivolous return.

Do not consider the following as frivolous:

Reprocess a return posted to the wrong account or module to post it to the correct account module.

Each re-entry return must have a Form 3893, Re-Entry Document Control, or Form 13596, Reprocessing Returns, attached.

Always leave the Form 3893 or Form 13596 on the front of the return. It must remain as a permanent part of the document. See Figure 3.11.13-6, for an example of Form 3893 attached to a return.

Figure 3.11.13-6

Picture of Form 941 with Form 3893 attached, return is being reprocessed as original due to posting incorrectly.

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Examine Form 3893 or Form 13596 to determine the action needed to make the return processable.

Document Perfection is responsible for identifying refunds and for initiating requests for manual refunds.

Correspondence Imaging Inventory (CII) is an inventory system for scanning all Accounts Management (AM) receipts into digital images and working the cases from those images.

"CII" returns are shown with "CII Image. Do not correspond for signature" stamped below the signature line or "CII" annotated on the front of the return.

Verify all edit marks and ensure placement is correct on a "CII" return.

Follow the correspondence instructions below for processing "CII" return:

Compliance functions (Collections or Examination) secure returns from the taxpayer and also prepare returns if the taxpayer does not provide them.

Any Form 941, Form 943, Form 944, or Form 945 with a Received Date that is equal to or later than the date shown in column 3 e.g., Statue start date plus two year and nine months, in the table below is a potential Statute Control return. Refer to the table below also for Form CT-1. Also refer to the Exceptions list in number (2) and (3) below.

Route Statute returns to the Statute Control Function daily or more often if needed.

If any of conditions listed below are present. don’t route to the Statute Control Function for Clearance, edit CCC W, and continue processing:

If any of the following computer paragraphs (CPs) or letters are attached to a BMF return, do not route to Statute Control Function for clearance. Edit CCC "W" if is determined that the return should be processed. See IRM 3.11.13.22, Routing Guide for Attachments, for more information.

If a Form 12412, Operations Assistance Request (OAR), is received from TAS and the return is a potential Statute Control return but is not stamped cleared by Statute, give the return to your lead. The lead will contact the TAS employee listed on the OAR for rejection of the return and send it back to TAS for clearance by the Statute Unit.

Statute returns are unprocessable until they are cleared by Statute Control. Do not process a return after the date in column 3 of paragraph (2) above, until Statute Control Function has cleared it.

Edit CCC "W" if the Statute Control Function has cleared the return. Statutes will stamp or show clearance on the front of the return.

Statute may stamp a return as "No Statute Issue," "Statute N/A" or a similar statement indicating there is no statute issue. Follow the chart below to determine if a CCC "W" is needed:

Returns requiring prompt, quick, jeopardy, or termination assessments will be received in Document Perfection accompanied by one of the following forms:

If the Form 2859 is attached to the return and there is a TC 59X with no Received Date, edit the Received Date on the return from the Date of Request box on the Form 2859.

Any document issued prior to the specified Tax Period below is not available for ADP conversion. They are:

The document is a type that has not been included in the ADP System.

The Taxpayer Advocate Service (TAS) is an independent organization within the Internal Revenue Service (IRS), led by the National Taxpayer Advocate. Its job is to protect taxpayers’ rights by striving to ensure that every taxpayer is treated fairly and knows and understands their rights under the Taxpayer Bill of Rights (TBOR). TAS offers free help to taxpayers, including when taxpayers face financial difficulties due to an IRS problem, when they are unable to resolve tax problems, they haven’t been able to resolve on their own, or when they need assistance to address an IRS system, process, or procedure that is not functioning as it should. TAS has at least one taxpayer advocate office located in every state, the District of Columbia, and Puerto Rico.

TAS uses Form 12412, Operations Assistance Request (OAR), to start the OAR process of referring a case to the Wage and Investment (W&I) Division, to affect the resolution of the taxpayer’s problem. For more information, refer to IRM 13.1.19, Taxpayer Advocate Service, Taxpayer Advocate Case Procedures, Advocating With Operations Assistance Requests (OARs).

Refer taxpayers to TAS when the contact meets TAS criteria or when Form 911, Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order) is attached and steps cannot be taken to resolve the taxpayer's issue the same day.

The definition of "same day resolution" is within 24 hours. The following two situations meet the definition of "same day resolution" :

When making a TAS referral, use Form 911, and forward to TAS following your local procedures.

See IRM 13.1.7, Taxpayer Advocate Service (TAS) Case Criteria, for more information.

BMF Identification Theft is increasing. If a case is found with attachments or correspondence showing the taxpayer is a victim of "ID Theft," give the entire case to the manager/lead.

The manager/lead will expedite the case to the Planning and Analysis (P&A) staff for referral to one of the Submission Processing (SP) BMF ID Theft liaisons. The taxpayer must show that they are a victim of "ID Theft," do not send cases that are subject to Criminal Investigation (CI), Examination (Exam), or Fraud review.

Remove returns marked as "Protective Claims," "Protective Claim for Refund," or similar statement from the batch and route to Accounts Management (AM). Notate "Protective Claim" in the remarks box of Form 4227.

Action Codes are used to show whether correspondence, research, or some other action is needed. The Action Code will set the suspense period to be assigned to the return and place the return in the workable or unworkable suspense inventory. See Exhibit 3.11.13-11 for a list of valid Action Codes.

When necessary, a three-digit Action Code will be assigned by the tax examiner (TE).

Edit an Action Code for Form 941, Form 941-PR, Form 941-SS, Form 943, Form 943-PR, Form 944, Form 944-SP, Form 945 and Form CT-1 in the bottom left margin of the return directly below the words For Privacy Act.... See Figure 3.11.13-8.

Assign Action Codes in the following priority order:

Temporary Guidance - Due to processing delays, more suspense time is needed in Rejects for correspondence. Use the table below and replace current Action Codes (211, 212, 215, 216, 225 and 226) with Action Codes 231 and 232 whenever they are listed throughout the IRM:

Figure 3.11.13-8

Picture of Form 941. Picture shows an Action Code 225 edited in lower left margin of return, indicating signature only correspondence is needed.

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When more than one Action Code is needed attach Form 4227. If more than one Action Code of the same priority is required (e.g., 310 and 341), edit the Action Code with the shortest suspense period and attach Form 4227 to show the second unprocessable condition. Use Action Code 211, 215, 225, or 226 before Action Code 341 to ensure the return is complete before a manual refund is issued. See temporary guidance at IRM 3.11.13.12.1(5). Use the following table if more than one Action Code is needed:

Figure 3.11.13-9

Picture of Form 941 indicating two Action Codes are required, first action code edited to the return in the lower left margin and the second action code edited on Form 4227.

Please click here for the text description of the image.

Edit the following Action Codes when a return cannot be perfected. See temporary guidance at IRM 3.11.13.12.1(5):

Continue perfecting the return after editing the Action Codes.

Computer Condition Codes (CCC) are used to identify a special condition or computation for the computer. CCCs post to the Master File (MF).

Computer Condition Codes (CCC) editing location:

Computer Condition Codes (CCC) description:

The Error Resolution System (ERS) displays data on terminal display screens with corrections made and integrity verified in a real time environment.

The Code and Edit tax examiner (TE) will have the first opportunity to identify a record having a problem which requires correspondence, research or other action in order to make the return processable. The tax examiner (TE) will determine the kind of action required and assign an Action Code to the return. The code will show whether correspondence, research or some other action is needed.

A return is normally delinquent if it is not received on or before the Return Due Date. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡. A return is not delinquent if the return is timely postmarked and mailed before, or on the due date. If the due date falls on a weekend or legal holiday, the return is timely if postmarked by the first business day following the weekend or holiday. See IRM 3.11.13.12.5 for instruction on determining the Received Date of the return.

If the return is delinquent, check the form and/or attachments for an explanation of late filing. If found, send the taxpayer Letter 1382C, to inform the taxpayer that we have received their request. Do not code the return with CCC "R" if a pre-computed delinquency penalty is shown.

See Exhibit 3.11.13-8, "Employment Tax Return Due Date Table" for the return due dates and the return delinquent dates for Employment Returns.

The date a document is received in the Campus or IRS Office is the date stamped as the "IRS Received Date."

An IRS Received Date is required on all the following returns:

Use the following instructions to determine the Received Date:

When a 941 is delinquent and the taxpayer explains the return is late due to the rejection of a timely filed electronic return, check the return for a MeF rejection notification.

If a MeF rejection notification is not attached, perfection of the Received Date is not necessary. If a notification is attached, edit the IRS Received Date in MMDDYY format as follows:

The Received Date may or may not be stamped on the face of the return.

A valid "Received Date" stamp may consist of the following:

If a Received Date stamp is not present or the date is illegible or invalid, edit the IRS Received Date in MMDDYY format in the middle of page 1 of the return. Edit the IRS Received Date according to the following priority:

Edit the Received Date as follows:

If a return has been faxed to another area of the service and then sent to Submission Processing for processing, do not edit the Enterprise Electronic Fax (EEFax) Date as the IRS Received Date. Edit a Received Date according to normal procedures.

Accept a Received Date entered by means other than a normal date stamp (for example, a handwritten date in brown, red, orange, or green), or a typed date by an IRS employee, cash register stamp date, etc.

Circle and do not enter on the return a Received Date under the following circumstances:

See Figure 3.11.13-10, for an example of a correctly edited Received Date on a return.

Figure 3.11.13-10

Picture of Form 941 with multiple received dates stamps. Text Box - reads DELETE ALL BUT THE EARLIEST IRS RECEIVED DATE.

Please click here for the text description of the image.

The Third-Party Designee election was created to allow a designated individual to inspect and/or receive information about the taxpayer about Form 941, Form 941-PR, Form 941-SS, Form 943, Form 943-PR, Form 944, Form 944-SP, Form 945 and Form CT-1 should questions arise during processing.

A signature and jurat is required on all returns except the following:

Do not correspond for a signature on "CII" returns that have Form 13596, Reprocessing Returns attached. See IRM 3.11.13.11.9, "Correspondence Imaging Inventory (CII) Returns" , for processing instructions.

If a signature is missing:

If the jurat is altered or stricken (crossed out), See IRM 3.11.13.11.6, Frivolous Arguments.

Accept a "signature declaration" (i.e., a signature with a jurat obtained through IRS correspondence) if it is attached to the return.

Since tax examiners (TE) are not expected to be handwriting experts, Treas. Reg. 301.6064-1 allow the Service to presume that the signature on a return, statement or other document is the true signature of the person who actually signed the document.

Facsimile Signature - Rather than actually signing each return, Revenue Procedure 2005-39 allows an officer or duly authorized agent to use a facsimile (computer-generated or rubber stamp) signature when filing certain forms (such as Form 941, Form 943, Form 944, Form 945 or Form CT-1). If a facsimile signature is used, the person filing the form must keep a letter, signed by the officer or agent authorized to sign the return(s) declaring under penalties of perjury that the facsimile signature appearing on the form is the signature adopted by the officer or agent or at his or her direction, and that the facsimile signature was placed on the return by the officer or agent or at his or her direction.

Figure 3.11.13-11

Form 941 example signed using a mechanical device acceptable under Revenue Procedure 2005-39.

Please click here for the text description of the image.

Only one correspondence attempt is required for a signature.

The Paid Preparer Section is located below the signature area:

No action is required on amended returns.

The Name Control consists of four characters or less:

See Job Aid Document 7071A, Name Control Job Aid - For Use Outside the Entity Area, to determine the Name Control.

It is no longer necessary to edit a Name Control on Form 941 returns that will be processed through SCRIPS. Do not take any action if the Name Control is already edited.

Edit the Name Control on the following forms processed through ISRP; Form 941, Form 943, Form 944, Form 945 and Form CT-1 as follows:

An "in-care-of" name can be identified by the words "in care of" or the symbol "c/o" or "%" (percent).

Ensure the "in-care-of" name is located above the street address.

A change in the "in-care-of" name can be determined by any of the following:

If the Form 941, Form 943, Form 944, Form 945 or Form CT-1 indicates bankruptcy (e.g., shows RECEIVER, TRUSTEE, or DEBTOR IN POSSESSION) in the entity area or on an attachment, route to Entity Control using local procedures.

The EIN is a nine-digit number (XX-XXXXXXX) assigned to identify the taxpayer.

Determine the EIN as follows:

If Page 1, Page 2 and/or Page 3 of Form(s) 941, Form 941-PR, Form 941-SS, Form 944, or Form 944-SP, are on a separate sheet:

If a Form 941, Form 941-PR, Form 941-SS, Form 943, Form 943-PR, Form 944, Form 944-SP, Form 945 or Form CT-1 is received in C&E with a EIN beginning with "69," forward the return to Entity Control for a new EIN.

All returns must have a Tax Period. If the return requires editing of the Tax Period, it will be edited based on the form revision and the form type; quarterly or annual. Determine if the Tax Period must be edited using the rules for:

Perfection of the address is necessary when the mailing address (Street or P.O. Box) is not easily identified. For a list of correct street abbreviations, see Document 7475, State and Address, Abbreviations, Major City Code (MCCs), Zip Codes, and Countries.

A business may have two addresses. One is the mailing address and the other is the location address or physical location of the business.

If the return requires that the city, state, or ZIP Code be changed, edit an asterisk (*) to the left and line through the incorrect entry and enter the correction in the entity where space allows.

The procedures for perfection of an address are as follows:

Figure 3.11.13-19

Picture of the Entity section of Form 941 with both a Street Address and P.O. Box Address shown. The street address has been edited with asterisk (*) to the left and lined through. Text Box - Edit TC 014.

Please click here for the text description of the image.

Figure 3.11.13-20

Picture of the Entity section of Form 941 with two street addresses shown on the return. The entity has been edited by lining through the second street address, an asterisk has been edited to the left of the address and TC 014 edited in the left margin.

Please click here for the text description of the image.

Figure 3.11.13-21

Picture of the Entity section of Form 941 with a missing Zip Code, the Entity section of the return has been edited with the zip code. Text Box - ZIP Code Lookup See Document 7475.

Please click here for the text description of the image.

APO (Army Post Office), DPO (Diplomatic Post Office) and FPO (Fleet Post Office) addresses are considered domestic addresses. If an address appears as APO, DPO or FPO convert based on the ZIP Code (i.e., If the address appears as APO New York, NY 091XX; convert to APO AE 091XX). See Figure 3.11.13-22, for an example of an edited APO/FPO address. Refer to the APO/DPO/FPO Conversion Chart below:

Figure 3.11.13-22

Picture of the Entity section of Form 941 with a APO address, edited to delete the state name and enter the APO/DPO/FPO Address in the state box.

Please click here for the text description of the image.

A foreign (international) address is any address that is not in the 50 states or the District of Columbia.

Returns with Army Post Office (APO)/ Diplomatic Post Office (DPO)/Fleet Post Office (FPO) addresses are considered domestic addresses. See IRM 3.11.13.13.6.

Route returns with a foreign address to Ogden Submission Processing Campus (OSPC) for processing. Prepare Letter 86CReferring Taxpayer Inquiry/Forms to Another Office, to inform the taxpayer that the return has been sent to OSPC.

Returns with addresses in the following U.S. Possessions/Territories are considered foreign for processing purposes but are edited in the same way as a domestic address.

All other foreign addresses are edited the same as a domestic address with the following exceptions:

Figure 3.11.13-23

Picture of Form 941 with a foreign address with the Entity section of the return edited with foreign country code procedures. The foreign country code is preceded by a / and followed by /$ as the last entry in the address.

Please click here for the text description of the image.

Form 941 and Form 944 entities on the BMF tax modules contain an employment code. Employment Codes identify businesses which are other than normal business entities. Employment Codes may be displayed by some IDRS Command Code (CC) (e.g., INOLE, BMFOL).

Perfect line for validity only. All alpha words must be written in numeric form. Edit an asterisk (*) to the left of the entry and edit the correct number to the left of the asterisk (*).

If the amount shown on Line 1 is a misplaced entry (the entry is in dollars and cents) and that amount should be on Line 2 (i.e., Line 1 is the same amount shown on Line 5a and/or 5c) edit as follows:

If the entry on Line 1 appears to be a number of employees for all four quarters, a number followed by a comma, space or dash and followed by another number (i.e., 24, 24, 22, 23), place an asterisk next to the entry.

There must be an entry on Line 2. Edit an entry to Line 2 as required based on the available information on the return or on any attachment(s). Process Line 2 as follows:

Figure 3.11.13-25

Picture of Form 941 with Line 2 blank and entries shown on Lines 5a and 5c. Line 2 has been edited using the amount from Line 5c.

Please click here for the text description of the image.

Perfect this line for validity. Ensure all entries are numeric in dollars and cents. If the taxpayer has entered dollars only, examiners do not have to correct the entry to dollars and cents.

Do not change the entry on this line unless you are able to identify from the return or an attachment that the amount shown on the line is the difference between the correct income tax withheld for the quarter and an adjustment.

Churches and qualified church-controlled organizations opposed to the payment of Social Security and Medicare taxes for religious reasons may elect exemption from the payment of the employer's share of these taxes. However, Form 8274, Certification by Churches and Qualified Church Controlled Organizations Electing Exemption from Employer Social Security and Medicare Taxes, must be filed with the Entity function at the Ogden Submission Processing Campus.

The electing organization must continue to withhold Federal income tax on wages, tips, and other compensation, and to report this income and the tax withheld on Form W-2, Wage and Tax Statement. The organization must also file Form 941 to report both the wages covered by the election and the wages of any employees engaged in unrelated business activities whose wages are not covered by this election and are subject to both the employee and employer's share of Social Security and Medicare taxes.

If a Form 941 is received with no entries on Lines 3 through 7 and the taxpayer either has attached a letter to the return protesting the tax on religious grounds or has written his protest on the return, then send the return to the Entity Control function with a request to research for a Form 8274.

If a Form 8274 is attached to a timely filed Form 941 (with or without entries in Lines 3 through 7):

The churches with the notation, "CHURCH FICA ISSUE" did not elect the exemption from Social Security and Medicare taxes permitted by IRC 3121(w).

These taxpayers are forever barred from filing Form 8274. The wages must be reported on Form 941.

Process a Form 941 with the notation "Church FICA Issue" as follows:

Follow the procedures below for the box on Line 4, Form 941:

Follow the procedures below for the box on Line 4, Form 941-PR and Form 941-SS:

Figure 3.11.13-26

Picture of Form 941 with Line 4 box checked, indicating Exempt from Social Security and Medicare Tax. The return has been edited with CCC B. Arrows have been added to the figure to bring attention to the check box and the CCC B in the bottom margin of the return.

Please click here for the text description of the image.

Line 5a, Taxable Social Security Wages amount in Column 1 is multiplied by the taxable percentage rate listed on the form line to equal the tax in column 2.

Perfect Line 5a as follows:

Figure 3.11.13-27

Picture of Form 941 with Lines 5a Column 1, and 5c Column 1 edited using the entries on Lines 5a Column 2 and 5c Column 2 and divide the tax amount by the sum of the Social Security tax rate (.124 for year 2014) and Medicare rate (.029).

Please click here for the text description of the image.

Domestic Only - If the taxpayer indicates they employ family members, and the Line 2 entry represents the amount of their wages, but column 1, Lines 5a and column 1, 5c does not show an entry, then edit the Line 2 amount to column 1, Line 5a and 5c. DO NOT CORRESPOND.

IRC 3127 allows an employer and any employees, where both are members of a recognized religious sect or division, to elect to be exempt from Social Security and/or Medicare tax. To claim the exemption, they must file Form 4029, Application for Exemption from Social Security and Medicare Taxes and Waiver of Benefits and describe the religious sect or division and show they adhere to its established tenets or teachings. Furthermore, though they may be exempt from Social Security and/or Medicare tax, the employer must withhold Federal income tax. Also, the employer must still withhold and pay the employee's share and pay the employer's share of Social Security and Medicare taxes for employees without an approved Form 4029. Form 4029, must be filed with and approved by the Social Security Administration. If the taxpayer has indicated, "Form 4029 Exempt" , or "Form 4029 Applicable" in the blank area or above Line 5a, do not question the difference between the Total Compensation Line and taxable Social Security/Medicare wages.

Line 5a(i), Taxable Social Security Wages for Qualified Sick Leave Wages amount in Column 1 is multiplied by the taxable percentage rate listed on the form line to equal the tax in Column 2.

Ensure the amount is numeric and in dollars and cents.

Process Line 5a(i) Column 1 as follows:

Line 5a(ii), Qualified Family Leave Wages amount in Column 1 is multiplied by the taxable percentage rate listed on the form line to equal the tax in column 2.

Ensure the amount is numeric and in dollars and cents.

Perfect Line 5a(ii) Column 1 as follows:

Line 5b, Taxable Social Security Tips amount in Column 1 is multiplied by the taxable percentage rate listed on the form line to equal the tax in Column 2.

Ensure the amount is numeric and in dollars and cents.

Perfect Line 5b Column 1 as follows:

Line 5c, Taxable Medicare Wages & Tips amount in Column 1 is multiplied by the taxable percentage rate listed on the form line to equal the tax in Column 2.

Ensure the amount is numeric and in dollars and cents.

Perfect Line 5c Column 1 as follows:

Figure 3.11.13-28

Caption reads Foreign Returns Only. Picture of Form 941 with Line 5c Column 1 edited using the amount from Line 2.

Please click here for the text description of the image.

Line 5d, Taxable Wages & Tips Subject to Additional Tax Withholding amount in Column 1 is multiplied by the taxable percentage rate listed on the form line to equal the tax in Column 2.

Ensure the amount is numeric and in dollars and cents.

Perfect Line 5d Column 1 as follows:

Line 5e, Total Social Security and Medicare Taxes amount is the sum of Column 2 amounts Lines 5a - 5d and is transcribed.

Line 5e and 5d entry is valid for the following years and quarters:

2013 & later - Perfect Line 5e as follows:

2005 - 2012) - Perfect Line 5d as follows:

A Form 941 may show an amount due to a Section 3121(q) Notice and Demand - Tax Due on Unreported Tips received following a tips examination. These employers must pay the employer portion of Social Security and Medicare taxes on unreported tips shown on the Section 3121(q) Notice and Demand. The taxpayer is instructed to report the tax liability on their Form 941 for the quarter in which the IRC 3121(q) Notice and Demand is issued.

Line 5f or 5e may be reported for the following lines, years and quarters:

2013 & later - Perfect Line 5f as follows:

2011 & 2012 - Perfect Line 5e as follows: