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part21-58

21.8.2 
BMF International Adjustments

All Official Use Only content has been replaced with ≡.

21.8.2.1 
(10-01-2009)
International BMF/NMF and CADE Overview

  1. This IRM provides adjustment procedures for international returns processed to the Business Master File (BMF). As an additional
    reference, the basic BMF account resolution/adjustment procedures are found in IRM 21.7, Business Tax Returns and Non-Master
    File Accounts. Non-Master File (NMF) International Adjustments procedures can be found in IRM 21.8.3.

    Note:

    Individual Master File (IMF) International Adjustments are found in IRM 21.8.1

    .

  2. CADE is the Customer Account Data Engine. CADE will gradually replace Master File functionality. Through a number of incremental
    increases, CADE will ultimately replace the Master File and enable replacement of the Integrated Data Retrieval System (IDRS)
    components. Taxpayer records are being moved from the current processing environment to CADE using a release-based approach
    starting with the simplest taxpayer accounts.

  3. Use the general processing procedures outlined in this IRM in conjunction with the following IRMs:

    • IRM 13, Taxpayer Advocate Service

    • IRM 21, Customer Account Services

    • IRM 25, Special Topics

    • IRM 20, Penalty and Interest

  4. Contact representatives using this IRM must have had basic BMF Adjustments, IDRS, Correspondence Imaging System (CIS), and
    AMS (Account Management Services) training to effectively use the material presented in this International Manual. AMS provides
    an integrated display of tax account information that is systemically acquired from a key collection of designated systems.
    It also provides an open and assessable single repository for taxpayer account history, as well as various case processing
    tools such as:

    • Representative Authorization alerts

    • Contact tool to update taxpayers address and telephone number

    • Automated computation worksheets

    • Enterprise logistics Information technology (ELITE) to order forms and publications

    • On-line inquiry referral (E-4442)

    • On-line Application for Taxpayer Assistance Order (E-911)

    • Reasonable cause assistant

    • Self-selected IDRS command code “Hot Lists”

    • Direct links to frequently accessed sites such as SERP and ITLA

    • A payoff calculator

    • A message center for national and group messages

  5. Integrated Automation Technologies (IAT) are tools that assist employees with IDRS research. The screens access numerous IDRS
    control codes multiple times to improve quality by simplifying and standardizing research paths and consolidating IDRS Command
    Code responses on one screen. These tools are:

    • IAT Legacy-Jeeda tool which is available at all Accounts Management sites.

    • Legacy-SWFT (Standard Work Flow Tool) which currently is only available at the Ogden, Oakland, Nashville, Memphis, Cincinnati,
      and Buffalo sites.

  6. “IRC Sections”
    and “Regulation numbers”
    may be used interchangeably in Publications, Form Instructions, or IRMs.

  7. See IRM 21.8.2.1.2 for the forms addressed in this IRM.

21.8.2.1.1 
(10-01-2009)
Campus Consolidation and Program Centralization

  1. As a result of the ramp-down of the Philadelphia Submission Processing Campus (PSPC), international BMF Master File return
    processing moved in its entirety to the Ogden Submission Processing Campus (OSPC) on January 1, 2007. However, Philadelphia
    Accounts Management Campus (PAMC) continues to process BMF international Accounts Management work.

  2. Correspondence and/or amended returns involving the following issues are considered “BMF International Issues”
    and are worked at PAMC:

    • Form 1120F, Form 1120-FSC, Form 940-PR, Form 941-PR, Form 941-SS, Form 943-PR, Form 944-PR, and Form 944-SS

    • Form 8288 series

    • Form 8804, Form 8805, and Form 8813

    • Foreign Withholding Form 1042 series

    • Form 843 Visa claims

    • Form 1120X with Document Locator Number (DLN) Filing Location Codes 98, 66, 60 or 78

    • Form 8873 Extraterritorial Income Exclusion

    • Form 1120X Foreign Tax Credit carryback claims

    • Form 1118 Foreign Tax Credit attached to Form 1120F or Form 1120-FSC

    • Amended Form 1040NR Fiduciary

    • Requests for reasonable cause relief from systemically assessed Form 5471 penalties

    • Inquiries and notices on Form 3520, Form 3520-A, and Form 8891

    • Spanish language correspondence related to BMF international

      Note:

      Form 706-NA back-end work is processed at the Cincinnati campus. This was worked at PAMC prior to October 2007.

  3. Non-Master File (NMF) account processing also ceased at the Philadelphia Submission Processing Campus (PSPC) in 2006. NMF
    is now centralized at the Cincinnati Submission Processing Campus (CSPC).

    Note:

    The Campus Program Locator Guide provides information on the continuing (Wage and Investment) W&I and Small Business Self
    Employed (SBSE) program consolidation and centralization. The guide is on SERP at: http://serp.dev.irs.gov/databases/who-where.dr/transshipment.dr/campus_locator_guide/01_cplg_toc.htm

21.8.2.1.2 
(12-02-2008)
BMF/NMF Forms

  1. BMF International Corporate Income Tax Returns:

    • Form 1120 and Form 1120-C with Form 1118, Form 5712, Form 5712-A, Form 5735, and Schedule P

      Note:

      American Samoa Economic Development Credit, reported on Form 5735, was extended until 1/1/2010 and modified to apply for
      the first four taxable years by H.R. 1424, Title 1, The Troubled Assets Relief Program (TARP). Schedule P (Form 5735) is now
      obsolete and will not be revised.

    • Form 1120-F, U.S. Income Tax Return of a Foreign Corporation

    • Form 1120-FSC (Foreign Sales Corporation) and Form 8279 (FSC election)

    Note:

    Form 1120-FSC is being phased out. For new elections, Form 8873, Extraterritorial Income Exclusion, can be filed as an attachment
    to an income tax return.

  2. BMF International Employment Tax Returns:

    • Form 940-PR

    • Form 941-PR

    • Form 941-SS

    • Schedule H (PR) (estate or church employees)

    • Form 943-PR

    • Form 944-PR

    • Form 944-SS

  3. BMF Foreign Withholding Tax Returns:

    • Form 1042

    • Form 8804

    • Form 8288

  4. BMF Foreign Estate Tax Returns:

    • Foreign and possession addressed Form 706

    • Form 706-NA

  5. Foreign Trust and Estate Tax Returns:

    • Form 1040NR (Fiduciary)

    • Form 3520

    • Form 3520-A

  6. BMF Foreign Exempt Organization Returns:

    • Foreign and possession addressed Form 990

    • Form 990-PF and Form 990-T with Form 1118, Form 5712, Form 5712-A, Form 5735, or Schedule P attached. See Note in (1)
      above regarding Form 5735 and Schedule P.

  7. BMF Foreign Information Statements:

    • Form 8805

    • Form 8813

    • Alien Exemption Certificate Form W-8, Form 1001, Form 1078, Form 4224, Form 8233, and Form 8709

      Note:

      These Alien Certification Forms, except Form 8233, became obsolete on December 31, 2000.

    • Alien Exemption Certificate Form W-8BEN, Form W-8ECI, Form W-8EXP, Form W-8IMY, and Form W-8CE.

  8. NMF International Income Tax Returns:

    • Form 1120-IC-DISC K-1

    • Form 926

    • Form 8404

    • Form 1040NR Fiduciary

  9. Forms Associated with Foreign Withholding Tax Returns:

    • Form 8288A

    • Form 8805, Form 8813

    • Form 1042-S, Form 1042-T

21.8.2.1.3 
(03-27-2008)
Web Sites and Telephone Numbers

  1. The following Web-sites are helpful when researching international issues:

    • Submission Processing Web-site at http://win.web.irs.gov/SP/index.htm

    • IRC codes listed here by section number at http://www.fourmilab.ch/ustax.html

    • Tax treaties on line at http://www.irs.gov/business/international/article/0,,id=96739,00.html

    • various international topics at http://www.irs.gov/business/international/index.html

    • IRS Bulletins, Notices, Announcements, etc. at http://www.irs.gov/irb/

    • U.S. Citizenship and Immigration Services (USCIS) Web-site at http://www.uscis.gov

    • Lexis-Nexis at http://www.lexisnexis.com/clients/irshome/

    • The Social Security Administration web-site http://www.ssa.gov/

    • Qualified Intermediaries at http://www.irs.gov/business/corporations/articles/o,,id=150934.html

    • Electronic Tax Law Assistance at http://www.irs.gov/privacy/article/0id=136538,00.html

    • United States Department of State at http///www.state.gov/

    • International dialing codes at http://wwwkropia.com/dialcode.htm

    • IR Web research center at http://rnet.web.irs.gov/index1.htm

  2. Helpful telephone numbers for working international issues:

      Phone Fax
    Accounts Management 215-516-2000** 215-516-2825
    ACS Support 215-516-2004** 215-516-3413
    Automated Underreporter (AUR) 215-516-1625**  
    Electronic Federal Tax Payment System (EFTPS) 720–332–3780  
    Form 2290 Call Site 859–669–5733  
    International Examination 215–516–3537**  
    Offer in Compromise (OIC) – General 215–516–2004** 787-759-5466
    (OIC) – Accepted Offers Only 631-447-4018  
    Taxpayer Advocate Service – English speaking 787-622-8940 787-622-8933
    Taxpayer Advocate Service – Spanish speaking only 787-622-8930  
    U.S. Certification Program 215-516-2000**  

    Reminder:

    Numbers marked with (**) CANNOT be accessed using IRS phones.

  3. Current International Post contact information can be found on the LMSB web-site at http://www.lmsb.irs.gov/international/dir_treaty/eoi_overseas/posts.asp

21.8.2.1.4 
(04-10-2009)
Translation Services

  1. The Office of the Deputy Commissioner, International, LMSB, will translate documents written in French, German, Italian, Portuguese,
    and Spanish into English for any IRS office.

  2. To have a document translated, download a Translation Request Sheet at http://www.lmsb.irs.goc/international/dir_treaty/treaty/translate.asp.
    If you mail or fax your document, send two copies of each item to be translated. Hard copies of translations will be kept
    on file for six months, and electronic copies will be kept for one year.

    Note:

    If the document is more than 10 pages, submit requests in 10 page increments.

  3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

21.8.2.1.5 
(10-01-2007)
Timeliness Determinations

  1. Based on Rev. Rul. 2002-23, treat a document mailed from a foreign country, with a timely official postmark of the foreign
    country, as timely filed.

  2. This rule applies to all documents required or permitted to be filed with the Service, including returns, payments made with
    returns, claims, or requests for filing extensions.

  3. If the last day for filing falls on a Saturday, Sunday or a legal holiday, then a document with an official postmark of the
    foreign country dated on the next succeeding day that is not a Saturday, Sunday, or legal holiday is treated as timely filed
    under IRC § 7503. The term legal holiday is defined under Rev. Rul. 2002-23 and IRC § 7503 as a legal holiday in the District
    of Columbia in the United States, or a statewide legal holiday in the state where the federal tax return, claim for refund
    or other document is required to be filed or sent. The term does not include legal holidays in foreign countries, unless such
    holidays are also legal holidays in the District of Columbia or applicable state, as described above. See Rev. Rul. 2002–23
    for additional requirements when foreign mail is received later than such mail is ordinarily received.

  4. The postmark determination for documents sent from a foreign country also applies to designated international private delivery
    services (PDS). The list of PDSs, both international and domestic, are only updated if a new delivery service is added to
    the current list.

  5. The current types of delivery services through designated PDSs per Notice 2004-83 are:

    • DHL Express (DHL): DHL Same Day Service; DHL Next Day 10:30 am; DHL Next Day 12:00 PM; DHL Next Day 3:00 PM and DHL 2nd Day
      Service

    • Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2 Day, FedEx International Priority, and
      FedEx International First

    • United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide
      Express Plus, and UPS Worldwide Express

  6. Currently, only Fed Ex International Priority, Fed Ex International First, UPS Worldwide Express Plus, and UPS Worldwide Express
    are authorized as designated PDSs for documents sent to the IRS from a foreign country.

21.8.2.1.5.1 
(10-01-2007)
Calculation of Failure to File and Failure to Pay Penalties on Overseas Taxpayers

  1. Under Treas. Reg. § 1.6081-5, certain U.S. taxpayers abroad may qualify for an automatic extension of time to file and pay
    tax.

  2. The Service uses June 15 on overseas calendar year taxpayers as the due date from which to calculate both the failure to pay
    and failure to file penalties ( IRC § 6651(a)(1) and IRC § 6651(a)(2)), for taxpayers who qualify for an automatic two-month
    extension under Treas. Reg. § 1.6081-5, but file and pay late.

  3. Failure to File – Transaction Code (TC) 166/160

    1. If an overseas return is not filed timely by the extended due date, a penalty of 5% per month (not to exceed 25%) is calculated
      on the amount of unpaid tax.

    2. The penalty starts from the prescribed extended due date for filing the return.

    3. For U.S. citizens or residents whose tax homes and abodes, in a real and substantial sense, are located outside the United States and Puerto Rico, the due date for a calendar year return is June 15.

    4. If the taxpayer meets the extension requirements, a statement to this effect must be attached to the original return. If the
      statement was not provided and a penalty notice was issued, the information the taxpayer provides with the notice dispute
      must be considered before abating.

    5. If the return is not filed by the extended due date, the penalty calculation starts the following day. For calendar year taxpayers,
      the penalty starts on June 16.

  4. Failure to Pay – TC 276/270

    1. If the tax from an overseas return is not paid on or before the date prescribed for payment (determined with regard to extension),
      a penalty of 1/2% per month is assessed, not to exceed 25%.

    2. The extension of time for payment of tax, under IRC § 6161(a) can be for a reasonable period of time, not to exceed six
      months.

    3. For taxpayers overseas, Treas. Reg. § 1.6081-5 (a)(5) provides an automatic extension of time for payment for U.S. citizens
      abroad who submit a proper statement attached to their original return.

    4. If the taxpayer meets the extension requirements, a statement to this effect must be attached to the original return. If the
      statement was not provided and a penalty notice was issued, the information the taxpayer provides with the notice dispute
      must be considered before abating.

    5. If a taxpayer complies with the requirements mentioned above, the failure to pay penalty only arises if payment is made after
      the extended due date.

      Example:

      For a calendar year return, June 15.

      Note:

      Military personnel with Air/Army Post Office (APO) or Fleet Post Office (FPO) addresses are granted the automatic two month
      extension. Calculate penalties after June 15 for calendar year returns.

21.8.2.1.6 
(01-11-2008)
Related Publications

  1. The following publications are used for International issues. They can be used as technical reference material or provided
    to taxpayers when necessary. These publications are available for reference on SERP and on the internet at http://www.irs.gov
    .

    • Publication 15, (Circular E), Employers Tax Guide

    • Publication 51, (Circular A), Agricultural Employers Tax Guide

    • Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad

    • Publication 80, (Circular SS), Federal Tax Guide for Employers in the U.S. Virgin Islands, Guam, American Samoa, and the Commonwealth
      of the Northern Mariana Islands.

    • Publication 179, Circular PR, Guia Contributiva Federal Para Patronos Puertorriquenos (Federal Tax Guide for Employers in
      Puerto Rico)

    • Publication 514, Foreign Tax Credit for Individuals ( Form 1116 issues)

    • Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities

    • Publication 516, U.S. Government Civilian Employees Stationed Abroad

    • Publication 519, U.S. Tax Guide for Aliens

    • Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts

    • Publication 541, Partnerships

    • Publication 542, Corporations

    • Publication 597, Information on the United States-Canada Income Tax Treaty

    • Publication 570, Tax Guide for Individuals with Income from U.S. Possessions

    • Publication 850 series – A series of publications that provide glossaries of words and phrases in various languages for translation
      of federal tax terminology

    • Publication 901, U.S. Tax Treaties

  2. In addition to these publications, some general information publications are also printed in Spanish for the convenience of
    taxpayers. On SERP, they are located under Forms/Letters/Pubs, then Spanish Tax Products. The letters “SP”
    follow the publication number.

    Example:

    Publication 1SP, Publication 17SP, Publication 579SP, and Publication 596SP.

21.8.2.1.7 
(10-01-2008)
General Disclosure Guidelines

  1. IRC § 6103 establishes the taxpayers (T/Ps) right to privacy of tax information. You must be sure that you provide correct
    information to the correct T/P or authorized representative. Check the Integrated Data Retrieval System (IDRS) Command Code
    (CC) CFINK for the Power of Attorney (POA).

  2. IRC § 7213, IRC § 7213A, and IRC § 7431 provide criminal and civil penalties to ensure that taxpayers returns and return
    information remain confidential.

  3. For more information on General Disclosure Guidelines, refer to IRM 21.1.3.2. For a full discussion of disclosure, refer
    to IRM 11.3.1 through IRM 11.3.40, Disclosure of Official Information.

  4. For information on the use of FAX and Signature Stamps, refer to IRM 21.3.4.14.5.

  5. When contacting taxpayers, follow procedures in IRM 21.1.3.2.3, Required Taxpayer Authentication, for purposes of identification
    and to prevent unauthorized disclosures of tax information. Also, use caution when leaving information on answering machines
    or voice mails. (See IRM 11.3.2.6.1 , Leaving Information on Answering Machines/Voice Mail). For information concerning unauthorized
    disclosures, see IRM 11.3.1.6, Reporting Unauthorized Accesses or Disclosures.

21.8.2.1.8 
(10-01-2009)
Referrals to the Taxpayer Advocate Service (TAS)

  1. Refer taxpayers to the Taxpayer Advocate Service (TAS) (see IRM Part 13, Taxpayer Advocate Service) when the contact meets
    TAS criteria (see IRM 13.1.7, TAS Case Criteria) and you cant resolve the taxpayers issue the same day. The definition
    of “same day”
    is within 24 hours. “Same day”
    cases include cases you can completely resolve in 24 hours, as well as cases in which you have taken steps within 24 hours
    to begin resolving the taxpayers issue. Do not refer these cases to TAS, unless they meet TAS criteria and the taxpayer asks to be transferred to TAS. Refer to IRM 13.1.7.4, Same-Day Resolution by Operations. When referring cases to TAS, use Form 911, Request for Taxpayer
    Advocate Service Assistance (And Application for Taxpayer Assistance order), and forward to TAS in accordance with your local
    procedures. Preparation instructions for the Form 911 are available on the Form and in IRM 21.1.3.18, Taxpayer Advocate Service
    (TAS) Guidelines.

  2. The National Taxpayer Advocate has reached agreements with the Commissioners of the Wage & Investment (W&I) Division, Small
    Business & Self-Employed Division (SB/SE), Tax Exempt & Government Entities (TEGE) Division, Criminal Investigation (CI),
    Appeals, and Large & Mid-Size Business (LMSB) Division, that outline procedures and responsibilities for the processing of
    TAS casework when either the statutory or delegated authority to complete case transactions rests outside of TAS. These agreements
    are known as Service Level Agreements (SLAs). The SLAs are located on the Intranet at http://tas.web.irs.gov .

  3. When referring cases to TAS, keep in mind that TAS employees do not have the delegated authority to make international adjustments.
    For more information about TASs delegated authorities, see IRM 13.1.4, Taxpayer Advocate Case Procedures – TAS Authorities.

  4. For taxpayers who prefer to contact TAS directly, provide the toll-free number 1-877-777-4778. International callers who cannot
    dial toll-free may call 787-622-8940 (English assistance) and 787-622-8930 (Spanish assistance). Publication 1456, Taxpayer
    Advocate Services – Your Voice at the IRS, contains addresses and phone contact information for each Taxpayer Advocate office.

21.8.2.1.9 
(10-01-2007)
Technical Issues

  1. Follow procedures in IRM 21.5.3.4.7.2.1, Examination Technical Assistance Request, regarding technical questions or assistance
    requests needed from Examination when a technical or tax law issue is unclear and does not meet CAT A criteria as specified
    in this IRM. See IRM 21.8.2.1.13, Examination Criteria.

  2. Refer all technical issues to campus management that cannot be resolved using the IRMs and publications referenced in this
    IRM. See IRM 21.8.2.1 and See IRM 21.8.2.1.6. If management is unable to make a determination, use local assistance procedures that involve coordinating the resolution
    through the Planning & Analysis Section.

  3. When necessary, the analyst from the Planning & Analysis Section reviews and forwards any international adjustment problems
    requiring the attention of the Headquarters International Analyst, who currently has a Post of Duty (POD) at the Philadelphia
    IRS Campus.

  4. Form 5391 is used to report system and procedure problems and to recommend IRM changes. IRM 3.31.125, Procedures/System Change
    Request, gives guidance on preparing Form 5391.

  5. Follow the steps in IRM 21.1.2, Reference Materials Overview, as the BMF International Adjustments IRM is now on SERP.

21.8.2.1.10 
(02-13-2009)
Competent Authority Claims

  1. Rev. Proc. 2006-54 updated and revised the procedures that allow a U.S. citizen or resident to request a determination by
    the U.S. Competent Authority on issues arising under a tax treaty between the United States and a foreign country. For procedures
    for requesting assistance from the U.S. Competent Authority under the provisions of a tax coordination agreement between the
    United States and a U.S. Possession, refer to Rev. Proc. 2006-23 and the subsection titled “Double Taxation”
    in this IRM. See IRM 21.8.2.3.1.

  2. Usually, an adjustment to tax is requested when the foreign tax administration creates a double taxation issue.

  3. The IRS Deputy Commissioner (International), Large and Midsize Business (LMSB) is the U.S. Competent Authority charged with
    administering the provision of tax treaties, interpreting and applying the treaties, and reaching mutual agreement in specific
    cases.

  4. Written requests for, or any inquiries regarding competent authority assistance, are sent to:

    Deputy Commissioner (International), LMSB
    Attn: Office of Tax Treaty
    Internal Revenue Service
    1111 Constitution Ave, NW
    Routing: MA3-322A
    Washington, DC 20224

  5. Direct any questions regarding competent authority claims to the Office of Tax Treaty at the above address.

  6. Nonresident aliens need to contact the competent authority within their foreign government with their inquiries.

21.8.2.1.11 
(10-01-2007)
General Adjustment Procedures For International Accounts

  1. When adjusting BMF international tax accounts using CC REQ54, or transferring credits using Command Codes (CC) ADD24/ADD34/ADD48,
    input a filing location code (FLC) of 66 or 98 according to the primary location code shown on TXMOD or ENMOD. Input FLC 66
    for primary location code 78 and FLC 98 for primary location code 60.

    Exception:

    An FLC 66 or 98 may be input on any BMF international tax adjustment or credit transfer for audit trail purposes, regardless
    of the location code shown on TXMOD or ENMOD.

  2. When preparing a Form 13596, Reprocessing Returns, to reinput a document with an FLC 98 or 66 DLN, line out the stamped DLN
    and request a new DLN.

21.8.2.1.12 
(10-01-2007)
Use of Fax and Signature Stamps for Taxpayer Submissions

  1. The IRS is involved in a significant number of taxpayer contacts to perfect returns during the filing process, to resolve
    issues identified in post-filing, and to secure delinquent returns.

    Note:

    When contacting taxpayers, follow procedures in IRM 21.1.3.2.3, Required Taxpayer Authentication, for purposes of identification
    and to prevent unauthorized disclosures of tax information. Also, use caution when leaving information on answering machines
    or voice mails. (See IRM 11.3.2.6.1, Leaving Information on Answering Machines/Voice Mail.)

  2. Based on requests from practitioners and other stakeholders, the Service developed guidance on the acceptance of faxes and
    signature stamps that was approved for Servicewide adoption.

  3. Refer to IRM 21.3.4.14.5, Use of FAX for Taxpayer Submissions, for current procedures for the acceptance of fax and signature
    stamps.

21.8.2.1.13 
(10-01-2009)
Examination Criteria

  1. The Domestic Examination Criteria are divided into two groups, Category A and Category B. For Domestic claims, refer to criteria
    contained in Exhibit 21.5.3-2.

  2. Category A criteria are issues that have highest examination potential and must be routed to Examination Classification prior
    to resolution of the taxpayers issue. All tax decrease cases with an open TC 420 (“-L”
    freeze) are CAT “A”
    criteria.

  3. Refer to IRM 21.5.3.4.12 for Category B criteria.

  4. International Examination criteria are generally CAT ” A”
    only.

  5. Only send case(s) meeting CAT “A”
    criteria or technical inquiries to Examination. Criteria used for international claims referral to Examination is found
    in the list below.

  6. Forward the following types of international claims and issues to Examination for classification:

    • Foreign tax credit carryback for BMF in excess of ≡ ≡ ≡ ≡

    • Adjustments to foreign tax credit in excess of ≡ ≡ ≡ ≡ ≡ ≡

    • Decreases in excess of ≡ ≡ ≡ ≡ for Form 1120F, Form 1120-FSC, and Form 1120 with international characteristics

    • Decreases in excess of ≡ ≡ ≡ ≡ for Form 1040NR Fiduciaries

    • Amended Form 1041 changing income from taxable to non-taxable that result in the original tax liability being reduced to zero
      and the tax decrease is ≡ ≡ ≡ ≡ or more.

    • All Form 706-NA Claims

    • Form 1042 claims for tax decrease filed after the due date of the return

    • Form 926, per IRM 4.19.11.1.19 , Form 926, Return by a U.S. Transferrer of Property to a Foreign Corporation

    • Amended, corrected, and superseding Form 1065 is Cat A if any of the conditions in IRM 21.7.4.4.2.9, Duplicate Filing Conditions
      on Form 1065 exist.

    Note:

    If the taxpayer cites an IRC, Regulation, Tax Treaty, etc., research the reference, attempt to secure an explanation, unless
    the claim meets other Examination Criteria. This information may be available on-line through Lexis-Nexis at http://www.lexisnexis.com/clients/irshome/ or on Westlaw at https://web2.westlaw.com/signon/default.wl?bhcp=1 .

  7. When a claim is sent to Examination Classification, procedures consistent with IRM 4.19.11, Examination Classification of
    Work, must be followed. This IRM requirement is that the sender must ensure that pages 1 and 2 of Form 1120X are complete,
    including verification of all needed schedules and forms required for making a determination, before referring to Examination.
    If the classifier determines that an additional schedule(s) is necessary, the case file will be returned to the sender to
    secure the necessary information (e.g., Form 1116 or Form 1118 is be required to verify a foreign tax credit).

  8. Normal research required when routing cases to Exam Classification:

    CLASSIFICATION PACKAGE
    Form Doc(s) Required IDRS Research
    Form 1042
    • Form 1042 original (or T/P copy) & amended returns

    • Form 1042-S (voided original (or T/P copy) & amended 1042-S forms)

    • TC 29X adjustment documents


    Form 1042
    Filer

    ENMOD, TXMOD, BMFOLI, BRTVU, & AMDIS

    Recipient

    ENMOD/ INOLE, NAMEI/NAMES, TXMOD, RTVUE/BRTVU, & BMFOL / IMFOL
    Form 1120-FSC
    • Form 1120-FSC original (or T/P copy) & amended returns or Form 1120X with explanation

    • TC 29X or TC 30X adjustment document


    Form 1120-FSC

    TXMOD, BMFOLI, AMDIS & ENMOD

    Parent Corporation Form 1120

    TXMOD, BRTVU, BMFOL, AMDIS & ENMOD
    Form 1120-F
    • Form 1120 original (or T/P copy) & amended or Form 1120X

    • TC 29X or TC 30X adjustment documents


    Form 1120-F

    TXMOD, BMFOLI, BRTVU, AMDIS & ENMOD
    Form 1041 & Form 1040NRFiduciary (Estate / Trust)
    • Form 1041 or Form 1040NR original (or T/P copy) & amended

    • TC 29X or TC 30X adjustment documents


    Form 1041 or Form 1040NR

    TXMOD, BMFOL, BRTVU, AMDIS & ENMOD
    Form 1065
    • Form 1065 original (or T/P copy) & amended

    • TC 29X or TC 30X adjustment documents


    Form 1065

    TXMOD, BMFOLI, BRTVU, AMDIS & ENMOD

    K-1s

    TXMOD, BMFOLI, BRTVU, AMDIS & ENMOD
    Form 706-NA
    • Form 706-NA original (or T/P copy) & amended

    • TC 290X or TC 30X adjustment document


    Form 706-NA

    TXMOD, BMFOL, BRTVU, AMDIS & ENMOD

    Note:

    Prior to sending for Classification, an IDRS control must be placed on the account under a designated profile number, e.g.
    05XXX33333. IRM 21.5.3.4.7, Processing Claims and Amended Returns With Examination Involvement, lists the control follow-up
    time frame.

  9. If the case contains CAT “A”
    criteria, and the amended return or claim shows an additional tax, assess the tax with TC 290 prior to sending to Examination.
    Use the appropriate blocking series, hold code, and priority code.

  10. Make sure that the classification sheet contains complete and accurate information (including Building and Drop Points).

  11. Category A claims involving multiple tax periods must be worked by the same Customer Service Representative (CSR). Send these
    claims to classification as one package. Do not send them as separate claims.

  12. When the case is returned from Examination, follow the steps in the table below.

    TO PROCESS THE CLAIM
    If Examination Classifier: CSR Should:
    Rejects the claim
    • Resolve the reason for the rejection, e.g. additional documentation or IDRS research.

    • Initiate telephone call to taxpayer, or

    • Correspond with taxpayer using Letter 916C, input TC 290.00 Blocking Series 18 or 00 if the original return is in hand.

    Accepts the claim Input necessary transactions, TC 291/290, Blocking Series 15 or 00 and reverse the TC 470.
    Disallows the claim in part
    • Input necessary transactions, TC 291/290, Blocking Series 18, or 00 if the original return is attached

    • Send Letter 106C. Include the complete and exact disallowance explanation provided by the classifier. Use an open paragraph,
      if necessary, and include the taxpayers appeal rights.

    Disallows the claim in full
    • Input necessary transactions, TC 290 .00, Blocking Series 98, or 99 if the original return is attached

    • Send Letter 105C. Include the complete and exact disallowance explanation provided by the classifier. Use an open paragraph
      if necessary and include the taxpayers appeal rights, even for statutory disallowances.

    Selects the claim
    • Send Letter 86C explaining that the claim has been selected for further review by the Examination Department and that they
      will be contacted by their office once a determination has been made.

    • Input TC 971, Action Code 013, using the TC 976 date or the received date of the claim (if no TC 976 is present on the account).

  13. If a copy of the disallowance letter is returned for association, attach the copy to the original return.

    Note:

    Copies of disallowance letters on CIS cases that are forwarded to the Centralized Print Site will not be returned for association.
    These letters will be available on CTRL-D if they are needed at a future date. See IRM 21.5.3.4.6.1, Disallowance and Partial
    Disallowance Procedures.

21.8.2.1.13.1 
(10-01-2007)
Protective Claims

  1. Protective Claims are formal claims or amended returns for credit or refund normally based on expected changes in:

    • A current IRC Section

    • A current regulation

    • Pending legislation, or

    • A current litigation

  2. These claims are filed to protect the claimants right to recover an Internal Revenue Tax before the expiration of the statute
    of limitations. For this reason, they are all considered to meet CAT “A”
    criteria. See IRM 21.5.3.4.7.3.2, Processing Protective Claims, for additional information.

  3. All Protective Claims must be sent to Examination Classification as Category A. All processable Protective Claims are selected by Examination Classification.

  4. Protective Claims must be processable before sending to Examination Classification. Screen all protective claims for:

    • Statute timeliness

    • Completeness, and

    • Signature(s)

  5. If the claim is not processable, call or correspond with taxpayer for missing information. If no reply is received, follow
    normal adjustment procedures for rejecting the claim.

21.8.2.1.14 
(10-01-2007)
Period of Limitation

  1. A period of limitation is a time period established by law to review, analyze, and resolve taxpayer and/or IRS related issues.

  2. The Internal Revenue Code (IRC) states that the Internal Revenue Service (IRS) will assess, refund/credit, and collect taxes
    within specific time limits. These limits are known as the Period of Limitations. When they expire, we cannot assess additional tax, allow a claim for refund by the taxpayer, or take collection action.
    The determination of Statute expiration dates differs for Assessment, Refund, and Collection.

  3. The Statute function reviews amended returns which reflect an increase in tax, and documents that unpost or are rejected for
    statute imminent or expired periods.

  4. Statute imminent cases are those cases requiring either an original assessment or a subsequent assessment and the Assessment
    Statute Expiration Date (ASED) is within 90 days, or expired.

  5. The following are categories that meet the criteria for possible statute imminent cases:

    • Statute period original returns for input through processing

    • Additional assessments on cases that have an ASED within 90 days

    • Additional assessments on cases with an expired ASED

    • Statute period returns to be re-input with a received date more than 2 1/2 years old

21.8.2.1.14.1 
(10-01-2007)
Statute Year Claims

  1. Once it is determined that an assessment of tax is necessary, take the following action when a claim is filed indicating a
    tax increase and the statute for assessing will expire within 90 days:

    1. Prepare Form 10959, Statute Control Transmittal, and hand-carry the case with current research, i.e. BMFOL print, to the
      Statute coordinator on a Form 3210 Document Transmittal.

    2. When routing these cases to the Statute function, leave the control base open to the originator and update the activity to
      “statute ”
      .

    3. The control base can be closed only after receiving notification from the statute function that they will keep the case.

    4. When the case is returned stamped “CLEARED BY STATUTES”
      , it can be input or adjusted following normal adjustment procedures found in IRM 21.5.3, General Claims Procedures.

  2. Once it is determined that a timely claim to decrease tax has been filed (check the postmark date), the case is resolved by
    Accounts Management, even if the statute is imminent or expired. Follow normal adjustment procedures.

  3. Allow the claim if it was received before the Refund Statute Expiration Date (RSED), additional information was requested
    to process the claim, and the taxpayer submits the information after the RSED but within 45 days ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    ≡ of the IRS request.

  4. If a claim for tax decrease is not timely, deny the claim sending a formal disallowance letter (Letter 105C), stating that
    the statute for refund has expired. Input TC 290 .00 with Blocking Series 98 (complete claim disallowance without original
    return) or 99 (complete claim disallowance with original return). Provide appeal rights to the taxpayer.

    1. Do not use expired credits to offset liabilities for other tax periods.

    2. In general, amounts are refundable if they were paid within three years plus the period of any extension of time to file the
      tax return, or the filing of the refund claim.

      Note:

      This means all advance payments expire for refund 3 years after the return due date or extended due date, whichever is later.
      For more information regarding advance payments, see IRM 25.6.1.7, Credits and Payments

      .

    3. Alternatively, payments received after the return filing date are refundable for 2 years from the payment received date.

    4. Credits transferred to a balance due module are refundable for 2 years from the corresponding date of the cycle in which the
      transfer occurred. Refer to IRM 25.6.1.10, Claims, Abatements and Refunds, for additional information.

21.8.2.1.15 
(10-01-2007)
Unpostables

  1. Unpostables are transactions which cannot post to the Master File. A transaction that fails to post to an account at the Enterprise
    Computing Center at Martinsburg (ECC-MTB) is returned to the campus (SC) for corrective action.

  2. There are two types of unpostables:

    • Returns

    • Transactions

  3. The Customer Service Representative:

    1. Is responsible for preventing unpostable conditions when transferring payments and making changes to taxpayers accounts,
      and

    2. Should have a thorough understanding of the reason for unpostable conditions, and

    3. Is responsible for resolving unpostable conditions created by adjustment actions. See IRM 21.5.5.4.2, Resolving Unpostables.

  4. To resolve an unpostable, analyze each case, perform research and decide the proper corrective action. The unpostable condition
    shows on IDRS just below the transactions with an indicator before the transaction code such as: DU, NU, Unnn, CU, DN, DJ,
    RJ or DC. See Document 6209 for explanations of these codes.

    Note:

    CU (corrected unpostable) indicates a corrected transaction and no further action is needed.

  5. Knowledge of the following information contained in Document 6209 is necessary to analyze and correct the unpostable:

    • Transaction Codes (TC)

    • 971 Action Codes (AC)

    • Item Adjustment Codes

    • Credit Reference Numbers

    • Reason Codes (RC)

    • Priority Codes (PC)

    • Freeze Codes (FC)

    • Hold Codes (HC)

    • Math Error Notice Codes

  6. Use Command Codes UPTIN, UPDIS, UPRES, and UPCASZ to research/resolve unpostable conditions per IRM 21.5.5.3.2, Researching
    Unpostables on IDRS. There is also useful information in IRM 3.14.1.6.3.3, Preventing Unpostable Transactions.

21.8.2.1.16 
(10-01-2007)
Telephone Excise Tax Refund (TETR) for Businesses

  1. The telephone excise tax refund is a one-time credit that eligible taxpayers can request on their 2006 federal income tax
    returns. The refund is a credit that gives back long-distance federal excise taxes paid by individuals and businesses in previous
    years.

  2. For additional information on TETR and a list of BMF forms on which the credit can be claimed, refer to IRM 21.7.4.4.23,
    Telephone Excise Tax Refund (TETR).

21.8.2.2 
(10-01-2007)
Form 673, Statement for Claiming Exemption from Withholding on Foreign Earned Income Eligible for the Exclusions Provided
by § 911

  1. IRC § 3402(a) requires employers to withhold taxes from wages as they are earned at the “source”
    . However, if certain conditions are met, an employer may discontinue the withholding of income tax from the wages of an
    employee who is a citizen or resident alien employed abroad.

  2. IRC § 3401(a)(8)(A) exempts certain compensation paid from wages, and allows employees to file a signed statement including
    a declaration under penalties of perjury, along with a current Form W-4, declaring that they meet or will meet the qualifications
    of IRC § 911(d)(1) (qualified individual) for the taxable year. As a result, they are exempt from tax on the first $91,400
    of earned income for tax year 2009 ($87,600 for 2008).

  3. The Form W-4 must specify either:

    1. Exempt status, and the taxable year for which the Form W-4 is effective, or

    2. The number of withholding allowances allowed, based on exemptions, deductions (including the IRC § 911 deduction), and credits.

  4. The Internal Revenue Service provides Form 673, Statement for Claiming Exemption from Withholding on Foreign Earned Income
    Eligible for the Exclusions Provided by § 911. A statement can be accepted in lieu of Form 673 if the taxpayer indicates to
    their employer that they will meet either the bona fide residence test or the physical presence test and indicates their estimated
    housing cost exclusion. (See Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, for bona fide and physical
    presence requirements).

  5. Employers are required to withhold income tax from any wages the employee earns in the U.S. and any income exceeding the IRC
    § 911 limitations.

  6. For questions involving the Form W-4 penalty program, contact the Campus Collection Branch.

  7. Form 673 can only be used by a U.S. Citizen.

    Note:

    Form 673 is not filed with the IRS. The U.S. employer receives the completed Form 673 from the employee. Send loose Form 673
    documents that are received to the employer.

21.8.2.3 
(11-07-2008)
United States Possessions

  1. The following are the principal United States possessions that have independent tax administrations:

    • Commonwealth of Puerto Rico (PR)

    • U.S. Virgin Islands (USVI)

    • Guam

    • American Samoa (AS)

    • Commonwealth of the Northern Mariana Islands (CNMI)

  2. Individuals born in a U.S. possession are generally U.S. citizens, except in the case of American Samoa, where such individuals
    are U.S. nationals who are treated the same as U.S. citizens for purposes of many income tax provisions of the Internal Revenue
    Code. Individuals residing in a U.S. possession may also be treated as U.S. residents if they are lawfully admitted for permanent
    residence (that is, if they have a “green card”) or if they are substantially present in the United States, which generally
    does not include their time in the possession. For tax purposes, U.S. residents are taxed the same as U.S. citizens.

  3. Individuals deriving income from one or more of the above U.S. possessions may be required to file a possession income tax
    return, a U.S. income tax return, or both, depending on their residency status and the particular filing rules applicable
    to the relevant possession.

21.8.2.3.1 
(11-07-2008)
Double Taxation

  1. Procedures to settle cases of inconsistent tax treatment by the United States and a U.S. possession are provided in tax coordination
    agreements between the United States and the following U.S. possessions:

    • Puerto Rico (PR)

    • U.S. Virgin Islands (USVI)

    • Guam

    • American Samoa (AS)

    • Commonwealth of the Northern Mariana Islands (CNMI)

  2. Refer written requests for the assistance provided under the mutual agreement procedures to:

    Deputy Commissioner (International), LMSB
    Attn: Office of Tax Treaty
    Internal Revenue Service
    1111 Constitution Ave, NW
    Routing: MA3-322A
    Washington, DC 20224

  3. Requests for assistance must contain the necessary information outlined in Rev. Proc. 2006-23 and Publication 570, under
    the heading “Double Taxation.”
    Taxpayers may be referred to the following offices for special information regarding each U.S. Possession:

    • PUERTO RICO

      Negociado de Asistencia
      Contributiva y Legislacion
      Departamento de Hacienda
      P.O. Box 565
      San Juan, Puerto Rico 00902–6265

    • U.S. VIRGIN ISLANDS

      Virgin Islands Bureau of Internal Revenue
      9601 Estate Thomas
      Charlotte Amalie
      St. Thomas, U.S. Virgin Islands 00802

    • GUAM

      Department of Revenue and Taxation
      Government of Guam
      P.O. Box 23607
      GMF, GU 96921

    • AMERICAN SAMOA

      Tax Division
      Government of American Samoa
      PagoPago, American Samoa 96799

    • COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS

      Division of Revenue and Taxation
      Central Office
      P.O. Box 5234
      CHRB Saipan, MP 96950

21.8.2.3.2 
(10-01-2009)
Residence and Source Rules Concerning U.S. Possessions

  1. Residency rules – IRC § 937(a) generally provides that, except as provided in regulations, the term ” bona fide resident”
    of a possession means an individual who:

    1. Is present for at least 183 days during the taxable year in the relevant possession,

    2. Does not have a tax home outside of the possession, and

    3. Does not have a closer connection to the United States, or a foreign country, to the possession

    Note:

    See Treas. Reg. 1.937-1 for further details and exceptions to these tests.

  2. Source rules – In general, IRC § 937(b)(1) and the regulations provide that the principles for determining whether income
    is U.S. source, are generally applicable for determining whether income is possession source. The principles for determining
    whether income is effectively connected with the conduct of a U.S. trade or business are generally applicable for purposes
    of determining whether income is effectively connected to a possession trade or business. In addition, the “U.S. Income Rule”
    of IRC § 937(b)(2) provides that:

    • Income from U.S. sources is not considered income that is possession sourced or effectively connected with the conduct of
      a possession trade or business, and

    • Income that is effectively connected with the conduct of a U.S. trade or business is not treated as possession sourced income
      or effectively connected with the conduct of a trade or business in a possession.

  3. The regulations provide special source rules for certain items of income, including:

    1. Gain from the sale of goods manufactured in a possession

    2. Gain from dispositions of property owned prior to, and sold or exchanged within 10 years after, becoming a bona fide resident

    3. Dividends and interest from closely held possessions corporations, and

    4. Other specific types of income such as that derived from space and ocean activities, and international communications. For
      additional information concerning possession source and effectively connected income rules, refer to Publication 570, Treas.
      Reg. § 1.937-2, and Treas. Reg. 1.937-3.

21.8.2.3.3 
(11-07-2008)
Puerto Rico

  1. Puerto Rico is a self-governing commonwealth in association with the United States. The major differences between Puerto Rico
    and the 50 states are its local taxation system and the exemption from U.S. income tax provided in IRC § 933 for Puerto Rico
    source income.

  2. Puerto Ricos tax system is patterned after the U.S. tax system, but there are variations in law and tax rates.

  3. Employers in Puerto Rico are liable for social security and Medicare taxes (collectively Federal Insurance Contributions Act
    (FICA) taxes). They must file Form 941-PR or Form 944-PR with the IRS. They are also required to file Form 940-PR with
    the IRS to report unemployment taxes (FUTA tax).

  4. Employers with both domestic and possession employees can file one Form 941 or Form 944 to include all wages.

21.8.2.3.4 
(11-07-2008)
U.S. Virgin Islands, Guam, American Samoa & The Commonwealth of the Northern Mariana Islands

  1. This section provides specific tax information as it relates to the following U.S. possessions: U.S. Virgin Islands, Guam,
    American Samoa, and the Commonwealth of the Northern Mariana Islands.

    Caution:

    The British Virgin Islands fall within the jurisdiction of the United Kingdom and are in no way connected with the U.S. or
    its political subdivisions or territories. Any returns or inquiries received with addresses from the British Virgin Islands
    are handled as international cases.

  2. Each possession has its own separate and independent tax system and they have income tax laws and rates that are substantially
    the same as or are a “mirror”
    of the Internal Revenue Code (USVI, Guam and CNMI), or are generally similar to provisions of the Internal Revenue Code
    (American Samoa).

  3. Employers who have resident employees in the above specified possessions must file Form 941-SS or Form 944-SS with the IRS
    to report FICA taxes on wages earned by their employees. They also must file Form 940 with the IRS to report FUTA tax.

  4. As with Puerto Rico, employers with both domestic and possession employees can file one Form 941 or 944 to include all wages.

21.8.2.3.5 
(10-03-2007)
Penalty and Interest – CNMI

  1. Penalty and interest charged to a CNMI employer on Form 941-SS or Form 944-SS must be computed according to tax regulations
    as applicable to the CNMI.

  2. Form 941-SS is due by the last day of the month following the quarter for which wages were earned. The Form 944-SS is generally
    due January 31 following the year for which wages were earned.

  3. When a return posts to the incorrect tax period, follow the procedures in IRM 21.7.9.4.1, Resolving TRNS 193s and Amended/Corrected/Supplemental
    Returns.

  4. General procedures for processing penalty and interest cases are outlined in IRM 20.1, Penalty, and IRM 20.2, Interest.

21.8.2.3.6 
(10-15-2007)
Employment Tax Information

  1. Information on Employment tax may be found in the following publications:

    • Publication 15, Circular E, Employers Tax Guide and Publication 15-A, Employers Supplemental Tax Guide

    • Publication 51, Circular A, Agricultural Employers Tax Guide for the types of agricultural work subject to social security
      and Medicare taxes

    • Publication 179 (Spanish), Guia Contributiva Federal para Patronos Puertorriquenos (Circular PR – Federal Tax Guide for P.R.
      Employers)

    • Publication 80, Circular SS, Federal Tax Guide for Employers in the U.S. Virgin Islands, Guam, American Samoa, and the Commonwealth
      of the Northern Mariana Islands

21.8.2.3.7 
(10-01-2008)
Wage Documents for Possession Employees

  1. Employers filing Form 941-SS, Form 941-PR, Form 944-SS, Form 944-PR, Schedule H (PR), and Form 943-PR generally also file
    the following forms with the corresponding U.S. Possession:

    • Form W-2 AS (American Samoa)

    • Form W-2 GU (Guam)

    • Form W-2 VI (Virgin Islands)

    • Form W-2 CM (Commonwealth of the Northern Mariana Islands)

    • Form W-2 PR (Puerto Rico)

    • Form 499R-2 (Puerto Rico)

  2. Beginning in 1991, separate reporting of withheld FICA tax is required. The wage bases for the two parts of the tax (social
    security and Medicare) are different.

  3. The employers are also required to file with the Social Security Administration a copy of the appropriate Form W-2 for each
    of their employees along with Forms:

    • Form W-3 SS, or

    • Form W-3 (PR)

  4. When there is a centralized payroll with U.S. residents and possession residents working for the employer, the Form 941-SS,
    Form 941-PR, Form 944-SS and Form 944-PR are not filed.

    1. The employer includes the FICA payments from possession employees on Form 941 or Form 944 along with U.S. resident employees.

    2. The employer prepares the appropriate Form W-2 for each employee based upon the government to which the withheld income taxes
      were paid.

    3. Each type of Form W-2 must be accompanied by the Form W-3, Form W-3 SS, or Form W-3 (PR), as appropriate, when transmitting
      the data to SSA.

  5. If taxpayers inquire about this process, refer them to:

    • Publication 80

    • Publication 179

    • Form W-2 AS

    • Form W-2 GU

    • Form W-2 VI

    • Form W-2 CM

    • Form W-2 PR / Form 499R-2

  6. If an employer has an employee who changes residence between possessions, or between a possession and the United States during
    the year, a separate Form W-2 must be prepared for each jurisdiction of the employees residency.

  7. If an employer inquires about FICA tax reporting, tell them to keep a record of the combined wages and stop withholding the
    social security tax when total wages equal the maximum taxable wage figure for the employee for the year in question (there
    is no ceiling on Medicare tax wages).

    Note:

    Refer taxpayers to Notice 194, FICA Tax Rate Table. Below is a quick reference.

    Tax Year Gross Wage Limitation Amount for Social Security Tax Withheld Maximum Social Security Tax Withheld Gross Wage Limitation Amount for Medicare
    2009 $106,800 $6,622 unlimited
    2008 $102,000 $6,324 unlimited
    2007 $97,500 $6,045 unlimited
    2006 $94,200 $5,840 unlimited
    2005 $90,000 $5,580 unlimited
  8. Both the employee and employer rates for the social security tax and Medicare tax are 6.2% and 1.45%, respectively, for all
    tax years on the chart.

21.8.2.3.8 
(03-13-2009)
BMF Employment Returns – Form 940-PR, Form 941-PR, Form 941-SS, Schedule H-PR, Form 943-PR, Form 944-PR, and Form 944-SS

  1. Form 940-PR, Planilla Para La Declaracion Anual Del Patrono – La Contribucion Federal Para El Desempleo (Federal Unemployment
    Tax Act – FUTA), is an annual return filed by employers in Puerto Rico to report unemployment taxes.

  2. Form 941-PR, Planilla Para La Declaracion Trimestral Del Patrono – La Contribucion Federal Al Seguro Social Y Al Seguro Medicare,
    is a quarterly tax return filed by employers to report FICA taxes expected. The return is filed by employers whose principal
    place of business is in Puerto Rico.

  3. Form 941-SS, Employers Quarterly Federal Tax Return, is a quarterly tax return filed by employers in the U.S. Virgin Islands,
    Guam, American Samoa and the Commonwealth of the Northern Mariana Islands to report FICA taxes expected.

  4. Form Anexo H-PR (Schedule H-PR), Contribuciones Sobre el empleo De Empleados Domesticos, is an annual return filed by churches
    or estates to report and pay employer and employee FICA/FUTA taxes for household employees. This form replaced Form 942 after
    1994. Schedule H-PR is also filed by individuals as an attachment to Form 1040 or 1040-PR using their Social Security Number
    (SSN) to report wages paid to their household employees. It can also be filed as a “stand- alone”
    document.

  5. Form 943-PR, Planilla Para La Declaracion Anual De La Contribucion Del Patrono de Empleados Agricolas, is an annual return
    filed by employers in Puerto Rico to report FICA taxes for agricultural employees.

  6. Form 944-PR, Planilla Para La Declaracion Federal Anual Del Patrono, is an annual tax return filed by employers to report
    FICA taxes whose expected annual liability is $1,000 or less. The return is filed by employers whose principal place of business
    is in Puerto Rico.

  7. Form 944-SS, Employers Annual Federal Tax Return, is an annual tax return for employers in the U.S. Virgin Islands, Guam,
    American Samoa and the Commonwealth of the Northern Mariana Islands to report FICA tax whose expected annual liability for
    social security and Medicare taxes is $1,000 or less.

21.8.2.3.8.1 
(03-17-2009)
Adjusting the Tax on Form 941-PR, Form 943-PR, Form 941-SS, Form 944-PR, and Form 944-SS

  1. Adjustments required on these forms are made using normal BMF procedures found in IRM 21.7.2.4, Employment Tax Returns Procedures.

  2. The Master File Tax Code (MFT) for Form 941-PR and Form 941-SS is 01.

  3. The MFT for Form 943-PR is 11.

  4. The MFT for Form 944-PR and Form 944-SS is 14.

  5. The due dates are as follows:

    Form Due Date
    Form 941-PR April 30, July 31, October 31, and, January 31
    Form 941-SS April 30, July 31, October 31, and, January 31
    Form 943-PR, Form 944-PR, and Form 944-SS January 31

  6. Blocking Series 00 is used with the original return; 15 without the original return.

  7. Item Adjustment Codes (see IRM 21.7.2.4.1, Reference Numbers (Employment Taxes)).

    • 003 – Federal income tax withheld (for returns processed prior to 2005). See note below.

    • 004 – Taxable social security wages

    • 005 – Taxable social security tips

    • 007 – Social security / Medicare tax (for returns processed prior to 2005)

    • 072 – Tips deemed to be wages ( IRC § 3121(q))

    • 073 – Medicare wages and tips

    • 104 – Special additions to federal income tax ( IRC § 3509)

    • 105 – Special additions to social security and Medicare tax ( IRC § 3509)

    • 106 – Current quarter fractions of cents (941 and 944)

    • 107 – Current quarters sick pay (944)

    • 108 – Current quarters adjustments for tips and group life insurance (n/a for 944)

    • 109 – Current years income tax withholding adjustments (941 and 944)

    • 110 – Prior quarters social security and Medicare tax (941 and 944)

    • 111 – Total income tax withheld

    • 112 – Total social security and Medicare tax

    • 113 – Total adjustments

    • 184 – Total adjustments to withholding (for returns processed prior to 2005)

    • 185 – Adjustment to social security / Medicare tax (for returns processed prior to 2005)

      Note:

      Codes 104 through 113 are valid only for Form 941 returns processed in 2005 and subsequent (cycle 200501). The TC 290 or 291,
      line 10 of Form 941-PR, must equal reference number 007 (and 003 if applicable) for 941s posted prior to cycle 200512. For
      returns posted after cycle 200501, the TC 290 or 291, line 8 of Form 941-PR must equal reference numbers 112 and 113.

    Note:

    Form 941-PR, Form 941-SS, Form 943-PR, Form 944-PR, and Form 944-SS do not have line number 003/111 (Income Tax Withheld).
    They pay their income tax withholding to their government, unless they have an employee in the United States.

  8. CP 175/185 notices, which were generated for unexplained adjustments to withholding, tips, or FICA, are no longer issued beginning
    in January, 2009.

  9. When agricultural employers file Form 941-PR, but should file Form 943-PR, refer to IRM 21.7.2.4.13.2, Incorrect Type of
    Return Filed – Form 941 and 943.

  10. Prior to tax year 2009, employers could file Form 944 series returns, instead of Form 941 series returns, only if the IRS
    notified them in writing. Beginning with tax year 2009, in order to file Form 944 series returns, taxpayers will be identified
    during EIN assignment or will contact the Service directly to inquire about the Form 944 program. Refer to IRM 21.7.2.4.14,
    Form 944, Employers Annual Federal Tax Return, for instructions on adjusting accounts where Form 944 filers file Form 941.

  11. When adjusting a tax account using REQ54, or transferring credits using ADD24/ADD34/ADD48, input a filing location code (FLC)
    of 66 or 98 according to the primary location code shown on TXMOD or ENMOD. Input FLC 66 for primary location code 78 and
    FLC 98 for primary location code 60.

    Exception:

    An FLC 66 or 98 may be input on any BMF international tax adjustment or credit transfer for audit trail purposes, regardless
    of the location code shown on TXMOD or ENMOD.

  12. Premium assistance for The Consolidated Omnibus Budget Reconciliation Act (COBRA) benefits can be claimed on Form 941-PR and
    Form 941-SS for 2009. The forms contain new lines 12A for COBRA premium assistance payments and 12B for the number of individuals
    provided COBRA assistance. Additional information on COBRA and procedures for adjusting COBRA amounts can be found in IRM
    21.7.2.5.10, Premium Assistance for COBRA Benefits.

21.8.2.3.8.2 
(10-01-2009)
Form 941-X(PR) and Form 941-X(SS)

  1. Form 941-X(PR), Adjusted Employers QUARTERLY Federal Tax Return or Claim for Refund (Puerto Rico version), is filed to correct
    income tax withholding and/or FICA tax information previously reported on Form 941-PR.

  2. Form 941-X(SS), Employers QUARTERLY Federal Tax Return – American Samoa, Guam, the Commonwealth of the Northern Mariana Islands,
    and the U.S. Virgin Islands, is filed to correct income tax withholding and/or FICA tax information previously reported on
    Form 941-SS.

  3. Refer to the following IRM sections for instructions for processing Form 941-X(PR) and Form 941-X(SS):

    • Form 941X Tax Decreases – Adjusted Employment Tax Return, see IRM 21.7.2.5.3.1

    • Form 941X Tax Decrease – Claim for Refund, see IRM 21.7.2.5.3.2

    • Form 941X Tax Increases – Adjusted Employment Tax Return, see IRM 21.7.2.5.3.3

  4. Prior to January 1, 2009, Form 941c or Form 941cPR was filed to correct withholding of FICA information previously reported
    on Form 941-PR, Form 941-SS, Form 943-PR, or Form 945.

21.8.2.3.8.3 
(10-01-2007)
Sick Pay/SINOT

  1. Employers and third-party payers who have employees that are residents of possessions must withhold from these employees and
    pay employer FICA taxes on most sick pay.

  2. Employers that make their own sick pay (SINOT) payments report the payment subject to FICA tax on Form 941-SS/941-PR or Form
    944-SS/944-PR.

  3. The third party is responsible for informing the employer of the amount of benefits paid and what portion is taxable.

  4. Employers reduce the tax liability by subtracting the sick pay (SINOT) paid portion in the Tax Adjustments section.

  5. Third party payer of sick pay (SINOT) must withhold and deposit the employees portion of social security and Medicare taxes
    on their 941-SS/941-PR or Form 944-SS/944-PR returns.

  6. If the employer sends a computer printout and payment, assess the additional tax. See IRM 21.7.2, Employment and Railroad
    Tax Returns, for instructions on how to adjust the taxpayers account.

21.8.2.3.8.4 
(10-15-2007)
Adjusting the Tax on Form 940-PR (FUTA)

  1. The MFT for Form 940-PR and Form 940-EZ is 10.

    Note:

    Form 940-EZ is obsolete as of 1-1-2007.

  2. The return is filed once a year with the tax period ending on December 31. The return is due on January 31st.

  3. The Blocking Series are 00 with original return; 15 without original return; 50 when the state certifies wages/contributions; 51 when the state certifies no record of wages/contributions.

    Note:

    When adjusting an account that contains a previous FUTA adjustment, and resolution is based on the state certification data,
    a specific Blocking Series must be used. Refer to IRM 4.19.5.4.7.4, Special Adjustment Blocking Series

    .

  4. Item references are:

    • TPR (state code) followed by a dollar amount for tax increase or decrease

    • WPR (state code) followed by a dollar amount for wage increase or decease

    Note:

    The total of the item reference code amounts for tax must equal the TC 290 or 291 tax adjustment. If no increase or decrease
    to tax or wages is made, item reference codes are not needed.

  5. Only the first $7,000 paid to each employee is subject to FUTA tax.

  6. For unexplained or questionable exempt amounts from Part 1, line 2, refer to IRM 21.7.3.4.10, Unexplained or Questionable
    Exempt Amounts (FUTA) – Computer Paragraph (CP) 174/874.

    Note:

    Beginning January 1, 2007, CP 174/874 no longer generates. Code and Edit no longer enters Computer Condition Code (CCC) “C”
    on Form 940 or Form 940-PR that have an unexplained or questionable amount. The revised Form 940 and Form 940-PR have
    a check-box to explain exempt payments on line 4 in Part II.

  7. Some organizations, such as religious, charitable, and educational organizations, are exempt from FUTA taxes. If an organization
    claims to be exempt from FUTA taxes, refer to IRM 21.7.7, Exempt Organizations and Tax Exempt Bonds. Exempt organizations
    can be identified on the Entity module by Employment Code (EC) ” W”
    .

  8. The FUTA certification program is the method IRS uses to verify with the states that the credit claimed on the Form 940-PR/940-EZ
    and or Schedule H was actually paid into the states unemployment funds. Puerto Rico and the U.S. Virgin Islands participate
    in this program. On recertification cases:

    If…. Then….
    The 940-PR account has an additional TC 290 assessment (with Blocking Series 50 or 51) and the state certification is provided 1. Recompute tax based on the recertification figures. See (9) below.
    2. Input the adjustment with Blocking Series 50.
    3. Adjust TC 180 if applicable.
    The taxpayer is not aware of the FUTA assessment or disagrees or does not understand the additional assessment 1. Use 3064SP or 380C letter to explain the adjustment to the taxpayer and request that they obtain a recertification from
    the possession. See note below.
    2. Input STAUP for eight cycles.
    3. Do not adjust account at this time.

  9. The Department of Labor in PR can be contacted at 787-754-5270 or 787-754-5272. The Department of Labor in the U.S. Virgin
    Islands can be contacted at 340-776-3700 or by writing to:

    Employment Security Agency
    P.O. Box 789
    St. Croix, U.S. Virgin Islands

  10. Complete Form 940 adjustment procedures are found in IRM 21.7.3.4, Unemployment Taxes Procedures. Form 940-PR is adjusted
    in the same manner.

21.8.2.3.9 
(10-01-2009)
Form 944-PR/944-SS – Employers Annual Federal Tax Return

  1. The Form 944 was developed to reduce burden for small business taxpayers. It became available beginning with calendar year
    2006 along with Form 944-PR, for employers in Puerto Rico and Form 944-SS, for employers in the U.S. Virgin Islands, Guam,
    American Samoa, and the Commonwealth of the Northern Mariana Islands.

  2. In 2006, the Form 944 program was a new filing requirement for all Form 941 series taxpayers to whom one of the following
    apply:

    • The taxpayer would have had to report $1,000 or less in total tax liability on their Form 941 accounts during the periods
      beginning July 1st and ending the following June 30th (this is referred to as the eligibility extract period), or

    • The taxpayer applied for a new EIN, who has never filed previously, would qualify to file Form 944 if they believed their
      total liability would not exceed $1,000.

    Note:

    Employers in U.S. possessions who pay $6,536 or less in wages subject to social security and Medicare taxes will pay $1,000
    or less in employment taxes.

  3. For tax years 2006 through 2008, Form 944 filers were identified using a Master File extract. Beginning in 2009, taxpayers
    will self-identify during EIN assignment or by contacting the Service about the Form 944 program, since the extract will no
    longer be run.

  4. MFT 14 was established Form 944-PR and Form 944-SS.

21.8.2.3.10 
(10-01-2008)
Form 945 – Annual Return of Withheld Federal Income Tax

  1. Form 945 is used to report federal income tax withheld or backup withholding. All non-payroll items, namely pensions, annuities,
    IRAs, military retirement, gambling winnings, back-up withholding (BUWH), and Indian Gaming Profits, are reported on Form
    945. As a general rule, all income tax and BUWH reported on Form 1099 or Form W-2G must be reported on Form 945.

  2. Some taxpayers file Form 945 when a Form 1042 should have been filed. However, a Form 1042-S is provided to the recipient
    instead of a Form 1099.

  3. Form 945 is subject to Federal Tax Deposit requirements. The periodic liabilities are reported on Form 945A. Form 945 tax
    deposit requirements are separate from Form 941-PR/SS – they cannot be combined. Taxpayers follow either semi-weekly or monthly
    deposit schedules. See Publication 15, Circular E, for Federal Tax Deposit Requirements.

  4. The threshold for making deposits is currently $2,500.

  5. The return is filed annually with tax period ending on December 31 and the return is due on January 31st, following the close
    of the calendar year.

  6. The MFT for Form 945 is 16.

  7. The taxpayer is required to file only for a calendar year in which withholding tax must be reported on Form 945.

  8. Blocking Series 00 is used with an original return; 15 without the original return.

  9. Item reference numbers are:

    • 003 – Federal Income Tax Withheld

    • 008 – Backup Withholding

    • 184 – Adjustments to correct administrative errors

    Note:

    Adjustments on Form 945 can only be made if they are the result of an administrative error.

21.8.2.4 
(10-01-2008)
Household Employment Taxes – BMF Procedures

  1. On January 1, 1995, the Social Security Domestic Employment Reform Act (SSDERA) of 1994 was enacted. As a result, domestic
    service employment taxes are now collected with income tax rather than employment taxes.

  2. Domestic employees under the age of 18 are excluded from coverage beginning in 1995, if being a “Domestic Employee”
    is not their principal occupation. This provision is effective regardless of the amount of wages paid to the employee
    under 18.

    Note:

    A “student”
    is considered an occupation.

  3. A domestic employee receiving less than $1,700 from an employer for tax year 2009 is not subject to FICA taxes. The thresholds
    for prior years are as follows:

    1. $1,600 for 2008

    2. $1,500 for 2006 and 2007

    3. $1,400 for 2003 through 2005

    4. $1,300 for 2001 and 2002

    5. $1,200 for 2000

  4. Wages paid after December 31, 1994 are reported on the employers Schedule H/H-PR attached to Form 1040, Form 1040A, Form-NR,
    Form-PR, Form 1040-SS, or Form 1041. Employers not liable for a Form 1040/A/NR/PR/SS must file a “stand-alone”
    Schedule H/H-PR.

    Note:

    On a “stand-alone”
    Schedule H/H-PR, Submission Processing prepares a dummy Form 1040/A/NR/PR/SS with a Return Processing Code of “Y”
    or Form 1041 for BMF accounts.

  5. Employers claiming the additional tax with their individual taxes report the tax for 2009 on Line 59 on the Form 1040, Line
    56 on the Form 1040NR, or Line 4 on the Form 1040-PR/SS. Employers claim the additional tax on Form 1041 using line 23.

    1. This additional tax is included in the TC 150 amount.

    2. Use the appropriate Blocking Series and RC 050 for IMF to adjust employment taxes from Schedule H/H-PR.

  6. SSDERA requires the Schedule H/H-PR be filed for a calendar year. Fiscal year filers must report wages paid on a calendar
    year basis.

21.8.2.4.1 
(10-01-2007)
Schedule H/H–PR – BMF Procedures

  1. Schedule H/H–PR has four parts:

    • Part I is social security, Medicare, and Federal Income Taxes (Contribuciones al Seguro Social y al Medicare).

    • Part II is Federal Unemployment (FUTA) Tax (Contribucion Federal para el Desempleo (FUTA).

    • Part III Total Household Employment Taxes (Total de Contribuciones sobre el Empleo de Empleados Domesticos).

    • Part IV is Address and Signature (Direccion y Firma) Part IV is completed ONLY if the employer is not required to file a tax
      return or is filing a Form 1041.

  2. Schedule H/H-PR may be filed by a Trust or Church etc., either by itself or with Form 1041.

  3. Use the following Item Adjustment Code list to determine the appropriate reference numbers to use to adjust Part I, social
    security, Medicare, and Federal income taxes:

    • 003 – Federal Income Tax Withheld

    • 004 – Taxable Social Security Wages

    • 007 – Adjusted total of SSA/Medicare tax

    • 073 – Medicare Wages

  4. FUTA State Codes currently valid with MFT 10 must be input for adjusting the primary taxpayer information. The FUTA State
    Code is a three character code made up of T or W, followed by a two character state code. See a list of state abbreviations
    in Exhibit 3.11.3-9, State Codes and Zip Codes Perfection Chart.

  5. The three character State Code input is systemically and converted to the applicable reference number.

  6. FUTA taxes are due on wages paid to domestic employees if the employer paid total cash wages of $1,000 or more (for all household
    employees) in any quarter in the current or preceding calendar year.

    State Code Input Computer Generated Reference Number Reference
    TPR 997 Taxes
    WPR 998 Wages

    Note:

    After “T”
    or “W”
    , the appropriate two digit state abbreviation is used.

    Example:

    The taxpayer reports $1,300 FUTA tax paid to Puerto Rico. The tax examiner inputs State Code TPR for $1,300 and the computer generates a TC 997 for $1,300.

  7. For adjustments involving Form 1041 with Schedule H, refer to IRM 21.7.4.4.1.11.4.3, Adjustments (Amended Returns, CP 193s,
    etc.) Involving Form 1041 With Schedule H.

21.8.2.4.2 
(10-01-2007)
Loose Schedule H/H-PR

  1. When processing a loose Schedule H/H-PR, use the procedures in this IRM in conjunction with the procedures outlined in IRM
    21 listed below. See IRM 21.8.2.4, Household Employment Taxes – BMF Procedures.

    If … Then …
    The Taxpayer Identification Number (TIN) is a SSN Follow the procedures in IRM 21.6.4.4.8.10, Schedule H, Household Employment Taxes, Received Without Form 1040, U.S. Individual
    Income Tax Return.
    The TIN is an Employer Identification Number (EIN) Follow the procedures in IRM 21.7.4.4.1.11.4.1 , Loose Schedules H (BMF).
    The Schedule H does not have a TIN Research for a TIN using NAMEE or NAMEB for an EIN, NAMES or NAMEI for an SSN.

21.8.2.4.3 
(10-01-2009)
Interest-Free Adjustments

  1. The interest-free provisions for adjustments on employment taxes are in effect for errors discovered on the Schedule H/H-PR.
    The provisions were revised and apply to errors discovered on or after January 1, 2009. See Treas. Reg. §§ 31.6205-1, 31.6413(a)-1,
    and 31.6413(a)-2. Additional information can also be found in TD 9405 and Publication 926.

    1. The interest-free provisions may apply to adjusted returns and original returns in certain cases of worker mis-classification.
      The adjustment to Schedule H is made by filing a Form 1040X with a corrected Schedule H (together being an adjusted return),
      or just an amended Schedule H if the employer has no Form 1040 filing requirement.

    2. Taxes imposed under the Federal Unemployment Tax Act FUTA (Part II, Schedule H) are not subject to the interest-free provision.
      As a result, when adjusting Schedule H taxes, it is sometimes necessary to use both TC 298 (for interest free income and FICA
      adjustments, Part I, Schedule H) and TC 290 for the FUTA portion.

    3. Underpayment adjustments to income tax withholding, social security and Medicare taxes may be made interest-free if reported
      by the due date of the return for the return period the error is ascertained.

    4. Generally, adjustments to income tax withholding errors may only be made for quarters during the same calendar year. Adjustments
      to amounts reported as income tax withheld in a prior calendar year may only be made to correct an administrative error. An
      administrative error occurs if the amount entered on Schedule H/H-PR as income tax withheld is not the amount the employer
      actually withheld.

      Note:

      Income taxes are only required to be withheld from wages for domestic employment if the employer and employee agree to the
      withholding.

  2. For Schedule H/H-PR, the due date of the period the error is ascertained is the due date of the income tax return for the
    period the taxpayer discovered the error.

    1. An error is ascertained when the employer has sufficient knowledge of the error to be able to correct it.

    2. For underpayment errors discovered on or after January 1, 2009, the new provisions require that the underpayment be paid at
      the time the adjusted return is filed or interest will begin to accrue. The interest computation date to be used is the received
      date ≡ ≡ ≡ ≡ ≡ ≡ ≡ of the adjusted return.

      Example:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. For underpayment errors discovered before January 1, 2009, use the due date of the return for the return period in which the
      error was ascertained, as the interest from date. For underpayment errors discovered on or after January 1, 2009, use the
      date the adjusted return was received ≡ ≡ ≡ ≡ ≡ ≡ ≡ as the interest from date.

    4. Ascertained dates are not needed for tax decreases.

    5. A statement (could be an amended Schedule H) must be attached to the return on which the adjustment is reported explaining
      the correction and designating the return period in which the error was ascertained and the return period to which the error
      relates.

    6. Use the following chart to assist in determining when to use a TC 298.

      If… Then…
      An ascertained date is provided and the amended Schedule H/H-PR is filed by the due date of the return for the return period,
      in which the error was ascertained
      Assess the increase using TC 298 with an interest computation date.
      The ascertained date is not provided Contact the taxpayer by telephone to obtain the information.

      Note:

      Do not correspond for the ascertained date unless corresponding for other information.

      The ascertained date is not provided and is unable to be secured Assess the increase using a TC 290.

      Note:

      When contacting taxpayers, follow procedures in IRM 21.1.3.2.3, Required Taxpayer Authentication, for purposes of identification
      and to prevent unauthorized disclosures of tax information. Also, use caution when leaving information on answering machines
      or voice mails. (See IRM 11.3.2.6.1 , Leaving Information on Answering Machines/Voice Mail.)

  3. Interest-free adjustments provisions.

    If… Then…
    The adjusted Schedule H is filed and the tax paid by the due date of the return for the return period in which the error was
    ascertained and the underpayment is paid at the same time
    No interest is due.
    For increases in tax liability, the amended Schedule H is filed by the due date of the return for the return period in which
    the error was ascertained, but the tax is not paid at the same time
    Interested is computed from the received date ≡ ≡ ≡ ≡ ≡ ≡ of the adjusted Schedule H.

21.8.2.5 
(10-01-2007)
Deposit Requirements

  1. Deposit requirements for the PR series returns are the same as for their domestic counterparts.

  2. Form 941-PR deposit requirements are the same as for Form 941 and are shown in IRM 20.1.4.3, Employment Tax Form 941, Form
    943, Form 944, Form 945, and CT-1.

  3. Form 940-PR deposit requirements are different from the Form 941 requirements. The unemployment tax deposit requirements are:

    • If the tax liability is $500 or less and it is the end of the first, second, or third quarter, the tax is carried over to
      the next quarter.

    • If the fourth quarter tax liability is $500 or less, the tax is due by the due date of Form 940-PR or 940-PR/EZ, which is
      January 31, or it and can be mailed in with the return.

    • If the tax liability is over $500, and it is the end of any quarter, then the tax must be deposited by the last day of the
      following month.

  4. When to deposit FUTA Taxes:

    Quarter Ending Due Date
    Jan.-Feb.-Mar. March 31 April 30
    Apr.-May-June June 30 July 31
    July-Aug.-Sep. September 30 October 31
    Oct.-Nov.-Dec. December 31 January 31

  5. Form 943-PR annual return deposit requirements: In general, when the employer and employee portions of social security, Medicare
    and withholding taxes are $2,500 or more, the taxpayers must periodically deposit their employment taxes using their required
    monthly or semiweekly deposit schedule. When the total tax amount is less than $2,500, the tax is considered de minimis, and
    can be remitted with a timely filed return.

    • Beginning in 2001, the threshold for the deposit requirement was increased from $1,000 to $2,500.

    • Circular A, Agricultural employers Tax Guide, Section 7 has more information on the deposit rules.

  6. Form 945 annual return withholding tax deposits must be made separately from FICA and Medicare taxes. The 941 and 945 tax
    liabilities cannot be combined when making deposits. The $2,500 deposit threshold requirement also applies to Form 945.

21.8.2.5.1 
(10-01-2009)
FTD Payment System

  1. Taxpayers who file Form 941-PR, Form 943-PR, or Form 945 are required to pay the tax on these returns by making Federal Tax
    Deposit (FTD) payments if the liability equals or exceeds a designated threshold amount during the tax period for which the
    return is filed. See Publication 15 for information on the FTD payment system. The table below lists the applicable thresholds.

    FTD Liability Thresholds
    Form Tax Period Ending $ Threshold
    941 200103 and subsequent 2,500 (See Note below table.)
    941 199809 – 200012 1,000
    941 199806 and prior 500
    943 200112 and subsequent 2,500
    943 199912 and 200012 1,000
    943 199812 and prior 500
    945 200112 and subsequent 2,500
    945 199912 and 200012 1,000
    945 199812 and prior 500

    Note:

    For tax periods beginning January 1, 2010 and subsequent, if your Form 941 total tax liability is $2,500 or less for the current
    quarter or the preceding quarter is less than $2,500 and the taxpayer did not incur a $100,000 next-day deposit obligation during the
    current quarter, the tax due can be paid when the return is filed.

  2. These deposits are paid to an authorized financial institution accompanied by an FTD coupon ( Form 8109) or via the Electronic
    Federal Tax Payment System (EFTPS).

  3. Foreign taxpayers may mail their Form 8109 and payment in U.S. dollars made payable to the Financial Agent to the address
    below:

    Caution:

    These deposits should be processed as TC 650 payments. FTD avoidance penalties may be charged if the deposits post as TC 670
    payments.

    Financial Agent
    Federal Tax Deposit Processing
    P.O. Box 970030
    St. Louis, MO 63197

  4. When a taxpayer makes a timely deposit to an authorized depository by coupon or electronic request, the bank transmits the
    deposit to the Treasury Financial Agent (TFA). If the TFA delays transmitting the deposit to the Treasury, the employers
    account may be charged an FTD penalty for a late deposit. Do not initiate a credit transfer to change the date of the deposit. See IRM 20.1.4.13, Treasury Financial Agent Mishandling, for
    case resolution instructions.

  5. Penalties are imposed if deposits are:

    • Late

    • Insufficient amounts

    • Made directly to IRS

    • Not made by EFTPS, if so required
      (See IRM 20.1.4, Failure to Deposit Penalties, for more information.)

  6. If return is reprocessed to a different year and no penalty should be assessed, “J”
    code the re-input document. Returns processed with Computer Condition Code (CCC) “J”
    are excluded from FTD penalty processing. CCC “J”
    is used in limited situations and only when authorized by the Office of Servicewide Penalties.

  7. The FTD penalty must be considered anytime there is an adjustment to tax whether an increase or decrease. See IRM 20.1.4.12.1,
    Manual Adjustments, for complete instructions.

  8. Research IDRS to determine if a CP 194 or CP 207 was previously generated, whenever tax or periodic liability information
    is being adjusted. See IRM 20.1.4.11.2.5, Schedule Indicator Codes (SIC).

  9. The taxpayer may create a duplicate filing condition by filing a separate return with each FTD. Resolve these “A”
    freeze conditions using CP 193 procedures in IRM 21.7.9, BMF Duplicate Filing Conditions. Notify Taxpayers to make deposits
    using Form 8109 coupons or through EFTPS.

  10. For more information on deposits and FTD penalties, see:

    • Circular E

    • Circular A

    • IRM 20.1.4, Failure to Deposit Penalty

21.8.2.5.2 
(10-01-2007)
Electronic Federal Tax Payment System (EFTPS)

  1. Beginning in 1998, taxpayers were required to use the Electronic Federal Tax Payment System (EFTPS) if their “aggregate deposits”
    for the second preceding calendar year exceeded $200,000.

    Example:

    In 2009, the taxpayer is required to use EFTPS if his or her aggregate deposits in 2007 exceeded $200,000.

  2. When determining if a taxpayers aggregate deposits exceed the EFTPS $200,000 threshold, combine the tax liabilities of all
    the tax returns filed within a designated previous year. See IRM 21.7.1.4.8.1, Electronic Federal Tax Payment System (EFTPS).

  3. A taxpayer who exceeds the threshold in one year is not permitted to resume making paper coupon deposits if aggregate deposits
    fall below $200,000 in a subsequent year. The taxpayer must continue to use the EFTPS to make electronic deposits for all subsequent years. See IRM 21.7.1.4.8.1.1, EFTPS Enrollment.

  4. Thresholds are determined by the amount of deposits made during the calendar year, not on the dates the liability for those
    deposits were incurred.

  5. Refer to IRM 21.7.1.4.8.1.3, EFTPS Deposit Requirements.

21.8.2.5.3 
(10-01-2007)
Deposit Penalties and Penalty Relief

  1. Taxpayers that are required to make electronic deposits are subject to the same FTD penalties as other depositors, including
    a 10% penalty for avoiding the required deposit method. (See IRM 20.1.4.1.3.1, Electronic Funds Transfer (EFT) and IRM 20.1.4.2.1,
    Time Sensitive Four Tier Penalty System.)

  2. Various forms of penalty relief have been granted for taxpayers, including reasonable cause. See IRM 20.1, Penalty Handbook,
    for information on penalty relief and the periods to which it applies.

21.8.2.6 
(10-01-2007)
Excess FICA

  1. Excess FICA claims (not Foreign Student Visa Claims) are IMF Criteria.

  2. Route case received in the BMF inventory to Philadelphia Accounts Management – IMF International Department.

21.8.2.7 
(10-01-2009)
VISA Holders – General

  1. A visa is assigned to an individual by the United States Citizenship and Immigration Services (USCIS) based on the individual’s
    U.S. immigrant or non-immigrant status. Visas are assigned to non-immigrant aliens who are admitted temporarily to the U.S.
    for specific reasons and periods of time.

  2. The USCIS Web site at http://www.uscis.gov contains specific information on the various visas available.

  3. The method of taxation of a visa holder depends primarily upon whether the individual is defined as a resident or nonresident.
    If the visa holder is determined to be a nonresident alien, he or she is taxed on all United States source income and on all
    income that is effectively connected with the conduct of a trade or business in the United States (see IRM 21.8.1.11.11).
    Non-effectively connected foreign source income is not taxed (see IRM 21.8.1.11.12). Resident aliens are taxed the same as
    citizens.

  4. The following are types and definitions of visas most frequently recognized by IRS:

    • H-1 VISA: “H-1″
      visas are for temporary workers in a specialty occupation (profession).

    • TN VISA: “TN”
      visas are trade visas for Canadian and Mexican professionals entering under the North American Free Trade Agreement (NAFTA).

    • F VISA: The “F”
      visa is issued to alien students accepted as registered students by an educational institution or language learning program
      approved by the Attorney General.

    • J VISA: The “J”
      visa is issued to an alien entering for the purpose of teaching, instructing, lecturing, studying, observing, conduction
      research, consulting, demonstrating special skills, or receiving training. These individuals are commonly referred to as “exchange
      visitors”
      . An alien temporarily present in the United States on a J Visa is admitted for an initial period of two years.

    • M VISA: The “M”
      visa is issued to an alien accepted as a registered student by an established vocational or other recognized nonacademic
      institution (other than in a language training programs) approved by the Attorney General.

    • Q VISA: The “Q”
      visa is issued to an alien participating (for a period not to exceed 15 months) in an international cultural exchange
      program approved by the Attorney General for the purpose of providing practical training, employment, and the sharing of history,
      culture, and traditions of the country of the aliens nationality.

  5. There are special rules for “F”
    , ” J”
    , “M”
    , and “Q”
    visa holders.

    1. Subject to certain limitations, “F”
      , “J”
      , “M”
      , and “Q”
      visa holders are treated as exempt individuals for purposes of the substantial presence test. The result of this is that
      they are frequently determined to be non-resident aliens without regard to the number of days spent in the United States.

    2. “F”
      , “J”
      , “M”
      , and “Q”
      visa holders are treated as engaged in a trade or business in the United States even if they are nonresident aliens. They
      are able to exclude pay received from a foreign employer from U.S. gross income.

    3. These types of visa holders, together with certain scholarship and fellowship holders, are afforded a lower rate of withholding.

    4. These four types of visa holders are exempt from social security and Medicare taxes (FICA) on wages as long as the visa holder
      is classified a nonresident alien and the services are performed to carry out the purpose for which the visa holder was admitted
      to the United States. Restrictions on the type of work and the number of hours worked apply according to the type of visa
      held.

    5. One important limitation applies to teachers or trainees who are temporarily present in the United States under “J”
      or “Q”
      visas. After two years, such individuals generally are classified as resident aliens under the substantial presence test.

  6. The following is a list of immigration forms and descriptions:

    Form Description Citizenship Field Permanent Resident Alien
    AR-3 and AR-3a Alien Registration Receipt Card. Evidence of lawful admission for permanent residence. Legal alien allowed to work Y
    DSP-150 B-1/B-2 Visa and Border Crossing Card.

    Note:

    Form DFP-150 replaces Form I-186 and Form I-586.

       
    DS-2019 Certificate of Eligibility for Exchange Visitor (J-1) Status. Evidence the alien is an exchange visitor. Must also show an
    I-94 with J-1 alien classification.
       
    I-20 Certificate of Eligibility for Nonimmigrant Student Status. Must also show an I-94 showing either F-1 or M-1 alien classification.    
    I-94 or I-94A Arrival/Departure Record. Evidence the alien is a non-immigrant. There are different versions of the form.    
    I-94W Non-immigrant Visa Waiver Arrival/ Departure Form. Evidence that the alien is a visitor from a visa waiver country.    
    I-95 or I-95A Crewmans Landing Permit. Issued to foreign crewman. Legal alien not allowed to work N
    I-184 Alien Crewman Landing Permit and Identification Card. Issued to foreign crewmen. Legal alien not allowed to work N
    I-185 Nonresident Alien Canadian Border Crossing Card. Issued to Canadian citizens. Legal alien not allowed to work N
    I-194 Notice of Approval of Advance Permission to Enter the United States as a Nonimmigrant.    
    I-508 Waiver of Rights, Privileges, Exemptions and Immunities This Form was revised in 2005 to include an “IRS COPY”
    . Route all IRS COPIES received to:
    IRS
    International Programs-SBSE
    1111 Constitution Ave-NE 4423
    Washington, DC 20224
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    I-551 Alien Registration Receipt Card (Green Card). Evidence of lawful admission for permanent residence. Legal alien allowed to work Y
    I-551 STAMP Temporary I-551. Evidence of lawful admission for permanent residence until the I-551 card is received. Legal alien allowed to work Y
    I-688 Temporary Resident Identification Card. Issued to legalization applicants. Legal alien allowed to work N
    I-688A Employment Authorization Card. Evidence of work authorization. Legal alien allowed to work N
    I-688 EXT Extended Temporary Resident Card. Evidence of lawful admission for permanent residence until the I-551 card is received. Legal alien allowed to work N
    I-766 Employment Authorization Document. Evidence of work authorization. Legal alien allowed to work N
    I-797 Notice of Action. Accept only for Family Unity program aliens. Legal alien N

    Note:

    Forms that begin with “I”
    (such as Form I-551) come from the United States Citizenship and Immigration Services (See the USCIS Web site at http://www.uscis.gov). Forms that begin with “DS”
    (such as DS-2019) come from the U. S. Department of State (See the State Department Web site at http://state.gov ).

  7. The following table lists the various types of visas with a description of each:

    Visa Symbol Class (Description) Section of the Law
    A-1 Ambassador, public minister, career diplomat or consular officer, and immediate family 101(a)(15)(A)(i)
    A-2 Other foreign government official or employee, and immediate family 101(a)(15)(A)(ii)
    A-3 Attendant, servant or personal employee of principal A-1 or A-2, and immediate family 101(a)(15)(A)(iii)
    B-1 Temporary visitor for business 101(a)(15)(B)
    B-2 Temporary visitor for pleasure 101(a)(15)(B)
    C-1 Alien in transit directly through U.S. 101(a)(15)(C)
    C-1D Combined transit and crewman visa 101(a)(15)(C)&(D)
    C-2 Alien in transit to United Nations Headquarters district under Section 11.(3), (4), or (5) of the Headquarters Agreement 101(a)(15)(C)
    C-3 Foreign government official, immediate family attendant, servant or personal employee, in transit 212(d)(8)
    C-4 Transit without Visa, see TWOV 212(d)(3) & 212(d)(5)
    D-1 Crew member departing on same vessel of arrival 101(a)(15)(D)
    D-2 Crew member departing by means other than vessel of arrival 101(a)(15)(D)
    E-1 Treaty trader spouse and children 101(a)(15)(E)(i)
    E-2 Treaty investor, spouse and children 101(a)(15)(E)(ii)
    E-3 Australian Specialty Occupation Workers 101(a)(15)(E)(iii)
    F-1 Academic student 101(a)(15)(F)(i)
    F-2 Spouse or child of F-1 101(a)(15)(F)(ii)
    G-1 Principal resident representative of recognized foreign member government to international organization, staff and immediate
    family
    101(a)(15)(G)(i)
    G-2 Other representative of recognized foreign member government to international organization and immediate family 101(a)(15)(G)(ii)
    G-3 Representative of non-recognized or nonmember government to international organization, and immediate family 101(a)(15)(G)(iii)
    G-4 International organization officer or employee, and immediate family 101(a)(15)(G)(iv)
    G-5 Attendant, servant, or personal employee of G-1, through G-4 and immediate family 101(a)(15)(G)(v)
    H-1B Specialty Occupations, Department of Defense (DOD) workers, fashion models 101(a)(15)(H)(i)(b)
    H-1B1 Free traded nonimmigrant professional from Chile or Singapore 101(a)(15)(H)(i)(b)(1)
    H-1C Nurses going to work up to three years in health professional shortage areas 101(a)(15)(H)(i)(c)
    H-2A Temporary Agricultural Worker 101(a)(15)(H)(ii)(a)
    H-2B Temporary worker: skilled and unskilled 101(a)(15)(H)(ii)(b)
    H-3 Trainee 101(a)(15)(H)(iii)
    H-4 Spouse or child of an alien classified H-1, H-2, or H-3 101(a)(15)(H)(iv)
    I Foreign media Representatives 101(a)(15)(I)
    J-1 Exchange visitor 101(a)(15)(J)(i)
    J-2 Spouse or child J-1 101(a)(15)(J)(ii)
    K-1 Fiance(e) 101(a)(15)(K)
    K-2 Minor child of K-1 101(a)(15)(K)
    K-3 Spouse of a U.S. Citizen (LIFE Act) 101(a)(15)(K)(ii)
    K-4 Child of K-3 (LIFE Act) 101(a)(15)(K)(iii)
    L-1A Executive, managerial 101(a)(15)(L)
    L-1B Specialized knowledge 101(a)(15)(L)
    L-2 Spouse or child L-1 101(a)(15)(L)
    M-1 Vocational student or other nonacademic student 101(a)(15)(M)(i)
    M-2 Spouse or child of M-1 101(a)(15)(M)(ii)
    M-3 Canadian or Mexican national commuter students –vocational/non academic institutions 104(a)(15)(M)(iii)
    N-8 Parent of an alien classified SK-3 “Special Immigrant ”

    101(a)(15)(N)(i)
    N-9 Child of N-8 or of an SK-1, SK-2 or SK-4 “Special immigrant”

    101(a)(15)(N)(ii) through (iv)
    NATO-1 Principal Permanent Representative of Member State to NATO and resident members of official staff or immediate family Art. 12, 5 U.S.T. 1094, Art. 20, 5, U.S.T. 1098
    NATO-2 Other representatives of member State; Dependents of members of a force entering in accordance with the provisions of the
    NATO Status-of-Forces agreement; Members of such a Force if issued visas
    Art. 13, 5 U.S.T. 1094, Art. 1, 4 U.S.T. 1794, Art. 3, 4 U.S.T. 1796
    NATO-3 Official clerical staff accompanying a representative of member state NATO and immediate family Art. 14, 5 U.S.T. 1096
    NATO-4 Official of NATO other than those qualified as NATO-1 and immediate family Art. 18, 5 U.S.T. 1096
    NATO-5 Expert other than NATO officials qualified under NATO-4, employed on behalf of NATO and immediate family Art. 21, 5 U.S.T. 1100
    NATO-6 Member of a civilian component who is either accompanying a Force entering in accordance with the provisions of the NATO Status-of-Forces
    agreement; attached to an Allied headquarters under the protocol on the Status of International Military headquarters set
    up pursuant to the North Atlantic Treaty; and their dependents
    Art. 1, 4 U.S.T. 1794, Art. 3, 5 U.S.T. 877
    NATO-7 Servant, or other personal employee of NATO-1 through NATO-6 classes or immediate family Arts. 12-20, 5 U.S.T. 1094-1098
    O-1 Extraordinary ability in sciences, arts, education, business or athletics 101(a)(15(O)(i)
    O-2 Aliens (support) accompanying O-1 101(a)(15(O)(ii)
    O-3 Spouse/child of O-1 or O-2 101(a)(15(O)(iii)
    P-1 Entertainment groups 101(a)(15)(P)(i)
    P-2 Artist and entertainers in reciprocal Exchange programs 101(a)(15(P)(ii)
    P-3 Artists and entertainers in culturally unique programs 101(a)(15(P)(iii)
    P-4 Spouse or child of P-1, 2, or 3 101(a)(15(P)(iv)
    Q-1 International cultural exchange visitors 101(a)(15(Q)(i)
    Q-2 Irish Peace Process Cultural and Training Program (Walsh Visas) 101(a)(15(Q)(ii)(I)
    Q-3 Spouse or child Q-2 101(a)(15(Q)(ii)(II)
    R-1 Religious workers 101(a)(15)(R)
    R-2 Spouse/child of R-1 101(a)(15)(R)
    S-5 Informant of criminal organization information 101(a)(15)(S)(i)
    S-6 Informant of terrorism information 101(a)(15)(S)(ii)
    T-1 Victim of a severe form of trafficking in persons 101(a)(15)(T)(i)
    T-2 Spouse of a victim of severe form of trafficking in persons 101(a)(15)(T)(ii)
    T-3 Child of victim of a severe form of trafficking in persons 101(a)(15)(T)(ii)
    T-4 Parent of a victim of severe form of trafficking in persons (If victim is under 21 years of age) 101(a)(15)(T)(ii)
    TN Trade visas for Canadians and Mexicans 214(e)(2)
    TD Spouse or child accompanying TN 214(e)(2)
    TWOV Passenger 212(d)(3)&(5)
    TWOV Crew 212(d)(3)&(5)
    U-1 Victim of Certain Criminal Activity 101(a)(15)(U)
    U-2 Spouse of U-1 101(a)(15)(U)
    U-3 Child of U-1 101(a)(15)(U)
    U-4 Parent of U-1, if U-1 is under the age of 21 101(a)(15)(U)
    V-1 Spouse of an LPR who is the principal beneficiary of a family-based petition (Form I-130) which was filed prior to December
    21, 2000, and has been pending for at least three years
    101(a)(15)(V)
    V-2 Child of an LPR who is the principal beneficiary of a family-based visa petition (Form I-130) that was filed prior to December
    21, 2000, and has been pending for at least three years
    101(a)(15)(V)
    V-3 The derivative child of a V-1 or V-2 101(a)(15)(V)
    TPS Temporary Protected Status INA Section 244

21.8.2.7.1 
(01-06-2009)
Foreign Student/Nonresident Visitors – Exemption from FICA Tax

  1. Per IRC § 3121(b)(19), certain nonresident alien individuals temporarily present in the United States are exempt from FICA
    tax for services performed as specified in § 101(a)(15)(F), (J), (M), and (Q) of the Immigration and Nationality Act.

  2. The following documentation substantiates the exemption from FICA tax for the individual holding an F, J, M or Q visa:

    • A copy of the Visa

    • Immigration and Naturalization Form I-94 (Arrival – Departure Record), or other documentation showing the dates of arrival
      and departure.

      Note:

      Overseas filers will no longer have the Form I-94 since the USCIS keeps this document when the student/visitor leaves the
      United States.

  3. In addition to (2) above:

    • F-1 students need Form I-20 (Certificate of Eligibility for Non-Immigrant (F-1) Students Status), or

    • J-1 visa holders need Form IAP-66/DS-2019 (Certificate of Eligibility for Exchange Visitor (J-1) Status). Form DS-2019 replaced
      IAP-66 as of August 31, 2002.

      Note:

      Form I-766 or I-688B (Employment Authorization Document) is needed only if the student is engaged in optional practical training (OPT) which is part of a curriculum such as work study or an internship.
      Copies of pay statements showing the amount of FICA tax erroneously withheld are also needed to verify claims involving students
      employed in OPT and those in M-1 status who have completed a course of study and are employed for practical training for up
      to 6 months.

    • Copies of pay statements in cases involving visa status changes from exempt type to substantiate the amount of FICA withheld
      prior to the change in visa status.

  4. Regulations interpreting the elements of the student FICA exception became effective on April 1, 2005. Under the new regulations,
    the employer qualifies as a “school, college or university”
    if:

    • Its “primary function”
      is the presentation of formal education

    • It maintains a regular faculty and curriculum, and

    • It has a regularly enrolled student body attending classes where the entity regularly conducts educational activities.

      Note:

      This “primary function test”
      was added to prevent hospitals, museums, and other non-school entities from benefiting from the Student FICA Exception.

  5. Under the regulations, to be considered a “student,”
    an employee must be:

    • Enrolled in credit courses leading to an education credential and regularly attending classes at the employing school, college
      or university or affiliated organization, and

    • Pursuing a course of study required for an educational credential or necessary for an examination or certification required
      in the field of study.

      Note:

      Refer to Rev. Proc. 2005-11 for rules regarding the safe harbor for students carrying a half-time workload.

  6. Foreign agricultural workers temporarily admitted to the United States on H-2A visas are always exempt from U.S. social security
    and Medicare taxes, whether they are resident aliens or nonresident aliens. Allow claims from H-2A visa holders requesting
    refunds of erroneously withheld FICA tax provided they submit the information listed below. Process claim using procedures
    in Processing Employee Claims. See IRM 21.8.2.7.3.

    • W-2(s) showing the tax withheld

    • A copy of the visa showing the immigration status H-2A.

      Note:

      Correspond with taxpayer for missing information using normal case suspense procedures.

21.8.2.7.1.1 
(10-01-2007)
Optional Practical Training

  1. Optional Practical Training (OPT) and Curricular Practical Training (CPT) are two different types of work permits that are
    available to students in F-1 or M-1 status.

  2. Optional Practical Training (OPT) is only available by application to USCIS and it is shown only on the students F-1/ M-1
    Employment Authorization Card (I-766/I-688B). The Employment Authorization card specifically states on the front that it is
    for “Student: Optional Practical Training”
    . The permit allows employment either on or off the campus of the university that issued the student’s Form I-20.

    1. F-1 or M-1 students often transfer to H-1 status before their OPT authorization ends. It is possible for someone who is currently
      in H-1 status to be eligible for a FICA refund provided the FICA was withheld from wages he or she earned while the OPT was
      in effect. He or she must meet the restrictions of IRC § 3121(b)(19).

      Note:

      Form I-797 is an approval notice used by USCIS to notify an applicant of the approval of any change in status. It is also
      used as a receipt notice when an application is received and is pending at USCIS.

    2. Students with H-1 status, who previously had been F-1, Q or M-1 visa holders, can obtain a refund of FICA withheld up to the
      date their status was changed to H-1, if their Employment Authorization Card (EAD) dates are current.

  3. Curricular Practical Training (CPT) is available to the F-1/ M-1 students only from the academic institution’s Designated
    School Official (DSO).

    1. The work permit is reflected only on the back of the student’s Form I-20 and is employer-specific.

    2. The student will not have an EAD for this kind of work authorization.

      Note:

      J-1 students are not required to apply to USCIS for an Employment Authorization Card (I-766/ I-688B). The work permit is issued
      by the Responsible Officer of the Exchange Visitor Program and it should be reflected on the students Form IAP-66/ DS-2019.

21.8.2.7.2 
(10-02-2008)
Validating Exemption/Qualification

  1. When an inquiry is received regarding a refund of erroneously withheld FICA tax, verify that the claim is valid, i.e.:

    • Form 1040NR filed within the statutory period

    • Visa is exempt from FICA tax

    • Employee has provided a statement from the employer indicating the amount of the reimbursement the employer provided (if any)
      and the amount of the credit or refund the employer claimed, or was authorized by the employee to claim

  2. When a claim is filed, but research shows that there is no account on record and that no tax return was filed, do not process
    the claim. Correspond using Letter 916C, Letter 513C or QuickPad to request the filing of Form 1040NR/NR-EZ. One of the
    following statements can be used:

    Use the statement that is applicable
    Because our records do not indicate a Form 1040NR being filed on your behalf, we are unable to process your claim. The Form
    1040NR is an essential part of the erroneous withheld FICA process and therefore necessary to process your claim. If your
    Form 1040NR has been filed since submitting this claim, please resubmit this claim with the indication “1040NR ”
    . If you have not filed, complete and submit a Form 1040NR with a copy of this claim we are returning to you, and this
    letter. Please indicate “1040NR filed”
    on your 843 claim.
    or
    Because we do not have a record of receiving an income tax return for this tax period, we are unable to process your claim
    at this time. Please resubmit your claim six weeks after the return is filed.

  3. When the employee filed a tax form other than the Form 1040NR, reject the claim as follows:

    1. Input TC 290 .00 with Blocking Series 18.

    2. Issue Letter 916C with the following statement:

    Because our records indicate that you filed a Form 1040, U.S. Individual Income Tax return, we are unable to process your
    claim. The filing of the Form 1040 indicates that you are a resident of the United States for tax purposes. As a resident
    of the United States, you are not exempt from FICA Tax.
    or
    Because our records indicate that you filed a tax form other than the Form 1040NR, we are unable to process your claim. The
    Form 1040NR is an essential part of the erroneously withheld FICA tax process because it identifies you as a Nonresident Alien.
    Because you did not file the Form 1040NR declaring your Nonresident Alien status, you are not exempt from FICA Tax.

    Exception:

    Do not disallow claims from F-1 or J-1 Visa holders who elect under IRC § 6013(g) or IRC § 6013(h) to file a joint return
    with their spouse as a resident alien. These claimants continue to be exempt from FICA under IRC § 3121(b)(19) or IRC §
    3121(b)(10).

  4. A teacher, researcher or trainee in the United States with a J or Q visa is not automatically exempt from FICA tax:

    1. If the teacher, researcher or trainee has visited the U.S. during any two of the six preceding calendar years as either a
      student, teacher, researcher or trainee, then he/she is no longer an “exempt individual”
      for the current year for purposes of the substantial presence test. Therefore, he or she must begin counting days from
      his/her very first day of arrival in the United States.

    2. After 2 years, a nonstudent under a J-1 visa status who was exempt from social security and Medicare taxes during his first
      two calendar years in the United States is considered a U.S. resident for tax purposes, and therefore is liable for FICA tax.
      The claim is not valid and must be disallowed.

      Note:

      Document I-94, Arrival/Departure Record, contains the entry and departure dates to determine if they have exceeded the qualification
      period.

    3. If it is determined that the claim is not valid, input TC 290 .00 with Blocking Series 98 or 99 to disallow the claim and
      issue Letter 105C with the following fill-in:

      We have disallowed your claim because in accordance with Internal Revenue Code §7701(b) you meet the substantial presence
      test and are considered a resident alien. Therefore, you do not qualify for exemption from FICA tax on wages.

    4. If the VISA status changes from an exempt F-1, J-1, M-1, or Q Visa type, the holder is then liable for social security and
      Medicare taxes (in accordance with IRC § 7701(b)) from the day the status is changed. For example, a change to H1 visa type.

      Note:

      T/P must provide documentation of exempt earnings up to the date the visa status changed. A copy of a pay statement with cumulative
      tax information is sufficient to support the claim for the exempt portion of the earnings.

    5. Dual Status filings may occur when residency status changes. Use care to properly adjust accounts when both a Form 1040 and
      a Form 1040NR are filed.

  5. A student in the United States with an F or M visa is not automatically exempt from FICA tax.

    1. Generally, a student is not exempt from FICA if he or she was exempt as a student, teacher, researcher or trainee for more
      than any part of five calendar years.

      Note:

      Check for Form 1040NR filing. Disallow if Form 1040NR was filed for more than 5 consecutive years.

    2. A student who has been exempt more than five years must be subject to the substantial presence test.

    3. If this individual meets the substantial presence test for the calendar year, he/she is considered a U.S. resident for tax
      purposes and therefore liable for FICA tax. The claim is not valid and must be disallowed. Input TC 290 .00 with Blocking
      Series 98 or 99 to disallow the claim and issue Letter 105C with the following fill-in:

      We have disallowed your claim because in accordance with Internal Revenue Code §7701(b) you meet the substantial presence
      test and are considered a resident alien. Therefore you do not qualify for exemption from FICA tax on wages.

  6. A student qualifies for exemption from FICA tax provided he or she can show evidence that he or she does not intend to reside
    permanently in the United States. Evidence may consist of, but is not limited to:

    1. Maintaining a tax home in a foreign country during the year

    2. Maintaining more significant contact (closer connection) with the foreign country, where the student has a tax home, than
      with the U.S.

    3. Being present in the U.S. for less than 183 days during the year (usually occurs in the final year of education or training)

    Note:

    These requirements are further explained in Publication 519.

  7. A claim received after the statute for refund has expired (i.e. a claim that was not timely filed) is not valid and must be
    disallowed. Check postmark date to determine timeliness. See IRM 21.8.2.1.5.

    1. Send a 105C letter and state that the claim was not timely filed (include appeal rights).

    2. Input a TC 290 .00 with Blocking Series 98/99 on the requesters tax account to file the claim.

  8. A claim received with a J-2, F-2, H-1, or TN visa is not a valid claim and must be disallowed.

    1. Input a TC 290 .00 with Blocking Series 98/99 on the requesters tax account.

    2. Send 105C letter with the following fill-in:
      “We have disallowed your claim because, in accordance with Title 26, §3121(b), your entry visa does not qualify you for exemption
      from FICA tax on wages.”

  9. A teacher, researcher, or trainee may qualify for exemption from FICA tax provided he or she is a resident of a country with
    which we have a Totalization Agreement – Bilateral Social Security Agreement, and provides a copy of the statement from the
    foreign country or the U.S. Social Security Administration exempting the individuals pay from U.S. social security tax but
    not foreign social security tax. See IRM 21.8.2.8., Totalization Agreement – Bilateral Social Security Agreements, for additional information.

21.8.2.7.3 
(11-07-2008)
Processing Employee Claims

  1. All adjustments are done on the employers Form 941 ( Form 943 for H-2A claims) account and the resulting credit is transferred
    to the employees account for refunding.

  2. If an incomplete claim for FICA tax is received:

    1. Send Letter 513C to the claimant requesting that the employee seek reimbursement from the employer. Return the Form 843
      claim to the requester. “X
      out the IRS received date on the Form 843 prior to mailing.

    2. When sending a 513C to the employee, also send a Letter 512C to the employer advising the employer to reimburse the employee for any erroneously withheld FICA taxes and to take an adjustment to the
      currently filed Form 941/943 (or file Form 941X). Beginning January 2009, the employer must file a Form 941X/943X to correct
      the errors since the Form 941c is obsolete (except for 200812 tax periods). Employers will no longer file Form 941c for corrections
      to employment issues.

      Note:

      These two letters are issued at the same time and reference each other in their content.

  3. Refer to IRM 21.5.3, General Claims Procedures, for information on claim processing.

  4. A complete claim contains the following substantiation:

    • Completed and signed Form 843 claim for each employer. If the claim is for more than one employer, but otherwise complete
      with all required documentation, process the claim.

    • Form W-2 (If not provided, attempt to verify the withholding amount using command code IRPTR, attach a print and accept).
      If the visa status changed, a copy of the pay stub is needed to verify the FICA amount claimed.

    • A copy of the entry and current visa

    • Form I-94, Arrival/Departure Record, or other documentation showing the dates of arrival and departure.

      Note:

      Overseas filers no longer have the Form I-94 since the USCIS keeps this document when the student/visitor leaves the United
      States.

    • Form I-20 (for F-1/M-1 visa(s) only) or IAP-66/DS-2019 (for J-1 visa only)

    • Form 8316 or signed claim/statement verifying that unsuccessful attempts have been made to obtain a refund from the employer.
      Statements in lieu of the Form 8316 must include all the information requested on the Form 8316.

      Note:

      Form I-766 or I-688B (Employment Authorization Document) is issued by USCIS and is needed only if the student is engaged in optional practical training. See IRM 21.8.2.7.1.1.

  5. If the employee has filed the appropriate tax return (Form 1040NR) and submitted the proper documentation, do the following:

    1. Verify the employer has filed the final quarter Form 941 for the tax year corresponding to the claim.

    2. If the employers return for the final quarter is not located or the account is in balance due status, adjust the preceding
      quarter, which must be within the same tax year;

      Example:

      If the final quarter for the tax year ending 200812 is not located, adjust 200809, then 200806 or 200803 in that order.

    3. If the employers full paid Form 941 account cant be located, research ENMOD and/or Corporate Files on Line (CFOL) to check
      for the possible usage of another EIN due to a takeover, merger, etc.

    4. If, after all available research has been exhausted, you are still unable to determine the filing of a return, or a full paid
      module, or the employer is in a balance due status for all quarters of the tax year in which the claim was filed, reject the
      claim and include the following statement:

      Because our records do not indicate any payments being remitted to the Internal Revenue Service on your behalf for the particular
      tax period in question, we cannot allow the refund. You should contact your employer either for the refund or to have him
      supply us with information substantiating that the payments corresponding to the taxes in question were paid.

      Note:

      If the balance due on the employees account (Form 941) is because of a penalty, the FICA claim may still be processed. (Take steps to avoid creating an unpostable.)

21.8.2.7.3.1 
(11-07-2008)
Adjusting Employee Visa Claims (Employers Account – BMF)

  1. When the employee has filed the appropriate tax return (Form 1040NR) and submitted the proper documentation, and you have
    located the employers Form 941/943:

    • Input a TC 291 with appropriate Item Adjustment Codes to abate the students portion of the FICA/Medicare wages and tax on
      the employers account.

      Caution:

      Pay special attention if a TC 606 is present in the employers account. This transaction reverses when the TC 291 posts. This
      will cause the credit transfer part of the process to unpost if TC 606 is not addressed. See IRM 21.5.8.4.1, IDRS Guidelines
      for Credit Transfers, for additional information.

    • Use Hold Code 4 and Blocking Series 15.

    • Use Priority Code 8, if applicable, to avoid Unpostable Code (UPC) 328 RC 2.

    • FLC 98

    • Category “IETP”

    • Source Document (SD) employee portion of FICA (Attach Form 843 to the adjustment.)

    • Acknowledge all transactions that may be restricting the account. Do not overlay the CORR DATE field.

    • Transfer credit from the employers account to the employees account. See (2) below.

    • Inform the employer of the adjustment action using Letter 288C.

    • It is imperative to send the employer a 288C letter. Combined Annual Wage Reporting (CAWR) will assess additional tax on the
      employers account if the employer does not file an amended Form 941, (Form 941-X beginning in 2009), W-2, and W-3 to correct
      the wages.

      Note:

      The Letter 288C open paragraph fill-in must contain the following statement:

      Because, when we sent you a 512C letter, you did not reimburse the social security tax withheld from your foreign employee:
      ___(name, SSN of employee) ______, we have refunded the amount of $x,xxx.xx to this employee. Please adjust your account accordingly
      on the attached 941X/943X for your portion of the tax. A W-2C also needs to be filed.

    • If the employer was not sent the 512C letter, use it in lieu of the 288C. See IRM 21.8.2.7.3(2).

    • The letter 512C open paragraph fill-in must contain the following statement:

      Because you did not reimburse the social security tax withheld from your foreign employee (name and SSN of employee), we have
      refunded the amount of $x,xxx.xx to this employee. Please adjust your account accordingly on the attached 941X/943X. A W-2C
      also needs to be filed.

  2. When transferring the erroneously withheld FICA credit from the employers account to the employees account, input the following
    on IDRS using CC ADD24:

    • Input TC 820 (for the amount of the TC 291) to the employers account (Form 941). Use the due date of the Form 941/943, the
      delinquent received date of the Form 941 / Form 943, or the payment date (whichever is later) as the transaction date, and
      enter a two cycle Posting Delay Code. If there will be credit remaining on the account after the credit transfer posts, input
      TC 570 on this transfer and a TC 571 with a Posting Delay Code 4. If the employer account has a balance due in the account
      being adjusted, do not use a TC 820. Instead, input a TC 652/672 to avoid an unpostable situation. Apply 650/670 credits beginning
      with most current paid date.

      Caution:

      When the module balance is less than the erroneously withheld FICA credit, follow standard adjustment procedures, which may
      require adjusting or moving a credit from a prior quarter.

    • Input TC 700 to the employees account with a secondary TC 570 if a manual refund is being issued (when withholding is required
      on the interest). Use the due date or the delinquent received date (whichever is later) of the Form 1040NR as the transaction
      date.

      Note:

      When changing a credit date, an override code “2
      is needed on both the debit and credit parts of the transfer to bypass the debit/credit date consistency check.

The Law Office of Mary E. King P.L. - Florida Tax Attorney

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