See the subsections within this subsection for instructions on the disposition of the following notices:

For additional information, review the Notice Disposition instructions. See IRM 3.14.1.7.7.

Review the Estimated Tax Payment voucher using RTR and the following table as a guide (Unless prior to 2004):

For CP 23 notice disposition:

For CP 24/ CP 25 notice disposition:

When reviewing a CP 25, and the taxpayer indicated a balance owed on the return and the payment is posted as an ES payment, that full pays the account, void the CP 25.

Master File generates Refund S transcripts for any refund being issued in a cycle other than the posting cycle of the TC150. Review the posted transactions of the tax module from the current cycle backwards to determine the cause of the refund.

The following NRPS keys select Refund S transcripts:

Allow the refund under any of the following cIRC Sectionumstances:

Research and possibly delete the refund under any of the following cIRC Sectionumstances:

Master File generates a Refund E transcript when the refund (TC846) is $100 more or less than that claimed by the taxpayer and there is no math error, payment discrepancy, or duplicate return (–A freeze).

The following NRPS keys select Refund E transcripts:

Allow the refund under any of the following cIRC Sectionumstances:

Research and possibly delete the refund under any of the following cIRC Sectionumstances:

Master File generates a third type of Refund Transcript, which is when a refund differs by $200 or more from the overpayment claimed by the taxpayer, and there is no math error or Estimated Tax payment discrepancy.

The following NRPS keys select these "other" Refund Transcripts:

Void a CP 51 or retype it to another notice if:

If converting a Non-Compute notice ( CP 51) to a different notice type, keep the following in mind:

If the original notice is a CP 51A, and the notice is being converted into another balance due notice, the Pay-By-Date must be addressed prior to the notice conversion:

If converting the CP 51 to a math error notice:

Retype another notice to a CP 51A when all of the following are true:

When the CP # "Change" button in OLNR is selected, for the purpose of converting a notice to a Non–Compute, only the CP 51 itself is available (e.g., selecting 51A, 51B or 51C is not an option). The system automatically makes the determination which CP 51 alpha character (A, B, or C) is appropriate for back-end processing, based on the notice balance.

Retype an overpaid or even balance math error notice to a CP 51B or CP 51C only if the original notice figures are incorrect. If the original notice figures are correct, print the notice.

If the return was not originally processed as a non-compute, Master File cannot correctly compute the 30 day penalty and interest free period which is normally granted to timely non-compute returns. As a result, any posted interest or Failure to Pay (FTP) penalty must be manually addressed, as described in Items (5) through (7) below.

Posted Interest– Determine the amount of interest assessed on the module (TC196). Abate the interest using the following format for the CC REQ54 screen:

The input of a TC341 (as described in Item (5) above) will restrict the interest. Input a second CC REQ54 adjustment to adjust the FTP penalty, and at the same time, release the interest restriction. Refer to Item (7) below.

Failure to Pay Penalty (Posted or Accrued) – Use CC INTST to figure the FTP penalty to 37 days after the later of the Return due date or the 23C date. Attach a print of the response to your case. Input an adjustment to determine FTP penalty. Use the following format:

Input two separate history items, using CC ACTON, in the following formats:

Always use IDRS to work this key.

If the payments belong on the BMF accounts, use the following procedures:

If the notice reflects credit or debit interest of $100,000 or more and the review indicates the notice is correct, print and mail the notice timely.

Always use IDRS to work this key.

Out-of Balance payment data usually results from a dishonored check, credit reversal(s) that do not match by date or amount, or credit reversals completed using multiple transaction codes.

One of the most common conditions for Key 004 is part taxpayer error, and part IRS system limitation:

Review guidelines to resolve any erroneous condition. If the ES discrepancy is due to a credit transfer completed with inappropriate transaction codes and no other discrepancy exists on the account, void the notice. Follow General Review Procedures. See IRM 3.14.1.6.1. Also follow instructions for Reviewing Estimated Tax (ES) Discrepancy Notices. See IRM 3.14.1.6.13.

Correct payments and/or other amounts on the notice, as appropriate.

The OLNR Retype System does not allow an out-of-balance condition between the payment data and the total estimated tax payments. Therefore, to resolve any out-of-balance conditions, the payment amount(s) on the notice must be edited.
When retyping the notice for other changes, the following actions may be needed:

Always use IDRS to work this key.

If payments are found, use the following procedures:

If the notice reflects credit or debit interest of $100,000 or more, follow the Key 001 instructions. See IRM 3.14.1.6.17.1.

Always use IDRS to work this key.

Verify that no duplicate or erroneous transactions or adjustments have posted or will post to the notice module.

Key 010 will select any Math Error notice for a tax period prior to 199612 that includes a Math Error Authority EIC or Dependent TIN issue. These TPNCs are:

These TPNCs should never be assigned to a return for a tax period prior to 199612. ERS instructions are to allow the exemption, credit, etc. related to the math error condition, even if an SSN is invalid or missing. In the case of TPNC 580, SE tax should not be assessed.

If one or more of these TPNCs are assigned to a return for a tax period prior to 199612, route the case to the Examination Function.

If the Examination Function does not accept the case, adjust the account, returning to the taxpayer’s figures in all areas directly related to the TPNC. Retype or void the notice as required.

During return processing, ERS systems are able to automatically calculate figures only for the current year, and up to two years prior to the current year. In 2008 for example, tax years 2007 (current), and prior years 2006 and 2005 can be systemically calculated by ERS systems.

Any time a return is processed that is more than 2 tax years prior to the current year (tax year 2004 and prior), ERS must manually recalculate with items such as Standard Deduction, Exemptions, Tax Tables, EIC Tables, Schedule A or exemption limitations, etc.

NRPS Selects under Key 060 as a quality measure, to ensure the accurate adjustments were made to the return during processing, based on the tax year filed.

A high percentage of the errors in this Key are due to incorrect tax year figures being applied. Incorrect Standard Deduction and/or Exemption amounts, tax tables or EIC tables can all be the source of incorrect calculations.

Follow general review procedures on these cases, ensuring the correct filing year's figures and tables are being appropriately used during recalculation.

The computer printed explanation of the error(s) made on the return is called a Math Error Explanation.

Systemic limitations prevent more than five explanations from being printed on a notice. If there are more than five errors to be assigned, ERS will enter the last TPNC as a TPNC 100. In situations, where there are five TPNCs and none of the codes are a TPNC 100, NRPS will select the notice under Key 061.

If during the review, it is identified that additional math error codes should be applied, the additional explanations must be manually typed on the notice using TPNC 100 free-form.

In some cases, it may be necessary to combine multiple error conditions in one explanation.

Beginning in 1995, taxpayers may use Schedule H, Household Employment Taxes, to report employment taxes on cash wages paid to household employees.

In specific, infrequent cIRC Sectionumstances, taxpayers may file Schedule H without an accompanying Form 1040. This is known as a "loose Schedule H" .

When a loose Schedule H is received in processing, a dummy Form 1040 (coded with RPC "Y" ) is created to allow the Schedule H to post to the Master File. If the taxpayer later files a Form 1040, it generates a CP 36 and is processed as a duplicate return.

Treat the account and the notice as though the merge will post.

The Error Resolution System (ERS) has no provision for correcting a record after the document has been completed. If a record needs to be corrected, ERS will notify Notice Review to retype or void the notice.

When none of the standard TPNCs adequately describe an error condition on the return, the ERS tax examiner selects TPNC 100 and attaches a 3 x 5 slip of paper containing a specific math error explanation (or a unique number) to the tax return (or ELF print on an electronically filed return).

Verify the validity of the non-standard math error explanation. If necessary, request the return if it is not with the NRPS package.

Follow normal review procedures.

Select "R" and use free form TPNC 100 screen or select the appropriate standard TPNC from the list, if applicable.

Retype the notice with the correct math error explanation(s). Refile the return.

If a notice record carries a TPNC that is not valid for the Print programs, NRPS will select the notice under Key 100. Retype any notice carrying an invalid TPNC, delete and replace the invalid TPNCs as appropriate.

A 100% review of Key 100s is required each cycle. These notices should never be left unreviewed or set to P disposition. They must be 100% retyped. This will ensure they are mailed with the appropriate explanation(s).

Use the information throughout IRM 3.14.1, Publication 17, and IRM 3.12.3 to review Math Error Notices selected under TPNC Selection Keys. The main purpose of this review is to reduce unnecessary burden on the taxpayer and to deliver a quality product.

The following new TPNCs were created as a result of the Katrina Emergency Tax Relief Act of 2005:

TPNCs 536,537 and 538 are related to the Form 8914. See IRM 3.14.1.6.17.14.1.

TPNC 539 is related to the use of prior year earned income to calculate current year Earned Income Credit (EIC) or Additional Child Tax Credit (ACTC). See IRM 3.14.1.6.17.14.2.

CP 21 and CP 22 notices are computer generated notices that inform the taxpayer that an adjustment was made to the tax module. For this reason, these notices are commonly referred to as adjustment notices.

A CP 30 generates on an overpaid module if the computer generated ES penalty (TC176) is greater than the taxpayer’s self-assessed penalty and there is no math error or ES discrepancy.

Accept the TC176 amount unless at least one of the following conditions is present on the return:

If reasonable cause for underpayment of Estimated Tax is present on the return, check for CCC "7" (Reasonable Cause denied):

To reduce the ES Penalty:

Because a CP 30 can have associated notices CP 45 (Reduced Credit Elect) and/or CP 49 (Overpayment Offset), use the following If/Then chart to determine what Hold Code to use for the TC171 on the CC REQ54 screen, and what disposition to use for the notice(s) on OLNR.

A CP 30A is an overpaid notice, generated when the computer reduced or abated the ES penalty figured by the taxpayer and there is no math error or ES discrepancy.

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When the taxpayer prepays an estimated tax penalty of $100.00 or more, and the computer does not agree with the amount the taxpayer has computed, there may be a problem with the taxpayer’s filing status, prior year estimated tax base, or both. Use CC RTVUE, CC IMFOLT, or CC IMFOLR to verify prior year taxes.

Use CC RTVUE to determine the taxpayer’s prior year filing status. If the taxpayer has no prior history, check the return, CC ENMOD, or CC INOLES for a secondary SSN.

If the notice module Prior Year Estimated Tax Base is zero (.00), use the NRPS package or CC RTVUE or IMFOL to determine if the prior year module has a TC150.

To compute the ES Penalty use CC COMPAS on IDRS.

CP 60 is a computer generated notice that informs the taxpayer of a credit reversal on the tax module. The notice generates when both of the following criteria exist:

Use the NRPS package and IDRS to review CP 60 notices to resolve the debit balance.

Keep the following in mind when reviewing CP 60 notices:

Check all tax modules and pending (AP, PN, RS, UP, and TP) transaction data intended for the notice module.

If another module shows one or more offsets (TC826) generated in the notice cycle for the amount of the credit transfer, reverse enough of the offset to cover the debit balance, if available.

If a TC 856 (offset of generated interest) is present, use CC ADD24 to reverse it with a TC731/851. Then use CC REQ54 with a Hold Code "3" to reverse the TC776 (generated interest) with a TC772.

Void the CP 60 and CP 49.

Input a TC570 on both sides of the credit reversal to stop any additional offsets or notices. Input CC STAUP for 8 cycles if the refund will be deleted.

If a prior cycle refund (TC846) was deleted and the TC841 has not yet posted:

A CP 62 is a computer generated notice that informs the taxpayer that a missing payment has been located and applied to a tax module. It generates when the credit portion of a Doc Code 34, credit transfer, posts with a Correspondence Received Date. A CP 62 can reflect any balance.

Review the CP 62. Verify the following:

Use the NRPS package to review CP 62 notices in an attempt to resolve any remaining debit balance and to verify that the taxpayer’s credits are correct.

Search other tax modules for the exact amount of credit claimed to satisfy any debit condition.

Correct any errors found during review.

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See IRM 20.2, Interest, for information on computing interest. Even though this IRM has instructions for manually adjusting penalty and interest, input manual restrictions only after determining that the computer cannot correctly assess or abate the penalty, interest, or both.

See IRM 20.1, Penalty Handbook, for information on computing penalties and reasonable cause criteria. If the taxpayer requests abatement due to reasonable cause, see IRM 3.14.1.6.9.1, Taxpayer Correspondence.

The computer will assess and abate penalties on the Master File when:

See IRM 20.2, Interest, for an explanation of Interest Netting.

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The Failure to File (FTF) penalty is assessed on returns received after the normal or extended return due date (RDD), or, on returns not considered timely under the "Timely mailing treated as timely filing and paying" rule from IRC Section 7502, when the tax was not paid in full at the normal RDD.

FTF Penalty is governed by IRC Section 6651(a)(1). For more information, refer to Notice 746 or Failure to File/Failure to Pay Penalties section of IRM 20.1.2, Penalty Handbook.

Computer Condition Code (CCC) "R" is an indicator that the taxpayer received reasonable cause FTF penalty relief during processing.

Any time the tax or timely credits change, and the conditions in Item (1) above exist on the account, the computer will assess (TC166) or abate (TC167) the FTF penalty if it has not been restricted. This systematic recomputation generates a CP 21 or CP 22 unless Hold Code "3" or "4" is used on a TC29X or 30X.

Payments received after normal RDD (without regard to extensions) have no effect on the FTF (TC166) penalty, when there is no FTP (TC276) assessed on the same liability at the same time.

However, if the two penalties are present, a payment received after RDD might eliminate additional FTP, but FTF could continue (up to its 5 month maximum). In this case, the rate for FTF might actually increase (from 4¹/₂% to 5%) as a result. This situation may also have additional impact on credit availability for offset or credit elect transactions.

After inputting an adjustment action, compute the penalty manually to determine whether the FTF penalty will recompute when the adjustment posts:

The minimum penalty may apply on income tax returns if more than 60 days late:

Input a manual FTF assessment (TC160) or abatement (TC161) when the computer cannot correctly compute the penalty or when the module was previously restricted. A manual restriction is necessary when:

The Failure to Pay (FTP) penalty is assessed after the Return Due Date (RDD) when there is an unpaid tax liability either on the tax return, or as a result of an Audit or DP tax adjustment, and there is no reasonable cause for failure to pay the tax owed.

FTP Penalty is governed by IRC Section 6651 (a)(2) on original returns, and IRC Section 6651 (a)(3) for subsequent adjustments. For more information, refer to Notice 746 or the Failure to File/Failure to Pay Penalties section of IRM 20.1.2, Penalty Handbook.

There is a 90% prepaid exception currently in Master File processing, which will not charge the taxpayer FTP penalty if they:

Under these conditions, the taxpayer meets reasonable cause exception to the FTP penalty and it will not be assessed.

The 90% prepayment calculation factors in the TC610 (if present), which may not necessarily carry a timely date. In this instance, it is possible the 90% prepayment exception can be misapplied. If any TC610 that is beyond RDD + 7 days is included in the prepayment calculation, then FTP will have to be manually assessed until the programming can be corrected.

Determine when the FTP penalty begins:

Carefully analyze any reason given by a taxpayer as the cause for a delay in paying tax, when due, to determine whether to abate the penalty. Follow proper instructions if the taxpayer requests abatement due to reasonable cause. See IRM 3.14.1.6.9.1.

See IRM 20.1, Penalty Handbook, for FTP computations and reasonable cause criteria.