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Part 3. Submission Processing

Chapter 21. International Returns and Documents Analysis

Section 3. Individual Income Tax Returns (Cont. 8)

3.21.3  Individual Income Tax Returns (Cont. 8)

3.21.3.66 
Form 1040NR–EZ — Items for Perfection

3.21.3.66.9 
Payments — Lines 18 Through 21

3.21.3.66.9.4  (01-01-2009)
Line 21 — Total Payments

  1. Compute and enter line 21 when it is blank and there are entries leading to a total.

3.21.3.66.10  (01-01-2009)
Refund or Amount Owed

  1. The following subsections contain information pertaining to perfection of lines 22 through 26 on Form 1040NR-EZ.

    1. Edit lines 23a, 24, 25 and 26 in dollars and cents.

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. Lines 23a and 25 are T-COMPUTE lines.

3.21.3.66.10.1  (01-01-2009)
Line 23a — Refund Due

  1. Compute and enter line 23a when lines 22, 23a, 24, and 25 are blank, line 21 is greater than line 17, and one of the following conditions are present:

    1. Line 21 has an entry.

    2. The taxpayer has computed or indicated no tax is due on lines 15 and 17.

    3. It can be determined that line 17 would be zero if it were computed.

3.21.3.66.10.2  (01-01-2009)
Line 24 — Estimated Tax Credit Elect

  1. When lines 22, 23a, and 24 are the same, perfect them as follows:

    If ES payments (line 19) Then
    Are claimed "X" the entry on line 23a.
    Are not claimed "X" the entry on line 24.

    Note:

    An overpayment (line 22) can be divided between lines 23a (refund) and 24 (credit elect).

  2. If line 24 shows an amount for late filing penalty, late payment penalty, or interest, edit line 24 to exclude the penalty/interest amount.

    Note:

    Do not exclude estimated tax penalty.

  3. Edit Action Code "430" to send the return to Rejects in the following circumstances:

    • A statement is present on or near line 24 indicating that the taxpayer wants the credit applied to their spouse's account.

    • The return is FS 3 and there is a statement or schedule present showing how estimated payments are to be allocated.

3.21.3.66.10.3  (01-01-2009)
Line 25 — Amount You Owe (Balance Due)

  1. Compute and enter line 25 when lines 22, 23a, 24 and 25 are blank, and line 17 is greater than line 21.

    Note:

    When computing line 25, include the amount on line 26, estimated tax penalty.

  2. If line 25 has been computed to a significant amount, do not edit CCC "B" .

  3. On a non-compute numbered return, if an RPS amount is indicated, enter remittance amount on line 25.

  4. If line 25 shows an amount for late filing penalty, late payment penalty, or interest, edit line 25 to exclude the penalty/interest amount.

    Note:

    On delinquent returns, conditions for CCC "M" and/or "R" may apply. See IRM 3.21.3.8.4.

3.21.3.66.10.4  (01-01-2009)
Line 26 — Penalty for Underpayment of ES Tax (Form 2210/2210F)

  1. For complete instructions refer to See IRM 3.21.3.65.15.4..

3.21.3.66.11  (01-01-2009)
Signature

  1. See IRM 3.21.3.13.9.

3.21.3.66.12  (01-01-2009)
Occupation

  1. See IRM 3.21.3.13.10.

3.21.3.67  (01-01-2009)
Dual Status Returns

  1. The following subsections pertain to processing returns of taxpayers claiming Dual Status.

3.21.3.67.1  (01-01-2009)
Dual Status — General Instructions

  1. A taxpayer who is a resident alien and a nonresident alien in the United States within the same tax year files a Dual Status tax return. This usually occurs in the year of arrival in the U.S. or year of departure from the U.S. The taxpayer will file Form 1040 or Form 1040NR/NR-EZ for the tax year based on the place of the taxpayer's residence on the last day of the year.

    1. The taxpayer files Form 1040 if he/she is a resident of the U.S. on the last day of the year.

    2. The taxpayer files Form 1040NR/NR-EZ if he/she is NOT a resident of the U.S. on the last day of the year.

    3. Follow the intent of the taxpayer and process the return that is identified as the Dual Status return if there is an indication they entered or left the United States in December. See page 5, Form 1040NR question "G" or page 2 Form 1040NR-EZ question "G."

  2. Effectively Connected Income — Income earned in the U.S. by a U.S. nonresident alien is taxed at normal U.S. rates, but special restrictions apply to deductions and filing status.

  3. Non Effectively Connected Income — Annuities, dividends, interest, capital gains, rents and royalties from U.S. sources received while the taxpayer is a nonresident alien taxed at a rate of 30%, or lower, depending on any treaty rate which might have been established with the country involved. See Exhibit 3.21.3-5.

  4. Accept all countries claiming treaties on Form 1040, as long as the treaty is valid.

    Note:

    Taiwan is not considered to be China and are not allowed to exclude income per China treaties.

    1. If the treaty claimed is valid, make sure the income is reported on line 7, enter the exempt income on line 21 as a negative amount.

    2. If the treaty claimed is invalid, make sure the income is reported on line 7, adjust line 21 to delete the invalid tax treaty income.

  5. Dual Status Statement — It may be attached to the "Dual Status Return"

    1. A Form 1040NR/NR-EZ or substitute statement may be attached as the "dual status statement" to a Form 1040, if the taxpayer was a resident in the U.S. on the last day of the tax year.

    2. A Form 1040 or substitute statement may be attached as the "dual status statement" to a Form 1040NR/NR-EZ, if the taxpayers was not a resident of the U.S. on the last day of the tax year.

    Note:

    If the Form 1040/1040NR that is notated with "Return" is incomplete, blank or does not contain appropriate information for processing -- correspond for the statement.

  6. IRC § 6013(g) & (h) — The taxpayer can elect to file a Married Filing Joint (FS "2" ) return and report worldwide income under IRC § 6013(g) & (h). If a taxpayer chooses this election DO NOT PROCESS AS DUAL STATUS. To qualify under 6013(g) & (h) , one taxpayer must be a U.S. resident alien or U.S. citizen. These taxpayers are not allowed to claim tax treaty benefits unless they are residents of India (Student/Business Apprentices).

  7. Foreign Earned Income Exclusion — Dual status taxpayers are not allowed a Foreign Earned Income Exclusion.

3.21.3.67.2  (01-01-2009)
Restrictions for Dual-Status Taxpayers

  1. Dual Status taxpayers restrictions are listed below:

    1. Dual Status taxpayers cannot file a Joint return (FS "2" )

    2. Dual Status taxpayers cannot file as Head of Household (FS "4" /"7" )

    3. Dual Status Exemptions are restricted to taxable income. Exemptions — The taxpayer's total deduction for personal exemption and the exemption for their spouse and allowable dependents cannot be more than their taxable income for the period that they are a resident alien.

    4. Dual Status taxpayers cannot claim standard deduction/additional standard deduction.

      Exception:

      Taxpayers who are students and business apprentices from India are eligible to claim the standard deduction under "Article 21(1)" of the United States - India Treaty.

    5. Dual Status taxpayers cannot claim Education Credit. If the taxpayer claimed the education credit, "X" where found and Form 8863 if attached.

3.21.3.67.3  (01-01-2009)
Processing Dual Status Returns

  1. The taxpayer must file either Form 1040, 1040NR or 1040NR-EZ as the "Dual Status Return" with a "Dual Status Statement" .

  2. Process the return that is identified as or can be determined to be the "Dual Status Return" .

  3. The "Dual Status Statement" can be either Form 1040,1040NR, 1040NR-EZ or a statement (i.e. A Dual Status taxpayer that is a U.S. resident on the last day of the year their statement should include the income for the part of the year they were a nonresident).

  4. Use information from Form 1040NR, page 5, questions; Form 1040NR-EZ, page 2, questions, attached "Dual Status Statement" , or elsewhere on return, to determine which return is to be processed.

    Caution:

    If the taxpayer indicates present in the U.S. for 365 days, process Form 1040. If the taxpayer indicates outside the U.S. for 365 days, process Form 1040NR/NR-EZ. Do not use "Dual Status" instructions.

    1. If the taxpayer is a U.S. resident at the end of the year, Form 1040 is to be processed. If the taxpayer is a nonresident at the end of the year, Form 1040NR or 1040NR-EZ is to be processed.

    2. If unable to determine which return is to be processed, correspond.

    3. If no reply, process with Form 1040NR as the controlling return. Edit CCC "U" .

      Note:

      Do not edit CCC "E"

      .

  5. When a Dual Status taxpayer files other than a Form 1040 and 1040NR or 1040NR-EZ use the IF/AND/THEN chart below to edit:

    If the taxpayer files And Then
    Form 1040A or 1040EZ It will be the "Dual Status Return" to be processed Convert to Form 1040. Reminder : If the Dual Status Statement (Form 1040NR or 1040NR-EZ) includes allowable Itemized Deductions, prepare a dummy Schedule A.
    Form 1040A or Form 1040EZ It will be the "Dual Status Statement" Follow instructions when a Form 1040 is the Dual Status Statement. Make sure all of the information is included on the "Dual Status Return" (Form 1040NR or 1040NR-EZ)

  6. Acceptall countries claiming a treaty of Form 1040, as long as the treaty is valid.

    Note:

    Taiwan is not considered to be part of China and arenot allowed to exclude income per China treaties.

    1. If the treaty claimed is valid, make sure the income is reported on line 7, enter the exempt income on line 21 as a negative amount.

    2. If the treaty claimed is invalid, make sure the income is reported on line 7, adjust line 21 to delete the invalid tax treaty income.

    3. If Article 19 and it can be determined that the taxpayer has claimed the tax treaty for more than 3 years, make sure the income is reported , adjust line 21 to delete the invalid tax treaty income.

    4. If Article 20c and the taxpayer claims more than $5,000.00, make sure all income is reported on line 7 and adjust line 21 to allow the lesser of $5,000 or the line 7 income .

3.21.3.67.4  (01-01-2009)
Processing Form 1040 Dual Status Returns

  1. The taxpayer is permitted to use Form 1040NR, 1040NR-EZ or a statement (showing income for the part of the year they were a nonresident) as a "Dual Status Statement" . If necessary, edit data from the "Dual Status Statement" to perfect the 1040 return.

  2. If you are unable to determine which return is the "dual status return" , correspond.

    1. If no reply, see Lead Tax Examiner to determine which return to process.

  3. Edit "D/S" in top center margin.

  4. Edit RPC "1," RPC "B" and CCC "Y" .

  5. Filing status can be "1" , "3" , "5" or "6" .

    Caution:

    Taxpayers can elect to file a Married Filing Joint (FS 2 return and report worldwide income under IRC § 6013(g) & (h). If a taxpayer chooses this election DO NOT PROCESS AS DUAL STATUS, process the return as a Form 1040. To qualify under 6013(g) & (h)), one taxpayer must be a U.S. resident alien or U.S. citizen. These taxpayers are not allowed to claim tax treaty benefits unless they are residents of India (Student/Business Apprentices).


    1. To determine appropriate Filing Status Code(FSC) for Form 1040, take one of the following actions:

      If the taxpayer claimed And Then
      FS 1   Edit FSC "1"
      FS 2 Taxpayers are students/business apprentices from India Take the following actions:

      1. Edit FSC "6" .

      2. Ensure that there is only one name in the caption area
      FS 2 The taxpayer elects to file a Married Filing Joint (FS "2" return and report worldwide income under IRC § 6013(g) & (h) DO NOT PROCESS AS A DUAL STATUS. Follow instructions to process Form 1040 and "X" Form 1040NR.
      FS 2 Only one of the taxpayers has income and criteria above is not met Edit FSC "6" and circle out the name of the taxpayer that has no income. See Figure 3.21.3-39.
      FS 2 Both taxpayers have income and criteria above is not met Correspond for separate returns. See Figure 3.21.3-40.

      Note:

      If no reply:

      1. Circle out the name of the secondary taxpayer.

      2. Edit CCCs "3" , "U" and "Y" .

      3. Leave action trail "No Reply-Two Incomes" .

      FS 3 Exemption for spouse is not claimed Edit FSC "3"
      FS 3 Exemption for spouse is claimed Edit FSC "6"
      FS 4   Edit FSC "3" . Do not allow exemption for spouse.
      FS 5 Spouse' date of death is within two years of the current processing year Edit FSC "5"
      FS 5 Spouse' date of death is more than two years prior to the current processing year Edit FS "1"

    Figure 3.21.3-39
    This image is too large to be displayed in the current screen. Please click the link to view the image.

    Editing "D/S" Secondary Taxpayer's Name

    Figure 3.21.3-40
    This image is too large to be displayed in the current screen. Please click the link to view the image.

    Corresponding for Separate "D/S" Returns

  6. Code all Exemptions to the correct position.

    Note:

    A Dual Status taxpayer may claim their own personal exemption and are allowed exemptions for spouse and dependents for the part of the year they were resident alien. The amount they can claim for these exemptions is limited to their taxable income for the part of the year they were resident aliens.

  7. Edit a Received date, if required. See IRM 3.21.3.9.

  8. If the standard deduction is claimed, leave an action trail indicating a dual status taxpayer claiming standard deduction "D/S SD" .

    Exception:

    Taxpayers who are students and business apprentices from India are eligible to claim the standard deduction under Article 21(2) of the United States - India Treaty.

  9. Include total tax withheld and the amounts from the attached "Dual Status Statement" (Form 1040NR, lines 58, 66a, 66b, 67a and 67b or Form 1040NR-EZ line 18) on line 62, Form 1040..

    Note:

    The taxpayer is instructed to show the total tax withheld on line 62 and identify the type of withholding to the left of line 62 .

  10. Combine all related T-Line amounts:

    1. Page 1 Form 1040, lines 7 — 37; Form 1040NR, lines 8 — 35; and 1040NR-EZ, lines 3 — 26.

    2. Page 2 Form 1040, lines 38 — 76: Form 1040NR, lines 36 — 74.

    Exception:

    If taxpayer's entries are identical on both Form 1040 and Form 1040NR/NR–EZ, do not combine the figures from the two returns. See Figure 3.21.3-41.

    Figure 3.21.3-41
    This image is too large to be displayed in the current screen. Please click the link to view the image.

    Editing D/S Return When Tax Information is on Both D/S Return and D/S Statement

  11. Do not include valid tax treaty income on Form 1040.

    Exception:

    See IRM 3.21.3.67.1. for instructions for India

  12. Edit tax on not effectively connected income from line 52, Form 1040NR to dotted portion of line 61, Form 1040.

  13. Edit or combine T– line amounts from page 3, Form 1040NR to Schedule A, Form 1040.

    1. If Schedule A is attached with no entries entered or edited, edit "+" (plus) sign after Sequence Code "07" .

    2. If Schedule A is not attached, add a dummy Schedule A and edit "+" after Sequence Code 07.

  14. Attach all applicable forms and schedules in sequence order behind Form 1040.

  15. Self Employment Tax — Dual status taxpayers filing Form 1040 as the "Dual Status Return" are liable for self-employment tax on self-employment income earned during the period of residence in the U.S. If the taxpayer is from one of the countries listed below, they are exempt from self-employment tax. Edit RPC "S" :

    1. Australia (Effective 10/1/02)

    2. Austria

    3. Belgium

    4. Canada

    5. Chile

    6. Finland

    7. France

    8. Germany

    9. Greece

    10. Ireland

    11. Italy

    12. Japan

    13. Luxembourg

    14. Netherlands

    15. Norway

    16. Portugal

    17. South Korea

    18. Spain

    19. Sweden

    20. Switzerland

    21. United Kingdom (includes notations of Great Britain, England, Northern Ireland, Scotland, and Wales)

      Exception:

      Do not edit RPC "S" if the FS is "2" .

  16. Dual status taxpayers are not allowed a Foreign Earned Income Exclusion (Form 2555/2555-EZ). If Form 2555/2555-EZ is attached, "X" the form and any exclusion. DO NOT"X" the foreign earned income.

    Reminder:

    Ensure that the wages have been included in line 7. Edit if not already entered by the taxpayer.

  17. "X" Form 1040NR or 1040NR-EZ and attach it to the back of the return. Ensure that Form 1040 is the top document in the return package.

3.21.3.67.5  (01-01-2009)
Processing Form 1040NR/NR–EZ — Dual Status Returns

  1. The taxpayer is permitted to use Form 1040/A/EZ or a statement (showing income for the part of the year they were a resident) as a "Dual Status Statement" . If necessary, edit data from the "Dual Status Statement" to perfect the 1040NR/NR-EZ return.

  2. Edit "D/S" in top center margin.

  3. Edit both RPCs "X" and "1"

  4. Edit CCC "E"

  5. Filing status can be "1" , "3" or "6" .

    1. To determine the appropriate Filing Status Code, take one of the following actions:

      If And Then
      FS 2 is claimed on Form 1040 Only one of the taxpayers has income

      1. Edit FS "6" .

      2. Circle out the name of the taxpayer without income.
      FS 2 is claimed on Form 1040 Both taxpayers have income Correspond for separate returns.

      Note:

      If no reply:

      1. Circle out the name of the secondary taxpayer.

      2. Edit CCCs "3" , "U" and "Y" .

      3. Leave action trail "No Reply-Two Incomes" .

      FS 4 is claimed on Form 1040   Edit FS "3" . Do not allow exemption for spouse.

  6. Edit Country Code. See IRM 3.21.3.65.7.1.

  7. Code all Exemptions, as appropriate. See IRM 3.21.3.65.9.

    Note:

    Dual Status taxpayers may claim their own personal exemption and are allowed exemptions for spouse and dependents for the part of the year they were resident aliens. The amount they can claim for these exemption is limited to their taxable income for the part of the year they were resident aliens or residents from one of the countries that are allowed exemptions.

  8. Edit received date when required. See IRM 3.21.3.8.

  9. Combine all related T-Line amounts from Forms 1040 and 1040NR/NR–EZ. See Figure 3.21.3-42.

    Exception:

    If taxpayer's entries are identical on both Form 1040 and Form 1040NR/NR–EZ, do not combine the figures from the two returns.

    Figure 3.21.3-42
    This image is too large to be displayed in the current screen. Please click the link to view the image.

    Combining D/S Return and D/S Statement

  10. If T-Line entries are present on Form 1040 that do not have a corresponding line on Form 1040NR–EZ, convert to Form 1040NR.

  11. Edit or combine T-Line amounts from Schedule A, Form 1040, to Schedule A, Form 1040NR.

    1. T-Line amount(s) that do not have corresponding line entries are to edited to line 16, Schedule A, Form 1040NR.

    2. If Schedule A is attached with no entries entered or edited, edit "+" after Sequence Code 07.

  12. If Schedule SE is attached:

    1. Do not transfer amount to Form 1040NR. If taxpayer has entered an amount for SE tax on Form 1040NR, "X" where entered.

      Note:

      Do not "X" Schedule SE.

    2. If an adjustment for one-half of the SE tax is reported on Page 1, Form 1040, edit the entry to the dotted portion of line 34, Form 1040NR.

  13. "X" Form 1040 and attach it to the back of the return . Ensure that Form 1040NR/NR–EZ is the top document in the return package.

3.21.3.68  (01-01-2009)
Prior Year Returns

  1. The instructions provided in this subsection of the manual are for editing prior year tax returns.

3.21.3.68.1  (01-01-2009)
Prior Year Returns General Instructions

  1. Prior year returns are:

    1. Calendar year returns filed for tax periods ending on or before 0712.

    2. Fiscal year returns filed for tax periods 0711 and earlier.

  2. All of the prior year editing procedures are based on the TAX YEAR of the return. Unlike the tax period which is based on the end of the return's tax period, the tax year (TY) is determined by the beginning of the return's tax period.

    1. For calendar-year returns, the tax period is the same as the tax year. For example, a return filed for January 1 through December 31, 2001, has a tax year of "TY01" and a tax period of "0112."

    2. For a fiscal year return, the tax year is always earlier than the tax period. For example, a return filed for June 1, 2000 through May 31, 2001, has a "TY00" and a tax period of "01 05."

  3. Determine and enter the received date in "MMDDYYYY" format if missing.

    Note:

    All prior year returns must have a Received Date.

  4. Do not edit RPC "V" on prior year returns.

  5. When corresponding on prior year returns, use Form 13900 to generate Letter 4087C. Do not select paragraph (e).

  6. The following are the Special Processing Codes valid for 2006 only and which tax forms they are to be used on:

    Code Definition Form
    "B" Taxpayer notated the only Educator Expenses is present 1040 (line 23) /1040NR (line 24)
    "C" Taxpayer notated that only Tuition and Fees Deduction is present 1040 ( line 35) only
    "D" Taxpayer notated that State and Local Sales Tax is present Schedule A (line 5) only
    "E" Taxpayer notated that both Educator Expenses and Archer MSA Deductions are present 1040 (line 23) /1040NR (line 24)
    "F" Taxpayer notated that both Domestic Production Activities and Tuition and Fees Deduction are present. 1040 (line 35) only

    Caution:

    SPC "A" is edited when Form 8332 is attached to any return.

    Note:

    Special Processing Codes are edited to the right margin on the Form 1040 series between the secondary SSN and the Presidential Election Campaign Fund (PECF) check boxes. On Form 1040NR, they are edited to the right margin between the Identifying Number and the Type of Entry Visa.

3.21.3.68.2  (01-01-2009)
Statutory Protection Cases

  1. For purposes of Code and Edit, the refund and assessment statutes on Form 1040/PR/SS/NR/NR-EZ expire three years after the return due date.

  2. For refund returns (including those with extensions) received after the three-year statute period has expired, edit the postmark date as the received date only if the postmark date would have made the return timely. Otherwise, edit the received date.

  3. If the tax period exceeds 33 months prior to the current processing month and year, the do the following:

    1. If the return has a Statute Clearance stamp, edit RPC "K" and continue processing the return.

      Note:

      The presence of verbiage reading "Cleared for Assessment," "Cleared by Statute," "No Statute Issue" and "Delinquent Return Cleared by Statute" are all indicators the return has been cleared by the Statute Unit.

    2. If the return does not have a Statute Control stamp, IRM 3.11.3.57.2(3).

      Note:

      Do not send returns to Statute Control for clearance if there are no money amounts present with an indication of "SFR/6020(b)," "Secured by Exam or Collections," "Dummy return," notated or "TC 59X-XX" is present on the return.

3.21.3.68.3  (01-01-2009)
Prior Year Return Editing Procedures

  1. Follow the current year procedures when no specific instructions are given.

  2. Renumber or convert all T-lines to agree with current year forms and schedules.

    1. Renumbering—Mark out the line number(s) on the prior year form/schedule and edit the current year T-line number(s).

    2. Converting—Convert to a current year form or use a conversion sheet (Form 13899, Prior Year Conversion Sheet for Form 1040NR or Form 6114 for Form 1040) if marking out the line numbers would make transcription more difficult.

      Note:

      Use current year forms and schedules when renumbering is not practical.

  3. Line references in these prior year instructions are to the current year line numbers, unless otherwise specified.

  4. Take one of the following actions when the instruction for a current year T-line on a prior year return is "take no action" :

    1. "X" the amount when present on a current year T-line.

    2. Do not renumber the line as a T-line when renumbering a prior year form/schedule.

    3. Do not edit the amount to the Form 6114 or blank current year form when converting.

  5. When editing from prior year Forms W-2, ensure correct amounts are transferred by referring to box titles in addition to box numbers.

3.21.3.68.3.1  (01-01-2009)
Form 1040 -- Page 1 and 2

  1. This subsection includes instructions for:

    1. Social Security Benefits

    2. Other Income

      Note:

      Refer to IRM 3.11.3 for other prior year instructions for Page 1 and 2 of Form 1040.

      Caution:

      If there are no prior year instructions in IRM 3.11.3, refer to current year line-by-line instructions in IRM 3.21.3 for International procedures.

3.21.3.68.3.1.1  (01-01-2009)
Income -- Lines 7 Through 21

  1. Follow the instructions in both IRM 3.21.3 and IRM 3.11.3 using both prior year and current year instructions.

3.21.3.68.3.1.1.1  (01-01-2009)
Line 20a & 20b -- Total and Taxable Social Security Benefits

  1. "X" an amount for Social Security Benefits when the taxpayer is a U.S. citizen residing in one of the following countries:

    • Canada

    • Egypt

    • Germany

    • Ireland

    • Israel

    • Italy (must also be a citizen of Italy for the exemption to apply)

    • Romania

    • United Kingdom (includes notations of Great Britain, England, Northern Ireland, Scotland, and Wales)

3.21.3.68.3.1.1.2  (01-01-2009)
Line 21 -- Other Income

  1. If the taxpayer includes an amount on line 21 for Self-Employment Income or attaches form 1099 MISC and Form 2555/2555–EZ is attached to exclude the Form 1099 MISC or the Self-Employment Income, edit the Form 1099 MISC or Self-Employment Income to line 7.

  2. If the amount claimed is $434 or more and Schedule SE is not attached or if the taxpayer resides in one of the countries below, edit RPC"S" .

    1. Australia (Effective 10/1/02)

    2. Austria

    3. Belgium

    4. Canada

    5. Chile

    6. Finland

    7. France

    8. Germany

    9. Greece

    10. Ireland

    11. Italy

    12. Japan

    13. Luxembourg

    14. Netherlands

    15. Norway

    16. Portugal

    17. South Korea

    18. Spain

    19. Sweden

    20. Switzerland

    21. United Kingdom (includes notations of Great Britain, England, Northern Ireland, Scotland, and Wales)

    Note:

    Do NOT edit RPC "S" if the FS is "2."

  3. In all other cases, if the amount claimed is $434 or more and Schedule SE is not attached, edit RPC "N" .

  4. Most treaties have exemptions for specific categories of income for which resident aliens may claim treaty benefits. The exceptions generally not available to resident aliens who are green card holders. China, for tax year 2006 and prior former Soviet Republics still governed by the Soviet Treaty, Pakistan, and Greece are the only countries that permit green card holders to claim treaty exemptions on Form 1040. If the treaty claimed is:

    1. Valid - allow by editing the exempt income to line 21 as a negative amount and verify that the income is reported on the appropriate income line.

    2. Invalid - disallow by "X" -ing the exempt income where found and ensure that the income is reported on the appropriate line.

      Note:

      Follow the procedures in (b) above if any country other than those listed above claims a treaty on Form 1040.

3.21.3.68.3.1.2  (01-01-2009)
Adjustments to Income -- Lines 23 through 37

  1. Follow the instructions in both IRM 3.21.3 and IRM 3.11.3 using both prior year and current year instructions.

3.21.3.68.3.1.2.1  (01-01-2009)
Educator Expenses

  1. For TY 2006 only, edit Special Processing Code "B" when the taxpayer notates that only Educator Expenses are present on line 23.

  2. For TY 2006 only, edit Special Processing Code "E" when the taxpayer notates that both Educator Expenses and Archer MSA Deduction are present on line 23.

  3. "X" the Educator Expenses for TY 2001 and prior.

3.21.3.68.3.1.2.2  (01-01-2009)
Medical Savings Account Deduction

  1. For TY 2006 only, edit Special Processing Code "E" when the taxpayer notates that both Educator Expenses and Archer MSA Deduction are present on line 23.

  2. "X" any amount claimed for the Medical Savings Account Deduction for TY 1996 and prior.

3.21.3.68.3.1.2.3  (01-01-2009)
Health Savings Account Deduction

  1. "X" the Health Savings Account deduction for TY 2003 and prior.

3.21.3.68.3.1.2.4  (01-01-2009)
Tuition and Fees

  1. For TY 2006 only, edit Special Processing Code "C" when the taxpayer has notated that only Tuition and Fees is present on line 35.

  2. For TY 2006 only, edit Special Processing Code "F" when that taxpayer has notated that BOTH Tuition and fees and Domestic Production Activities are present on line 35.

  3. "X" a claim for Tuition and Fees deduction for TY01 and prior.

3.21.3.68.3.1.2.5  (01-01-2009)
Domestic Production Activities Deduction (Form 8903)

  1. For TY 2006 only, edit Special Processing Code "F" when that taxpayer has notated that BOTH Tuition and fees and Domestic Production Activities are present on line 35.

  2. "X" a claim for Domestic Production Activities Deduction for TY04 and prior.

  3. Form 8903 must be attached if there is an amount present on line 35 and significant entries are present on lines 12, 17 and/or 18. Correspond if missing.

3.21.3.68.3.1.2.6  (01-01-2009)
Student Loan Interest

  1. "X" the Student Loan Interest for tax year 1997 and prior.

3.21.3.68.3.1.3  (01-01-2009)
Foreign Tax Credit

  1. If the taxpayer used the same amount on Form 1116 (Gross Income from Sources in a Foreign Country) that they excluded on Form 2555/2555-EZ (Foreign Earned Income), then adjust Form 1116 by subtracting the greater of Foreign Earned Income Exclusion or the combined Foreign Earned Income Exclusion and Housing Exclusion (Form 2555 only) from Gross Income from Foreign country on Form 1116. See table below for correct lines to use in the computation:

    Tax Year Form 2555 Form 2555–EZ Form 1116
    2007/2006

    • Line 26 -- Foreign Earned Income

    • Line 42 -- Foreign Earned Income Exclusion

    • Line 45 -- Combined Foreign Earned Income Exclusion and Housing Exclusion

    		 Line 18 -- Foreign Earned Income Exclusion Line 1a -- Gross Income from Sources in a Foreign Country
    2005 — 1997

    • Line 26 -- Foreign Earned Income

    • Line 40 -- Foreign Earned Income Exclusion

    • Line 43 -- Combined Foreign Earned Income Exclusion and Housing Exclusion

    		 Line 18 -- Foreign Earned Income Exclusion Line 1 -- Gross Income from Sources in a Foreign Country

  2. Taxpayers earning income from Cuba, Iran, North Korea, Sudan and Syria are not allowed to take a foreign tax credit for foreign taxes paid. See IRM 3.21.3.13.4.4. for complete processing instructions.

  3. Taxpayers earning income in the following countries are not allowed to take credit for foreign taxes paid, unless the return was filed between the start and end dates according to the table below:

    Country Name Start Date End Date
    Afghanistan January 1, 1987 August 4, 1994
    Albania January 1, 1987 March 15, 1991
    Angola January 1, 1987 June 18, 1993
    Cambodia January 1, 1987 August 4, 1994
    Iraq February 1, 1991 June 27, 2004
    Libya January 1, 1987 December 9, 2004
    South Africa January 1, 1988 July 10, 1991
    Vietnam January 1, 1987 July 21, 1995
    People's Democratic Republic of Yemen January 1, 1987 May 22, 1990

3.21.3.68.3.1.4  (01-01-2009)
Excess Social Security Tax (SST)

  1. Review Forms W-2 to ensure that the withholding amounts claimed by the taxpayer are U.S. Withholding (Federal Income Tax Withheld).

3.21.3.68.3.1.5  (01-01-2009)
Line 66 -- Additional Child Tax Credit

  1. If the taxpayer is a resident of Puerto Rico, reporting income earned in Puerto Rico (W-2PR) and claiming additional child tax credit:

    1. "X" the income where reported.

    2. See IRM 3.21.3.62.10.8 for complete processing instructions.

      Note:

      As of January 2002 the only U.S. Possession allowed to claim Additional Child Tax Credit is Puerto Rico. If the taxpayer is a Bona Fide Resident of Puerto Rico and is using either Form 1040/A in lieu of Form 1040–PR/SS, Do not convert Form 1040/A to Form 1040–PR.

3.21.3.68.3.2  (01-01-2009)
Schedule A -- Itemized Deductions

  1. Included on line 8 will be income tax that was paid to a foreign country or U.S. Possession.

    Caution:

    A Foreign Tax Deduction is not the same as a Foreign Tax Credit.

  2. For TY 2006 only, edit Special Processing Code "D" when the taxpayer notates that State and Local Taxes are present.

3.21.3.68.3.3  (01-01-2009)
Schedule EIC -- Earned Income Credit

  1. International Forms 1040 claiming EIC - under Section 6013 (g) and 6013 (h) of the IRC, an individual (nonresident) married to a citizen or resident of the U.S., at the end of the tax year, may qualify for EIC. That is, provided all eligibility requirements are met. If eligible, Schedule EIC must be attached.

3.21.3.68.3.4  (01-01-2009)
Form 2555 -- Foreign Earned Income Exclusion

  1. The instructions below are the specific procedures relating to prior year changes associated with Form 2555. See IRM 3.21.3.54 for complete Form 2555 instructions.

  2. U.S. citizens or resident aliens of the United States living abroad are taxed on worldwide income and may qualify to exclude their foreign earnings. In addition, they can exclude or deduct certain foreign housing amounts. The maximum foreign earned income exclusion for prior years:

    1. $85,700 for 2007

    2. $82,400 for 2006

    3. $80,000 for 2002 – 2005

    4. $78,000 for 2001

    5. $76,000 for 2000

    6. $74,000 for 1999

    7. $72,000 for 1998

    8. $70,000 for 1987 – 1997

  3. For Tax Years 199612 through 200512:

    1. Change line 40 to 42.

    2. Change line 43 to 45.

    3. Change line 48 to 50.

  4. 8112 through 7912 Tax Year: Dummy to a current year form.

  5. For TY 1991 and prior, Form 2555–EZ is not allowed. Convert to Form 2555, unless a condition exists for corresponding for Form 2555.

3.21.3.68.3.5  (01-01-2009)
Prior Year Correspondence

  1. No reply to correspondence.

    1. 1979 through 1995 tax years, "X" Form 2555, "X" line 21 and or entry on dotted portion , line 36 Form 1040.

3.21.3.68.3.6  (01-01-2009)
Form 2555-EZ

  1. The instructions below are the specific procedures relating to prior year changes associated with Form 2555–EZ. See IRM 3.21.3.54.11 for complete Form 2555–EZ instructions.

  2. For TY 1991 and prior, Form 2555–EZ is not allowed. Convert to Form 2555 unless a condition exists for corresponding for Form 2555.

3.21.3.68.3.7  (01-01-2009)
Forms 1040-PR and 1040-SS -- General Instructions

  1. Use the following table, along with job aid when coding prior Form 1040–PR/SS tax returns:

    1997 - 2000 2001 2002 - 2006 2007
    No Filing Status Filing Status -- page 1 Filing Status -- page 1 Filing Status -- page 1
    No Dependents Dependents - page 4 Dependents - page 1 Dependents - page 1
    No ACTC ACTC -- page 5 ACTC -- page 2 ACTC -- page 2
    Self-Employment Tax -- page 1, line 12 Self-Employment Tax -- page 1, line 12 Self-Employment Tax -- page 1, line 3 Self-Employment Tax -- page 1, line 3
    Schedule H -- page 1, line 13 Schedule H -- page 1, line 13 Schedule H -- page 1, line 4 Schedule H -- page 1, line 4
    Total Tax -- page 1, line 14 Total Tax -- page 1, line 14 Total Tax -- page 1, line 5 Total Tax -- page 1, line 5
    Estimated Payments -- page 1, line 15 Estimated Payments -- page 1, line 15 Estimated Payments -- page 1, line 6 Estimated Payments -- page 1, line 6
    No Excess Social Security Excess Social Security -- page 1, line 16 Excess Social Security -- page 1, line 7 Excess Social Security -- page 1, line 7
    No ACTC ACTC -- page 1, line 17 ACTC -- page 1, line 8 ACTC -- page 1, line 8
    No Health Coverage Tax Credit No Health Coverage Tax Credit Health Coverage Tax Credit -- line 9 (2003 - 2006) Health Coverage Tax Credit -- line 9
    No Total Payments Total Payments -- page 1, line 18 Total Payments -- page 1, line 10 Total Payments -- page 1, line 10
    Refund Line -- page 1, line 17 Refund Line -- page 1, line 20 Refund Line -- page 1, line 11 Refund Line -- page 1, line 12a
    No Direct Deposit No Direct Deposit No Direct Deposit Direct Deposit -- page 1, lines 12b - 12d (2007 ONLY)
    Estimated Tax Payments -- page 1, line 18 Estimated Tax Payments -- page 1, line 21 Estimated Tax Payments -- page 1, line 12 Estimated Tax Payments -- page 1, line 13
    Amount You Owe -- page 1, line 19 Amount You Owe -- page 1, line 22 Amount You Owe -- page 1, line 13 Amount You Owe -- page 1, line 14

3.21.3.68.3.7.1  (01-01-2009)
Filing Status

  1. The FS must always be edited. See IRM 3.21.3.62.10.1 for complete editing instructions.

3.21.3.68.3.7.2  (01-01-2009)
Line 8 -- Additional Child Tax Credit (ACTC)

  1. "X" line 8 and all dependents if there is an amount present and the address is not Puerto Rico.

    Reminder:

    As of January 2002 the only U.S. Possession allowed to claim Additional Child Tax Credit is Puerto Rico. If the taxpayer is a Bona Fide Resident of Puerto Rico and is using either Form 1040/A in lieu of Form 1040–PR/SS, Do not convert Form 1040/A to Form 1040–PR.

3.21.3.68.3.8  (01-01-2009)
Part V (Self-Employment Tax)

  1. Only two Parts V can be processed. One for the primary and one for the secondary.

  2. The sequence code must always be edited in the upper right corner of Part V. Edit "17" for the primary or if one Part V is present and "18" for the secondary.

  3. A TIN must be present.

  4. If line 1 is blank, edit the amount form line 36, Part III.

  5. If line 2 is blank, edit the amount form line 27, Part IV.

3.21.3.68.3.8.1  (01-01-2009)
Line 12 -- SE Tax

  1. If blank, compute and enter by adding lines 10 and 11.

  2. If line 10 and/or line 11 is blank, take the following actions:

    1. If line 10 is blank, multiply the smaller of line 6 or 9 by .124

    2. If line 11 is blank, multiply line 6 by .029

    3. Add line 10 and 11 and edit the amount to line 12

3.21.3.68.3.9  (01-01-2009)
Prior Year (PY) Form 1040-PR/1040-SS

  1. Follow the instructions in the job aid for any line changes.

  2. When computing or verifying Part V, line 8c entry for years 2005 through 1991 use the table below to determine the maximum Social Security and Medicare Wage amount:

    Tax Year Maximum Social Security Wage Maximum Medicare Wage
    07 $97,500 N/A
    06 $94,200 N/A
    05 $90,000 N/A
    04 $87,900 N/A
    03 $87,000 N/A
    02 $84,900 N/A
    01 $80,400 N/A
    00 $76,200 N/A
    99 $72,600 N/A
    98 $68,400 N/A
    97 $65,400 N/A
    96 $62,700 N/A
    95 $61,200 N/A
    94 $60,600 N/A
    93 $57,600 $135,000
    92 $55,500 $130,200
    91 $53,400 $125,000

3.21.3.68.3.10  (01-01-2009)
Form 1040NR/NR-EZ -- General Information

  1. Use the following table, along with job aid when coding prior Form 1040NR-EZ tax returns:

    Line Titles 1995 1996 – 1997 1998 - 2000 2001 - 2005 2006 2007
    Student Loan Interest Deduction N/A N/A Line 8 Line 8 -- For 2005 only, line 9 is Student Loan Interest Line 9 Line 9
    Scholarship/Fellowship Exclusion Line 8 Line 8 Line 9 Line 9 -- For 2005 only, line 8 is for Scholarship Exclusion Line 8 Line 8
    AGI Line 9 Line 9 Line 10 Line 10 Line 10 Line 10
    Itemized Deductions Line 10 Line 10 Line 11 Line 11 Line 11 Line 11
    Taxable Income Line 13 Line 13 Line 14 Line 14 Line 14 Line 14
    Tax Line 14 Line 14 Line 15 Line 15 Line 15 Line 15
    Form 4137 Line 15 Line 15 Line 16 Line 16 Line 16 Line 16 -- Form 4137/8919
    Schedule H Line 16 Line 16 Line 17 N/A N/A N/A
    Total Tax Line 17 Line 17 Line 18 Line 17 Line 17 Line 17
    W-2, 1042-S Line 18 Line 18 Line 19 Line 18 Line 18 Line 18
    Estimated Payments Line 19 Line 19 Line 20 Line 19 Line 19 Line 19
    1040-C Line 20 Line 20 Line 21 Line 20 Line 20 Line 20
    Total Payments Line 21 Line 21 Line 22 Line 21 Line 22 Line 21
    FTET N/A N/A N/A N/A Line 21 N/A
    Refund Line 23 Line 23a Line 24a Line 23a Line 24a Line 23a
    Applied Estimated Tax Line 24 Line 24 Line 25 Line 24 Line 25 Line 24
    Amount You Owe Line 25 Line 25 Line 26 Line 25 Line 26 Line 25
    Estimated Tax Penalty Line 26 Line 26 Line 27 Line 26 Line 27 Line 26
    Direct Deposit N/A Available Available Available Available Available

  2. The following table contains the T-lines that affect page 1, Form 1040NR:

    1997 -- 2007
    TIN
    Caption
    Country Code
    Computer Condition Codes
    Filing Status
    DSI
    Exemptions
    Line 8 -- Wages
    Line 9a -- Taxable Interest
    Line 9b -- Tax Exempt Interest
    Line 10a -- Ordinary Dividends
    Line 10b -- Qualified Dividends (2003, 2004, 2005, 2006 and 2007 only)
    Line 11 -- Taxable Refunds
    Line 12 -- Scholarship/Fellowship Grant
    Line 13 -- Schedule C-C-EZ
    Line 14 -- Schedule D
    Line 14b -- Post May 5th Capital Gain (2003 only)
    Line 15 -- Form 4797
    Line 16b -- IRA Distributions
    Line 17b -- Pensions/Annuities
    Line 18 -- Schedule E
    Line 19 -- Schedule F
    Line 20 -- Unemployment Compensation
    Line 21 -- Other Income
    Line 22 -- Total Income Exempt by a Treaty
    Line 23 -- Total effectively Connected Income

  3. The following table contains prior year line information for the Adjusted Gross Income of page 1, Form 1040NR;

    Line Description 1997 1998 -- 2001 2002 2003 2004 2005 2006 2007
    Educator Expenses N/A N/A Line 24 Line 24 Line 24 Line 24 N/A Line 24
    IRA Deduction Line 24 Line 24 Line 25 Line 25 Line 25 Line 31 Line 31 Line 31
    Student Loan Interest Deduction N/A Line 25 Line 26 Line 26 Line 26 Line 32 Line 32 Line 32
    Form 8889 N/A N/A N/A N/A Line 27 Line 25 Line 25 Line 25
    Form 8853 Line 25 Line 26 Line 27 N/A N/A N/A Line 24 N/A
    Moving Expenses Line 26 Line 27 Line 28 Line 27 Line 28 Line 26 Line 26 Line 26
    Self employed Health Insurance Line 27 Line 28 Line 29 Line 28 Line 29 Line 28 Line 28 Line 28
    SEP Line 28 Line 29 Line 30 Line 29 Line 30 Line 27 Line 27 Line 27
    Penalty on Early withdrawal Line 29 Line 30 Line 31 Line 30 Line 31 Line 29 Line 29 Line 29
    Scholarship/Fellowship Exclusion Line 30 Line 31 Line 32 Line 31 Line 32 Line 30 Line 30 Line 30
    Domestic Production Activities N/A N/A N/A N/A N/A Line 33 Line 33 Line 33
    Total Adjustments Line 31 Line 32 Line 33 Line 32 Line 33 Line 34 Line 34 Line 34
    AGI Line 32 Line 33 Line 34 Line 33 Line 34 Line 35 Line 35 Line 35

  4. The following table contains the prior year line information for the Tax, Credits and Other Taxes of page 2, Form 1040NR;

    Line Description 1997 1998 -- 1999 2000 – 2001 2002 2003 2004 2005 2006 2007
    Taxable Income Line 37 Line 38 Line 38 Line 39 Line 38 Line 39 Line 40 Line 40 Line 40
    Tax Line 38 Line 39 Line 39 Line 40 Line 39 Line 40 Line 41 Line 41 Line 41
    Form 6251 Line 45 Line 47 Line 40 Line 41 Line 40 Line 41 Line 42 Line 42 Line 42
    Form 2441 Line 39 Line 40 Line 43 Line 44 Line 43 Line 44 Line 45 Line 45 Line 44
    Form 1116 Line 41 Line 43 Line 42 Line 43 Line 42 Line 43 Line 44 Line 44 Line 46
    Form 8880 N/A N/A N/A Line 45 Line 44 Line 45 Line 46 Line 46 Line 48
    Form 5695 N/A N/A N/A N/A N/A N/A N/A Line 47 Line 45
    Child Tax Credit N/A Line 41 Line 44 Line 46 Line 45 Line 46 Line 47 Line 48 Line 47
    Form 8839 only Line 40 Line 42 Line 45 Line 47 Line 46 Line 47 Line 48 N/A N/A
    Form 3800 Line 42 Line 44 Line 46 Line 49 Line 48 Line 49 Line 50 Line 50 Line 50
    Form 8396/8839/8859 N/A N/A N/A Line 48 (8396 and 8859 only) Line 47 (8396 and 8859 only) Line 48 (8396 and 8859 only) Line 49 (8396 and 8859 only) Line 49 Line 49
    Total credits Line 43 Line 45 Line 47 Line 50 Line 49 Line 50 Line 51 Line 51 Line 51
    Page 4 Tax Line 46 Line 48 Line 49 Line 52 Line 51 Line 52 Line 53 Line 53 Line 53
    Form 4137 Line 47 Line 49 Line 50 Line 53 Line 52 Line 53 Line 54 Line 54 N/A
    Form 4137/8819 N/A N/A N/A N/A N/A N/A N/A N/A Line 54
    Form 5329 Line 48 Line 50 Line 51 Line 54 Line 53 Line 54 Line 55 Line 55 Line 55
    Schedule H Line 50 Line 52 Line 53 Line 56 Line 55 Line 56 Line 57 Line 57 Line 57
    Total Tax Line 51 Line 53 Line 54 Line 57 Line 56 Line 57 Line 58 Line 58 Line 58

  5. The following table contains the prior year information for Payments Area, along with Direct Deposit, Third Party (2001 and subsequent) and Preparer Information for page 2, Form 1040NR;

    Line Description 1997 1998 – 1999 2000 – 2001 2002 2003 2004 2005 2006 2007
    Form W-2, etc. Line 52 Line 54 Line 55 Line 58 Line 57 Line 58 Line 59 Line 59 Line 59
    Estimated Tax Payments Line 53 Line 55 Line 56 Line 59 Line 58 Line 59 Line 60 Line 60 Line 60
    Form 8812 N/A Line 56 Line 58 Line 61 Line 60 Line 61 Line 62 Line 62 Line 62
    Form 4868 Line 54 Line 57 Line 59 Line 62 Line 61 Line 62 Line 63 Line 63 Line 63
    Excess SST/RRTA Line 55 Line 58 Line 57 Line 60 Line 59 Line 60 Line 61 Line 61 Line 61
    Form 2439/4136 Line 56 Line 59 Line 60 N/A N/A N/A N/A N/A N/A
    Form 2439/4136/8885 N/A N/A N/A Line 63 Line 62 Line 63 Line 64 Line 64 Line 64
    Form 1040–C Line 57 Line 60 Line 61 Line 64 Line 63 Line 64 Line 65 Line 65 Line 65
    Withholding -- Page 4 Line 58 a Line 61 a Line 62 a Line 65 Line 64 Line 65 Line 66 Line 66 Line 66
    Form 8805 N/A N/A N/A Line 66 a Line 65 a Line 66 a Line 67 a Line 67 a Line 67 a
    Form 1042–S N/A N/A N/A Line 66 b Line 65 b Line 66 b Line 67 b Line 67 b Line 67 b
    Form 8805/ 1042-S Line 58 b Line 61 b Line 62 b N/A N/A N/A N/A N/A N/A
    Form 8288A Line 59 a Line 62 a Line 63 a Line 67 a Line 66 a Line 67 a Line 68 a Line 68 a Line 68 a
    Form 1042–S Line 59 b Line 62 b Line 63 b Line 67 b Line 66 b Line 67 b Line 68 b Line 69 b Line 68 b
    Form 8913 N/A N/A N/A N/A N/A N/A N/A Line 69 N/A
    Form 8801 N/A N/A N/A N/A N/A N/A N/A N/A Line 69
    Total Payments Line 60 Line 63 Line 64 Line 68 Line 67 Line 68 Line 69 Line 70 Line 70
    Refund Line 62 a Line 64 a Line 66a Line 70 a Line 69 a Line 70 a Line 71 a Line 72 a Line 72 a
    Direct Deposit Lines 62 b, c and d Lines 64 b, c and d Lines 66 b, c and d Lines 70 b, c and d Lines 69 b, c and d Lines 70 b, c and d Lines 71 b, c and d Lines 72 b, c and d Lines 72 b, c and d
    Estimated Tax Line 63 Line 66 Line 67 Line 71 Line 70 Line 71 Line 72 Line 73 Line 73
    Amount You Owe Line 64 Line 67 Line 68 Line 72 Line 71 Line 72 Line 73 Line 74 Line 74
    Estimated Tax Penalty Line 65 Line 68 Line 69 Line 73 Line 72 Line 73 Line 74 Line 75 Line 75

  6. The following table contains the T-lines for page 4, Form 1040NR.

    1997 76, 77
    1998 79, 80
    1999 79, 80
    2000 80, 81
    2001 80, 81
    2002 84, 85
    2003 83, 84
    2004 84, 85
    2005 85, 86
    2006 86, 87
    2007 86, 87

3.21.3.68.3.10.1  (01-01-2009)
Exclusion(s) Due to Tax Treaties

  1. If the taxpayer claims an exclusion of income or exemption from tax due to a treaty, a valid article number must be identified, Verify the validity of the treaty exemption using Exhibit 3.21.3-8.

    Exception:

    If Form 1042-S with exemption code "4" was issued by a college or university and there is no withholding present on the Form 1042-S, DO NOT correspond for treaty article number.

3.21.3.68.3.10.2  (01-01-2009)
Exemptions

  1. Exemptions are restricted by country of residence. See IRM 3.21.3.65.9.2. for instructions showing which countries and what relations are eligible to be claimed.

  2. Residents of Japan are allowed to claim exemptions for spouse, children and other dependents for tax years 2005 and prior.

3.21.3.68.3.10.3  (01-01-2009)
Educator Expense

  1. For TY 2006 only, edit Special processing Code "B" when the taxpayer notates Educator Expenses are present on line 24.

  2. For TY 2006 only, edit Special Processing Code "E" when the taxpayer notates that both Educator Expenses and Archer MSA Deduction are present on line 24.

3.21.3.68.3.11  (01-01-2009)
Gambling Winnings

  1. Gambling winnings are non-effectively connected income and are not reducible by gambling losses.

    Exception:

    Effective January 1, 1996, residents of Canada may claim losses but only to the extent of winnings.

  2. Gambling income won in the U.S. by residents of the following foreign countries is not taxable by U.S.:

    Austria (effective 1–1–2000) Luxembourg (effective 1–1–2001)
    Czech Republic Netherlands
    Denmark (effective 1–1–2001) Russian Federation
    Finland Slovak Republic
    France (effective 1–1–2000) Slovenia (effective 1–1–2001)
    Germany South Africa (effective 1–1–2000)
    Hungary Spain
    Ireland Sweden
    Italy Tunisia
    Japan (effective 2005) Turkey (effective 1–1–2000)
    Latvia (effective 1–1–2001) Ukraine (effective 1–1–2001)
    Lithuania (effective 1–1–2001) United Kingdom (includes notations of Great Britain, England, Northern Ireland, Scotland, and Wales)

    Reminder:

    If line 35 is blank, dash, zero or edited to be blank and line 53 is significant, edit RPC "J."

  3. All other countries are taxed at 30%.

  4. If gambling winnings are reported on page 1:

    1. "X" the amount on page 1.

    2. Multiply the amount of gross gambling winnings by 30% and edit the result to line 53.

    3. Do not adjust or compute line 58.

3.21.3.68.3.12  (01-01-2009)
Prior Year Form 1040NR-EZ

  1. If Form 1040NR-EZ is filed for tax years prior to 1995, correspond for Form 1040NR.

    • If no reply, convert to Form 1040NR.

3.21.3.68.3.13  (01-01-2009)
Special Returns

  1. Social Security/Railroad Retirement Benefits, See IRM 3.21.3.64.13.

    • When processing SSA/RRB 1042–S use 50% of income tax years 9412 and prior.

3.21.3.68.3.14  (01-01-2009)
Economic Stimulus Payment (ESP) Returns

  1. In 2008, legislation was passed introducing into law the Economic Stimulus Act of 2008. Some taxpayers will file an Economic Stimulus Payment return for TY 2007 or 2008. These returns should be filed on Forms 1040, 1040A or 1040EZ. Taxpayers filing for the ESP must have a valid social security number and at least $3,000 in qualifying income. This type of return can be identified by the following characteristics "Stimulus Payment" , "Stimulus Plan" , "ESP" , "Payment" , "Rebate" or similar statement may or may not be present at the top of the return.

  2. Taxpayers have been instructed to self-identify, ESP returns may also be identified by the following criteria. On a Form 1040, there are no dollar amounts on any lines 7, 20a, 22, 37 - 42 and 65b or in the Direct Deposit portion. See IRM 3.11.3 for line number information for Forms 1040A/EZ.

    Exception:

    If the return meets all the criteria as outlined in (1) above, yet contains a dollar amount on line 8a of ≡ ≡ ≡ ≡ ≡ or less for taxable interest, "X" the amount on line 8a. If the amount is ≡ ≡ ≡ ≡ ≡ ≡ ≡ or more, delete any notations of stimulus and process as a typical return.

    Caution:

    NEVER mail a return back to the taxpayer for the sole reason that they did not self- identify their ESP filing.

    Reminder:

    ESP returns are valid only for TY07 and TY08. If this is claimed for any other tax year, correspond via Form 3531 B.

  3. If the return meets all of the conditions in paragraph 1 and 2 above, edit SPC "P" .

  4. If the return contains dollar amounts on more than lines 7, 20a, 22, 37 - 42, 65b and the direct deposit information, delete the taxpayer notated statement at the top of the return and process as atypical return. Do not edit SPC "P" .

  5. Edit RPC "L" if the return meets the following criteria:

    1. The only entry present on Form 1040 is line 20a, 22, 37, 38 and/or lines 40 - 42, and/or line 65b and/or direct deposit information.

    Note:

    If you are not editing RPC "L," edit CCC "B" .

  6. If the taxpayer files and attaches supporting other forms and/or schedules, delete the taxpayer's notation of "stimulus" if present and process as a typical return.

  7. See IRM 3.11.3 for additional Stimulus procedures related to all filings.

    Caution:

    On returns filed for ESP only that meet International criteria, disregard the 3.11.3. instructions to multiply SSA amounts below $2,116.00 by 12. These returns are to be treated as ESP filings with SSA amounts of less than $3,000 per existing 3.11.3 procedures.

  8. The following OFP must be used to process International returns that are qualify for ESP:

    • 46116 -- Form 1040

    • 46136 -- Form 1040A

3.21.3.68.3.14.1  (01-01-2009)
Possession Returns filed for ESP

  1. Returns filed by taxpayers living in one of the U.S. Possessions (American Samoa (AS), Commonwealth of Northern Mariana Islands (CNMI), Guam (GU), Puerto Rico (PR) or U.S. Virgin Islands (USVI)) cannot claim the ESP form the IRS and must contact their tax authority to inquire as to how to receive their Economic Stimulus Payment. Correspond via Form 3531 B if the taxpayer filed Form 1040-SS.

    Caution:

    If the taxpayer files Form 1040–PR to claim the Economic Stimulus Payment, correspond via Form 13557 (SP) box 14 using the following literal: Le estamos devolviendo su reclamacion para el Pago de la Ley de Incentivo Economico. Los contribuyentes que radicaron la Forma 1040–PR no son eligibles para el "Pago de la Ley de Incentivo Economico." Translation of literal for Form 1040–PR: We are returning your claim for the Economic Stimulus Payment. Taxpayers who file Form 1040–PR are not eligible for the "Economic Stimulus Payment."

3.21.3.68.3.14.2  (01-01-2009)
Foreign (Other than Possession) returns filed for ESP

  1. Taxpayers that file Form 1040NR or Form 1040NR-EZ cannot claim the Economic Stimulus Payment. If a taxpayer files Form 1040NR/NR-EZ to claim the ESP, correspond with the taxpayer via Form 3531 B.

3.21.3.68.3.14.3  (01-01-2009)
ESP filed with Form SSA-1042S

  1. Taxpayers that file for ESP based on income form SSA-1042S are not eligible for the rebate. Correspond with the taxpayer via Form 3531 B. If after corresponding and the taxpayer sends the ESP return back to the IRS, process as follows:

    • Edit CCC "3" and "X" any amount of gross Social Security claimed anywhere on the return.

    • If the taxpayer is asking for their withholding to be refunded, treat the return as "non-stimulus" and correspond for a Green Card and Declaration.

3.21.3.68.3.15  (01-01-2009)
Form 1040EZ-T

  1. Take the following actions to process claims for Telephone Excise Tax Credit.

    1. If Form 1040EZ-T claims an amount for $99 or less, see IRM 3.11.3.56.1(4).

    2. If Form 1040EZ-T claims an amount between $100 - $399 and Form 8913 is not present, correspond via Form 3531-A (rev. 9-2008), sending the return back to the taxpayer to request only the missing Form 8913.

    3. If Form 1040EZ-T claims $400 or more, Form 8913 and substantiating phone bills must be present. If either are missing correspond via Form 3531-A (rev. 9-2008), sending the return back to the taxpayer to request the Form 8913 and the required phone bills.

    4. Correspond for a missing primary or secondary SSN only when requesting other information.

  2. Take the following actions in regard to "no-reply" procedures for Forms 1040EZ-T.

    1. If the taxpayer resubmits the Form 1040EZ-T without the requested information or with less than 12 telephone bills attached, process the Form 1040EZ-T allowing the standard amounts of $30/$40. Prepare Form 3696 and send letter 106C. Edit "AC 211" on the return.

      Note:

      For the purposes of processing Forms 1040EZ-T, "single" filing status is defined as when only one name is present in the entity area of the form; "married" is defined as when two names are present in the entity area of the form.

    2. If the taxpayer resubmits the Form 1040EZ-T with at least 12 telephone bills attached, forward the return to:
      Internal revenue Service
      333 W. Pershing Road
      4100 Stop P3 Exam Operations
      Kansas City, MO 64108

    3. If the taxpayer fails to provide a SSN, forward the return to Entity for assignment of an IRSN.

Exhibit 3.21.3-1  (01-01-2009)
Province, State and Territory Abbreviations

Australia State Abbreviation
Australian Capital Territory ACT
New South Wales NSW
Northern Territory NT
Queensland QLD
South Australia SA
Tasmania TAS
Victoria VIC
Western Australia WA
Brazil State Abbreviation
Acre AC
Alagoas AL
Amapa AP
Amazonas AM
Bahia BA
Ceara CE
Distrito Federal DF
Espirito Santo ES
Goias GO
Maranhao MA
Mato Grosso MT
Mato Grosso do Sul MS
Minas Gerais MG
Para PR
Paraiba PB
Parana PA
Pernambuco PE
Piaui PI
Rio de Janiero RN
Rio Grande do Norte RS
Rio Grande do Sul RJ
Rondonia RO
Roraima RR
Santa Catarina SC
Sao Paulo SE
Sergipe SP
Tocantins TO
Canada Province/Territory Abbreviation
Alberta AB
British Columbia BC
Manitoba MB
New Brunswick NB
Newfoundland and Labrador NL
Northwest Territories NT
Nova Scotia NS
Nunavut NU
Ontario ON
Prince Edward Island PE
Quebec QC
Saskatchewan SK
Yukon YT
Cuba Provincias Abbreviation
Camaguey CG
Ciego de Avila CA
Cienfuegos CF
Ciudad de La Habana CH
Granma (Bayamo) GR
Guantanamo GT
Holguin HO
La Habana HA
Matanzas MT
Municipio Especial Isla de la Juventud IJ
Pinar del Rio PR
Sancti Spiritus SS
Santiago de Cuba SC
(Victoria de) Las Tunas LT
Villa Clara VC
Italy Provincia Abbreviation
Agrigento AG
Alessandria AL
Ancona AN
Aosta/Aoste AO
Arezzo AR
Ascoli Piceno AP
Asti AT
Avellino AV
Bari BA
Belluno BL
Benevento BN
Bergamo BG
Biella BI
Bologna BO
Bolozano/Bolzen BZ
Brescia BS
Brindisi BR
Cagliari CA
Caltanisetta CL
Campobasso CB
Caserta CE
Catania CT
Catanzaro CZ
Chieti CH
Como CO
Cosenza CS
Cremona CZ
Crotone KR
Cuneo CN
Enna EN
Ferrara FE
Firenze FI
Foggia FG
Forli-Cesena FO
Frosinone FR
Genova GE
Gorizia GO
Grosseto GR
Imperia IM
Isernia IS
L'Aquila AQ
La Spezia SP
Latina LT
Lecce LE
Lecco LC
Livorno LI
Lodi LO
Lucca LU
Macerata MC
Mantova MN
Massa-Carrara MS
Matera MT
Messina ME
Milano MI
Modena MO
Napoli NA
Novara NO
Nuoro NU
Oristano OR
Padova PD
Palermo PA
Parma PR
Pavia PV
Perugia PG
Pesaro-Urbino PS
Pescara PE
Piacenza PC
Pisa PI
Pistoia PT
Pordenone PN
Potenza PZ
Prato PO
Ragusa RG
Ravenna RA
Reggio Calabria RC
Reggio Emilia RE
Rieti RI
Rimini RN
Roma RM
Rovigo RO
Salerno SA
Sassari SS
Savona SV
Siena SI
Siracusa SR
Sondrio SO
Taranto TA
Teramo TE
Terni TR
Torino TO
Trapani TP
Trento TN
Treviso TV
Trieste TS
Udine UD
Varese VA
Venezia VE
Verbano-Cusio-Ossola VB
Vercelli VC
Verona VR
Vibo Valentia VV
Vicenza VI
Viterbo VT
Mexico State Abbreviation
Aguascalientes AGS
Baja California BCN
Baja California Sur BCS
Campeche CAM
Chiapas CHIS
Chihuahua CHIH
Coahuila COAH
Colima COL
Distrito Federal DF
Durango DGO
Guanajuato GTO
Guerrero GRO
Hidalgo HGO
Jalisco JAL
Mexico MEX
Michoacan MICH
Morelos MOR
Nayarit NAY
Nuevo Leon NL
Oaxaca OAX
Puebla PUE
Queretaro QRO
Quintana Roo QROO
San Luis Potosi SLP
Sinaloa SIN
Sonora SON
Tabasco TAB
Tamaulipas TAMPS
Tlaxcala TLAX
Veracruz VER
Yucatan YUC
Zacatecas ZAC
The Netherlands Province Abbreviation
Drenthe DR
Flevoland FLD
Friesland FR
Gelderland GLD
Groningen GN
Limburg LB
North Brabant NB
North Holland NH
Overijssel OV
South Holland ZH
Utrecht UT
Zeeland SLD

Exhibit 3.21.3-2  (01-01-2009)
U.S. Possession Zip Codes

City ZIP Code City ZIP Code
American Samoa (AS) Federated States of Micronesia (FM)
Faga'itua 96799 Chuuk 96942
Leone 96799 Kosrae 96944
Olosega Manua' 96799 Pohnpei 96941
Pago Pago 96799 Yap 96943
Marshall Islands (MH) Palau (PW)
Ebeye 96970 Koror 96940
Majuro 96960 Palau 96940
Northern Mariana Islands (MP) Virgin Islands (VI)
Capitol Hill 96950 Charlotte Amalie 00802
Rota 96951 Christiansted 00820
Saipan 96950 Cruz Bay 00830
Tinian 96952 Downtown 00840
Guam (GU) Frederiksted 00840
Hagatna 96910 Kingshill 00850
Inarajan 96917 Saint Croix 00820
Merizo 96916 Saint John 00830
Tamuning 96931 Saint Thomas 00805
Umatac 96915 Sunny Isle 00850
Yona 96915 Veterans Annex 00820
Puerto Rico (PR)
Adjuntas 00601 La Plata 00786
Aguada 00602 Lares 00669
Aguadilla 00603 Las Marias 00670
Aguas Buenas 00703 Las Piedras 00771
Aguirre 00704 Levittown 00950
Aibonito 00705 Loiza 00772
Anasco 00610 Loiza ST 00936
Angeles 00611 Luquillo 00773
Arecibo 00612 Manati 00674
Arroyo 00714 Maricao 00606
Bajadero 00616 Maunabo 00707
Barceloneta 00617 Mayaguez 00680
Barranquitas 00794 Mercedita 00715
Bo Obrero 00935 Minillas 00940
Bayamon 00956 Moca 00676
Boqueron 00622 Morovis 00687
Cabo Rojo 00623 Naguabo 00718
Caguas 00725 Naranjito 00719
Camuy 00627 Orocovis 00720
Canovanas 00729 Palmer 00721
Caparra Heights 00920–00922 Patillas 00723
Carolina 00979–00987 Penuelas 00624
Catano 00962 Ponce 00731
Cayey 00736 Puerta de Tierra 00906
Ceiba 00735 Puerta Real 00740
Ciales 00638 Quebradillas 00678
Coamo 00769 Rincon 00677
Comerio 00782 Rio Blanco 00744
Corozal 00783 Rio Piedras 00925, 27, 28
Coto Laurel 00780 Rosario 00636
Culebra 00775 Sabana Grande 00637
Dorado 00646 Sabana Hoyos 00688
Ensenada 00647 Sabana Seca 00952
Fajardo 00738 Salinas 00751
Fernandez Juncos 00909–00910 San Antonio 00690
Fort Buchanan 00934 San German 00683
Garrochales 00652 San Juan 00936
Guanica 00653 San Lorenzo 00754
Guayama 00784 San Sebastian 00685
Guayanilla 00656 Santa Isabel 00757
Guaynabo 00965–00971 Santurce 00907–00908
Gurabo 00778 Toa Alta 00953
Hatillo 00660 Toa Baja 00949
Hato Rey STA 00917–00919 Trujillo Alto 00976
Humacao 00791 Utuado 00641
Isabela 00662 Vega Alta 00692
Jayuya 00664 Vega Baja (box 1-9049) 00694
Juana Diaz 00795 Vieques 00765
Juncos 00777 Villalba 00766
Lajas 00667 Yauco 00698

Exhibit 3.21.3-3  (01-01-2009)
Country & POD Codes

Foreign Country Country Code
Afghanistan AF
Albania AL
Algeria AG
Andorra AN
Angola AO
Anguilla AV
Antarctic Lands FS
Antarctica AY
Antigua AC
Antigua & Barbuda AC
Argentina AR
Armenia* AM
Aruba AA
Ashmore Island AT
Ashmore & Cartier Islands AT
Australia AS
Austria AU
Azerbaijan* AJ
Bahamas BF
Bahrain BA
Baker Island FQ
Balearic Islands (Spain) SP
Bangladesh BG
Barbados BB
Barbuda AC
Bassas da India BS
Belarus* BO
Belgium BE
Belize BH
Benin BN
Bermuda BD
Bhutan BT
Bolivia BL
Bonaire (Netherland Antillies) NT
Bosnia-Herzegovina BK
Botswana BC
Bouvet Island BV
Brazil BR
British Indian Ocean Territory IO
British Virgin Islands VI
Brunei BX
Bulgaria BU
Burkina Faso (Upper Volta) UV
Burma/Myanmar BM
Burundi BY
Caicos Islands TK
Cambodia CB
Cameroon CM
Canada CA
Cape Verde CV
Cartier Island AT
Cayman Islands CJ
Central African Republic CT
Chad CD
Chile CI
China CH
Christmas Island KT
Clipperton Islands IP
Cocos Island (Keeling Island) CK
Colombia CO
Comoros CN
Congo, Republic of (Brazzaville) CF
Congo, Democratic Republic of (Kinshasa) CG
Cook Islands CW
Coral Sea Islands Territory CR
Costa Rica CS
Cote d'Ivoire (Ivory Coast) IV
Croatia HR
Cuba CU
Curacao (Netherland Antillies) NT
Cyprus CY
Czech Republic EZ
Dem. People's Rep. of Korea (North) KN
Dem. Rep. of Congo (Kinshasa) CG
Denmark DA
Djibouti DJ
Dominica DO
Dominican Republic DR
Dubai AE
East Timor TT
Ecuador EC
Egypt EG
El Salvador ES
Eleuthera Island (Bahamas) BF
Equatorial Guinea EK
Eritrea ER
Estonia EN
Ethiopia ET
Europa Island EU
Falkland Islands FK
Faroe Islands FO
Fiji FJ
Finland FI
France FR
French Guiana FG
French Polynesia FP
French Southern & Antarctic Lands FS
Futuna WF
Gabon GB
Gambia GA
Gaza Strip GZ
Georgia* GG
Germany GM
Ghana GH
Gibraltar GI
Glorioso Islands GO
Great Britain UK
Greece GR
Greenland GL
Grenada GJ
Grenadines VC
Guadeloupe GP
Guatemala GT
Guernsey GK
Guinea GV
Guinea-Bissau PU
Guyana GY
Haiti HA
Heard Island & McDonald Island HM
Holy See VT
Honduras HO
Hong Kong HK
Howland Island HQ
Hungary HU
Iceland IC
India IN
Indonesia ID
Iran IR
Iraq IZ
Ireland EI
Isle of Man IM
Israel IS
Italy IT
Jamaica JM
Jan Mayen JN
Japan JA
Jersey JE
Johnston Atoll JQ
Jordan JO
Juan de Nova Island JU
Kazakhstan KZ
Kenya KE
Kingman Reef KQ
Kiribati KR
Korea (North) KN
Korea (South) KS
Kurile Islands (Russia) RS
Kuwait KU
Kyrgyzstan* KG
Laos LA
Latvia LG
Lebanon LE
Lesotho LT
Liberia LI
Libya LY
Liechtenstein LS
Lithuania LH
Luxembourg LU
Macau MC
Macedonia MK
Madagascar MA
Malawi MI
Malaysia MY
Maldives MV
Mali ML
Malta MT
Martinique MB
Mauritania MR
Mauritus MP
Mayotte MF
McDonald Island HM
Mexico MX
Midway Islands MQ
Miquelon SB
Moldova* MD
Monaco MN
Mongolia MG
Montserrat MH
Morocco MO
Mozambique MZ
Myanmar/Burma BM
Namibia WA
Nauru NR
Nepal NP
Netherlands NL
Netherlands Antilles NT
Nevis SC
New Caledonia NC
New Zealand NZ
Nicaragua NU
Niger NG
Nigeria NI
Niue NE
Norfolk Island NF
North Korea KN
Northern Ireland XN
Norway NO
Oman MU
Other (country not identified elsewhere) XX
Pakistan PK
Palmyra Atoll LQ
Panama PM
Papua New Guinea PP
Paracel Islands PF
Paraguay PA
Peru PE
Philippines RP
Pitcairn Islands PC
Poland PL
Portugal PO
Principe TP
Qatar QA
Redonda (British Virgin Islands) VI
Republic of Korea (South) KS
Republic of Singapore SN
Reunion RE
Romania RO
Russia RS
Rwanda RW
Ryukyu Islands (Japan) JA
S Georgia Island SX
S Georgia Island & S Sandwich Island SX
S Sandwich Island SX
San Marino SM
Sao Tome and Principe TP
Sarawak MY
Saudi Arabia SA
Senegal SG
Serbia YI
Seychelles SE
Sierra Leone SL
Singapore SN
Slovakia LO
Slovenia SI
Solomon Islands BP
Somalia SO
South Africa SF
South Georgia Island SX
South Georgia Island & South Sandwich Island SX
South Korea KS
South Sandwich Island SX
Spain SP
Spratly Islands PG
Sri Lanka CE
St. Helena SH
St. Kitts & Nevis SC
St. Lucia ST
St. Miquelon SB
St. Pierre SB
St. Pierre & Miquelon SB
St. Vincent & Grenadines VC
Sudan SU
Suriname NS
Svalbard SV
Swaziland WZ
Sweden SW
Switzerland SZ
Syria SY
Taiwan TW
Tajikistan* TI
Tanzania TZ
Thailand TH
The Bahamas BF
The Gambia GA
The Netherlands NL
Togo TO
Tokelau TL
Tonga TN
Tortola VI
Trinidad and Tobago TD
Tromelin Island TE
Tunisia TS
Turkey TU
Turkmenistan* TX
Turks & Caicos Islands TK
Tuvalu TV
Uganda UG
Ukraine UP
United Arab Emirates AE
United Kingdom UK
Uruguay UY
Uzbekistan UZ
Vanuatu NH
Vatican City VT
Venezuela VE
Vietnam VM
Wake Island WQ
Wallis and Futuna WF
Western Sahara WI
Western Samoa WS
Windward Island VC
Yemen YM
Zaire CG
Zambia ZA
Zimbabwe ZI
All Other Countries XX
* These countries are part of the Commonwealth of Independent States (CSI)  

Exhibit 3.21.3-4  (01-01-2009)
VISAs

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Exhibit 3.21.3-5  (01-01-2009)
Withholding Tax Rates on Income Other Than Personal Service Income Under Chapter 3, Internal Revenue Code, and Income Tax Treaties - Table 1 Publication 515 and Publication 901

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Exhibit 3.21.3-6  (01-01-2009)
Compensation for Personal Services Performed in the United States Exempt from Withholding and U.S. Income Tax Under Income Tax Treaties . Table 2 Publication 515 and Publication 901

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Exhibit 3.21.3-7  (01-01-2009)
Form 8288-A and Form 13698

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Exhibit 3.21.3-8  (01-01-2009)
Prior Year Treaty Chart

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Exhibit 3.21.3-9  (01-01-2009)
Correspondence Action Sheet Instructions Form 6001

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